Foreign Direct Investment in Latin America and the Caribbean 2017

Foreign Direct Investment in Latin America and the Caribbean • 2017
Chapter I
45
The income balance is the component with the largest deficit and the one that
produces the greatest net outflows of funds abroad. Within this item, the biggest
component is the repatriation of FDI profits by transnational firms to their parent
companies and, despite the drop in FDI income in 2016, the income balance deficit is
still equivalent to -2.5% of GDP.
When FDI inflows and income outflows derived from FDI stock in each country are
combined, their impact on the balance of payments becomes clear. While the impact
of FDI is generally positive, the picture is more complex when considering the different
countries of the region.
From 2010 to 2016, FDI had a positive impact on the balance of payments in Brazil,
Chile, Colombia, Costa Rica, Mexico, Nicaragua, Panama and Uruguay, while net
balances were close to zero in Argentina, the Dominican Republic, Ecuador, Guatemala
and Honduras. By contrast, the income generated by FDI stock exceeded new capital
inflows in Paraguay, Peru and the Plurinational State of Bolivia (see figure I.16). As FDI
inflows stagnate or drop, the resultant increase in capital stock and income (even with
lower profitability) could weigh even more heavily on the balance of payments.
7
6
5
4
3
2
Figure I.16
Latin America and the
Caribbean (selected
countries): balance
between FDI inflows and
FDI income outflows,
average for the period
2010-2016
(Percentages of GDP)
1
0
-1
-2
Nicaragua
Costa Rica
Chile
Brazil
Uruguay
Panama
Mexico
Colombia
Dominican
Rep.
Argentina
Ecuador
Honduras
Guatemala
Peru
Bolivia
(Plur. State of)
Paraguay
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of
15 June 2017.
5. Decreasing FDI profitability is damaging
investment prospects
Despite a 12.8% rise in FDI stock in 2016 to a record high, the average profitability of
foreign capital stock 10 fell again, reaching its lowest level of the last 15 years (4.2%)
(see figure I.17). Around 55% of this income was repatriated to the countries of origin,
meaning that there was a relative increase in reinvested earnings compared with the
repatriated earnings, which were as high as 70% in 2013.
Average FDI profitability differs depending on each country’s specialization. In 2016,
economies that invested heavily in mining and hydrocarbons saw a much steeper decline,
as was the case in Colombia, Peru, the Plurinational State of Bolivia, and, to a lesser
extent, Chile. Nevertheless, profitability fell in all of the countries under consideration
in 2016, with the exception of Panama (see figure I.18).
10
Calculated as the ratio of FDI income to capital stock, based on balance-of-payment data.