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Foreign investment in Latin America and the Caribbean, 2005
José Luis MachineaExecutive Secretary
Economic Commission for Latin America and the Caribbean
Santiago, Chile, 12 April 2006
Contents
I: Regional overview
II: Policies for attracting FDI
III: Trans-Latins
I: Regional overview
Worldwide flows of FDI, 1990-2005(Billions of dollars)
0250500750
100012501500
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
World total Developed countries Developing countries
Worldwide flows of FDI increased in 2005: US$ 896.7 billion ( 29%)
FDI inflows to developing regions(Percentages of GDP)
6
7
0
1
2
3
4
5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Latin America and the Caribbean AfricaDeveloping Asia South-East Europe and CIS
How the Latin American and Caribbean region’s share of worldwide FDI flows compares with
developing Asia’s share
25%
30%
0%
5%
10%
15%
20%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Latin America and the Caribbean Developing Asia
Following a sharp decline in the late 1990s, the share received by Latin America and the Caribbean has remained relatively stable
FDI flows to Latin America and the Caribbean, 1990-2005
(Billions of dollars)
0
10
20
30
40
50
60
70
80
90
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
South America Mexico and the Caribbean Basin Total
Total: US$ 68 billion ( 10.6%)
FDI flows to Latin America and the Caribbean, 1990-2005
(Percentages of GDP)
012345678
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
2003
2004
2005
South America Mexico and Central America Caribbean
Main recipients of FDI in Latin America and the Caribbean in 2005*
(Billions of dollars)
* Updated on 24/04/061.5301.160Ecuador2.5191.816Peru2.9571.518Venezuela (Bol. Rep.)
4.2747.1733.117
18.14618.244
2004
4.662Argentina7.209Chile
10.192Colombia15.066Brazil17.805Mexico
2005
FDI/GDP, 2005 (Percentages)
-4 -2 0 2 4 6 8 10
BoliviaParaguay
GuatemalaBrazil
HondurasVenezuela, Bol.
MexicoArgentina
El SalvadorAverage
Dominican RepublicCosta Rica
PeruUruguay
NicaraguaEcuador
Trinidad and TobagoChile
JamaicaPanama
Colombia
Latin America and the Caribbean:FDI recipient sectors,1996-2005
(Percentages)
0%10%20%30%40%50%60%70%80%90%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Services Manufactures Natural resources
Services predominateIncrease in share corresponding to manufactures
Latin America and the Caribbean: FDI sources, 1996-2005(Percentages)
United States and Europe are still the largest investorsSpain is contributing a smaller proportionIntraregional flows are small but on the rise
0%
20%
40%
60%
80%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
United States Spain Netherlands Intraregional flows Other
Top 15 non-financial TNCs in the region, by sales Firm Home country Sector
Sales, 2004
(millions US$)
% of sales in LAC Main subsidiaries
1 General Motors Corp. United States Automotive 18.8 10 Mexico, Brazil, Colombia, Argentina
2 Telefónica de España SA Spain Telecoms 17.1 45 Brazil, Chile, Peru, Mexico, Argentina
3 Wal-Mart Stores United States Commerce 14.4 5 Mexico, Brazil, Argentina, Guatemala
4 DaimlerChrysler AG Germany Automotive 14.0 8 Mexico, Brazil, Argentina5 Volkswagen AG Germany Automotive 11.8 11 Mexico, Brazil, Argentina6 Bunge United States Agribusiness 10.7 42 Brazil, Argentina
7 Endesa Spain Electricity 9.7 44 Chile, Brazil, Argentina, Peru
8 Ford Motor Co. United States Automotive 8.7 5 Mexico, Brazil, Argentina
9 Telecom Italia SpA Italy Telecoms 8.5 22 Brazil, Argentina, Chile, Bolivia
10 Delphi Automotive Systems Corporation United States Auto parts 7.0 24 Mexico, Brazil
11 AES United States Electricity 6.9 72 Brazil, Venezuela (Bol. Rep.), Chile, Argentina
12 Repsol YPF Spain Oil/gas 6.7 15 Argentina, Chile, Peru, Ecuador, Bolivia, Colombia, Brazil
13 Carrefour Group France Commerce 6.6 7 Brazil, Argentina, Mexico, Colombia
