Foreign Direct Investment in Latin America and the Caribbean 2017

Foreign Direct Investment in Latin America and the Caribbean • 2017
Chapter I
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Trading Co. Ltd. In the chemical industry, the largest projects were in agrochemicals,
including India’s United Phosphorus Limited (UPL) announcement of a US$ 310 million
investment to build a new plant, and the US$ 300 million project to expand the Brazilian
subsidiary of United States firm Albaugh, LLC.
These sectors thus remain attractive for FDI in a context where others have not
recovered, owing to either external factors —metals mining projects for example have
been severely affected by falling commodity prices— or specific country or regional
factors, such as the contraction of GDP or the uncertainty caused by corruption cases
involving important companies in the country.
Official figures for May 2017 reflect an increase in FDI flows for the year, with
continued large-scale acquisitions by Chinese companies, especially in the energy
market. Inflows for the first five months of 2017 totalled US$ 32.456 billion, up 8.5%
compared with the same period in 2016. In contrast with 2016, this increase can be
explained by a rise in capital inflows. However, given that FDI flows are heavily influenced
by large-scale transactions, this partial data point is insufficient to confirm that FDI will
effectively grow in 2017.
2. The rest of South America has yet to recover
Colombia posted FDI growth of 15.9% in 2016, making it Latin America’s third largest
recipient of FDI, with inflows totalling US$ 13.593 billion. This improvement was
mainly attributable to a large acquisition in the energy sector and to higher investment
in services, although total investment remained below the levels seen during the
commodities boom —between 2011 and 2014, Colombia received annual FDI inflows
of US$ 15.5 billion. Capital inflows accounted for close to half of FDI (46%), but
energy-related inflows failed to offset contraction in other areas, especially the oil and
mining industries, resulting in a net decline of 15% compared with 2015. Conversely,
intercompany lending, which accounted for 34% of total FDI, increased 133%, while
reinvested earnings remained relatively flat compared with 2015 (falling just 2%),
accounting for 20% of the total.
The fall in commodities prices modified the sectoral composition of investment in
Colombia. The extraction industries suffered a significant decline, while investment in
services increased. Between 2006 and 2014, one third of foreign capital that entered
in Colombia was invested in the oil sector (33%), and about 20% went to mining
(mainly coal). Investment in extractive industries has contracted sharply in the last
two years. So much so that in 2016, oil accounted for 16% of the total, a 14% drop
compared with 2015, while there was no investment in mining, in fact, there was a
slight divestment. Conversely, electricity, gas and water received large investments,
by virtue of which the sector accounted for 27% of total FDI in 2016. The privatization
of the energy company ISAGEN was the largest transaction in the energy sector in
2016. The Canadian investment fund Brookfield Asset Management acquired the
Colombian State’s 57.61% stake and bought the remaining 42% of ISAGEN through
other transactions, for a total investment of some US$ 3.5 billion. FDI in financial and
business services also grew (22%), overtaking the oil sector (19% of total investment),
as did FDI inflows for transport and communications (37%, reaching 8% of total
investments). The manufactures sector remained one of the main recipients of FDI
in Colombia (14% of the total), although it failed to sustain the upward trend it had
maintained until 2014 and fell by 23%.
The main foreign investors increased FDI flows to Colombia. With the acquisition
of ISAGEN, Canada positioned itself as one of the two largest investors in 2016, on a
par with the United States (16% of the total). The European Union accounted for 29%