Foreign direct investment (FDI) in the Latin region jumped back to $110-120 billion last year from $78 billion in 2009, preliminary data from the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) shows.
The US continues to be the largest investor of the region, accounting for 34.7% of FDI while Canada, multilatinas (Latin companies investing overseas), Brazil and then China are next in order.
Alicia Barcéna, executive secretary of ECLAC, said that promoting trade with the US, which has been slipping as a percentage of the total, should be a priority.
“The participation of the US in the region has been reduced very significantly and the government has lacked a trade policy for the region”, she said.
Barcéna admitted many observers were disappointed by US president Barack Obama’s trip to the region earlier this month, but sees him as having sent very powerful messages, including a sense that Latin countries and the US are equals.
The US also reinforced its commitment to security in the region with promises of $20 billion in aid, focused on Mexico and Central America.
Despite the very severe financial crisis, the US has been the region’s most dynamic partner over the last 30 years, Barcéna noted. The US is especially valuable as it invests in business to the region, which complements the aims of Latin countries.
Many, especially the Pacific Rim countries, are looking to build global value chains, developing more in their own country, as opposed to relying on exporting commodities and the US is proving the best partner for this.
Chinese FDI has expanded massively in the region, reaching $20 billion last year and focusing on natural resources especially in Brazil, Peru and Colombia, Barcéna pointed out.
During the crisis, exports from the region contracted except to China. China has become the most significant trading partner, acting as one of the five main partners in nine countries and almost all 32 countries of the region are importing products and services from China.
However, Chinese investments tend to be focused on traditional areas, especially commodities, and Barcéna said: “We don’t yet see China contributing to value-added industries.”
Recipient countries need to make investments more productive, by pushing for job creation, tech transfer and emphasis on infrastructure investments. She noted that China is investing in railroads in many countries and expects it will do more in value-added industries over time.
Net importers and Central America will suffer most from food inflation, Barcéna argued. Most had been doing fine in tackling core inflation before the recent surge in food prices, which will have the greatest impact on the poor, she added.
Barcéna did not expect food price inflation to last. She pointed out that LatAm is a large exporter of food today, helping balance the equation. One third of globalcorn exports are from the region and the share of world agri exports has grown from 11% to 14% in the last decade.
Barcéna said the US is hanging on as the region’s biggest trade partner despite the rise of China. Exports from the US to the region accounted for 59.7% of the total in 2000 and had dropped to 40.1% in 2009, while imports into the US from Latin America fell from 49.3% to 31.2% of total Latin exports.