Foreign Direct Investment in Latin America and the Caribbean 2015

Foreign Direct Investment in Latin America and the Caribbean • 2015
FDI inflows to El Salvador increased by 53% from US$ 179 million in 2013 to US$ 275 million in 2014. A portion
of that investment came from the ongoing investment by Sensity Systems of the United States, an LED manufacturer
that committed in 2013 to building a US$ 490 million factory to supply the region. Colombia’s Procaps acquired
Laboratorios López, which is the country’s largest pharmaceuticals laboratory. Hyatt Hotels of the United States
announced that it would invest US$ 36 million in its first hotel in El Salvador, which is scheduled to open in 2016.
Italy’s ENEL, through its subsidiary Enel Green Power, announced a deal in December to sell its 36.2% stake in
the La Geo geothermal joint venture to its State-owned partner INE for US$ 280 million. This large negative inflow
is offset by some major investments in the telecommunications sector, where inflows totalled US$ 334 million in
2014. The year’s largest telecommunications investment came from Sweden’s Millicom, through its local Tigo brand.
Also in telecommunications, Jamaica’s Digicel announced a US$ 45 million upgrade of its network in early 2014.
E. FDI and the current account balance
Over the past two decades, Latin America and the Caribbean posted a current account surplus for just five years (from
2003 to 2007). Throughout the 1990s and from 2006 to 2014 the region registered cumulative current account deficits,
which have widened a great deal in the past five years. Figure I.19 shows the changes in the different components
of the current account over the last decade. The greatest variation was in the goods surplus, which shrank from 3%
of GDP in 2006 to 0.3% of GDP in 2013 and virtually disappeared in 2014. The other components have been more
stable: the current transfers balance has been consistently positive, deteriorating only slightly over the decade, and
both the income balance and the services balance have posted long-standing deficits.
6
5
4
3
Figure I.19
Latin America and the Caribbean: current account structure, 2006-2014
(Percentages of GDP)
2
1
0
1.4
0.2
-1
-2
-3
-4
-0.9 -0.6
-1.3 -1.4
-1.8
Goods balance Services balance Income balance
Current transfers balance Current account balance
-2.7 -2.7
2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Economic commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates.
The current account deficit deteriorated markedly in 2013 owing mainly to a sharp reduction in the goods surplus
from 0.8% to 0.3% of GDP as imports grew more rapidly than exports. The slowdown in export growth, which began
in 2012, was caused by weak international demand from both developed economies and emerging markets (ECLAC,
2013a). That weak demand drove down the prices of the region’s export goods (mostly commodities) to the extent
that even higher export volumes could not offset the fall. The deficit remained stable in 2014 because the drop in FDI
income mentioned above was compensated by an equal drop in the goods trade surplus (ECLAC, 2014a).
A look at the data for the past decade reveals that the growth of FDI income has been possibly the strongest driver
of the deterioration of the region’s current account balance. The profits of transnational corporations in the region
rose from US$ 19.011 billion in 2002 to US$ 103.379 billion in 2010 and they have remained at these high levels
ever since, reaching a record in nominal terms of US$ 123.798 billion in 2013. That last amount represented 83%
of total investment income from the region and more than double the value of the services balance.
Chapter I
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