14 Royal Dutch-Shell Group Netherlands/United Kingdom Oil/gas 6.4 2 Brazil, Chile, Argentina,
Mexico
15 Unilever Netherlands/United Kingdom Home care/food 5.1 10 Brazil, Mexico,
Argentina, Chile
16 ExxonMobil Corporation United States Oil/gas 4.9 2 Brazil, Colombia, Argentina, Chile
17 Cargill, Inc. United States Agribusiness 4.8 7 Argentina, Brazil 18 Hewlett-Packard (HP) United States Computing 4.8 6 Mexico, Brazil, Argentina19 Nissan Motor Japan Automotive 4.8 6 Mexico
20 Nestlé Switzerland Agribusiness 4.7 7 Mexico, Brazil, Colombia, Chile
Exports of the top 200 export firms in the region, 1995, 2000, 2004
(Percentages)
TNCs losing market share, even in manufacturing
Primary activities
0%
25%
50%
75%
100%
1995 2000 2004
Manufactures
0%
25%
50%
75%
100%
1995 2000 2004
Total
0%
25%
50%
75%
100%
1995 2000 2004
Private local Private foreign State-owned
Sales of the top 500 non-financial firms in Latin America and the Caribbean, by type of ownership and sector, 1995, 2000, 2004
(Percentages)Manufactures
0%
25%
50%
75%
100%
1995 2000 2004
Primary activities
0%
25%
50%
75%
100%
1995 2000 2004
Services
0 %
2 5%
50 %
75%
100 %
1995 2000 2004
Total
0%
25%
50%
75%
100%
1995 2000 2004
Private local Private foreign State-ow ned
TNCs losing market share, even in manufacturingPrivate local firms on the increase
Regional overview: conclusions
FDI Inflows to Latin America and the Caribbean remained at around US$ 60 billion, but the region lost ground in relative terms
State-owned enterprises and private local firms are gaining ground among the top companies and exporters
Challenges: increasing the quantity and quality of FDI
I: Regional overview
II: Policies for attracting FDI
Attracting FDIThree policy models
Passive: based on confidence in the business environment (comparative advantages, macroeconomics, institutions, rules of the game). By definition, these policies do not distinguish between different types of investment.
Active: countries actively seek FDI through horizontal and vertical measures, including the targeting of specific companies.
Integrated: FDI is a part of productive development policy, which includes linkages, training of human resources, innovation, etc. Investment promotion agencies (IPAs) can act as catalysts for FDI if they work in coordination with other public agencies.
Characteristics of investment promotion agencies (IPAs) in Latin America and the Caribbean
Offices or representativesabroad
Date of creationor major changes
Staff(total)Budget
After2000(12)
Prior to 2000(3)
Less than US$ 500,000
(6)
Between US$ 500,000 and 1
million(3)
Over US$ 1 million
(6)
Fewer than 10 people
(5)
Between 10 and 20
people (5)
More than 20 people
(5)
No office/ rep. (6)
Mixed (mainly exports)
(6)
For investment
only (3)
Development of IPAs in the region
Policies for attracting FDI are at an early stage (most of the region’s existing IPAs were created since 2000)
Functions of the region’s IPAs are similar to those in other parts of the world, but their actions are “reactive” rather than “proactive”
When incentives exist, they are usually fiscal incentives or benefits associated with free zones ormaquila operations
Few countries use specific instruments, such as incentives to invest in innovation, to attract quality FDI
Development of IPAs in the region
There is a worldwide trend towards replacing passive policies with active policies
The region is making considerable yet still insufficient efforts to build policymaking capacity: skilled personnel, resources and instruments
IPAs must act in coordination with the productive development strategy
I: Regional overview
II: Policies for attracting FDI
III: Trans-Latins
Outward foreign direct investment (OFDI): developed and developing countries, 1970-2004
(Percentages)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Developed countries Developing countries
Internationalization processes heavily concentrated in industrialized economies
