2015

Foreign Direct Investment

in Latin America and the Caribbean
2015

Foreign Direct Investment

in Latin America and the Caribbean
 Alicia Brcena
Executive Secretary

Antonio Prado
Deputy Executive Secretary

Mario Cimoli
Chief, Division of Production, Productivity and Management

Ricardo Prez
Chief, Publications and Web Services Division

The 2015 version of Foreign Direct Investment in Latin America and the Caribbean is the most recent edition of an annual series published
by the Unit on Investment and Corporate Strategies of the Division of Production, Productivity and Management of the Economic
Commission for Latin America and the Caribbean (ECLAC). This years edition was prepared by Olaf de Groot and Miguel Prez Ludea,
under the coordination of Giovanni Stumpo. The database was built by Leandro Cabello.
Carol Fernndez Delgado, Caroline Gomes, Michael Milligan and Ramon Padilla provided substantive contributions for the work.
Comments and suggestions were received from Mario Cimoli, as well as staff from the Sustainable Development and Human Settlements
Division (especially Carlos de Miguel, Joseluis Samaniego and Marcia Tavares), the subregional headquarters of ECLAC in Mexico
(particularly Jorge Mario Martnez), and Port of Spain (in particular Dillon Alleyne and Michael Hendrickson).
Thanks are due to the government authorities and executives of companies consulted, for their inputs for the preparation of this document.
In previous editions of Foreign Direct Investment in Latin America and the Caribbean, the year given on the cover and in the title was the
year for which data were presented. Starting with this edition, however, the title carries the year in which the report is published, consistently
with the practice for the other flagship reports published by ECLAC. As a result, there is no 2014 edition of Foreign Direct Investment.
Any comments or suggestions concerning the contents of this document should be addressed to Giovanni Stumpo (Giovanni.stumpo@cepal.
org) and Olaf de Groot ([email protected]).

Notes and explanations of symbols

The following symbols have been employed in this edition of Foreign Direct Investment in Latin America and the Caribbean:
- Three dots (...) indicate that data are missing, are not available or are not separately reported.
- A dash (-) indicates that the amount is nil or negligible.
- A blank space in a table indicates that the concept under consideration is not applicable or not comparable.
- The use of a hyphen (-) between years (e.g., 1990-1998) indicates reference to the complete number of calendar years involved, including the
beginning and end years.
- A slash (/) between years (e.g., 2003/2005) indicates that the information given corresponds to one of these two years.
- The world dollars refers to United States dollars, unless otherwise specified.
- Individual figures and percentages in tables may not always add up to the corresponding total because of rounding.

United Nations publication

ISBN: 978-92-1-121888-6 E-ISBN: 978-92-1-057217-0
ISSN: 2076-4065
LC/G.2641-P Sales No. E.15.II.G.4
Copyright United Nations, June 2015. All rights reserved
Printed in Santiago, Chile
S.15-00534

This publication should be cited as: Economic Commission for Latin America and the Caribbean (ECLAC), Foreign Direct Investment in Latin
America and the Caribbean, 2015 (LC/G.2641-P), Santiago, Chile, 2015.
Applications for the right to reproduce this work are welcomed and should be sent to the Secretary of the Publications Board, United Nations
Headquarters, New York, N.Y. 10017, U.S.A. Member States and their governmental institutions may reproduce this work without prior
authorization, but are requested to mention the source and inform the United Nations of such reproduction.
Contents
Summary and conclusions.........................................................................................................................................7
Chapter I
Overview of foreign direct investment in Latin America and the Caribbean...............................................................15
Introduction......................................................................................................................................................17
A. Overview of foreign direct investment worldwide........................................................................................18
B. Inward foreign direct investment in Latin America and the Caribbean..........................................................19
1. General trends........................................................................................................................................19
2. Distribution of FDI by sector .................................................................................................................23
3. Technology intensity of investment........................................................................................................27
4. Largest investor countries.......................................................................................................................29
C. Outward foreign direct investment...............................................................................................................32
D. Foreign direct investment inflows by country...............................................................................................35
1. Brazil.....................................................................................................................................................36
2. Other South American countries............................................................................................................38
3. Mexico...................................................................................................................................................42
4. Central America.....................................................................................................................................43
E. FDI and the current account balance...........................................................................................................47
F. Conclusions .................................................................................................................................................50
Bibliography......................................................................................................................................................51
Annex ..............................................................................................................................................................52
Chapter II
Foreign direct investment in the Caribbean..............................................................................................................63
Introduction......................................................................................................................................................65
A. Background .................................................................................................................................................65
B. Trends in FDI...............................................................................................................................................67
1. Hispaniola..............................................................................................................................................68
2. The southern Caribbean.........................................................................................................................69
3. The western Caribbean...........................................................................................................................70
4. The Organisation of Eastern Caribbean States and Barbados...................................................................73
C. Sectoral analyses..........................................................................................................................................76
1. Tourism FDI ..........................................................................................................................................77
2. FDI in natural resources.........................................................................................................................81
3. Other export-oriented FDI......................................................................................................................83
4. Market-seeking FDI................................................................................................................................86
D. FDI promotion policy...................................................................................................................................87
1. Different types of FDI promotion policies in the Caribbean....................................................................88
2. The impact of FDI promotion policies....................................................................................................92
3. FDI and economic development in the Caribbean..................................................................................94
E. Trans-Caribbean enterprises.........................................................................................................................95
1. Investments beyond the Caribbean.........................................................................................................97
2. The advantages and disadvantages of intraregional FDI..........................................................................98
F. Conclusions .................................................................................................................................................99
Bibliography....................................................................................................................................................101
Chapter III
Transnational corporations and the environment....................................................................................................103
Introduction....................................................................................................................................................105
A. Production structure, corporate strategies and the environment.................................................................106
1. Sectoral distribution and the environmental impact of FDI...................................................................106
2. Foreign direct investment and the relocation of polluting activities ......................................................111
3. Transnational corporations, green technology and clean modes of production.....................................113
4. Codes of conduct and voluntary initiatives by transnational corporations.............................................116
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 Economic Commission for Latin America and the Caribbean (ECLAC)

B. Looking to the future: foreign direct investment and sustainable development...........................................119

C. Environmental policy and investment promotion policy.............................................................................123
1. Investment promotion agencies and environmental sustainability.........................................................123
2. Environmental policies and implications for FDI promotion: some case studies....................................125
3. Spaces for integrating sustainability into investment promotion policy.................................................129
D. Conclusions ...............................................................................................................................................130
Bibliography....................................................................................................................................................131
ECLAC recent publications..................................................................................................................................135

Tables
Table I.1 Global foreign direct investment inflows, variation and distribution by region, 2005-2014................ 19
Table I.2 Latin America and the Caribbean: 20 largest mergers or acquisitions, 2014....................................... 30
Table I.3 Latin America and the Caribbean: 10 largest divestments, 2014........................................................ 31
Table I.4 Latin America and the Caribbean (selected economies): outward foreign
direct investment, 2000-2014............................................................................................................ 32
Table I.5 Latin America and the Caribbean: 15 largest cross-border acquisitions by trans-Latins, 2014............ 34
Table I.6 Latin America and the Caribbean: foreign direct investment inflows
by receiving country and subregion, 2004-2014................................................................................ 36
Table I.A.1 Latin America and the Caribbean: inward foreign direct investment by country, 2001-2014............. 52
Table I.A.2 Latin America and the Caribbean: inward foreign direct investment
by destination sector, 2006-2014...................................................................................................... 53
Table I.A.3 Latin America and the Caribbean: inward foreign direct investment
by country of origin, 2006-2014........................................................................................................ 55
Table I.A.4 Latin America and the Caribbean: inward foreign direct investment
by component, 2006-2014................................................................................................................ 58
Table I.A.5 Latin America and the Caribbean: inward foreign direct invesment stock
by country, 2001-2014...................................................................................................................... 60
Table I.A.6 Latin America and the Caribbean: outward foreign direct invesment flows
by country, 2001-2014...................................................................................................................... 61
Table II.1 The Caribbean (selected economies): summary statistics................................................................... 67
Table II.2 The Caribbean (selected economies): foreign direct investment inflows
by receiving country or territory, 2008-2014..................................................................................... 68
Table II.3 The Caribbean (selected countries): international tourist arrivals and international
tourism receipts, 2010-2013.............................................................................................................. 77
Table II.4 The Caribbean (selected economies): FDI income and inflows of FDI, 2008-2013............................ 96
Table II.5 Data on selected large trans-Caribbean conglomerates...................................................................... 96
Table III.1 World: distribution of exported technologies in general and climate-mitigation
technologies, 2000 to 2005............................................................................................................. 114
Table III.2 World: annual current investment and estimated investment needs to meet
the sustainable development goals on the environment, 2015-2030................................................ 119
Table III.3 Latin America and the Caribbean: share of urban population with access to basic
services in countries with the lowest coverage, 2012....................................................................... 122

Figures
Figure I.1 Latin America and the Caribbean: foreign direct investment inflows
and FDI inflows as a proportion of GDP, 1990-2014......................................................................... 17
Figure I.2 Global flows of foreign direct investment by group of economies and the share
of Latin America and the Caribbean in those global flows, 1990-2014.............................................. 18
Figure I.3 Latin America and the Caribbean: inward cross-border capital flows, 2000-2014.............................. 20
Figure I.4 Latin America and the Caribbean (selected countries): inward foreign
direct investment, 2013-2014............................................................................................................ 21
Figure I.5 Latin America and the Caribbean: foreign direct investment by component, 2000-2014................... 21
Figure I.6 Latin America and the Caribbean: FDI income and average profitability of FDI, 1990-2014.............. 22
Figure I.7 Latin America and the Caribbean (selected economies): FDI income as a proportion
of FDI stock, averages 2009-2012 and 2013-2014............................................................................ 22
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Figure I.8 Latin America (selected countries and subregions): sectoral distribution
of foreign direct investment, 2014..................................................................................................... 23
Figure I.9 Global prices for selected commodities, 2010-2014.......................................................................... 24
Figure I.10 Latin America and the Caribbean (selected countries) and rest of the world:
distribution of major mining projects, late 2014................................................................................ 25
Figure I.11 Latin America (selected economies): estimated innovation capital as a share of GDP, 2010.............. 28
Figure I.12 Latin America (selected economies): technology intensity of announced
investments, 2011-2014.................................................................................................................... 29
Figure I.13 Latin America and the Caribbean: technology intensity of announced investments,
2008-2010, 2011-2013 and 2014..................................................................................................... 29
Figure I.14 Latin America (selected countries and subregions): origin of foreign
direct investment, 2014..................................................................................................................... 30
Figure I.15 Latin America and the Caribbean: outflows of foreign direct investment, 2003-2014......................... 32
Figure I.16 European Union: foreign direct investment inflows from Latin America
and the Caribbean, 2003-2012.......................................................................................................... 35
Figure I.17 Latin America and the Caribbean: foreign direct investment
as a proportion of GDP, 2014............................................................................................................ 37
Figure I.18 Central America: distribution of FDI inflows by country, 2014.......................................................... 44
Figure I.19 Latin America and the Caribbean: current account structure, 2006-2014.......................................... 47
Figure I.20 Latin America and the Caribbean: selected current account items..................................................... 48
Figure I.21 Latin America and the Caribbean: FDI stock and average profitability
of FDI, 2001-2014............................................................................................................................. 49
Figure I.22 Latin America and the Caribbean: reinvested and repatriated FDI income, 2005-2014...................... 49
Figure II.1 The Caribbean (selected economies): inward foreign direct investment
as a proportion of GDP, 2014............................................................................................................ 65
Figure II.2 Organisation of Eastern Caribbean States: total foreign direct investment (FDI), 2008-2014............... 73
Figure II.3 The Caribbean (selected countries): average breakdown of FDI inflows by sector
for the most recent five-year period................................................................................................... 76
Figure II.4 The Caribbean (selected countries): inbound tourism expenditure as share
of total foreign-exchange receipts and total GDP, 2013..................................................................... 78
Figure II.5 The Caribbean (selected economies): international tax treaties per jurisdiction, 2011........................ 85
Figure II.6 The Caribbean: numbers of offshore medical schools per jurisdiction, 2015...................................... 86
Figure II.7 The Caribbean and the rest of the world: foreign direct investment (FDI)
to GDP ratio in relation to population size, 2013.............................................................................. 88
Figure II.8 The Caribbean (selected economies): distance to the frontier on ease
of doing business and global ranking, 2015....................................................................................... 89
Figure II.9 The Caribbean (selected countries): foreign direct investment (FDI) to GDP
and gross fixed capital formation (GFCF) to GDP ratios, 2001-2013.................................................. 93
Figure II.10 The Caribbean (selected economies): returns on FDI, 2008-2013 average......................................... 95
Figure III.1 United States: energy intensity in selected sectors, 2011.................................................................. 107
Figure III.2 Brazil: FDI stock and total capital stock in environmentally sensitive sectors, 2012......................... 107
Figure III.3 Brazil and Mexico: cumulative FDI in polluting manufacturing industries, 2007-2013.................... 108
Figure III.4 Latin America (6 countries): patents in green technologies, 2000-2011........................................... 114
Figure III.5 Latin America and the Caribbean: ISO 14001 certifications, 2004-2013.......................................... 117
Figure III.6 Latin America and the Caribbean: target sectors for attracting green investment.............................. 124
Figure III.7 Latin America and the Caribbean: importance of policy areas in relation
to the environmental impact of foreign investments......................................................................... 124
Figure III.8 Uruguay: investment in cleaner production, 2008-2014.................................................................. 129

Boxes
Box I.1 Landing investments in Latin America............................................................................................... 26
Box I.2 Central American trans-Latins............................................................................................................ 33
Box I.3 Big Beer market dominance in Latin America and the Caribbean................................................... 39
Box I.4 The impact of the Atlantic-Pacific canal(s?)........................................................................................ 45
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Box II.1 Foreign direct investment in Cuba..................................................................................................... 72

Box II.2 The relationship between airline capacity and accommodation......................................................... 80
Box II.3 The Massy rebrand............................................................................................................................ 98
Box III.1 Mining in the spotlight: governments and civil society demand better
environmental performance from mining corporations.................................................................... 110
Box III.2 Heavy industry and emission reduction strategies............................................................................ 112
Box III.3 The automotive industry: technological efforts and environmental standards................................... 115
Box III.4 Sugarcane: at the nexus of land, water, energy and food................................................................. 118
Box III.5 Power from renewable sources: policies, markets and foreign direct investment.............................. 120

Map
Map II.1 The Caribbean (selected economies): population and GDP, 2013..................................................... 66
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Summary and conclusions

A. Foreign direct investment in Latin America and the Caribbean

B. Foreign direct investment in the Caribbean
C. Foreign direct investment and the environment

Summary and conclusions

7
Foreign direct investment (FDI) in Latin America and the Caribbean fell by 16% in 2014 to US$ 158.803 billion.
Outflows of FDI from the region were also down, by 8%. Both these trends were driven by the decline in prices of
export commodities and the economic slowdown in the region. Nevertheless, FDI remains very important for the
economies in the region, especially for smaller Caribbean economies.

A. Foreign direct investment in Latin America

and the Caribbean
Global FDI flows were down by 7% in 2014, but flows to developing and developed economies differed significantly.
Flows to the developed economies fell by 14%, as FDI to North America plummeted by 54%, owing principally to
a single divestment in the United States. The Russian Federation faced sanctions, among other economic challenges,
which led to a 51% fall in inflows to the transition economies in 2014, while inflows to the developing economies rose
by 5%. Decreased flows to both Latin America and the Caribbean (16%) and Africa (2%) were offset by a substantial
increase to developing Asia (15%).
As a share of GDP, FDI inflows in Latin America and the Caribbean stood at 2.6%, which is somewhat lower
than the regions long-term average, although this proportion also varies significantly throughout the region. Smaller
economies generally have high FDI-to-GDP ratios, with economies in the Caribbean regularly reaching levels as
high as 10% of GDP. Larger economies typically have much lower ratios, for instance 1.5% of GDP in Brazil1 and
2.0% of GDP in Mexico.

Figure 1
Latin America and the Caribbean: foreign direct investment inflows and FDI inflows
as a proportion of GDP, 1990-2014 a
(Billions of current dollars and percentages of GDP)
200 5.0

180 4.5

160 4.0

140 3.5
Billions of dollars

120 3.0 Percentages

100 2.5

80 2.0

60 1.5

40 1.0

20 0.5

0 0.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

FDI inflows (left scale) FDI inflows as percentages of GDP (right scale)

Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official figures and estimates as of 18 May 2015.
a Figures do not include flows into the main financial centres of the Caribbean. FDI figures indicate inflows of foreign direct investment, minus disinvestments
(repatriation of capital) by foreign investors.. These figures differ from those set out in the 2014 editions of the Economic Survey of Latin America and the Caribbean
and the Preliminary Overview of the Economies of Latin America and the Caribbean because these publications show the net balance of foreign investment, that
is, direct investment in the reporting economy (FDI) minus outward FDI.

