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Latin America and Caribbean at difficult juncture as foreign direct investment shrinks – UN

A railroad worker fixed tracks in Mexico.
Curt Carnemark/World Bank
A railroad worker fixed tracks in Mexico.

Latin America and Caribbean at difficult juncture as foreign direct investment shrinks – UN

The United Nations Latin America commission has reported that foreign direct investment (FDI) inflows to the region declined by 7.9 per cent to $167.043 billion in 2016, due to low commodity prices, sluggish economic growth and global trend of shifting investment in developed economies.

The report on 2017 Foreign Direct Investment, published annually and launched late last week by the UN Economic Commission for Latin America and the Caribbean (ECLAC) , showed the region is losing ground as a recipient of FDI, with inflows reducing for the second year in a row to levels as six years ago.

“Foreign direct investment has been an important factor for the development of export activities that are key to the growth of Latin America and the Caribbean, as well as for the creation of new sectors,” said Alicia Bárcena, ECLAC's Executive Secretary.

Despite the downward trend, FDI flows stand at 3.6 per cent of the region's gross domestic product (GDP), while the global average is 2.5 per cent, revealing the importance of transnational corporations in the region's economies.

In spite of the recession, Brazil remained the main recipient of 47 per cent FDI with a 5.7 per cent increase; while Mexico's FDI fell 7.9 per cent, it stayed at its high levels and became the second-biggest recipient.

FDI can be a key factor in technology transfer and the adoption of new management systems and business models that increase competitiveness and productivity, the report showed.

“But the big productivity gaps that persist in the region and the new technological scenarios that the fourth industrial revolution poses require new policies to harness the benefits of FDI in national processes of sustainable development,” stressed Ms. Bárcena.

Therefore, it is of great importance to review and improve the region's strategies for attracting FDI, so as to focus more on modernizing the economy and diversifying production.

The automotive industry, highlighted in the report, is experiencing the greatest revolution in its history. Mexico, of particular, is a success story under pressure.

“[Mexico] has experienced an accelerated process of transformation, going from being a low-cost platform for the assembly of low-end vehicles to being a more integrated and diversified productive chain in terms of products and technological sophistication,” explained ECLAC.

Also mentioned in the report were new investments targeting renewable energy, telecommunications, in addition to the automotive industry.