| EMBARGO The contents of this Report must not be quoted or summarized in the print, broadcast or electronic media before 22 September 2004 17:00 GMT (1 PM New York, 19:00 Geneva, 22:30 Delhi,02:00 - 23 September Tokyo) |
Foreign direct investment (FDI) inflows to Latin America and the Caribbean (LAC) declined in 2003 for the fourth consecutive year. "But with improving economic conditions, the outlook for 2004 is favourable", observed Carlos Fortin, Deputy Secretary-General of UNCTAD, today, releasing UNCTAD´s World Investment Report 2004: The Shift Towards Services.
Continuous decline
The decline in annual FDI flows amounted to 3% in 2003, down from $51 billion to $50 billion (figure 1). This is the lowest annual level of inward FDI since 1995. Of 40 economies, 19 saw declining inflows.
While there were wide variations among countries, the poor performance of some large economies dominated the regional picture.
The largest recipients remain Brazil and Mexico, but flows into these two countries were down last year by, 39% and 26%, respectively. Chile and Venezuela recovered partially from their slumps in 2002. Flows to some smaller economies, by contrast, rose in 2003 (figure 2).
The frequency distribution of countries based on the range of FDI inflows between 1999 and 2003 remained almost unchanged, with nine countries receiving more than $1 billion and 31 countries less than $1 billion in 2003 (table 1).
UNCTAD finds that, in addition to such global factors as deteriorating economic conditions, and such regional factors as financial crises and the relocation of production from some countries (for example Mexico) to lower-cost locations, the region´s weak performance in attracting FDI can also be attributed partly to normalization, i.e., a return to patterns preceding the FDI boom in the late 1990s, driven mainly by the privatization process in the services sector. This was the case particularly for the two largest economies, Brazil and Mexico, where the share of privatization-related services FDI had risen significantly, mainly at the expense of manufacturing FDI.
LAC transnational corporations (TNCs) themselves are becoming outward investors, particularly in their own region. Of the region´s top 10 non-financial TNCs on UNCTAD´s list of the top 50 TNCs from all developing countries, six are based in Mexico and three in Brazil. The top five companies are from the primary sector (petroleum and mining) and the manufacturing sector, both of which are still important in these two countries (table 2).
Continued liberalization
At the national level, the policy trend towards greater liberalization and investment facilitation continued. The region´s efforts to attract FDI also continued at the bilateral level: 421 bilateral investment treaties had been concluded by the end of 2003, eight of them last year, along with 270 double taxation treaties, also eight of them in 2003 alone.
Better prospects ahead
"FDI flows to Latin American countries are expected to rise in 2004, thus reversing the recent downward trend", predicts Karl P. Sauvant, Director of UNCTAD´s Investment Division. According to UNCTAD´s survey of the largest TNCs, respondents predict an increase in FDI inflows to the region for 2004-2005 (see UNCTAD/PRESS/PR/2004/012). This reflects the expected recovery of economic growth. In the longer run, prospects for increased FDI flows depend to some extent on whether host countries tackle structural weaknesses and create conditions conducive to attracting new types of FDI in the face of increasing competition from host countries in other regions, especially Asia.
| The World Investment Report and its database are available online at www.unctad.org/wir and www.unctad.org/fdistatistics . A complete set of UNCTAD´s major publications on FDI and TNCs - the UNCTAD/UNCTC Digital Library - can be found at http://unctc.unctad.org |
ANNEX
Tables and figures
Table 1. LAC: economy distribution of FDI inflows, by range, 2003
Source: UNCTAD, World Investment Report 2004
Table 2. The top 10 non-financial TNCs from developing economies in LAC, ranked by foreign assets, 2002 (Millions of dollars, number of employees)
Source: UNCTAD, World Investment Report 2004
Note: a The rank corresponds to the rank of each company in the list of the largest transnational corporations from developing countries.
b "TNI" is the abbreviation for "Transnationality Index". The Transnationlity Index is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment.
Figure 1. LAC: FDI inflows and their share in gross fixed capital formation, 1985-2003
Source: UNCTAD, World Investment Report 2004
Figure 2. The Top 10 recipients of FDI inflows in LAC, 2002-2003
(Billions of dollars)
Source: UNCTAD, World Investment Report 2004