Among the larger economies, Mexico recorded the steepest fall in inflows, with a drop of 49% to US$22.795 billion.
This can be explained by a number of one-off factors, including the fact that the 2013 FDI figures were inflated by the
US$ 13.249 billion acquisition of beer maker Grupo Modelo by a European firm. Also significant was the divestment
by United States-based AT&T of its holdings in Amrica Mvil, worth US$ 5.57 billion. Brazil continues to be the
Summary and conclusions

largest recipient of FDI in the region, though inflows slipped by 2% to US$ 62.495 billion. Chile remains the third

1 The Central Bank of Brazil has recently changed its data collection methodology (see chapter 1). Estimates included in this summary
use the previous methodology, which is comparable with previous years.

9
 Economic Commission for Latin America and the Caribbean (ECLAC)

largest recipient of FDI with US$ 22.002 billion, up 14% on 2013. FDI to Central America fell by 2%, while FDI to
the Caribbean fell by 5%. The biggest increases in the region were reported by Barbados (5,119%), Paraguay (230%)
and Antigua and Barbuda (66%), while the greatest decreases were seen in Suriname (97%), the Bolivarian Republic
of Venezuela (88%) and Grenada (64%).
The sectoral distribution of FDI in 2014 also differed substantially from previous years. The share of natural
resources in FDI inflows fell to 17%, compared with an average of 24% in 2009-2013. The share of manufacturing
dipped to 36%, thus strengthening the dominant position of the services sector, which received 48% of inflows in
2014, compared with 38% in 2009-2013. In some economies, such as Colombia, Ecuador and the Plurinational
State of Bolivia, the natural resources sector continues to receive a large share of FDI, but even in these economies
that share is waning. The reason for this is the decline in the prices of minerals, which has been occurring since
2012, but is only now starting to affect FDI inflows. The price of oil dropped by half in the latter months of 2014,
after remaining stable for several years.

Figure 2
Latin America and the Caribbean (selected countries): inward foreign direct investment, 2013-2014
(Billions of dollars)
70

60

50

40

30

20

10

0
Brazil Mexico Chile Colombia Peru Argentina Central The Caribbean
America
2013 2014

Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official figures and estimates as of 18 May 2015.

There is some evidence that the technology intensity of FDI in the region is increasing: FDI in medium-high
and high technology sectors now accounts for some 60% of total inflows, although with large differences between
countries. Mexico receives the highest share of such FDI, followed by Brazil, owing mainly to large investments
in the automotive sector (medium-high technology), which is having a transformative impact on those economies.
With respect to the source countries of investment, the Netherlands is now the largest investor country in Latin
America, accounting for 20% of inflows that can be attributed to source countries. This chiefly reflects the Netherlands
position as by far largest investor in Brazil, since it is the source of 29% of flows into that country. The United States
was responsible for 17% of inflows during 2014. Its investments account for a large share of total FDI in Mexico
(29%), Colombia (14%) and Central America (33%). Spain is the third largest investor in the region, having nearly
quadrupled its share to 10%. Spain has a particularly strong presence in Mexico (18%), Colombia (13%) and some of
the Central American economies. Two large acquisitions by Spanish companies in 2014 are evidence of the recovery
of Spanish inflows after several years of weak inflows. Official FDI from Asia to the region is minimal, accounting
for some 6% of total flows in 2014, of which one sixth comes from China.
Outward FDI decreased for the second year in a row, falling by 12% to US$ 29.628 billion in 2014. The same
factors behind the overall drop in FDI inflows to the region also explain the lower FDI outflows since the vast majority
of trans-Latin corporations invest within the region. Outflows from Colombia and Mexico dropped markedly in 2014,
whereas outflows from Chile increased. Brazils FDI outflows have been negative for four years running, owing to
Summary and conclusions

large inter-company loans that seek to bypass the high cost of capital in the country. Despite the fall in outflows from
Mexico, Mexican trans-Latins continue to dominate the list of cross-border acquisitions. Peru became the third largest
investor abroad in 2014, with outflows of US$ 4.452 billion.

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 Foreign Direct Investment in Latin America and the Caribbean 2015

The proportion of profits that transnational corporations reinvest in the same economy remained more or less stable
at 50%, while they repatriate the rest. The downtrend in the average profitability of FDI seen since 2008 continued,
reaching 5% in 2014. Total FDI income declined by 16% to US$ 103.877 billion, as the economic slowdown and lower
prices of export commodities reduced profits across most countries.
Despite this drop in 2014, FDI income is still the largest negative item in the current account for most economies in
the region. This has become a source of concern because over the previous decade the trade account has deteriorated
significantly, generating growing current account deficits that in 2013 and 2014 reached 2.7% of GDP for the region
as a whole. This deficit has to be financed through capital inflows, of which FDI has been the largest and most stable
type. In fact FDI is now the largest external liability in the region and as such it will continue to generate large flows of
FDI income in the near future. In other words, FDI is not a free form of capital and countries should therefore attempt
to direct these flows to projects with the capacity to transform their production structure.
FDI flows into Latin American and the Caribbean will likely decline again in 2015. The regions slack economic
growth projected at around 1% for the year will continue to act as a brake on domestic-market-seeking investments.
This will drag down FDI inflows to Brazil, in particular. Conversely, Mexico could well receive more investment in
2015 thanks to the large number of projects announced in manufacturing and to regulatory changes making it easier
for foreign firms to enter certain segments of the services market. Investment is expected to continue slipping in mining,
regardless of international price trends, and in hydrocarbons, owing to the drop in the oil price in the latter months of
2014. Accordingly, ECLAC estimates that inflows to the region overall will be down by as much as 10%.

B. Foreign direct investment in the Caribbean

FDI is very important for the Caribbean, where FDI inflows in many economies make up a much larger share of
GDP than in Latin America. In 2014, FDI inflows in the subregion fell by 5% to US$6.027billion. The Dominican
Republic and Trinidad and Tobago are the largest recipients in the Caribbean, absorbing 37% and 23% of total inflows,
respectively. At the other extreme, Cuba and Haiti receive only small amounts of FDI, despite their large populations.

Figure 3
The Caribbean (selected economies): inward foreign direct investment as a proportion of GDP, 2014
(Percentages)
20
18
16
14
12
10
8
6
4
2
0
Saint Vincent
and the Grenadines

Saint Kitts and Nevis

Antigua and Barbuda

Belize

Guyana

Dominica

Barbados

Saint Lucia

Trinidad and Tobago

Jamaica

Grenada

Bahamas

The Caribbean

Dominican Rep.

Latin America

Haiti

Suriname

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

Of the economies in the Caribbean, the Dominican Republics FDI inflows are the most balanced in terms
Summary and conclusions

of distribution between natural resources, manufacturing, tourism and other services. The inflows of many other
economies typically depend more heavily on a particular sector. The Bahamas and the members of the Organisation
of Eastern Caribbean States (OECS), for example, receive the bulk of investment in the tourism sector, while inflows
to Guyana, Suriname and Trinidad and Tobago are driven primarily by natural resources. In 2014, Haiti and Jamaica

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 Economic Commission for Latin America and the Caribbean (ECLAC)

received the majority of FDI in the transport and telecommunications sector on the back of significant investments
in the expansion of telecommunications services.
The tourism industry is a key sector, attracting the bulk of investment in many countries in the Caribbean. The
transformative impact of tourism investment is constrained by the limited capacity of many economies to provide the
inputs required by the tourism value chain. To address this constraint, governments should encourage home-grown
investment in secondary services, as well as agriculture and small-scale manufacturing, to increase spillovers from the
tourism industry. Countries in the Caribbean should also remain vigilant regarding the fast rise in tourist numbers
to other regions, which may leave some ambitious expansion plans without the market necessary to support them.
Significant FDI takes place in the hydrocarbons sectors of Trinidad and Tobago and Suriname, where oil is an
important export product. The mineral that attracts most FDI in the regions mining industry is gold. Guyana and
Suriname have substantial operations in the gold mining industry, but the largest mining investment in the Caribbean
is the Pueblo Viejo gold mine in the Dominican Republic. The construction of the mine has been completed, so
it is not currently receiving significant inflows of FDI, but it has had a positive impact on the countrys current
account and may open the door to further investment in the future.
The Dominican Republic, being the largest economy in the region, also attracts significant investment in
the export-oriented manufacturing sector, particularly from the United States. Haiti is also slowly entering this
market, but from a very low base. Export-oriented services play a much larger role in the rest of the Caribbean.
Business process outsourcing (BPO) is a key export-oriented service in several economies, while others focus on
higher value financial services. A unique export-oriented service in the Caribbean is offshore education. There are
currently 40 educational institutions that target the North American education market, with significant spillover
benefits for local economies.
One major constraint on market-seeking FDI is the small size of the subregions markets. However, some
firms manage to operate profitably by treating the Caribbean as a single market, rather than a collection of small
markets. This strategy is apparent in the telecommunications and financial services markets. In other sectors,
much of the market-seeking FDI is from small firms seeking niches in the different economies. Several major
trans-Caribbean conglomerates are also actively vying for share in the different markets. These companies use
their conglomerate structure to reduce risk by taking on different product and geographical markets. While these
trans-Caribbean conglomerates have typically focused mainly on the Caribbean, the sluggish economic growth
in the subregion is now pushing them to look further afield and seek investment opportunities in South, Central
and North America.
The subregions ability to attract significant FDI is attributable in part to a generous set of FDI promotion
policies. Currently, such policies target four areas: active promotion by an investment promotion agency; improving
the overall business climate; reducing obstacles that are specific to foreign investors; and providing financial
incentives, such as tax holidays. Most governments focus on providing financial incentives since they are easily
granted, while it is much harder to introduce structural improvements to the business climate. Nonetheless, the
complicated fiscal situation in many Caribbean countries should prompt governments to rethink their focus on
such incentives. This will be challenging, however, since competition between taxation regimes is used to attract
the largest investments, and Caribbean governments will therefore have to work together to coordinate such policy
changes across the subregion.
It is not clear whether existing FDI promotion policies have a positive or negative impact on economic
development. FDI certainly can have a transformative impact on a countrys economic situation, but only if the
conditions are right for encouraging local spillovers by integrating FDI with local value chains. This is not currently
the case for the Caribbean. Furthermore, FDI may promote growth in a countrys capital stock or help sustain
temporary current account deficits, but since the relationship between FDI and capital stock growth is weak and
outflows of FDI income have been increasing, neither of these potential effects would seem to be of benefit to
the subregion.
While the Caribbean has attracted significant FDI over the years, it is not clear that the region has fully leveraged
Summary and conclusions

that investment. Most governments could do more to harness existing FDI to encourage economic growth, while
some economies, particularly Cuba and Haiti, which have to date received very small FDI inflows, would first
have to attract those flows in order to perceive any significant positive impact.

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 Foreign Direct Investment in Latin America and the Caribbean 2015

C. Transnational corporations
and the environment
Despite the recent weakening of FDI inflows, transnational corporations have a very significant and still
growing presence in Latin American and Caribbean economies, and their environmental footprint is therefore
large as well. Transnational corporations played a major role in establishing certain consumption and production
patterns (including the rise in car ownership) which have long-term implications for the regions environmental
sustainability. Their investment strategies can therefore have very significant implications regarding the environmental
impact of economic activity.
It is not possible to measure the exact environmental impact of FDI, but since different sectors affect the
environment in very different ways, the ecological impact of FDI depends to a large extent on its distribution across
sectors. Mining, for example, is one of the sectors that attracts most FDI to Latin America and the Caribbean, but it
also has major environmental implications, emitting five times more greenhouse gases per dollar of output than the
economy-wide average, while generating significant environmental liabilities that have sparked conflicts with local
communities throughout the region. Mining activities in Latin America have also become more energy-intensive
during recent years because of declining ore grade in ageing deposits. Some heavy industries also have a large
environmental footprint, whether in terms of their greenhouse gas emissions or the average pollution abatement
costs that they incur. By this last measure the steel, paper and pulp, and chemical industries are the heaviest
polluters. Lastly, agriculture is another sector with a large environmental impact (it is, in fact, the largest source of
greenhouse gas emissions in the region), although it is not an FDI-intensive sector.
Foreign direct investment can thus be expected to have a more serious environmental impact in countries
where it is concentrated in mining and heavy industry, though the actual impact of each investment is contingent
on government regulations (and their enforcement) and the actions taken by companies.
Large international corporations are increasingly considering their environmental footprint and taking steps
to mitigate it, over and above local regulatory requirements. On average, they engage in more initiatives of this
type than Latin American companies and could lead by example in this regard. However, it is difficult to gauge
the impact of such voluntary actions, and many of them are in fact little more than marketing strategies. Many of
the initiatives that have a real impact on the environment are those that also bring financial benefits to companies,
such as actions to improve energy efficiency. In any case, voluntary actions cannot substitute for public regulation.
Looking to the future, substantial investments will be required to make the economies of Latin America and
the Caribbean more environmentally sustainable. Worldwide, it is estimated that current investment falls as much
as US$ 1 trillion short of that needed to meet the sustainable development goals on climate change and water
and sanitation services. To cover this gap, the private sector will need to make a larger contribution in developing
countries and transnational corporations will be key stakeholders in this process, since they hold considerable
assets in Latin America and the Caribbean and have the technological and institutional wherewithal needed to
enhance sustainability.
FDI has great potential to supplement domestic investment, but opportunities will need to be translated into
workable business models. Investments in infrastructure are crucial for improving the regions environmental
sustainability, but experiences to date have had mixed results. For example, many foreign investments in water
and sanitation services had negative outcomes; on the other hand, the governments of the region have managed
to attract large investments to the renewable energy sector.
FDI is also one of the key mechanisms for transferring green technologies to Latin America and the Caribbean
and other developing regions. Most of the research and development that leads to the creation of such technologies
is carried out by transnational corporations based in developed countries, though some innovation also takes
place in the region. The development of second-generation ethanol (by domestic and foreign companies in Brazil,
with the support of the government) is an example of a homegrown technology with the potential to reduce the
Summary and conclusions

environmental impact of transport.

13
 Economic Commission for Latin America and the Caribbean (ECLAC)

All the regions countries have environmental policies, but they are seldom coordinated with investment
promotion efforts. Still, almost two thirds of investment promotion agencies claim to consider the environmental
impacts of FDI and, despite limited room for manoeuvre, many have programmes to attract FDI based on green
criteria, with a strong focus on renewable energy (see figure 4). Governments should aim to ensure consistency
between FDI promotion policies and other policies that have a bearing on the environment, such those on energy,
transport, industry and urban development.

Figure 4
Latin America and the Caribbean:a target sectors for attracting green investment
(Percentage of total responses)
Other Renewable energy
(17) (23)

High-tech
manufacturing
(4)

Solid waste
treatment
(4)

Information and
communications
Agribusiness
technologies
and forestry
(4)
(21)

Light
manufacturing
Tourism
(12)
(15)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by the respective countries.
a Includes responses by investment promotion agencies in 19 of the regions countries, out of a possible total of 31, to a survey conducted between October and

December 2014.
Summary and conclusions

14
 Foreign Direct Investment in Latin America and the Caribbean 2015

Chapter I

Overview of foreign direct

investment in Latin America
and the Caribbean

Introduction
A. Overview of foreign direct investment worldwide
B. Inward foreign direct investment in Latin America and the Caribbean
C. Outward foreign direct investment
D. Foreign direct investment inflows by country
E. FDI and the current account balance
F. Conclusions
Bibliography
Chapter I

15
 Introduction
Foreign direct investment (FDI) in Latin America and the Caribbean fell by 16% in 2014 to US$ 158.803 billion,1
reversing a growth trend that had lasted more than a decade (aside from brief dips in 2006 and 2009). Business
conditions deteriorated and the profits of transnational corporations did not reach the heights of previous years. FDI
outflows (or foreign investments by trans-Latin corporations) were also down in 2014, totalling US$ 29.162 billion.
As a proportion of the size of the regional economy, FDI inflows in 2014 were in line with the previous decades
average of 2.6% of GDP. This indicator shows that, after a short spell of very high inflows around the turn of the
century, FDI has stabilized in relation to GDP, despite growing significantly in nominal terms, peaking at a record
high of US$189.951 billion in 2013 (see figure I.1).

Figure I.1
Latin America and the Caribbean: foreign direct investment inflows and FDI inflows
as a proportion of GDP, 1990-2014 a
(Billions of current dollars and percentages of GDP)

200 5.0

180 4.5

160 4.0

140 3.5
Billions of dollars

Percentages
120 3.0

100 2.5

80 2.0

60 1.5

40 1.0

20 0.5

0 0.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
FDI inflows (left scale) FDI inflows as percentages of GDP (right scale)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures as of 18 May 2015.
a Figures do not include flows into the main financial centres of the Caribbean. FDI figures indicate inflows of foreign direct investment, minus disinvestments

(repatriation of capital) by foreign investors. These figures differ from those set out in the 2014 editions of the Economic Survey of Latin America and the Caribbean
and the Preliminary Overview of the Economies of Latin America and the Caribbean because they show the net balance of foreign investment, that is, direct
investment in the reporting economy (FDI) minus outward FDI.

