Foreign Direct Investment in Latin America and the Caribbean 2015

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Foreign Direct Investment in Latin America and the Caribbean • 2015 Box I.1 (concluded) City and country Estimated cost (millions of dollars) Latin America: major airport expansions Current capacity (millions of persons) Future capacity (millions of persons) Planned completion date Belo Horizonte, Brazil 666 10 20 2016 Rio de Janeiro, Brazil 888 17.5 30 2016 Santiago, Chile 700 9.5 29 2030 Bogota, Colombia 1 260 14 20 2016 Punta Cana, Dominican Republic 100 5 10 2015 San Salvador, El Salvador 490 1.6 6.6 2032 Cancún, Mexico 750 15 25 2016 Mexico City, Mexico a 321 32 n/a 2018 Panama City, Panama 840 9 18 2026 Asunción, Paraguay 264 1.2 2 2017 Chiclayo, Peru 128 ... ... 2015 Lima, Peru 1 000 10 ... 2030 Piura, Peru 231 ... ... 2023 Barquisimeto, Bolivarian Republic of Venezuela 413 ... ... 2015 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on basis of Centre for Aviation, “Latin America airport construction and investment activity continues - but Brazil slows” [online] http://centreforaviation.com/analysis/latin-america-airport-construction-and-investment-activity-continues-- -but-brazil-slows-193981. a Excludes the planned US$ 13 billion outlay for a new airport in Mexico City. Not all the investments in the table above are funded through FDI, but many of the airports in question are operated by transnational consortiums. Taking into account the projected rate of growth in Latin American air traffic, the sector can expect to see further international investment, but only if governments are willing to relinquish control of national airports. Airports are strategic assets and cooperation between the private and public sectors can help to boost FDI in airport infrastructure. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on basis of Centre for Aviation, “Latin America airport construction and investment activity continues - but Brazil slows” [online] http://centreforaviation.com/analysis/latin-america-airport-construction-and-investment-activity-continues-- -but-brazil-slows-193981. 3. Technology intensity of investment The structure of the region’s economies varies greatly in terms of relative intensities of capital and labour. This structure is largely the result of fortune and past economic policies. For example, countries that are rich in natural resources are more likely to be capital-intensive than countries whose focus is on services. The respective growth rates relating to labour and physical capital thus partly determine the growth rate of an economy. However, another factor that drives economic growth is the capacity to improve productivity, primarily through innovation. The different elements that contribute to the capacity to innovate can be measured and expressed as a share of GDP, as for physical capital. This measure is referred to as innovation capital and by this indicator Latin America lags significantly behind many Organization for Economic Cooperation and Development (OECD) countries. Figure I.11 shows estimated innovation capital as a share of GDP for selected countries in Latin America. Due to limitations in data availability, it is not always possible to estimate the exact figures for each economy and upper and lower bounds for each country are therefore indicated. Brazil is far ahead of the other economies with respect to capacity to innovate, while Panama has the lowest level of innovation capital. The factors used to measure innovation capital include investments in software and hardware, expenditure on research and development, expenditure on tertiary education and other forms of training, and number of patents filed. Even though the data are standardized by economy size, larger economies tend to have more innovation capital. The figure also shows that Central American countries have relatively low levels of innovation capital compared with South American countries. Chapter I 27
Economic Commission for Latin America and the Caribbean (ECLAC) Figure I.11 Latin America (selected economies): estimated innovation capital as a share of GDP, 2010 (Percentages) Brazil Chile Bolivia (Plur. State of) Colombia Argentina Mexico Costa Rica Paraguay Ecuador Honduras Peru El Salvador Uruguay Guatemala Panama 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of O. de Groot, “Innovation capital in Latin America: A first attempt at analyzing the region’s competitive strengths in innovative capacity”, Santiago, Chile, ECLAC, 2014, unpublished. Note: The bars indicate point estimates for the size of innovation capital, while the whiskers indicate the uncertainty of the estimation, providing a lower and upper bound of the estimates. Just as an abundance of natural resources can attract investment in natural resources, an abundance of innovation capital can help attract investment in high-technology sectors. A wealth of innovation capital is, in fact, one of the factors that contributes to the potential productivity of high-technology investment. This relationship can be investigated by looking at the technology intensity of announced investment projects as recorded by the Crossborder Investment Monitor (fDi Markets) published by the Financial Times. 7 Figure I.12 shows the technology intensity of FDI for selected Latin American economies. Medium-high- and high-technology investments make up a large share of announcements in both Brazil and Mexico. The automotive sector captures a large share of these inflows, primarily in these two countries (see boxes I.2 and I.4 of ECLAC, 2014b). At the other extreme, medium-high- and high-technology investments account for less than 40% of the value of investments announced in Colombia, Panama and Peru. This difference has to do with the structure of the economies —for example, the Panamanian economy is very services-centred— and it has implications for the impact of FDI. Aside from Brazil and, to a more limited extent, Mexico, single investments can have a large impact on the total figures since the number of projects per country is limited. The new Audi plant in Puebla, Mexico, illustrates the impact that more technology-intensive FDI can have. Following the inauguration of a new, highly advanced plant some years ago, Germany’s Volkswagen Group, which owns the Audi brand, worked together with the local government and a local university to create a new training centre to be completed in 2015. Since the plant employs some of the most advanced production techniques used within the multinational enterprise, it was decided to build a training centre in order to ensure that the staff would be qualified to use the most up-to-date new technologies. Furthermore, in order to optimize efficiency, producers of intermediate suppliers are also trained at the centre. As a result, Audi’s incorporation into the production structure will help raise the skill level of a large share of workers in the region. In addition to the Volkswagen Group, the project also involves another German company, Siemens, which produces some of the electronics for Audi vehicles. Lastly, figure I.13 shows the technology intensity of investment projects in the region as a share of the total value of all investment announcements for different time periods. This figure again highlights that there are very few hightechnology investments in Latin America, with the share holding steady at around 4% of the total value of announced investments from 2008 to 2014, according to fDi Markets. However, an encouraging pattern can be seen in the growing prevalence of medium-high-technology projects, whose share rose from 38% in 2008-2010 to nearly 56% in 2014. 7 fDi Markets is a database of investment announcements, and there is therefore no certainty that the announced projects will be completed. Analysts from fDi Markets estimate the costs of investment projects when these are not published, which is both a strength and a weakness of this database. It is a strength since it makes the database significantly more comprehensive than it would otherwise be. It is also a weakness since the estimates are occasionally unrealistic. The database categorizes each project under one of 53 sectors and one of 18 activities, with each of these combinations classified by technology intensity. Chapter I 28
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