Outward foreign direct investment (OFDI): developing countries, by region, 1970-2004
(Millions of dollars)
-5000
5000
15000
25000
35000
45000
55000
65000
75000
85000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Latin America and the Caribbean Developing Asia
Developing Asia is outperforming Latin America
FDI stock as a percentage of GDP: selected Asian and Latin American countries, 2004
(Percentages)94.5
In relative terms, the region has significant FDI stocks
01234
56789
1011121314
1516
Singapore China Republicof Korea
Malaysia Brazil Argentina Mexico Chile
The main TNCs in developing countries are Asian
BY ORDER OF EXTERNAL ASSETS, 2003 (Billions of dollars)
6.159DiversifiedHong Kong, ChinaJardine Matheson Holdings Ltd10
7.118ElectronicsRepublic of KoreaLG Electronics Inc.9
7.827PetroleumBrazilPetroleo Brasileiro (PETROBRAS)8
8.457TransportChinaChina Ocean Shipping Co.7
8.676TelecommunicationsMexicoAmérica Móvil6
11.054CementMexicoCemex S.A.5
12.387ElectronicsRepublic of KoreaSamsung Electronics Co., Ltd.4
16.114PetroleumMalaysiaPetroliam Nasional Bhd (PETRONAS)3
17.911TelecommunicationsSingaporeSingtel Ltd.2
59.141DiversifiedHong Kong, ChinaHutchison Whampoa Limited1
External assets
SectorCountryCompany
Although 3 of the 10 companies with the most external assets are Latin American, only 7 of the top 50 are from the region (4 from Mexico and 3 from Brazil). In 1977, 14 of the top 30 were Latin American.
Economic reforms in the 1990s: a boost for internationalization
-2000
0
2000
4000
6000
8000
10000
1980 1985 1990 1995 2000 2005
Argentina Brazil Chile Mexico
OUTWARD FOREIGN DIRECT INVESTMENT (OFDI), 1980-2004(Millions of dollars)
Available statistics indicate the direction of the trend, but not its actual proportions. OFDI is concentrated in a few countries (Argentina, Brazil, Chile and Mexico).
Common factors• Economic reforms in local economies• Saturated local markets• Opportunities in neighbouring countries • Specialization pattern• Diversification of reserves of natural
resources• Risk diversification• New relationships with TNCs• Limited State support for external
operations
Leading trans-Latins, 2004
XXX63.200PetroleumVenezuela (Bol. Rep. of)PDVSA1
XX4.523BeveragesBrazilAmBev15
XXX4.623FoodMexicoBimbo14
XX4.704PetroleumChileENAP13
X4.863ElectricityChileEnersis12
XXX5.275DiversifiedMexicoGrupo Alfa11
XXXXX6.421SteelArgentinaTechint10
XXX6.666PetroleumArgentinaYPF9
XXX7.383SteelBrazilGerdau8
XXXXX8.142CementMexicoCEMEX7
X8.426Beverages MexicoGrupo FEMSA6
XXXXX10.377MiningBrazilCVRD5
XX12.086TelecomMexicoAmérica Móvil4
XX12.443TelecomMexicoTELMEX3
XXXXX40.763PetroleumBrazilPETROBRAS 2
OTAPEUNALA
Operations in regional marketsSales (billions
US$)
SectorCountryCompany
Some of the main trans-Latins were acquired by TNCs seeking rapid access to Latin American markets.
ECLAC interviewed executives from 45 trans-Latins.
Process concentrated in a few sectors
• Basic industries• Strong State support at the start• Internationalization was a necessity• World leaders in their respective segments
• Food and beverages• Predominant influence of the top TNCs’ global
strategies• Prevalence of “shooting stars” and links with TNCs
• Service sectors• Trans-Latins following privatization: rapid growth but
an uncertain future in the face of competition from TNCs
• Creation of competitive advantages and capture of market niches
Conclusions• Main Latin American corporations are
internationalizing• Largest and most competitive trans-
Latins with the highest international profile are concentrated in basic industries
• Manufacturing and service trans-Latinshave faced stiff competition from top TNCs
• Striking number of “shooting stars”• New challenges for trans-Latins
Foreign investment in Latin America and the Caribbean, 2005
José Luis MachineaExecutive Secretary
Economic Commission for Latin America and the Caribbean
Santiago, Chile, 12 April 2006