In 2014, FDI inflows suffered from sluggish economic growth across the region and lower export commodity
prices. The same factors were in play in 2013, but a single exceptionally large transaction (the acquisition of the
Mexican brewer Grupo Modelo for US$13.249 billion) inflated the FDI figures for that year, masking the effects of
the two factors. The drop in FDI outflows is attributable to the same factors since trans-Latin corporations tend to
invest mainly within Latin America and the Caribbean, where the investment conditions were unfavourable.
The adverse conditions hit the natural resources sector hardest, in particular mining. The lower profits recorded
by this sector were partially responsible for the overall drop in FDI inflows, as the value of reinvested earnings fell.
Even though the returns on FDI declined across the region, FDI income remains the largest negative item in the current
account and is therefore a source of concern for many countries with large current account deficits.

1 The Central Bank of Brazil recently changed its accounting methodology from that prescribed by the fifth edition of the IMF Balance of
Payments Manual to that of the sixth edition. This has resulted in a substantial increase (55%) in its recorded FDI inflows. However, at
the time of publication, only the 2014 figures are available under the sixth edition methodology, meaning that changes in the data over
time cannot be identified. For that reason, in this chapter, all data concerning Brazil are represented by the fifth edition methodology
unless otherwise specified. The subsection specifically on Brazil includes and compared the results from both methodologies.
Chapter I

17
 Economic Commission for Latin America and the Caribbean (ECLAC)

A. Overview of foreign direct

investment worldwide
In 2014, global FDI inflows decreased by 7% to approximately US$ 1.27 trillion, reversing the slight uptick of the
previous two years. However, the drop is less striking when the largest divestment of 2014, valued at US$ 130 billion,
is excluded. In that transaction, United States-based Verizon Communications reacquired the 45% share in Verizon
Wireless previously held by the United Kingdoms Vodafone in order to take full control of the mobile telecommunications
carrier. Without this transaction, global FDI flows would have been practically stable in nominal terms.
Consistently with the recent trend, developing countries increased their share of global FDI inflows to 56%
in 2014 (see figure I.2). Transition economies saw FDI inflows fall by 51%, accounting for a mere 3.6% of global
FDI inflows. The primary culprits of this stark decrease were the political uncertainty in Ukraine and the Russian
Federations weakening economic performance, compounded by the sanctions against it. Developed economies saw
a small decrease of about 14% in inward FDI, attributable primarily to the Verizon deal, which caused a two-thirds
fall in inflows to the United States. If that deal had not taken place, inflows to North America would have decreased
only marginally. Inflows to the European Union, on the other hand, rose by 14% to US$ 267 billion, although this
is still equivalent to only about one third of the inflows before the financial crisis. Both France and Germany posted
negative FDI inflows in 2014, owing primarily to intercompany loans and, in the case of France, to a single divestment.

Figure I.2
Global flows of foreign direct investment by group of economies and the share of Latin America
and the Caribbean in those global flows, 1990-2014
(Billions of dollars and percentages)
2 000 16

14
1 600
12

10
1 200
8

800 6

4
400
2

0 0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Developing economies Developed economies

Transition economies Latin America and the Caribbean

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), Global
Investment Trends Monitor, No. 18 ((UNCTAD/WEB/DIAE/IA/2015/1), Geneva, 2015 and World Investment Report 2014 (UNCTAD/WIR/2014), Geneva, 2014.

FDI inflows to developing countries increased by 5% in 2014 relative to the previous year, with Asian economies
receiving the largest share (US$ 492 billion). The two largest FDI recipients worldwide are both located in Asia:
China, which received US$ 128 billion in 2014; and Hong Kong Special Administrative Region of China, which
received US$ 111 billion. In 2014, inbound FDI to Africa fell by about 3%, with a 17% decline in North Africa and
a marginal uptick in Sub-Saharan Africa. According to UNCTAD (2015), a 41% increase in mergers and acquisitions
(M&As) indicates growing interest in African consumer markets. Latin America and the Caribbean saw the largest fall
in inflows among developing economies, with a 16% drop. However, this was expected after the spike in inflows
in 2013 (see table I.1).2

2 For the first time, in this edition the figures in table I.1 do not include the Caribbean financial centres, which partly explains why the
overall numbers for all years reported are lower than those published in previous years. Yet, even excluding the financial centres,
developing economies were able to increase their proportion of global FDI inflows from 50% to 56%, the highest share ever recorded.
Chapter I

18
 Foreign Direct Investment in Latin America and the Caribbean 2015

Table I.1
Global foreign direct investment inflows, variation and distribution by region, 2005-2014 a
(Billions of dollars and percentages)

Investment flows Variation rate Investment flows

(billions of dollars) (percentages) (percentages)
Region grouping
2005- 2005- 2005-
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
2009 2009 2009
World 1 449 1 347 1 613 1 329 1 363 1 266 9 -7 20 -18 3 -7.1 100 100 100 100 100 100

Developed economies 917 703 880 590 594 511 8 -23 25 -33 1 -14.0 63 52 55 44 44 40

European Union 574 384 490 282 235 267 -2 -33 28 -42 -17 13.6 40 28 30 21 17 21

North America 259 226 263 213 302 139 24 -13 16 -19 42 -54.0 18 17 16 16 22 11

Transition economies 74 71 95 84 92 45 31 -4 34 -11 10 -51.1 5 5 6 6 7 4

Developing economies 470 590 653 655 676 710 10 26 11 0 3 5.1 32 44 40 49 50 56

Latin America and 99 132 172 183 190 159 8 33 31 6 4 -16.4 7 10 11 14 14 13
the Caribbean
Africa 47 47 48 55 56 55 17 1 2 15 2 -1.8 3 3 3 4 4 4

Developing Asia 323 409 431 414 427 492 10 27 5 -4 3 15.2 22 30 27 31 31 39

Errors and omissions -12 -17 -15 0 1 0 - - - - - - -1 -1 -1 0 0 0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), Global
Investment Trends Monitor, No. 18 ((UNCTAD/WEB/DIAE/IA/2015/1), Geneva, 2015 and World Investment Report 2014 (UNCTAD/WIR/2014), Geneva, 2014.
a In Global Investment Trends Monitor No. 18 (UNCTAD, 2015), UNCTAD introduced a methodological change by excluding data for the financial centres in the Caribbean

and elsewhere, which has resulted in significant changes for global totals and regional distributions for past years. As fully revised data are not yet available, regional
shares for past years have been corrected only for the inclusion of the Caribbean financial centres. Other updates implemented by UNCTAD for those years for
which full data are not available have been aggregated in the errors and omissions category.

B. Inward foreign direct investment

in Latin America and the Caribbean
1. General trends
FDI inflows reached US$ 158.803 billion in 2014, a 16.4% drop compared with 2013 and similar to the level recorded
in 2011, in nominal terms. This is only the third drop in FDI inflows since 2003 and the previous two, in 2006 and
2009, were quickly turned around by large increases in the following year.
FDI inflows grew from less than US$ 50 billion in 2003 to a peak of US$ 189.951 billion in 2013 (in nominal
terms) on the back of high commodity prices, which boosted FDI in natural resources, and steady GDP growth
across most of the region, which increased FDI in services and manufacturing for the domestic market. Prices of the
regions key export commodities started to decline in 2012 and economic growth slowed in 2013, but FDI inflows
continued to reach new highs in those years, in part because of the extraordinarily large acquisition of the Mexican
brewer Grupo Modelo by Anheuser-Busch InBev for US$ 13.249 billion in 2013. Excluding this single transaction,
FDI inflows would have been flat in 2013.
The decline in inward FDI is taking place in a context of relative financial stability and stable capital flows in
Latin America and the Caribbean (ECLAC, 2014b). In 2014, risk premiums remained stable and capital inflows held
firm on the back of increased other investment inflows (typically bank loans and deposits) (see figure I.3). For the
past five years, portfolio investment and other investment have grown in importance and remained relatively stable.
Over this period, FDI accounted for just 47% of cross-border capital inflows, compared with almost 70% during the
preceding decade. Nevertheless, since portfolio inflows are concentrated in the largest economies, many smaller
economies in the region rely more heavily on FDI for their capital needs.
Chapter I

19
 Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.3
Latin America and the Caribbean: inward cross-border capital flows, 2000-2014
(Billions of dollars)
400

350

300

250

200

150

100

50

-50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Foreign direct investment Portfolio investment Other investment

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official sources as of 18 May 2015.

In 2014, the dollar continued to appreciate against most other currencies. This trend was sparked by the United
States Federal Reserves 2013 announcement of its intention to begin withdrawing quantitative easing, and it continued
throughout 2014, accelerating towards the end of the year. The faster dollar appreciation was attributable to the falling
oil price, which affected several economies in Latin America, as well as the United States improving economic
performance and expectations of a hike in the interest rate set by the Federal Reserve.
Not all currencies were affected in the same way, however. Of the major currencies in Latin America, the
Argentine and Colombian pesos suffered the greatest depreciation with respect to the dollar in 2014, falling by 31%
and 24%, respectively. The currencies of Brazil, Chile and Mexico depreciated by between 12% and 15% against
the dollar, while remaining more or less stable against the euro. Peru is an exception since the sol depreciated only
slightly (7%) against the dollar and appreciated by a similar amount against the euro.3
The impact of such currency devaluations on FDI inflows is somewhat ambiguous. On the plus side, they can
reduce the cost of investments, particularly greenfield investments, that are expressed in local currencies. Meanwhile,
mergers and acquisitions, which are generally denoted in dollars, have become more expensive for European investors,
but cheaper for investors from the United States. A third consideration is that devaluation tends to reduce the returns on
market-seeking investments, whose profits are expressed in dollars, and increase returns on export-oriented investments.
In short, the impact of currency fluctuations is uncertain and depends on several factors, including the type of
investment, the origin of the investor and the specific local situation of the investment destination. Overall, in the
short term, devaluations are most likely to have a marginal effect, as FDI investment decisions are typically driven
by long-term considerations.
The decline in inward FDI was concentrated in the largest economies. Of the regions six largest economies, only
Chile recorded increased FDI inflows, while in Colombia they remained stable. Brazil remains the largest recipient
country in the region, having received US$ 62.495 billion in 2014, marginally less than in previous years. Mexico, the
second largest economy in Latin America, was also the second largest FDI recipient. However, at US$22.568billion,
its recorded inflows fell short of the average for the previous decade, even in nominal terms. On the other hand, the
two-year average of US$ 33.384 billion is the highest ever recorded. Chile received US$ 22.002 billion, more than in
2013, but still less than at its peak in 2012. At US$ 16.054 billion, inflows to Colombia were the same as for 2013. Peru
recorded a drop in FDI inflows for the second year running. While flows of FDI to South America, as well as Mexico,
ebbed in 2014, flows to Central America and the Caribbean were practically unchanged (see annex table I.A.1).

3 Before 2014, the Bolivarian Republic of Venezuela maintained an official fixed exchange rate of 6.3 bolvares to the dollar which was
significantly out of step with the parallel market rate. In 2014, the government introduced two alternative exchange rates, which stood
at 11.3 bolvares to the dollar and 50 bolvares to the dollar in November 2014. The use of different types of exchange rates is limited
to specific groups of importers and investors (ECLAC, 2014a). Early in 2015, another regime was introduced with an exchange rate of
192 bolvares to the dollar.
Chapter I

20
 Foreign Direct Investment in Latin America and the Caribbean 2015

Figure I.4
Latin America and the Caribbean (selected countries): inward foreign direct investment, 2013-2014
(Billions of dollars)
70

60

50

40

30

20

10

0
Brazil Mexico Chile Colombia Peru Argentina Central The Caribbean
America
2013 2014

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

In absolute terms, all three components of FDI inflows were lower in 2014 than in previous years. Capital
contributions fell the most relative to the other components, owing in part to their larger-than-usual share in 2013
following the Grupo Modelo acquisition mentioned above. Intercompany loans and reinvested earnings dropped
relatively less and therefore their share in the regions FDI inflows edged upwards (see figure I.5 and annex table I.A.4).4

Figure I.5
Latin America and the Caribbean: foreign direct investment by component, 2000-2014
(Percentages)
100

90

80

70

60

50

40

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Capital contributions Intercompany loans Reinvested earnings

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

The share of reinvested earnings in FDI inflows had grown over the previous decade, owing to a significant rise in
FDI income (ECLAC, 2013b). Since 2010, however, FDI income has grown only modestly and the share of reinvested
earnings in the regions FDI inflows has stabilized at around 40% of total inflows.
Across the region, transnational corporations tend to reinvest approximately 50% of their earnings within the
same subsidiary and repatriate the remaining 50%. The proportion of earnings that is reinvested has remained almost
unchanged over the years. In 2014, 53% of FDI income was reinvested in the economies with information available.5
FDI income, the profits reported by transnational corporations in the region, totalled some US$ 103.877 billion
in 2014, 16% less than in 2013. Most countries in the region registered a drop in FDI income, including Brazil (-9%),
4 The breakdown of FDI by component is calculated on the basis of information from 32 countries, representing 66% of FDI in the
region. Under the fifth edition of the IMF Balance of Payments Manual methodology, Brazil did not include reinvested earnings in its
calculation of FDI and it is excluded for this reason.
5 Calculations on the basis of data from Chile, Dominican Republic, Peru, Plurinational State of Bolivia and Uruguay.
Chapter I

21
 Economic Commission for Latin America and the Caribbean (ECLAC)

Colombia (-10%), Chile (-12%) and Peru (-14%). In the last two countries, the profit downturn was concentrated in
the mining sector. In Brazil the heaviest drop in FDI income was in the automotive sector, which was hit especially
hard by the worsening economic conditions and limited access to credit. This sector had yielded particularly high
profitability rates in Brazil over the past decade. The largest drop was registered in Mexico (-38%), but this was due
to extraordinarily high FDI income registered in 2013.
Average profitability, measured as FDI income divided by FDI stock, fell to 5%, which is slightly lower than the
average for the previous two decades and represents a sharp reduction from the highs of over 9% reached between
2006 and 2008 (see figure I.6).

Figure I.6
Latin America and the Caribbean: FDI income and average profitability of FDI, 1990-2014
(Billions of dollars and percentages)
140 10

9
120
8
100 7
Thousands

6
80
5
60
4

40 3

2
20
1

0 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
FDI income Average profitability

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

The decline in average profitability since 2012 was especially marked in countries with large FDI stocks in mining.
From 2006 to 2011, average annual profitability reached 25% in Peru and 15% in Chile, but since 2012, as prices
of metals have declined and costs have risen, these profitability levels have reverted to more reasonable rates (see
figure I.7). Average profitability also declined, albeit less, for countries in which FDI is not concentrated in natural
resources. By contrast, transnational corporations in Panama have reported a rise in average profitability, and so did
companies in Mexico, although from a low base.

Figure I.7
Latin America and the Caribbean (selected economies): FDI income as a proportion of FDI stock,
averages 2009-2012 and 2013-2014
(Percentages)
30

25

20

15

10

0
Peru

Chile

Guatemala

Argentina

Uruguay

Colombia

Dominican Rep.

Brazil

Nicaragua

Venezuela
(Bol. Rep. of)

Costa Rica

Honduras

Panama

Mexico

Bolivia
(Plur. State of)
Ecuador

Average for 2007-2012 Average for 2013-2014

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.
Chapter I

22
 Foreign Direct Investment in Latin America and the Caribbean 2015

Thanks to the continuing rise of FDI stocks in the region, the considerable drop in average profitability over the past
two years has led to only a small decline in FDI income. FDI stocks are defined as the assets owned by transnational
corporations in the host economy at the end of the year. FDI stocks grow with new investments (either greenfield or
acquisitions) and shrink with asset divestments or depreciation. In nominal terms they have risen considerably over
the past few years, reflecting the fact that FDI is the largest external liability for most economies.
FDI stocks have grown relative to GDP over the last decade, indicating that transnational corporations now have
a larger footprint than ever before in the region. This has not been the case, however, for Argentina, the Bolivarian
Republic of Venezuela, Ecuador, Guatemala and the Plurinational State of Bolivia, which have prioritized national
investments over FDI (with the exception of Guatemala) (see annex I.A.5).

