| EMBARGO The contents of this Report must not be quoted or summarized in the print, broadcast or electronic media before 13 June 2004, 13:30 São Paulo (16:30 GMT, 18:30 Geneva, 22:00 New Delhi) |
Foreign direct investment (FDI) inflows to Latin America and the Caribbean declined in 2003 for the fourth consecutive year, from $109 billion in 1999 to $49 billion in 2003. Flows slumped in 18 of the region´s 40 economies, according to the World Investment Directory: Latin America and the Caribbean 2004 (1), released today by UNCTAD. But the decline bottomed out in 2003, and prospects for the future are good.
Flows were down by 4% in 2003 and an overall 55% between 1999 and 2003 (figure 1). While there were wide variations among countries, the poor performance of some large economies dominated the regional picture. The largest recipients, Brazil and Mexico, showed respective last year. Chile and Venezuela are two countries that partly recovered the losses suffered in 2002. Some relatively smaller economies did better in 2003 (figure 2).
FDI outflows from Latin America and the Caribbean in 2003 were about $10 billion, led (apart from tax havens) by Chile and Mexico.
In addition to global factors such as deteriorating economic conditions and currency uncertainties, the region´s performance in attracting FDI can also be attributed to normalization - that is, a return to patterns preceding the FDI boom of the late 1990s. This boom was driven by privatization, especially in the services sector. The European Union and the United States accounted for the bulk of FDI inflows into Latin America and the Caribbean during the privatization process.
In terms of FDI stock, the EU and the United States accounted in 2002 for an estimated 40% and 27%, respectively, of the stock of nine countries for which the data are available. The region´s total stock was about $750 billion in 2002, compared to $200 billion in 1995.
The sectoral distribution of FDI has shifted towards services, partly as a result of privatizations in this sector. In 2002, services accounted for an estimated half of FDI in both inflows and inward stocks, mainly at the expense of manufacturing FDI (figure 3). With the substantial decline in privatization, the share of manufacturing and primary products FDI is likely to increase.
At the national level, there was a continuing trend towards increased facilitation of investment inflows.
The region´s effort to attract and benefit from FDI also manifests itself at the bilateral and regional levels, especially through bilateral investment treaties (413 treaties concluded by the end of 2002) and double taxation treaties (262 treaties concluded by the end of 2002).
The prospects of FDI flows in the short run are uncertain and depend partly on economic recovery in major home countries. Responding to a survey conducted by UNCTAD earlier this year, an almost equal number of transnational corporations (TNCs) expected FDI flows for the region to stay at the same level and to increase. In the longer run, locational experts are optimistic, with 60% saying that FDI flows to the region are likely to rise.
The World Investment Directory and its database, available online (www.unctad.org/fdistatistics), contain comprehensive information on FDI, the operations of TNCs, basic financial data on the largest TNCs, and the legal framework in which such investment takes place. It covers 36 economies in Latin America and the Caribbean.
