Foreign investment in Latin America and Caribbean falls again - UN report

Foreign direct investment (FDI) plummeted by nearly 20 percent last year, to $36.5 billion, in Latin America and the Caribbean, the only region in the world to see a decline, the United Nations economic commission for the region said today.

The sharp plunge - to well under the $88 billion in inflows posted in 1999 - was due mainly to drops in Brazil and Mexico, according to the Foreign Investment in Latin America and the Caribbean 2003 Report presented by the UN Economic Commission for Latin America and the Caribbean (ECLAC).

In recent years, South America, especially the Mercosur area, has experienced the sharpest declines in FDI, while flows have remained relatively constant in Mexico and the Caribbean Basin. Foreign firms are investing less in the region, but dividends sent abroad have not declined, holding at around $20 billion since 1997.

From 1996 to 2002, the service sector brought in almost 58 per cent of total FDI, followed by manufacturing (28 per cent) and the primary sector (15 per cent). According to ECLAC, trends in these flows have followed the dynamics of the service sector, whose behaviour has been behind strong growth in the 1990s and later its sharp decline. Most of the rise in FDI in services occurred through privatizations, although that sector started to fall in 2001, and saw a significant decline in 2002 and again last year.

ECLAC said FDI has transformed Latin America, modernizing manufacturing sectors and improving many of its services and part of its infrastructure. The study mentions Mexico's and Costa Rica's export platforms, dedicated to assembling cars and microprocessors in competitive conditions, Brazil's much improved telecommunications network, Argentina's financial services and Chile's airport services and highway networks, among others.

Despite the drop in investment from abroad, the presence of transnational firms remains important and is apparent in the enormous strength of the region's economy, ECLAC said. From 2000 to 2002, 39 per cent of the sales of the region's 500 largest firms, 55 per cent of the sales of the 100 largest manufacturing companies, 38 per cent of the 100 main service companies, 42 per cent of the exports of the 200 main exporters, and 37 per cent of the assets of the 100 largest banks are all controlled by transnational firms.