2. Distribution of FDI by sector

For those countries with FDI data disaggregated by sector, the biggest change in 2014 was the slump in flows to the
natural resources sector, which recorded its lowest share in FDI in the last 10 years at 17% of total inflows, down from
24% in 2009-2013. Since manufacturings share remained at the same level as in previous years (36%, compared
with 39% in 2009-2013), the greatest expansion took place in the services sector. For those economies with data
available, the services sector received 48% of inflows in 2014, compared with 38% in 2009-2013. These averages
obscure the large differences between the economies, which are shown in figure I.8. In 2014, services exceeded a
50% share in Brazils total FDI for the first time, reaching 53%. This was explained in part by the relatively large fall
in the share of the natural resources sector, which shrank from 21% to 11% of inflows. In Mexico, manufacturing
absorbed more than 50% of FDI, owing largely to flows to the automotive sector, while the share of the services
sector fell to 33%. Services were also important in Colombia (41% of FDI inflows, up from 31% in 2009-2013), the
Dominican Republic (74%, up from 47%) and the rest of Central America (66%, compared with 61%) (see figure I.8).
The major economies that do not report data disaggregated by sector include Argentina, Chile and Peru. The last two
of these have typically received significant inflows of FDI to the natural resources sector, but tentative information
suggests that those flows also diminished in 2014 (see annex table I.A.2).

Figure I.8
Latin America (selected countries and subregions): sectoral distribution of foreign direct investment, 2014 a
(Percentages)
100

90

80

70

60

50

40

30

20

10

0
2009-2013 2014 2009-2013 2014 2009-2013 2014 2009-2013 2014
Brazil Mexico Colombia Central America and
Dominican Rep.

Services Manufactures Natural resources

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.
a The figures for Central America exclude Panama.

The natural resources sector consists of two components, each following a separate trend. The first is oil and
gas exploration and exploitation, which is mostly conducted through State-owned enterprises in Latin America,
although the industry also receives large inflows of FDI. The second is mining, which, owing in part to its more
diversified product base, involves far more players, though with the exception of CODELCO in Chile none are
large State-owned companies.
Chapter I

23
 Economic Commission for Latin America and the Caribbean (ECLAC)

Oil and natural gas prices had been very stable from 2011 to mid-2014, when they dropped by 40%. By the
fourth quarter of 2014, the fall in global oil prices led to a 12% reduction worldwide in upstream capital expenditure
(EIA, 2015), which is the fastest-responding segment in the oil sector and also the segment in which the bulk of capital
investment takes place. In fact, Anglo-Dutch supermajor Royal Dutch Shell announced a 40% cut in planned investments
for 20156 and the United Kingdoms BP intends to cut its investment budget by 20% (Adams and Energy Editor, 2015).
A significant decline in investment can therefore be expected in Latin America and the Caribbean in 2015 as projects
are put on hold. However, the rapid decline in oil and gas prices did not have an impact on the FDI figures for 2014.
The fall in prices in the mining sector began much earlier and, by contrast with hydrocarbons, mining investments
tend to have long run-up times. A global slump in mining activity was therefore foreseeable and, indeed, in 2014,
all aspects of mining saw global declines. Exploration budgets dropped by 26% between 2013 and 2014, down by
47% from 2012, although Mexico and Chile are still among the top five for global exploration (SNL Metals & Mining,
2015). Far fewer global milestones, such as the opening of new mines, were reached in 2014 than at the industrys
peak in 2010: 96 compared with 389.
Figure I.9 shows price movements for some key minerals, as well as crude oil. The impact of commodity cycles
depends on each countrys specific minerals base. Copper is the most important mineral in Latin America and has suffered
the largest and most consistent slump in recent years. Chile, as the worlds leading copper exporter, should expect to be
hit hard by this trend. The price of gold, a major export from Chile, Mexico, Peru and Suriname, peaked between early
2011 and mid-2013, but has been stable since then. The price of iron ore, produced mostly by Brazil in this region,
plummeted by 50% between January and November of 2014. Notwithstanding, the United Kingdoms Anglo American
completed its first shipments of ore from the new US$ 8.8 billion Minas-Rio operation in October (Walker, 2015).

Figure I.9
Global prices for selected commodities, 2010-2014
(Index: 2010=100)
160

140

120

100

80

60

40

20

0
Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014

Copper Iron ore Gold Crude oil

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Figure I.10 shows the distribution of major mining projects at any stage of development, from pre-feasibility to
construction around the world at the end of 2014. Latin America clearly dominates in the copper sector, with more
than 50% of projects (by value) under way in the region. Chile is the largest single player, but Peru also has several
large projects under development. The region is also very active in gold and silver mining, with approximately 30% and
40% of worldwide projects, respectively. By contrast, its involvement in iron ore and nickel projects is only marginal.
Projects in the pipeline are an important consideration, since they will be the target of investment in the coming years.
While the manufacturing sector may have seen a small drop in its share of FDI, it continues to be very important
for many economies. This is particularly the case since manufacturing investment tends to be less capital-intensive
than natural resources investment and can thus create more employment per dollar invested (see chapter III of
ECLAC,2014b). Manufacturing is a sector with two different identities. On the one hand, it can be market-seeking,
which is the case in large markets and for specific products, such as cement, food and beverages and others. These

6 See BloombergBusiness (2015).

Chapter I

24
 Foreign Direct Investment in Latin America and the Caribbean 2015

products have limited tradability and investments in such subsectors thus seek to take advantage of local markets. On
the other hand, investment in export-oriented manufacturing makes use of local strengths, such as low-cost labour,
to produce products for export. This type of manufacturing is particularly prevalent in Central America, Mexico and
the Dominican Republic, from where many products are exported to North America. Export-oriented manufacturing
tends to materialize through greenfield projects undertaken by transnational corporations, whereas market-seeking
investment more often takes the form of mergers and acquisitions.

Figure I.10
Latin America and the Caribbean (selected countries) and rest of the world:
distribution of major mining projects,a late 2014
(Percentages)
100

90

80

70

60

50

40

30

20

10

0
Copper Gold Iron ore Nickel Silver

Rest of the world Rest of Latin America and the Caribbean Peru
Mexico Chile Argentina

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of on the basis of S. Walker, Pulling back across the board, Engineering
and Mining Journal, 16 January 2015.
a These figures represent the value of mining projects that are currently under way, but at different stages of development. There is no guarantee that these projects

will be completed.

The automotive sector can be the recipient of either type of investment. It is a sector dominated by transnational
corporations: all the assemblers in the region and the largest auto parts makers are foreign-owned. Most production
takes place in Mexico and Brazil and FDI inflows into the sector in both economies have grown significantly since 2012.
From 2003 to 2011, inflows into the automotive sector in the two countries combined averaged US$2.909billion per
year, rising to US$4.028 billion in 2012, US$5.791 billion in 2013, and a record high of US$8.031 billion in 2014.
Mexicos automotive plants are deeply integrated with those of the United States and Canada, its co- signatories in
the North American Free Trade Agreement. Mexico exports 82% of its production, compared with only 11% for Brazil.
Brazils automotive industry is integrated with its neighbouring Southern Common Market (MERCOSUR) members. More
than 57% of Brazils automotive exports go to other MERCOSUR members. More than 80% of automotive exports from
Argentina, Paraguay and Uruguay are within MERCOSUR, mostly to Brazil. Argentina is the only other MERCOSUR
country to have a sizeable automotive industry (which has been growing in recent years). Uruguay exports assembled
vehicles to Brazil and Paraguay has specialized in the production of tyres, exports of which have averaged US$17million
a year since 2009. Several companies announced new investments in Paraguay recently (in tyres and other auto parts),
suggesting growth potential in the auto parts industry there in the coming years (see section D.2 for details).
For the first time in three years, services are again the largest recipient of FDI, absorbing 47% of inflows in those
countries that report data disaggregated by sector. The services sector is relatively diverse, and includes financial
services, business process outsourcing (BPO), electricity generation, infrastructure and tourism. Each of these
receives significant FDI inflows, although the distribution differs significantly in each economy. In the Caribbean,
for example, BPO and tourism are particularly important, although disaggregated data are often not available. These
two sectors, which are not particularly capital-intensive, are pivotal for the Caribbean because of their capacity to
create employment. Chapter II addresses the Caribbean in more detail and explores some of the key features of BPO
and tourism in the subregion.
The financial services sector is not generally considered to be capital-intensive, but it is a very valuable sector
and one in which many mergers and acquisitions take place. In 2014, for example, Chiles Corpbanca acquired
Chapter I

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 Economic Commission for Latin America and the Caribbean (ECLAC)

Helm Bank of Colombia for US$ 1.32 billion, only to be taken over itself subsequently by Brazils Ita Unibanco for
US$2.2 billion. In recent years, other large takeovers have also attracted significant attention, and in general there is
a trend towards consolidation in the sector. At the same time, European and North American banks have announced
divestments from the region in recent years, capitalizing some of their more profitable assets.
Transport infrastructure in general does not receive much FDI, with the exception of port- and shipping-related
projects and a very small number of highways, mostly in Chile. However, there appears to be a trend towards growing
foreign investment in airports, as discussed at length in box I.1. Telecommunications are another area of infrastructure
that receives substantial investment. In fact, the gradual roll-out of fourth-generation (4G) technology requires a large
and continuous stream of investment from international telephone operators. In Brazil, telecommunications was the
second largest services category in 2014, after commerce. Mexico reported a significant negative inflow to the sector
in 2014, owing to a single, one-off divestment by the United States AT&T, as discussed in more detail in section D.3.
In many Central American and Caribbean economies, some of the most significant investment announcements in
2014 concerned the expansion of 4G coverage.
Lastly, electricity generation was the fourth largest services sector in Brazil, with inflows of US$2.291billion.
In Mexico, by contrast, inflows to the sector remained low, but a significant legislative change is likely to open up
the sector to major investment in the coming years, including an announced US$5billion investment by Spanish
electricity giant Iberdrola. In other economies, particularly in Central America, Chile and Uruguay, it is the renewable
energy sector that is at the centre of attention, with numerous new wind farms and solar plants under construction.

Box I.1
Landing investments in Latin America
Air traffic to Latin America and the Caribbean is on a solid growth operator Infraero has awarded concessions to consortiums
path, with recent figures showing that the region has the second for some of the countrys largest airports, while maintaining a
highest growth of any region at an annual rate of 8.2%. Although minority stake in each of the concessions. Inframrica, which
Brazil has not posted the same robust economic growth as includes Argentinas Corporacin Amrica as one of the two
several other economies in the region, including Chile, Colombia consortium members, has maintained and operated Brasilia
and Peru, in recent times, all these countries are expected to international airport since 2012 on a 25-year concession that
see persistently strong growth in air traffic. In the long term, included significant upgrades before the World Cup. The same
Brazil is expected to rise from tenth to fifth position in the global consortium also built and now operates the new airport at Natal,
ranking of most important airline markets. Air freight growth is the only airport in Brazil in which Infraero does not have a stake
somewhat slacker, but still significant. in the concession. So Paulos Guarulhos Airport was reopened
This is reflected in the number of airport construction in 2014 after a US$ 1.3 billion upgrade by its operators, consisting
projects in the region: 318, according to the Centre for Aviation, of South Africas Airports Company South Africa (ACSA) and a
in Latin America alone, which is 13.6% of all projects worldwide. local investment fund. Belo Horizontes 30-year concession was
In terms of capital expenditure, however, the figures for Latin awarded in 2014 to a consortium that includes the operators
America are much less impressive: only 6.3% of total expenditure of the international airports of Zrich and Munich, which has
is scheduled to take place in the region, for an estimated total pledged to invest US$ 660 million. Finally, Rio de Janeiros airport
of US$ 34.2 billion. This implies that the projects taking place is operated by Brazils Odebrecht and Singapores Changi Airport,
in Latin America are relatively small-scale. The regions share which will invest a further US$ 888 million before the start of
in new airports is 12.7%, ahead of the Middle East (6.9%) and the Olympic Games in 2016.
North America (2.4%). While Brazil is the dominant air market in Latin America, other
Airports are an important category of infrastructure, since countries also receive significant investment in their airports.
they require large investments and support other types of FDI Bogotas El Dorado Airport is the third busiest in Latin America
and development. Furthermore, airport infrastructure projects (after So Paulo Guarulhos and Mexico City International Airport)
receive a relatively larger share of foreign investment than other and is currently undergoing a US$1.26billion reconstruction
infrastructure projects. Traditionally, airports were run by the scheduled for completion in 2016. El Dorado is operated by a
State, but the past 20 years have seen privatizations and the consortium consisting of several local firms and Switzerlands
introduction of public-private partnerships and other forms of Flughafen Zrich. Limas Jorge Chvez International Airport is
shared ownership. One common practice is to award concessions currently in the first phase of a US$ 1 billion expansion plan to
lasting several decades to private operators. However, the situation be completed by 2030. The consortium operating the airport is
differs significantly between countries. For example, in Mexico led by Germanys Fraport (70%), together with the International
most airports are managed by one of three large government- Finance Corporation (20%) and a local investment fund (10%).
owned corporations: Aeropuertos y Servicios Auxiliares (ASA), Finally, the concession for the international airport of Santiago
with 19 airports; Grupo Aeroportuario del Pacfico (GAP), with was awarded in early 2015 to a consortium consisting of Frances
12airports; and Aeropuertos del Sureste (ASUR), with 9 airports. Aroports de Paris (45%), Frances VINCI Airports (40%) and Italys
In Brazil, the largest airports are run by consortiums of domestic Astaldi (15%). Investments of approximately US$700million
and foreign companies. are planned by 2030 to triple the airports capacity. The table
Brazil has seen a wave of investment in airports owing to below shows some of the largest investments in airports
the 2014 World Cup and the 2016 Olympic Games. The State currently under way.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Box I.1 (concluded)

Latin America: major airport expansions

Estimated cost Current capacity Future capacity
City and country Planned completion date
(millions of dollars) (millions of persons) (millions of persons)
Belo Horizonte, Brazil 666 10 20 2016
Rio de Janeiro, Brazil 888 17.5 30 2016
Santiago, Chile 700 9.5 29 2030
Bogota, Colombia 1260 14 20 2016
Punta Cana, Dominican Republic 100 5 10 2015
San Salvador, El Salvador 490 1.6 6.6 2032
Cancn, Mexico 750 15 25 2016
Mexico City, Mexico a 321 32 n/a 2018
Panama City, Panama 840 9 18 2026
Asuncin, Paraguay 264 1.2 2 2017
Chiclayo, Peru 128 ... ... 2015
Lima, Peru 1000 10 ... 2030
Piura, Peru 231 ... ... 2023
Barquisimeto, Bolivarian 413 ... ... 2015
Republic of Venezuela
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on basis of Centre for Aviation, Latin America airport construction and investment
activity continues - but Brazil slows [online] http://centreforaviation.com/analysis/latin-america-airport-construction-and-investment-activity-continues--
-but-brazil-slows-193981.
a Excludes the planned US$ 13 billion outlay for a new airport in Mexico City.

Not all the investments in the table above are funded to see further international investment, but only if governments
through FDI, but many of the airports in question are operated are willing to relinquish control of national airports. Airports are
by transnational consortiums. Taking into account the projected strategic assets and cooperation between the private and public
rate of growth in Latin American air traffic, the sector can expect sectors can help to boost FDI in airport infrastructure.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on basis of Centre for Aviation, Latin America airport construction and investment
activity continues - but Brazil slows [online] http://centreforaviation.com/analysis/latin-america-airport-construction-and-investment-activity-continues--
-but-brazil-slows-193981.

3. Technology intensity of investment

The structure of the regions economies varies greatly in terms of relative intensities of capital and labour. This structure
is largely the result of fortune and past economic policies. For example, countries that are rich in natural resources
are more likely to be capital-intensive than countries whose focus is on services. The respective growth rates relating
to labour and physical capital thus partly determine the growth rate of an economy. However, another factor that
drives economic growth is the capacity to improve productivity, primarily through innovation. The different elements
that contribute to the capacity to innovate can be measured and expressed as a share of GDP, as for physical capital.
This measure is referred to as innovation capital and by this indicator Latin America lags significantly behind many
Organization for Economic Cooperation and Development (OECD) countries.
Figure I.11 shows estimated innovation capital as a share of GDP for selected countries in Latin America. Due
to limitations in data availability, it is not always possible to estimate the exact figures for each economy and upper
and lower bounds for each country are therefore indicated. Brazil is far ahead of the other economies with respect to
capacity to innovate, while Panama has the lowest level of innovation capital. The factors used to measure innovation
capital include investments in software and hardware, expenditure on research and development, expenditure on
tertiary education and other forms of training, and number of patents filed. Even though the data are standardized by
economy size, larger economies tend to have more innovation capital. The figure also shows that Central American
countries have relatively low levels of innovation capital compared with South American countries.
Chapter I

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 Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.11
Latin America (selected economies): estimated innovation capital as a share of GDP, 2010
(Percentages)
Brazil
Chile
Bolivia
(Plur. State of)
Colombia
Argentina
Mexico
Costa Rica
Paraguay
Ecuador
Honduras
Peru
El Salvador
Uruguay
Guatemala
Panama
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of O. de Groot, Innovation capital in Latin America: A first attempt at
analyzing the regions competitive strengths in innovative capacity, Santiago, Chile, ECLAC, 2014, unpublished.
Note: The bars indicate point estimates for the size of innovation capital, while the whiskers indicate the uncertainty of the estimation, providing a lower and upper
bound of the estimates.

