Foreign Direct Investment in Latin America Declines 23% in the First Half of 2014

latamForeign Direct Investment (FDI) inflows into 13 Latin American and Caribbean countries that have available data decreased by 23% during the first half of 2014 with respect to the same period last year, reaching a total of $84.071 billion dollars, the Economic Commission for Latin America and the Caribbean (ECLAC) reported. On a global level, however, FDI flows are forecast to grow 10% during 2014, mainly due to investments received by developed countries, the United Nations regional organization said.

The data unveiled corresponds to an update that ECLAC does every year to the main figures in the report Foreign Direct Investment in Latin America and the Caribbean, which was last published in May.

The absence of big corporate acquisitions during the first half of 2014 (compared with the same period last year) is one of the factors contributing to the decline in FDI towards the region. Another important element for various countries is the deceleration seen in mining investments due to lower prices for metals.

A significant part of the overall decline is concentrated in Mexico, where the purchase of the Modelo brewery in 2013 by the Belgian multinational Anheuser-Busch InBev for $13.249 billion dollars gave an exceptional boost to FDI flows. In addition, during the first half of 2014 a foreign direct investment outflow of $4.495 billion dollars resulted from AT&T’s sale of its stake in América Móvil. Beyond these atypical phenomena, Mexico kept receiving FDI flows at a similar level to that of the previous five years, with a large amount of inflows going to the export industry, particularly the automotive sector.

In Brazil, there was an 8% increase in the FDI received by the country during the first eight months of 2014 versus the same period of 2013, and official estimates indicate that the annual inflows will be similar to those of the previous year.

In Chile, FDI inflows decreased by 16% between January and August of this year, continuing the downward trend that began in 2013. The fall was especially concentrated in the mining sector, which could persist this year, although flows are likely to increase in the last months of 2014 as a result of the acquisition of energy company CGE by Spain’s Gas Natural for $3.285 billion dollars.

In Argentina, FDI registered a net outflow of $55 million dollars due in part to the disinvestment of Spanish firm Repsol in the YPF energy company. Excluding this ownership change, equity capital contributions and the reinvestment of earnings (two components of FDI) totaled $4.289 billion dollars, 20% less than the previous year. For the first half of 2014, there is no official data in this country on the third component of FDI (loans with parent companies and foreign affiliates).

Just as in Mexico and Chile, FDI inflows decreased in Peru (-18%), Costa Rica (-21%) and El Salvador (-67%). On the contrary, they grew 9% in Uruguay, 10% in Colombia and 26% in Panama, countries where these flows had already been very high in 2013. Guatemala and the Dominican Republic also showed increases in the FDI received.

Meanwhile, the outward foreign direct investment from Latin America and the Caribbean, which had decreased in 2013, grew notably during the first half of 2014. With the exception of Mexico, where outward investment flows dropped 18%, all the countries with important “translatina” companies saw their outward FDI rise.

In Brazil, outward direct investment during the first eight months of the year was positive for the first time since 2010. The negative flows seen in loans with parent companies and foreign affiliates continued at a similar pace to that of last year, which indicates that Brazilian companies’ practice of incurring debt abroad has not changed. Between January and August of 2014 these negative flows were compensated by a 48% increase in equity capital contributions.

Outward direct investment also increased slightly in Chile (8%) and significantly in Venezuela (29%), Colombia (65%) and Argentina (105%).