Foreign Direct Investment in Latin America and the Caribbean 2015

Foreign Direct Investment in Latin America and the Caribbean • 2015
Brazil has the largest stock of FDI abroad in the region, but for the fourth year running it reported negative
FDI outflows in 2014 according to the methodology of the fifth edition of the IMF Balance of Payments Manual. 9
This does not mean that Brazilian companies are abandoning their investments abroad. Indeed, in 2014 Brazilian
companies invested US$ 19.556 billion in capital contributions, which is the highest figure since 2011, but received
US$ 23.096 billion in net loans from subsidiaries abroad. The result is a negative inflow of US$ 3.540 billion, similar
to last year’s figure. New investments in 2014 primarily targeted the financial services sector and telecommunications.
In 2014 Peru became the third largest investor country, behind Chile and Mexico, with outflows of US$ 4.452 billion.
Some of the largest Peruvian companies have been investing abroad since 2006, benefiting from strong economic
growth in their domestic market, macroeconomic stability and better access to finance (Peru acquired investment
grade status in 2008). From 2006 to 2013 outflows averaged only US$ 1.4 billion a year, but several large acquisitions
and projects in 2014 drove up outflows to a record high.
There is no official data on the sectoral distribution of FDI outflows from Peru, but the largest companies are chiefly
in mining and food manufacturing. Hochschild Mining specializes in underground mining for silver and gold and has
subsidiaries in Argentina, Mexico and Chile, where it has recently acquired a project that will require investments
of around US$ 1 billion. Another large mining transnational is Minsur, part of Grupo Breca, which specializes in tin
mining. Its largest operation outside Peru is Mineração Taboca in Brazil. In food manufacturing the largest companies
are Aje, Gloria and Alicorp, which have a presence in many Latin American markets. In 2014 there were two large
cement acquisitions: UNACEM bought a plant in Ecuador for US$ 517 million and Grupo Gloria bought a plant in the
Plurinational State of Bolivia for US$ 300 million. Peruvian companies follow a similar strategy to their counterparts
in Colombia or Chile of seeking out markets in neighbouring countries.
Outflows from Argentina surged to US$ 2.117 billion, double the amount of the previous year; and outflows
from the Bolivarian Republic of Venezuela totalled US$ 1.024 billion. The State-owned Petróleos de Venezuela, S.A.
(PDVSA), the largest company in the Bolivarian Republic of Venezuela, was rumoured to be looking for a buyer for
its subsidiary in the United States, which operates three refineries with a capacity of 750,000 barrels per day (bpd).
The transaction, should it occur, would be worth several billion dollars.
FDI outflows from other economies are much more modest, although this is largely due to underreporting: almost
half of the economies in the region do not report on outward FDI and many who do fail to record substantial flows.
Official figures from Central American countries are particularly low, with the partial exception of Costa Rica which
registered outflows of US$ 218 million in 2014. Still, there is evidence that some companies are expanding considerably
in other countries, generally within Central America (see box I.2). In 2014, Promerica Financial Corporation from
Panama bought a majority share in Banco de la Producción in Ecuador for US$ 130 million. In early 2015, Banco
Ficohsa of Honduras acquired the assets of Citibank in Guatemala, having acquired its Honduran assets in 2014.
Chapter II contains a more detailed analysis of outward FDI from the Caribbean economies.
Between 2011 and 2013, investment by transnational corporations
in Central American countries outside their home country
represented only 1% of total Latin American and Caribbean
investment abroad. However these investments are growing
and are important for the subregion’s economies.
According to information provided by fDi Markets and
Thomson Reuters (see Padilla and Gomes, 2015), Central
American companies made 271 foreign investments between
2003 and 2013. Panama, Costa Rica and El Salvador were the
main investor countries and the largest number of transactions
were recorded in business and financial services, the wholesale
sector and food and beverages.
Interviews conducted in the context of a case study with
representatives of a significant sample of transnational corporations
in Costa Rica found the following:
Box I.2
Central American trans-Latins
(i) Two thirds of investments are primarily market-seeking, with a
view to expanding operations and taking advantage of economies
of scale or to establishing a regional presence (see figure).
(ii) Although large and medium-sized enterprises predominate (70%
of Costa Rican transnationals have more than 51 employees),
there is also scope for the participation of small businesses
and even micro-enterprises.
(iii) In some economic activities, such as logistics and business
services, internationalization is a necessity: large clients see
Central America as a single market and expect services at the
subregional level, which requires investment and a physical
presence in different countries.
(iv) Costa Rican trans-Latins are highly concentrated in the countries
of the subregion: two thirds operate exclusively in other
Central American countries and only 22% of the companies
surveyed had invested outside Latin America (typically in the
United States, Europe or Asia).
9
Under the methodology prescribed in the six edition of the IMF Balance of Payments Manual, Brazil’s outward foreign direct investment
in 2014 is actually US$ 25.736 billion, primarily owing to a large change in the way intercompany lending is accounted for.
Chapter I
33