Just as an abundance of natural resources can attract investment in natural resources, an abundance of innovation
capital can help attract investment in high-technology sectors. A wealth of innovation capital is, in fact, one of the
factors that contributes to the potential productivity of high-technology investment. This relationship can be investigated
by looking at the technology intensity of announced investment projects as recorded by the Crossborder Investment
Monitor (fDi Markets) published by the Financial Times.7
Figure I.12 shows the technology intensity of FDI for selected Latin American economies. Medium-high- and
high-technology investments make up a large share of announcements in both Brazil and Mexico. The automotive
sector captures a large share of these inflows, primarily in these two countries (see boxes I.2 and I.4 of ECLAC,
2014b). At the other extreme, medium-high- and high-technology investments account for less than 40% of the
value of investments announced in Colombia, Panama and Peru. This difference has to do with the structure of the
economies for example, the Panamanian economy is very services-centred and it has implications for the impact
of FDI. Aside from Brazil and, to a more limited extent, Mexico, single investments can have a large impact on the
total figures since the number of projects per country is limited.
The new Audi plant in Puebla, Mexico, illustrates the impact that more technology-intensive FDI can have.
Following the inauguration of a new, highly advanced plant some years ago, Germanys Volkswagen Group, which
owns the Audi brand, worked together with the local government and a local university to create a new training centre
to be completed in 2015. Since the plant employs some of the most advanced production techniques used within the
multinational enterprise, it was decided to build a training centre in order to ensure that the staff would be qualified
to use the most up-to-date new technologies. Furthermore, in order to optimize efficiency, producers of intermediate
suppliers are also trained at the centre. As a result, Audis incorporation into the production structure will help raise
the skill level of a large share of workers in the region. In addition to the Volkswagen Group, the project also involves
another German company, Siemens, which produces some of the electronics for Audi vehicles.
Lastly, figure I.13 shows the technology intensity of investment projects in the region as a share of the total value
of all investment announcements for different time periods. This figure again highlights that there are very few high-
technology investments in Latin America, with the share holding steady at around 4% of the total value of announced
investments from 2008 to 2014, according to fDi Markets. However, an encouraging pattern can be seen in the growing
prevalence of medium-high-technology projects, whose share rose from 38% in 2008-2010 to nearly 56% in 2014.
7 fDi Markets is a database of investment announcements, and there is therefore no certainty that the announced projects will be
completed. Analysts from fDi Markets estimate the costs of investment projects when these are not published, which is both a strength
and a weakness of this database. It is a strength since it makes the database significantly more comprehensive than it would otherwise
be. It is also a weakness since the estimates are occasionally unrealistic. The database categorizes each project under one of 53 sectors
and one of 18 activities, with each of these combinations classified by technology intensity.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

The especially large share recorded in 2014 is attributable to the great number of announcements in the automotive
sector, particularly in Mexico. Such a large number of announcements in a single year is somewhat uncommon and
2015 may be expected to bring a return to the lower average of previous years. The share of medium-low-technology
investment projects has dropped from 40% in 2008-2010 to 21% in 2014, owing largely to reduced investment in
some heavy industries in certain large countries. Finally, the low-technology category displays no clear trend, varying
between 18% and 26% in the periods covered by the figure.
Figure I.12
Latin America (selected economies): technology intensity of announced investments, 2011-2014
(Percentages)
100

90

80

70

60

50

40

30

20

10

0
All-2014 Brazil Mexico Chile Colombia Argentina Venezuela
(Bol. Rep. of)

Low Medium-low Medium-high High

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

Figure I.13
Latin America and the Caribbean: technology intensity of announced investments,
2008-2010, 2011-2013 and 2014
(Percentages)
100

90

80

70

60

50

40

30

20

10

0
2008-2010 2011-2013 2014

Low Medium-low Medium-high High

Source: Economic Commission for Latin America and the Caribbean (ECLAC) on basis of Financial Times, fDi Markets.

4. Largest investor countries

The Netherlands has now become the largest single investor in Latin America and the Caribbean, accounting for
20% of all attributable8 inflows, up from 14% in 2013. The share of the United States in FDI inflows, meanwhile, fell
to 17%, down from 20% in 2013 and 25% in 2012. Naturally, this hides a large degree of intraregional variation. In
Mexico, for example, the United States regained its position as top investor despite its share slipping from 30% to 29%.
In 2013, it had lost its top position to Belgium, owing to the takeover of Grupo Modelo by Belgiums Anheuser-Busch
Inbev. In Brazil, the United States share of investment shrank to 13%, making the country the second largest investor
after the Netherlands at 29% (see figure I.14).

8 Not all countries provide a disaggregation of FDI inflows by country of origin. Data in this section is based on those countries included
in figure I.14
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.14
Latin America (selected countries and subregions): origin of foreign direct investment, 2014
(Percentages)
100 1
13 14 15
90
29 24
11 33
80 14
2 28
70 4 3 7
0
60 11 30 6
6 0 3 0
28
50
50 0
40
43 23 9
30 45 58
14
20 2 11 3
10 0
18 13
2 12 12
0 3
Brazil Mexico Colombia Ecuador Dominican Central America a
Rep.

Unknown Others Europe Japan

Canada Latin America and the Caribbean United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.
a Central America includes Costa Rica, El Salvador, Guatemala and Honduras.

The dominant position of the Netherlands reflects its prominence in the Brazilian market, whereas in other
countries, it plays a much smaller role. Instead, Spain, which nearly quadrupled its share to 10% in 2014, is the largest
European investor in other economies. In Mexico and Colombia, Spain is responsible for approximately 18% and 13%
of inflows, respectively. Two of the largest M&As in 2014 were carried out by Spanish companies: Gas Natural Fenosa
acquired 54% of Chiles Compaa General de Electricidad for US$ 3.3 billion and Banco Santander expanded its share
in Banco Santander Brasil by 14% for US$3.199 billion (see table I.2). The third large European investor, with 8% of
total inflows, is Luxembourg, which is also particularly important in Brazil (10% of inflows). Not typically renowned as
economic powerhouses, the Netherlands and Luxembourg act as conduits for investment from other countries. Ideally,
these investment flows should be attributed to their original source countries, but this is not always possible. The data
available therefore show that these two countries, and Ireland to a lesser extent, continue to play a large role.
FDI from Asia increased in 2014, although this FDI cannot always be tracked easily or directly because some countries
in Latin America and the Caribbean do not keep records on the origin of investment. For example, table I.2 shows that
three of the largest M&As in 2014 were completed by Chinese companies, including the largest acquisition recorded
during the year. However, two of these took place in Peru, whose central bank does not track the origin of investment.
This leads to a significant underestimation of Chinas role in FDI in Latin America and the Caribbean. ECLAC estimates
that the region received FDI inflows of US$ 10 billion per year from China between 2010 and 2013. This figure was
probably even higher in 2014 in view of the aforementioned acquisitions. Overall, FDI from Asia increased from 5% to
6%, with Chinas share in recorded inflows to Latin America and the Caribbean increasing to 1% (see annex table I.A.3).
Table I.2
Latin America and the Caribbean: 20 largest mergers or acquisitions, 2014
Amount
Company Country of origin Assets acquired Asset location Seller location Sector (millions of dollars)
1 MMG Limited and partners China Glencore Las Bambas Peru Switzerland Mining 7 005
copper deposit
2 Royal Dutch Shell Netherlands and Repsol liquefied natural Peru, Trinidad and Spain Oil 4 100
United Kingdom gas (LNG) portfolio Tobago, Spain
3 Gas Natural Fenosa Spain Compaa General de Chile Chile Electricity 3 300
Electricidad (54%)
4 Banco Santander Spain Banco Santander Brazil Brazil Finance 3 199
Brasil (14%)
5 China National Petroleum China Petrobras Energa Per Peru Brazil Oil 2 600
Corporation (CNPC)
6 PPG Industries United States Consorcio Comex Mexico Mexico Manufacturing 2 300
7 Lundin Mining Corporation Canada Candelaria and Ojos del Chile United States Mining 1 800
Salado mines (80%)
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Table I.2 (concluded)

Amount
Company Country of origin Assets acquired Asset location Seller location Sector (millions of dollars)
8 Global Logistics Properties Singapore 34 industrial properties Brazil Brazil Real estate 1 368
9 Corpbanca Chile Helm Bank Colombia Colombia Banking 1 320
10 Millicom Sweden Telecommunications Colombia Colombia Telecommunications 1 300
business of EPM (50%)
11 Eutelsat Communications France Satlites Mexicanos Mexico Mexico Telecommunications 1 142
12 American Tower Corporation United States BR Towers Brazil Brazil Telecommunications 1 012
13 Mubadala Development United Arab Emirates MMX Porto Sudeste Brazil Brazil Infrastructure 971
and Trafigura Beheer and the Netherlands de Brasil (65%)
14 Brookfield Asset Management United States VLI (27%) Brazil Brazil Transport 845
15 Celsia Colombia Seven power plants Costa Rica and France Electricity 840
Panama
16 Pearson United Kingdom Grupo Multi Brazil Brazil Education 829
17 Mitsui & Co. Japan Jirau hydropower Brazil France Electricity 750
plant (20%)
18 Partners Group Switzerland Fermaca Mexico United States Infrastructure 750
19 Alliance Boots United States Farmacias Ahumada Chile and Mexico Mexico Commerce 740
(Walgreens and KKR)
20 China Construction Bank China Banco Industrial e Brazil Brazil Banking 725
Comercial (72%)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by Bloomberg.

Table I.3 shows that there were also several major divestments in 2014, which may be defined as acquisitions
by national companies of assets held by foreign investors. The largest of these took place in Argentina. In 2012, the
Government of Argentina introduced legislation to partially renationalize YPF, which was owned by Spains Repsol.
The compensation was decided only in 2014, with the Government of Argentina paying US$5billion for Repsols
51% share. Repsol later sold a further 12% for US$1.311billion. The second largest divestment came from the United
States AT&T, which sold its share in Amrica Mvil to Inmobiliaria Carso. More details about this transaction can be
found in section D.3. Other divestments took place in several other countries, including Brazil, Colombia and Mexico.
Table I.3
Latin America and the Caribbean: 10 largest divestments, 2014
Amount
Selling company Seller location Assets divested Buyer Country Sector (millions of dollars)
1 Repsol Spain YPF (63%) Government of Argentina Oil 6 311
Argentina
2 AT&T United States Amrica Mvil (8%) Inmobiliaria Carso Mexico Telecommunications 5 570
3 TRG Management United States Transportadora de Gas Empresa de Energa Colombia Infrastructure 880
Internacional (32%) de Bogot
4 Apache United States All local assets YPF Argentina Gas 852
5 Carrefour France Carrefour Brazil (10%) Pennsula Brazil Commerce 678
Participaes
6 Newmont United States Penmont gold mine (44%) Fresnillo Mexico Mining 450
7 BP United Kingdom Polvo oil field (60%) HRT Participaes Brazil Oil 135
em Petrleo
8 Iberdrola Spain Itapebi Gerao de Neoenergia Brazil Electricity 134
Energia (23%)
9 Prudential Financial United States Centro Bancomer Fibra Uno Mexico Real estate 125
Administracin
10 Petrobras Brazil Transierra (45%) Yacimientos Plurinational Infrastructure 107
Petrolferos Fiscales State of Bolivia
Bolivianos (YPBF)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by Bloomberg.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

C. Outward foreign direct investment

FDI outflows from Latin America and Caribbean countries fell substantially for the second year in a row to
US$29.162billion in 2014, down by 12% with respect to 2013. These flows averaged US$ 46.800 billion per year
between 2010 and 2012 and have fallen by a cumulative 42% to the current level. FDI outflows have always been
volatile because they are concentrated in a handful of countries and a limited number of large trans-Latin corporations,
making them very sensitive to individual acquisitions or large projects (see figure I.15 and annex table I.A.6).
The drop in 2013 and 2014 can be explained by the same factors that have eroded FDI inflows. Since most
outward investment from Latin American and Caribbean economies remains within the region, any worsening of
investment prospects in the region also affects FDI outflows. Furthermore, many of the largest trans-Latin corporations
are in the extractive industries, which are reducing capital investment in response to lower commodity prices.

Figure I.15
Latin America and the Caribbean: outflows of foreign direct investment, 2003-2014
(Billions of dollars)
60

50

40

30

20

10

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Economic Commission for Latin America and the Caribbean (ECLAC) on basis of official figures and estimations as of 18 May 2015.

Traditionally, most of the largest trans-Latin corporations come from just four countries: Brazil, Chile, Colombia
and Mexico. These four countries account for 90% of total outflows from the region over the previous decade (see
table I.4). The drop in outflows in 2014 was concentrated in Colombia and Mexico. In Colombia, the bulk of outflows
are invested in the extractive industries (46% of total), followed by manufacturing (21%). Unfortunately, comparable
data for Chile and Mexico are not available.

Table I.4
Latin America and the Caribbean (selected economies): outward foreign direct investment, 2000-2014
(Millions of dollars)

2000-2005 a 2006 2007 2008 2009 2010 2011 2012 2013 2014

Argentina 533 2439 1504 1391 712 965 1488 1055 1097 2117

Brazil 2513 28202 7067 20457 -10084 11588 -1029 -2821 -3495 -3540

Chile 1988 2212 4852 9151 7233 9461 20252 20555 10308 12052

Colombia 1187 1268 1279 3085 3505 5483 8420 -606 7652 3899

Mexico 2909 5758 8256 1157 9604 15050 12636 22470 13138 7610

Venezuela (Bolivarian Republic of) 809 1524 -495 1 311 2 630 2 492 -370 4 294 752 1024

Latin America and the Caribbean 10632 43447 24 134 37 440 16 911 46 276 44 686 49 439 33251 29 162
Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official figures and estimate as of 18 May 2015.
a Simple averages.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Brazil has the largest stock of FDI abroad in the region, but for the fourth year running it reported negative
FDI outflows in 2014 according to the methodology of the fifth edition of the IMF Balance of Payments Manual.9
This does not mean that Brazilian companies are abandoning their investments abroad. Indeed, in 2014 Brazilian
companies invested US$ 19.556 billion in capital contributions, which is the highest figure since 2011, but received
US$23.096billion in net loans from subsidiaries abroad. The result is a negative inflow of US$ 3.540 billion, similar
to last years figure. New investments in 2014 primarily targeted the financial services sector and telecommunications.
In 2014 Peru became the third largest investor country, behind Chile and Mexico, with outflows of US$4.452billion.
Some of the largest Peruvian companies have been investing abroad since 2006, benefiting from strong economic
growth in their domestic market, macroeconomic stability and better access to finance (Peru acquired investment
grade status in 2008). From 2006 to 2013 outflows averaged only US$1.4billion a year, but several large acquisitions
and projects in 2014 drove up outflows to a record high.
There is no official data on the sectoral distribution of FDI outflows from Peru, but the largest companies are chiefly
in mining and food manufacturing. Hochschild Mining specializes in underground mining for silver and gold and has
subsidiaries in Argentina, Mexico and Chile, where it has recently acquired a project that will require investments
of around US$ 1 billion. Another large mining transnational is Minsur, part of Grupo Breca, which specializes in tin
mining. Its largest operation outside Peru is Minerao Taboca in Brazil. In food manufacturing the largest companies
are Aje, Gloria and Alicorp, which have a presence in many Latin American markets. In 2014 there were two large
cement acquisitions: UNACEM bought a plant in Ecuador for US$ 517 million and Grupo Gloria bought a plant in the
Plurinational State of Bolivia for US$ 300 million. Peruvian companies follow a similar strategy to their counterparts
in Colombia or Chile of seeking out markets in neighbouring countries.
Outflows from Argentina surged to US$2.117billion, double the amount of the previous year; and outflows
from the Bolivarian Republic of Venezuela totalled US$ 1.024 billion. The State-owned Petrleos de Venezuela, S.A.
(PDVSA), the largest company in the Bolivarian Republic of Venezuela, was rumoured to be looking for a buyer for
its subsidiary in the United States, which operates three refineries with a capacity of 750,000 barrels per day (bpd).
The transaction, should it occur, would be worth several billion dollars.
FDI outflows from other economies are much more modest, although this is largely due to underreporting: almost
half of the economies in the region do not report on outward FDI and many who do fail to record substantial flows.
Official figures from Central American countries are particularly low, with the partial exception of Costa Rica which
registered outflows of US$ 218 million in 2014. Still, there is evidence that some companies are expanding considerably
in other countries, generally within Central America (see box I.2). In 2014, Promerica Financial Corporation from
Panama bought a majority share in Banco de la Produccin in Ecuador for US$130 million. In early 2015, Banco
Ficohsa of Honduras acquired the assets of Citibank in Guatemala, having acquired its Honduran assets in 2014.
Chapter II contains a more detailed analysis of outward FDI from the Caribbean economies.

Box I.2
Central American trans-Latins
Between 2011 and 2013, investment by transnational corporations (i) Two thirds of investments are primarily market-seeking, with a
in Central American countries outside their home country view to expanding operations and taking advantage of economies
represented only 1% of total Latin American and Caribbean of scale or to establishing a regional presence (see figure).
investment abroad. However these investments are growing (ii) Although large and medium-sized enterprises predominate (70%
and are important for the subregions economies. of Costa Rican transnationals have more than 51employees),
According to information provided by fDi Markets and there is also scope for the participation of small businesses
Thomson Reuters (see Padilla and Gomes, 2015), Central and even micro-enterprises.
American companies made 271 foreign investments between (iii) In some economic activities, such as logistics and business
2003 and 2013. Panama, Costa Rica and El Salvador were the services, internationalization is a necessity: large clients see
main investor countries and the largest number of transactions Central America as a single market and expect services at the
were recorded in business and financial services, the wholesale subregional level, which requires investment and a physical
sector and food and beverages. presence in different countries.
Interviews conducted in the context of a case study with (iv) Costa Rican trans-Latins are highly concentrated in the countries
representatives of a significant sample of transnational corporations of the subregion: two thirds operate exclusively in other
in Costa Rica found the following: Central American countries and only 22% of the companies
surveyed had invested outside Latin America (typically in the
United States, Europe or Asia).

9 Under the methodology prescribed in the six edition of the IMF Balance of Payments Manual, Brazils outward foreign direct investment
in 2014 is actually US$ 25.736 billion, primarily owing to a large change in the way intercompany lending is accounted for.
Chapter I

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 Economic Commission for Latin America and the Caribbean (ECLAC)

Box I.2 (concluded)

Costa Rica: distribution of companies by main foreign investment strategy

(Percentages)
Other
(8.9)
Specialized-resource-seeking
(4.4)

Natural-resource-seeking
(6.7)

Efficiency-seeking (costs)
(15.6)
Market-seeking
(64.4)

Source: R. Padilla and C. Gomes, Determinants and home-country effects of FDI outflows in Latin America, Mexico City, ECLAC subregional headquarters in
Mexico, 2015, unpublished.

The Costa Rica case study also sought to identify the jobs, more activities with a higher technology content and greater
main consequences of businesses internationalizing in a small productivity, while the qualitative effects include technology
economy. The quantitative effects include the creation of new transfer and improved goods and services.
Source: R. Padilla and C. Gomes, Determinants and home-country effects of FDI outflows in Latin America, Mexico City, ECLAC subregional headquarters in
Mexico, 2015, unpublished.

The two largest corporate acquisitions by Latin American companies in 2014 were in the telecommunications
sector. Oi from Brazil carried out its announced merger with Portugal Telecom (valued at US$8.056billion) and
Amrica Mvil increased its stake in Telekom Austria for US$6.110billion (see table I.5).

Table I.5
Latin America and the Caribbean: 15 largest cross-border acquisitions by trans-Latins, 2014
Country Amount
Company Assets acquired Asset location Seller location Sector
of origin (millions of dollars)
1 Oi Brazil Portugal Telecom Portugal Portugal Telecommunications 8056

2 Amrica Mvil Mexico Telekom Austria (33%) Austria and elsewhere Austria Telecommunications 6110

3 Grupo Bimbo Mexico Canada Bread Canada Canada Food and beverages 1497

4 Corpbanca Chile Helm Bank Colombia Colombia Banking 1320

5 Celsia Colombia Seven power plants Costa Rica and Panama France Electricity 840

6 Cementos Argos Colombia Cement and concrete United States United States Cement 720
businesses in Florida
7 Falabella Chile Maestro Peru Peru Retail 712

8 Mexichem Mexico Dura-Line United States United States Chemicals 630

9 Alsea Mexico Food Service Spain Great Britain Real estate 298
Project (72%)
10 Mexichem Mexico Vestolit Germany United States Chemicals 293

11 COPEC Chile Proenergia Internacional Colombia Colombia Retail 287

12 Finaccess Mexico IBM Headquarters Spain United States Real estate 189

13 SONDA Chile CTIS Tecnologia Brazil Brazil Information technology 169

14 Alfa Mexico Campofrio (19%) Spain Spain Food and beverages 167

15 Promerica Financial Panama Banco de la Ecuador Ecuador Banking 130

Corporation Produccin (56%)
Source: Economic Commission for Latin America and the Caribbean (ECLAC) on basis of Financial Times, fDi Markets.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Outward direct investments by companies in Latin America and the Caribbean are still largely concentrated within
the region, but as companies grow and develop a significant number of them are starting to invest in other regions. Most
of the largest trans-Latin companies from Mexico invest in the United States, as do some of the largest corporations
from Brazil and Colombia. In recent years many companies have also been increasing their investments in Europe.
According to data from the European countries, FDI from Latin American countries has increased notably since 2009
(see figure I.16), reflecting the more readily available financial resources of Latin American companies relative to
their European counterparts. The first reflection of this shift was the divestment by European companies of valuable
assets in Latin America in order to improve cash flows, but as the situation develops Latin American companies are
also entering the European market. Investment by trans-Latin corporations in other developing regions remains rare.
Figure I.16 shows the nearly continuous increase of FDI inflows into European Union member States. Only
between 2008 and 2009 was there a significant drop in inflows from Latin America, but this was consistent with the
downturn in global flows. Since 2003, approximately 31% of the incoming investment from Latin America went to
Spain, while Belgium and Luxemburg accounted for another 25% and 15%, respectively. The most important remitting
countries are Brazil and Mexico, although this differs significantly between host economies.

Figure I.16
European Union: a foreign direct investment inflows from Latin America and the Caribbean, 2003-2012
(Billions of dollars)
20

10

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-10

FDI flow from Latin America

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from the Organization for Economic Cooperation and Development
(OECD).
a Data are unavailable for Bulgaria, Croatia, Cyprus, Latvia, Lithuania and Romania.

D. Foreign direct investment inflows by country

In Latin America, as in the Caribbean, just over half of all countries saw decreases in their inflows of FDI, while the rest
experienced increases of varying degrees. The largest increases occurred in El Salvador, and Chile, while the sharpest
contractions took place in the Bolivarian Republic of Venezuela, Mexico and Argentina. These two sets of countries
epitomize the cyclical nature of FDI, with two of the three main risers belonging to last years largest fallers, and this
years sharpest fallers making up last years fastest risers. In other words, at the country level, extreme swings are common
and often counteracted immediately. Table I.6 shows total FDI inflows by country and by subregion from 2004 to 2014.
Brazils share in total FDI inflows increased to 38%,10 somewhat above the long-run average of one third. Mexico
and Chile ranked second and third, with approximately 14% each. FDI inflows in Latin America and the Caribbean
were even more concentrated than in 2013, with just five economies receiving some 80% of total FDI in 2014. That
top five include Colombia, which continues to receive large amounts of FDI, and Peru, where FDI inflows have
dropped off somewhat from previously high levels.

10 Under the methodology of the sixth edition of the Balance of Payments Manual, Brazils share is even larger: approximately half of
total inflows for the region.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Table I.6
Latin America and the Caribbean: foreign direct investment inflows by receiving country and subregion, 2004-2014
(Millions of dollars and variation in percentages)

Absolute Relative
variation variation
2004-2007 a 2008 2009 2010 2011 2012 2013 2014 2013-2014 2013-2014
(amount) (percentages)
South America 50 074 95 388 59 194 95 113 133 487 146 901 128 322 119 502 -8 821 -7
Argentina 5 350 9 726 4 017 11 333 10 840 15 324 11 301 6 612 -4 689 -41
Bolivia (Plurinational 111 513 423 643 859 1 060 1 750 648 -1 102 -63
State of)
Brazil 21 655 45 058 25 949 48 506 66 660 65 272 63 996 62 495 b -1 501 -2
Chile 9 174 16 604 13 392 15 510 23 309 28 457 19 264 22 002 2 738 14
Colombia 7 247 10 565 8 035 6 430 14 648 15 039 16 199 16 054 -146 -1
Ecuador 449 1 058 308 163 644 585 731 774 43 6
Paraguay 95 209 95 210 619 738 72 236 165 230
Peru 3 284 6 924 6 431 8 455 7 665 11 918 9 298 7 607 -1 691 -18
Uruguay 1 001 2 106 1 529 2 289 2 504 2 536 3 032 2 755 -277 -9
Venezuela (Bolivarian 1 713 2 627 -983 1 574 5 740 5 973 2 680 320 -2 360 -88
Republic of)
Mexico 25 734 28 574 17 644 25 962 23 560 18 998 44 627 22 795 -21 832 -49
Central America 4 891 7 406 4 442 5 863 8 504 8 864 10 680 10 480 -200 -2
Costa Rica 1 255 2 078 1 347 1 466 2 176 2 332 2 677 2 106 -571 -21
El Salvador 547 539 294 -230 218 482 140 275 96 53
Guatemala 535 754 600 806 1 026 1 244 1 295 1 396 100 8
Honduras 686 1 006 509 969 1 014 1 059 1 060 1 144 84 8
Nicaragua 290 627 434 490 936 768 816 840 25 3
Panama 1 578 2 402 1 259 2 363 3 132 2 980 4 654 4,719 65 1
The Caribbean c 4 818 9 616 5 281 4 809 6 637 8 284 6 322 6 027 -296 -5
Total 85 517 140 984 86 561 131 746 172 190 183 047 189 951 158 803 -31 149 -16.40

Source: Economic Commission for Latin America and the Caribbean, on the basis of official figures and estimates as of 18 May 2015.
a Simple averages.
b The 2014 figure for Brazil is calculated according to the methodology of the fifth edition of the IMF Balance of Payments Manual for purposes of comparison. Under

the methodology of the sixth edition, which Brazil has recently adopted, the country recorded FDI flows of US$ 96.851 billion.
c See chapter II for FDI inflows from the Caribbean are disaggregated by country and discussed in more detail in chapter II.

Relative to the size of their economies, smaller economies tend to receive proportionally more FDI, which confers
a particularly important role on transnational corporations. FDI inflows are equivalent to as much as 10% of GDP in
Panama, Chile and Nicaragua (see figure I.17). Individual, one-off transactions can have a huge impact on inflows in
different economies, particularly smaller ones. The effects are more marked for mergers and acquisitions than for greenfield
investments since M&As tend to take place at a single point in time, whereas large greenfield investments are more likely to
span several years. Caribbean economies have high FDI-to-GDP ratios on average, and are reviewed separately in chapter II.

1. Brazil
As noted earlier, the central bank of Brazil changed its data collection method recently from the fifth to the sixth edition
of the IMF Balance of Payments Manual. The most important change this has entailed is that approximately US$24billion
of intercompany lending that was previously considered a negative outflow has been reclassified as a positive inflow,
increasing both net inflows and net outflows by that amount. Second, the inclusion of reinvested earnings, which
Brazil did not previously treat as FDI, increases its incoming FDI by a further US$ 10.698 billion and its outgoing FDI
by US$6.010 billion. Other changes have only a small impact. Unfortunately, so far, the data calculated under the
sixth edition methodology is available only for 2014, which precludes long-term comparisons with preceding years. To
accommodate comparisons over time, so far this chapter has used the data according to the fifth edition. According to
those data, FDI inflows into Brazil slipped to US$ 62.495 billion in 2014, down by 2% on the previous year and lower
still than the totals for 2012 and 2011. Under the sixth edition definition, however, Brazil received US$ 96.851billion
in 2014, which implies that Brazil actually received approximately half of all inflows into the region as a whole.
Chapter I

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 Foreign Direct Investment in Latin America and the Caribbean 2015

Figure I.17
Latin America and the Caribbean: foreign direct investment as a proportion of GDP, 2014
(Percentages)
12

10

0
Panama

Chile

Nicaragua

Honduras

Uruguay

Colombia

Costa Rica

The Caribbean

Peru

Brazil

Latin America

Guatemala

Bolivia
(Plur. State of)

Mexico

Argentina

El Salvador

Paraguay

Ecuador

Venezuela
(Bol. Rep. of)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

Economic growth slowed from 2.5% in 2013 to 0.1% in 2014, but FDI inflows were affected little, reflecting
the long-term confidence of foreign investors. Still, the slowdown did cause FDI income (the profits made by
transnational corporations in the country) to fall to US$25.105billion, down 9% on 2013, according to the fifth
edition methodology. Under the newer methodology, FDI income reached US$ 35.803 billion, but again, there is
no comparable number available for the preceding years. The drop in profits was especially heavy in the automotive
sector, which has traditionally been among the most profitable for foreign companies. FDI income in this sector
alone plummeted from US$3.29billion in 2013 to only US$ 884 million in 2014, reflecting declines in vehicle
registrations (7%), production (15%) and exports (40%). This contraction was due mainly to more restricted access to
credit and lower demand in Argentina, the sectors leading export market. The National Association of Motor Vehicle
Manufacturers of Brazil (ANFAVEA) expects a similar performance in 2015.
Despite these troubles, the automotive sector received FDI inflows worth US$ 4.221 billion in 2014,11 a new
record high, as most auto assemblers went ahead with the expansion plans announced in previous years (see box
I.2 of ECLAC, 2014b). In manufacturing, the coke, oil derivatives and biofuels sector was the largest recipient of FDI
with inflows worth US$ 17.278 billion. Other major manufacturing sectors include steel (US$ 4.692 billion) and
chemical products (US$ 3.916 billion).
In services, the sectors that received the most FDI were retail (US$ 6.943 billion), telecommunications
(US$4.167billion) and financial services (US$ 3.170 billion). The largest transaction in financial services was the
acquisition by Banco Santander of a 14% stake in its subsidiary Banco Santander Brasil. The Spanish bank made use
of the opportunity provided by a depressed share price.
This operation by Santander, as well as increased investments by Iberdrola in electricity services, is behind the
sharp rise in FDI flows from Spain, which reached US$ 6.356 billion. In 2014, Spain was Brazils second largest
FDI source country after the United States, excluding the Netherlands and Luxembourg, which act as a conduit
for sizeable FDI flows from third countries. In 2014, FDI from China climbed to US$ 1.161 billion on the back of
increased investments in oil, electricity distribution and manufacturing.
In natural resources, FDI increased in mining, but dropped substantially in oil and gas exploitation. In the successful
auction of the Libra field in late 2013, Total (from France), Shell (United Kingdom/the Netherlands), the China National
Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation (CNPC) acquired rights to a 40% stake
in the field and paid a signing bonus of US$ 7 billion. The consortium (led by the State-owned Petrobras with its 60%
stake) committed to invest US$400million between 2014 and 2016. Still, the effect of lower oil prices has been felt in
Brazil, and foreign companies have grown more reluctant to increase investments in oil exploration and exploitation.

11 The sectoral figures are calculated on basis of the sixth edition methodology, but exclude reinvested earnings. The inflows for which
sectoral distribution is available total US$ 86.153 billion.
Chapter I

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 Economic Commission for Latin America and the Caribbean (ECLAC)

2. Other South American countries

FDI inflows to Chile increased by 14% to US$ 22.002 billion, despite falling investment in the mining sector, which
is crucial to the Chilean economy. A number of large M&As in other sectors compensated for the fall in mining
investment. The largest takeover in 2014 was the acquisition of Compaa General de Electricidad by Spains Gas
Natural Fenosa for a total of US$ 3.3 billion, making the Spanish company the largest player in the Chilean electricity
market with a 40% market share. Abbott Laboratories of the United States announced a US$ 2.9 billion takeover of CFR
Pharmaceuticals, a Chilean pharmaceuticals company with assets in several Latin American countries. Furthermore,
Brazils Ita Unibanco acquired a controlling stake in Corpbanca for an estimated US$ 2.85 billion, although the
deal is still subject to regulatory approval. Alliance Boots, which is controlled by Walgreens and KKR of the United
States, acquired Farmacias Ahumada, which operates in both Chile and Mexico, for US$ 740 million. The acquisition
of Bupa Chile by the British United Provident Association was valued at approximately US$497 million.
The electricity sector, in particular renewable energy, received large investments in 2014. Some 982 megawatts
(MW) of renewable energy projects came online in 2014, compared with 244MW in 2013, resulting in a total of
2,097MW of installed capacity. While wind energy accounts for the largest share of installed capacity with 836MW,
solar power is the fastest-growing area, surging from 4MW at the end of 2013 to 402MW at the end of 2014. The
foreign investments announced in this sector in 2013 included a US$ 1.4 billion investment in wind and solar by
Mainstream Renewable Power of Ireland and a US$1.2billion investment in hydropower by United States-based AES
Corporation. In 2014 Spains Abengoa announced a US$ 750 million investment in solar energy. A number of other
operators also announced plans in 2014 to build wind farms or solar plants, but not all of these plans will materialize,
especially given the slump in international oil prices, which makes investments in electricity generation less attractive.
Despite the slowdown in mining investment in 2014, the sector remains extremely important for Chile. The
US$ 1.97 billion investment by Australias BHP Billiton in the Escondida mine announced in 2013 continued to
be disbursed throughout 2014. Similarly, the Sierra Gorda mine, controlled by Polands KGHM (55%) and Japans
Sumitomo (45%), has accumulated some US$ 4.156 billion in investments in order to start operations, a significant
portion of which was disbursed in 2014.
FDI inflows to Colombia totalled US$ 16.054 billion in 2014, a similar figure to 2013. FDI in Colombia continues
to diversify, with the natural resources sector taking a decreasing share of investment for five years in a row, reaching
40% in 2014. Industry, communications, transport and business services received 45% of inflows, with the remaining
15% going to commerce, hospitality and other sectors. The National Hydrocarbons Agency, however, forecasts that
in 2015, some US$8billion will be spent on exploratory drilling (Reuters, 2014), primarily by foreign companies,
which would push up the share of natural resources in total FDI again. Outgoing investment from Colombia fluctuates
more than incoming investment, dropping by 49% in 2014.
Several sizeable M&As were announced or completed in Colombia in 2014. For example, the US$1.32billion
takeover of Helm Bank by Chiles Corpbanca, announced in 2012, was finally completed in 2014. Norwegian
fertilizer firm Yara International acquired OFD Holding, whose primary assets are in Colombia, for US$377million.
In telecommunications, Swedens Millicom expanded its assets in Colombia when its local telephone operator Tigo
merged with UNE Telecom in 2014. Equity International (United States) partnered with the local Terranum Group to
acquire Decameron Hotels & Resorts for US$490million, but since Decamerons assets are spread throughout the
region, this acquisition will not have a great impact on FDI inflows in Colombia. On the other hand, TRG Management
of the United States divested its 32% share in Transportadora de Gas Internacional to Empresa de Energa de Bogot
for US$ 880 million, thus creating a significant negative inflow of FDI.
In a market-seeking investment proposition, Chiles CCU, which is partially owned by Heineken of the Netherlands,
announced an investment of US$ 400 million to start producing beer and non-alcoholic beverages in Colombia.
This is a direct challenge to the United Kingdoms SABMiller, which has dominated the Mexican beer market since
its 2005 takeover of Bavaria. Box I.3 discusses the Latin American beer market in more detail.
FDI inflows in Peru declined for the second consecutive year to US$7.607billion, 18% less than in 2013 and
36% lower than the record of 2012. To keep this decline in perspective, it should be mentioned that Peru has received
very high levels of FDI in recent years relative to its previous trend and also to the size of its economy.
Chapter I

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 Foreign Direct Investment in Latin America and the Caribbean 2015

There is no official data on FDI by sector in Peru, but the mining sector seems to account for much of the decline.
In 2014 investment in mining (both domestic and foreign) fell by 11%, the first drop since 2007 after years of very
rapid growth. The fall was particularly marked in the acquisition of equipment and infrastructure. Copper production
was flat in terms of quantities and dropped by 12% in dollar terms, while gold production declined. FDI had also
increased over the previous decade in services and other market-seeking activities, but the slowdown in GDP growth
in 2014 may make the domestic market less attractive for investors.
Lower metal prices, production problems at the mines and slacker economic growth combined to reduce FDI
profitability in Peru. FDI income earned by foreign companies in the country dropped to US$7.964billion, the lowest
level since 2007. About half of these profits were reinvested, a similar proportion to previous years. Reinvested earnings
were the largest component of FDI (totalling US$3.978billion), followed by intercompany loans (US$2.278billion)
and capital contributions (US$1.342billion), which were significantly lower than in previous years.

Box I.3
Big Beer market dominance in Latin America and the Caribbean
Beer is an interesting product: it is almost ubiquitous and relatively by Belgian-Brazilian InBev in 2008. InBev itself has its origins in a
easy to produce, but bulky and thus expensive to export. Even 2004 merger of Belgiums Interbrew and Brazils AmBev.
the least developed economies produce it, since there is no lack In Latin America, many of the largest M&As in recent
of demand. At the global level, however, the market is extremely years have been associated with beer. The 2013 takeover of
concentrated, with only five companies led by Anheuser-Busch Grupo Modelo in Mexico by Anheuser-Busch InBev (valued at
InBev (Belgium), SABMiller (United Kingdom) and Heineken US$13.249billion) was one of the largest ever recorded in Latin
(the Netherlands) responsible for over half of the worlds beer America and the Caribbean. The table below ranks the largest
production (Barth-Haas Group, 2014). Each of these companies is mergers and acquisitions in the beer market in the last 20 years.
the result of multiple mergers and acquisitions as organic growth It shows that the global trend towards consolidation in this market
into new markets is almost impossible. Anheuser-Busch InBev is led to two waves of large takeovers in Latin America and the
the product of the takeover of United States-based Anheuser-Busch Caribbean: around 2005-2006 and in 2010-2013.

Latin America and the Caribbean: largest mergers and acquisitions in the beer sector, 1995-2014
Real value
Nominal amount
Year Company Country of origin Assets acquired Location in 2014 a
(billions of dollars) (billions of dollars)
2004 Interbrew Belgium AmBev (52%) Brazil 11 732 14 196

2013 Anheuser-Busch InBev Belgium Grupo Modelo (50%) Mexico 13 249 13 381

2010 Heineken Netherlands FEMSA beer operations Mexico 7 325 7 838

2005 SABMiller United Kingdom Bavaria (97%) Colombia 4 717 5 566

2013 Constellation Brands United States Compaa Cervecera de Coahuila Mexico 2 900 2 929

2011 Kirin Holdings Japan Aleadri-Schinni Participaes Brazil 2 523 2 649

e Representaes
2005 Interbrew Belgium AmBev (5%) Brazil 1 274 1 503

2011 Kirin Holdings Japan Jadangil Participaes e Representaes Brazil 1 354 1 421

2006 Anheuser-Busch InBev Belgium Quinsa (34%) Argentina 1 200 1 368

2012 Anheuser-Busch InBev Belgium Cervecera Nacional Dominicana (42%) Dominican Republic 1 000 1 030

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures provided by Thomson Reuters.
a Real values in 2014 were calculated using the United States GDP deflator as provided by the United States Bureau of Economic Analysis.

As a result of these two waves of takeovers, local brewers In addition to the global top five companies, local independent (often
play a significant role in very few countries in the region. Only in the family-owned) enterprises are the market leaders in a small number
Bolivarian Republic of Venezuela, Costa Rica, Guatemala, Nicaragua of countries, the United Kingdoms Diageo has the largest market
and some Caribbean countries do locally owned enterprises have share in Jamaica, and Trinidad and Tobagos ANSA McAL holds the
the largest market share. That is not to say that there are no locally largest market share in three smaller economies in the Caribbean.
controlled brands in other markets, but they often play second or These last two companies are not traditionally considered brewing
even third fiddle to the large international enterprises. The map companies, although Diageo does have significant experience in
below shows the top beer company in each economy in the region. this area through its Guinness brand.
Chapter I

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 Economic Commission for Latin America and the Caribbean (ECLAC)

Box I.3 (concluded)

Latin America and the Caribbean: top beer company in each market, 2014

Anheuser-Busch InBev
Heineken
SABMiller
SABMiller/Heineken
Ansa McAl
Diageo
Independent local brewers

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Barth-Haas Group, Beer Production - Market Leaders and their
Challengers in the Top 40 Countries in 2012, 2013 [online] http://www.barthhaasgroup.com/johbarth/images/pdfs/report2013/Barth_Beilage_2013.pdf.
Note: The boundaries shown on this map do not imply official endorsement or acceptance by the United Nations.

As the map clearly shows, Anheuser-Busch InBev is the include Belgium, in which the domestic Anheuser-Busch InBev
dominant player in the Latin American market, while SABMiller has a market share of 56%, Denmark (Carlsberg with 54%) and
is the market leader in a several economies in northern South Republic of Korea (Oriental Brewery with 53%).
America and Central America. The takeover of Bavaria in 2005 was The implication of this intense market dominance in Latin
significant because it gave SABMiller the largest market share America and the Caribbean is that competition is relatively stifled.
in several medium-sized beer markets. In Colombia, Ecuador Since organic growth is difficult, existing market dominance
and Peru, SABMillers market share was 98%, 95% and 94%, practically guarantees a future market for a product, though this
respectively, in 2012 (Barth-Haas Group, 2013). This dominance may not hold true as strictly for some larger markets. Heineken,
goes far beyond that of the other companies in other markets, for example, announced a new US$ 480 million brewery in Mexico
varying from Anheuser-Busch InBevs 69% market share in Brazil, in early 2015. However, as a general rule, the lack of competition
56% in Mexico and 77% in Argentina to Heinekensa 88% market shields companies from the pressure to innovate, which may not
share in Chile. It is typical for single brewers to dominate national benefit consumers in the long term. The advantage gained by the
beer markets in developing economies. The largest players in buyer is also reflected in the high valuations of beer companies.
Angola (SABMiller with 89%), Turkey (Efes with 83%), Nigeria A list of the top 10 largest M&As of any type in Latin America
(Heineken with 70%) and Thailand (Singha with 67%) all hold a and the Caribbean in the last 20 years would include several of
dominant market share. By contrast, in developed economies, those listed in the table above. The value, and profitability, of
market shares above 50% are very rare. Some exceptions these beer companies is incomparable with any other sector.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Barth-Haas Group, Beer Production - Market Leaders and their
Challengers in the Top 40 Countries in 2012, 2013 [online] http://www.barthhaasgroup.com/johbarth/images/pdfs/report2013/Barth_Beilage_2013.pdf;
and information provided by Thomson Reuters.
a Heineken shares control of Compaia Cerveceras Unidas (CCU) with the local Luksic family: a unique blend for a large brewer in Latin America of local control

and international experience.

Peru hosted three of the five largest corporate acquisitions in Latin America in 2014, but these were ultimately
transfers of ownership between foreign companies and had no net effect on FDI flows. Two Chinese companies
increased their footprint in Peru: China Minmetals Corporation bought the Las Bambas copper mine from Glencore
of Switzerland for US$7.005billion and the China National Petroleum Corporation (CNPC) acquired the assets of
Brazils Petrobras Energa Per for US$2.6billion.
FDI inflows to Argentina dropped by 41% to US$ 6.612 billion the smallest amount the country has received
since 2009. The main reason for this decline was the nationalization of YPF, which took place in 2012, but was not
Chapter I

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 Foreign Direct Investment in Latin America and the Caribbean 2015

settled until 2014. The government paid US$5.000billion to Spains Repsol as compensation for the expropriation
of 51% of YPF. Repsol subsequently sold its remaining 12% share. With the return of the majority share to Argentina,
in practice, this implies a negative inflow in the balance of payments. If it were not for this transaction, inflows into
Argentina would have remained at a similar level to previous years. Reinvested earnings make up the bulk of inflows
and totalled US$7.365billion. In mining, Canadas Yamana Gold is in the process of investing US$ 450 million
in the Cerro Moro project near Puerto Deseado. Although recent data are not available, the sectoral distribution of
FDI in Argentina seems balanced between natural resources, manufacturing and services. The share of services has
increased in recent years, but manufacturing is likely to have gained ground in 2014.
Several automotive manufacturers have expanded their production facilities in Argentina recently. In October,
Japans Toyota announced it had completed 60% of its US$ 800 million investment plan announced in 2013, while
General Motors of the United States announced in 2014 that it would increase its earlier investment of US$450million
to US$720million. Lastly, Italys Fiat Chrysler announced the construction of a new engines plant in Argentina in
2013 at a cost of up to US$ 300 million.
According to industry specialists, Argentina has great potential for oil exploration, with the Vaca Muerta formation
touted as a particularly abundant source of both shale gas and shale oil. The government has announced several
special benefits to oil companies willing to invest more than US$1billion. Since then, United States-based Chevron
signed an agreement with YPF to invest US$1.6billion to explore the Vaca Muerta formation and Russias Gazprom
is rumoured to have offered US$ 1 billion of investments. The Vaca Muerta exploration is expected to require a
total investment of some US$15billion. In December, Malaysias PETRONAS committed US$550million to shale
gas cooperation with YPF (Mander, 2014). Finally, the Anglo-Dutch company, Royal Dutch Shell and Frances Total
announced an investment of US$550 million together with Gas y Petrleo de Neuqun, a local oil and gas company,
in a different field.
FDI inflows to Uruguay totalled US$ 2.755 billion in 2014, 9% lower than in 2013. Uruguay has received significant
investment in its renewable energy sector testament to this was the completion of several large wind farms in 2014.
The country is scheduled to source 90% of its energy from renewable sources in 2015 and is among the global leaders in
the field, particularly with respect to wind energy. Recent large investors in wind farms include Argentinas Corporacin
Amrica (50MW), Spains Abengoa (50MW and 70MW), Germanys SOWITEC (81MW) and Italys ENEL (50MW).
Manufacturing does not play a major role in Uruguay. Nevertheless, a new pulp mill was completed in 2014,
representing the largest single investment the country has ever received. The mill, a joint venture between Chiles
Arauca and Swedish-Finnish Stora Enso, cost US$2.27billion, plus US$230million for the related port, and has
taken several years to complete.
Some large plans are on the table in Uruguay. A project by United Arab Emirates-based Zamin to develop an
iron mine for a cost of up to US$ 3 billion has been under discussion for several years. In direct relation to this, the
Government of Uruguay has been promoting the idea of constructing a new US$ 1 billion port on its Atlantic coast,
for which it is looking for investors.
FDI inflows to Ecuador increased by 6% to US$ 774 million, over two thirds of which was invested in the natural
resources sector. Manufacturings share shrank to only 14% of FDI inflows during 2014, while services fell from 43%
to only 18% of inflows. Oil exploration is currently undergoing a small boom in Ecuador. In October, contracts were
awarded to a number of international companies to work with state-owned Petroamazonas in order to explore for new
oil supplies. The government expects that US$ 2.1 billion will be spent on such exploration over the next five years.
The Ecuadorian food and beverage market has attracted significant interest from foreign firms. Holding Tonicorp,
a dairy products company, was acquired by Mexicos Arca Continental, in a deal also involving Coca-Cola of the
United States. This acquisition was valued at US$ 400 million and Coca-Cola announced other plans in 2014 to
invest up to US$ 1 billion in Ecuador over the next five years. Arca Continental also announced its intention to invest
a further US$ 80 million in a new industrial plant.
In the financial sector, Panamas Promerica Financial Corporation, which already operated a bank in Ecuador,
acquired 56% of Banco de la Produccin, the countrys fourth largest bank. This could benefit the sector by raising
professional standards. Promerica already operates banks in many Central American countries, as well as in the
Cayman Islands and the Dominican Republic.
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After two years of very large inflows, FDI inflows to the Plurinational State of Bolivia fell by 63% to US$648million.
In recent years, much of the investment in the country has gone to natural resources, particularly in the oil and gas
sector. In 2014, for example, PDVSA announced that it would invest US$200million in a number of exploration
and production projects. Outside the natural resources sector, Perus Holding Cementero acquired full control of the
Plurinational State of Bolivias largest cement maker, Soboce, by purchasing the remaining 51% stake in the company
for an estimated US$ 300 million in December.
Several nationalizations and divestments have taken place in the Plurinational State of Bolivia in recent years.
Brazils Petrobras and Frances Total divested their stake in the major gas pipeline Transierra for US$133million. The
buyer, Bolivian State-owned energy company YPFB, now controls a great majority of the gas pipeline. The Malku
Khota mine was nationalized in 2012 and its former owner (TriMetals Mining of Canada) is seeking US$ 386 million
in compensation in an international arbitration court. Indias Jindal Steel and Power was awarded US$22.5million
by an international court for its share in the El Mutn project and it is seeking a further US$100million in damages.
Such nationalizations and divestments are considered to be negative inflows of FDI, thus leading to a reduction in FDI.
In 2014, the Bolivarian Republic of Venezuela witnessed a significant reduction in FDI inflows. Total inflows fell
by 88% from US$ 2.680 billion to US$ 320 million. In previous years investment had increased owing to restrictions
on foreign exchange: foreign enterprises were unable to repatriate their profits and therefore sought investment
opportunities within the country. This resulted in a property boom in Caracas as many foreign companies reinvested
their profits in real estate. The estimated 3% contraction in GDP growth in 2014 likely caused a concomitant drop
in transnationals profits and thus a subsequent reduction in reinvested earnings.12
The oil industry continues to require significant investment and the government-owned Petrleos de Venezuela,
S.A. (PDVSA) works with its foreign partners on operating production facilities. In the automobile industry, where the
Bolivarian Republic of Venezuela was until recently among the major players in Latin America, production slumped
by about 75% between 2013 and 2014 owing to the limited availability of parts and a lack of access to foreign
exchange (The Wall Street Journal, 2014).
Paraguay more than trebled its inflows, from US$ 72 million to US$ 236 million. The country is making efforts
to attract more investment and particularly to diversify away from infrastructure and agriculture, its traditional sectors.
One of the largest growth areas is the automotive industry, in which Paraguay takes advantage of its MERCOSUR
membership to supply Brazilian and Argentine car factories. Japans Fujikura is among the leading car parts manufacturers
in the country, but recent investment announcements have also been made by Japans Sumitomo (US$15million),
Republic of Koreas THN Corporation (US$40million) and Italys Pirelli (exploratory stage).
Several Brazilian companies also announced expansions in 2014, including plastics manufacturer X-Plast with
US$ 26 million. However, the largest Brazilian investments are in the agricultural sector: meat processing company
JBS announced a US$100million investment in the construction of a new slaughterhouse in Paraguay, and Bunge
has long been a major investor in the country.

3. Mexico
In 2014, FDI flows to Mexico fell by 49% to US$ 22.795 billion. While this may seem like a very large drop, it
is important to remember that the figures for 2013 were inflated by the takeover of Grupo Modelo by Belgiums
Anheuser-Busch InBev (see box I.3) for US$ 13.249 billion. This was compounded by a US$ 5.57 billion divestment
in the telecommunications sector (completed for regulatory reasons) in 2014, which is discussed in more detail
below. Without these two extraordinary events, FDI inflows in Mexico would have been above those of the previous
decade and the two-year average inflow of FDI is in fact the highest ever recorded. Aside from the telecommunications
takeover, M&As actually played a relatively small role in 2014. United States-based PPG Industries acquired Consorcio
Comex for US$ 2.3 billion in order to expand its coatings business into Mexico and Central America; and Frances
Eutelsat Communications acquired Satlites Mexicanos for US$ 1.142 billion.

12 Valuing the existing FDI stock is complicated by the existence of alternative exchange rates. Individual companies, such as Spains
Telefnica, have devalued their Venezuelan assets by moving from the official exchange rate to alternative ones, but the Central Bank
of Venezuela continues to use the official exchange rate. Telefnica has devalued its assets in the country by 7.450 billion euros over
several years (El Pas, 2015).
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United States-based AT&T was responsible for the divestment that resulted in a negative inflow in 2014 and was
also involved in some of the other large transactions affecting Mexico in 2014. In May, the company announced
its intention to acquire DirecTV, the United States leading satellite television provider, for US$ 48.5 billion. Since
DirecTV is a major player in several countries, including Mexico, the acquisition had to be approved by regulators
in these different countries. In Mexico, regulatory approval was complicated by the fact that AT&T also held an 8.3%
stake, and 24% of the voting shares, in Amrica Mvil, another company that provides satellite television services.
AT&T therefore sold its stake to Inmobiliaria Carso, Amrica Mvils holding company, for US$ 5.57 billion. AT&T
maintained its faith in the Mexican market, however, as demonstrated by its November agreement with Grupo Salinas
to acquire Iusacell, Mexicos third largest mobile network, for US$ 2.5 billion. This acquisition was completed in
January 2015 and was therefore not included in the annual FDI inflows for 2014, whereas the US$ 5.57 billion
divestment was. All of this goes some way in explaining the fall in investment in Mexico, where the transport and
telecommunications sector posted a negative inflow of US$ 3.753 billion in 2014.
The heightened activity in the telecommunications sector in Mexico is partially driven by new anti-monopoly
legislation, under which the regulatory body may impose asymmetrical regulations and obligations on the preponderant
agent, defined as a party with market dominance. Amrica Mvil is such a company, controlling 68% of the
mobile telecommunications market. The company can either reduce its market share by selling some of its assets or
continue to be the preponderant agent. In the first case, Bank of America estimates that such an operation could yield
US$10billion(Telegeography, 2014) and could give a platform to a new (foreign or local) player. In the second case,
the anti-monopoly legislation may make it more attractive for new players to enter the market anyway, as it did for AT&T.
In manufacturing, the automotive industry is key (see box I.4 in ECLAC, 2014b), with Mexico now the worlds
seventh largest car producer. Of all the branches of manufacturing, the automotive industry was the largest FDI
recipient in 2014, absorbing US$ 4.308 billion of the US$ 12.87 billion total. Mexico was the subject of a wave of
new investment announcements from car makers from all over the world in 2014. Among the largest were investments
by the United States-based Ford and General Motors for US$2billion and US$3.6billion respectively, and by the
Republic of Koreas Kia Motors (largely owned by Hyundai Motors) for US$ 1 billion. In a joint venture, Germanys
Daimler and Japans Nissan are building a US$ 1.36 billion factory. Other expansion plans are under way from
Swedens Volvo and Japans Honda.
Inflows in the electricity sector are still small, totalling US$ 580 million in 2014, although this was higher
than the average of US$ 253 million per year in the five previous years. Spains Iberdrola announced investments
of US$5billion, of which it has already disbursed US$ 1.5 billion, including US$ 950 million in wind farms with
2,000MW of capacity. Furthermore, on the back of the reforms to the energy sector, IEnova, which is co-owned by
United States-based Sempra Energy, plans to invest US$ 3.2 billion in domestic infrastructure projects over two years,
while Canadas TransCanada is involved in a US$1billion pipeline construction project.
The services sector received approximately one third of all FDI inflows into Mexico in 2014, with financial services
being the dominant subsector, attracting 25% of all FDI inflows. The other services subsector with significant inflows
was hospitality, which received some US$ 825 million in FDI in 2014, primarily in the hotel sector.

4. Central America
FDI inflows to Central America, unlike those to South America, held relatively steady in 2014. In total, the subregion
recorded inflows of US$ 10.480 billion, 2% less than the year before. Once again, Panama was the largest recipient
of FDI, accounting for more than 45% of the Central American total. The largest rate of growth was observed in El
Salvador, whose inflows nearly doubled between 2013 and 2014. Costa Rica was the only country with decreased
inflows in 2014, though it continues to be the second largest recipient (see figure I.18)
Central America hosts a great deal of activity in the renewable energy sector. According to consulting company
IHS Technology, photovoltaic capacity in Central America rose from 6 MW in 2013 to 22 MW in 2014 and is expected
to jump to 243 MW in 2015, with Honduras leading the way. Investments in renewable energy, primarily by foreign
investors, are already having an impact on the regions energy balance, even though solar energy still makes up a
very small portion of current electricity generation capacity. Hydropower continues to be the pre-eminent renewable
resource, wind energy also far outstrips solar energy, and even geothermal energy plays a part. Nevertheless, investment
in solar energy is increasing rapidly.
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Figure I.18
Central America: distribution of FDI inflows by country, 2014
(Percentages)

Costa Rica
(20)

Panama
(45) El Salvador
(3)

Guatemala
(13)

Honduras
Nicaragua (11)
(8)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

In the other sectors, services continue to be the leading recipient of FDI, though mining has been making strides
in certain countries. As discussed in box I.4, the expansion of the Panama Canal and the proposed construction of the
Nicaragua Canal are spurring investment in logistics facilities and ports throughout Central America and the Caribbean.
FDI flows into Panama increased marginally to US$ 4.719 billion, which is the highest ever recorded and continues
a nearly unbroken uptrend since 2009. FDI income has also increased substantially over the same period and it too
reached a new record in 2014. Panama has the highest FDI-to-GDP ratio in Latin America and is positioned to continue
receiving significant investment inflows (box I.4 below discusses the impact of the Panama Canal on investment in the
country). The share of natural resources in FDI has grown with the development of the Cobre Panama project. Since
this concession was acquired by Canadas First Quantum Minerals in a hostile takeover, investment has continued,
including approximately US$ 600 million in 2014. The open-pit mine is expected to start operations in 2018 and total
investment is estimated to be US$ 6.4 billion. Even though specific data are not yet available, this single investment
by First Quantum Minerals is solely responsible for increasing the share of natural resources in Panamas FDI flows,
which are traditionally dominated by services (90% of inflows between 2009 and 2012).
The expansion of the Panama Canal currently under way is leading to a further inflow of investment in the logistics
sector. Newly announced projects in logistics include warehouses and distribution centres by the ESKE Group (Peru),
Hutchison Whampoa (Hong Kong Special Administrative Region of China), Deutsche Post (Germany), PSA International
(Singapore) and the CEVA Group (United Kingdom). Beyond the logistics sector, Panama is consolidating its role as
a financial centre, attracting significant inflows and outflows of FDI in that sector. Colombias Bancolombia is one of
the major foreign players, strengthening its position through its 2013 takeover of HSBC Panama. Since the country is
involved in many offshore financial activities, it is no surprise that Panama hosts the regional or global headquarters
of many international companies.
Lastly, Panama also attracts investment in its renewable energy sector. InterEnergy, for example, which is
incorporated in the Cayman Islands, announced a US$ 427 million investment in a Panamanian wind power project
with a total capacity of 270 MW.
FDI flows into Costa Rica shrank by 21% to US$2.106billion in 2014. The share of the manufacturing sector
has been in decline for several years and received only 20% of FDI inflows in 2014. The largest receiving categories
were services and real estate, with 35% and 36% of inflows, respectively. In 2014, both Mexicos Amrica Mvil and
Spains Telefnica announced expansions of their 4G networks in the country. These roll-outs tend to be expensive,
but exact cost estimates are not available. According to the Costa Rican Investment Promotion Agency (CINDE),
companies committed to US$ 474.4 million of new investments in 2014, including US$ 127 million in the life
sciences sector, which is a profitable sector for Costa Rica. A sizeable new project has been announced by United
States-based American World Clinics, which plans to construct a US$ 100 million health-care complex aimed at
attracting medical tourists.
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Box I.4
The impact of the Atlantic-Pacific canal(s?)
The 77.1-kilometre Panama Canal, which celebrated its centenary in driving force behind much investment in Panama. It continues to
2014, has had an immense impact on international trade. By virtue be the largest recipient of FDI relative to the size of the economy
of its vital role in international trade, the size of the locks on the in Latin America and only a small number of Caribbean economies
Canal imposed a practical maximum size limit on the ships used outperform it by this measure.
in transport, known as Panamax. The Canals role in enabling trade According to fDi Markets, Hutchison Whampoa (Hong
between the Pacific and Atlantic cannot be overstated. Today, around Kong Special Administrative Region of China), Deutsche Post
5% of global maritime trade passes through the Panama Canal. (Germany), PSA International (Singapore) and the CEVA Group
For Panama, the impact has been even larger. As shown in the (United Kingdom) announced investments in warehousing and
figure below, the Panamanian economy relies much more heavily on storage projects in 2014 for a combined total of more than
transport, storage and communication than the rest of the region. US$700 million. This success has been an important driver for
This is attributable to the large harbour, warehousing and transport the robust economic growth recorded in Panama in recent years,
industry related to the Panama Canal, which is responsible, directly leading some analysts to refer to Panama City as the Singapore
and indirectly, for some 100,000 to 120,000jobs. The Canal is the of Central America (The Economist, 2011).

Latin America and the Caribbean: share of the transport, storage and communications sector in total GDP, 2012
(Percentages)
18

16

14

12

10

0
Panama The Caribbean Latin America

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of the CEPALSTAT database.

However, the limitations of the Panama Canal have grown cost of US$ 50 billion. Several major Chinese companies will
increasingly clear. The Panamax standard has become a severe participate in the project, which is not, as yet, fully funded. The
constraint as many modern ships are too large to fit through the project remains uncertain, but its completion would have a huge
Canal. In 2006, the Panama Canal Authority (PCA) estimated that impact on the shipping industry.
by 2011, 37% of cargo ships would be too large (PCA, 2006). In In view of the expansion of the Panama Canal and the
order to remain fit for purpose, a plan was proposed to add a third possible construction of the Nicaragua Canal, shipping in the
set of larger locks to allow larger ships to pass through the canal. Caribbean has a bright future. These prospects have led to a
The US$ 5.25 billion project was originally due for completion in large number of new projects throughout the Caribbean, with
2014, but is still under construction. Completion is now scheduled several economies seeking to set themselves up as logistics
for the end of 2015. The project is financed primarily through hubs in competition with Panama. In 2014, Cuba opened the
loans from international partners, including the Japan Bank for Port of Mariel, which was largely funded by Brazil, at a cost of
International Cooperation, the European Investment Bank and nearly US$ 1 billion. The ports proximity to the canal(s) and to the
the International Finance Corporation. Although this is not an United States could create opportunities, as long as the United
FDI project as such, many foreign companies are involved as States lifts its sanctions on Cuba. The China Harbour Engineering
contractors in the construction process. Company (CHEC) is involved in the preliminary studies regarding
Meanwhile, the Government of Nicaragua has plans to the possible construction of large new port terminals in Jamaica
construct a competing canal,a which, with a length of 259 kilometres, (Goat Islands at an estimated cost of US$ 1.350 billion) and broke
will be more than three times as long as the Panama Canal. If ground on a transhipment port in the Bahamas in 2014 at a cost
completed, it will be able to handle ships that are significantly of US$ 39 million. Finally, in Trinidad and Tobago, a consortium
larger than those that can fit through the expanded Panama of companies from China committed in 2014 to the construction
Canal. Discussions about a possible Nicaragua Canal date back of both a new port (costing around US$ 500 million) and several
to 1825, but the Hong Kong Nicaragua Canal Development Group new industrial parks (US$ 250 million).
(HKND), based in the Hong Kong Special Administrative Region Owing to their key role in international transport, the Panama
of China, was only recently founded in 2012 for the purpose of Canal and, if it is completed, the future Nicaragua Canal have
building the Nicaragua Canal. Officially, work started in December transformative potential, not just for the individual countries
2014 and is scheduled for completion by 2020 at an estimated involved, but for the entire region.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Panama Canal Authority (2006), Third set of locks project fact sheet
[online] http://www.pancanal.com/esp/plan/documentos/propuesta/acp-proposla-relevant-information.pdf; Financial Times, fDi Markets and The Economist,
A Singapore for Central America?, 14 July 2011 [online] http://www.economist.com/node/18959000.
a The potential construction of the Nicaragua Canal has drawn much criticism with respect to the decision-making process, the environmental impact and the

overall desirability of the new canal. An overview of the sceptics point of view can be found in Confidencial (2015).
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Costa Rica is recognized globally for its efforts to reduce the use of hydrocarbons in energy generation. In 2014,
the country generated approximately 80% of its electricity through hydropower and, in 2015, it was lauded for having
produced all its electricity from renewable sources in the first 75 days of the year, thanks to abundant rainfall. In
2014, the Costa Rican Congress approved a US$ 958 million geothermal project, financed largely through loans from
Japanese and European investment banks. For the most part, electricity generation is controlled by government-owned
ICE, but there are also several small private players. The Oros wind project, developed by the United Kingdoms
Globeleq, will have 50 MW of generation capacity and is currently under construction for at least US$ 109 million.
Other investors include Spains Gas Natural Fenosa, which is constructing the 50 MW Torito 1 hydropower plant, to be
completed in 2015, and Italys ENEL, which is involved in the 50 MW Chucas hydropower plant completed in 2014.13
In manufacturing, Canadas Gildan Activewear is investing an undisclosed sum in a new textile factory in
Guanacaste, as part of a US$ 300 million expansion plan. Finally, Sysco Corporation of the United States announced
that it had acquired 50% of the privately held food distributor, Mayca Distribuidores, for an undisclosed sum.
FDI flows into Guatemala increased by 8% to US$ 1.396 billion in 2014, the highest level ever recorded.
For several years, the natural resources sector has received the largest FDI inflows, but this year the energy sector
outperformed natural resources, receiving 24% of inflows compared with 23%, respectively. Manufacturings share
slipped to 13% and retail received 15% of total inflows.
Solway Group (the Russian Federation) is constructing a ferronickel mine at an estimated cost of close to
US$300million and has received permission to explore for other opportunities. Meanwhile, Tahoe Resources of
Canada operates the Escobal mine in San Rafael Las Flores, which also requires significant investments. Finally,
Canadas Quattro signed an exploration and exploitation contract for a block in the North Petn basin in 2014.
Grup Martim TCB of Spain broke ground on a US$ 252 million port enlargement in preparation for the expansion
of the Panama Canal (see box I.4). Finally, through its Tigo brand, Swedens Millicom acquired Cablefusin, one of
its main competitors in the pay television market, to become a sector leader.
In Honduras, the inflow of FDI increased by 8% to reach a new record of US$ 1.144 billion, despite a significant
divestment by Citibank of the United States, which sold its Honduran operations to local financial group Banco
Ficohsa in 2014. Banco Ficohsa also acquired the Guatemalan assets of Citibank, also for an undisclosed sum, in
2015. Telecommunications operators in many countries in the region are upgrading their networks to make them
4G compatible. In Honduras, for example, the Russian Federations VimpelCom is investing in expanding the 4G
network of its subsidiary Wind Telecom.
Like other countries in Central America, Honduras is actively expanding its electricity generation capacity from
renewable sources. By 2018, Honduras is expected to install a cumulative 499MW of new solar capacity. To this
end, SunEdison of the United States started construction in 2014 on a US$146 million, 82 MW photovoltaic plant in
Choluteca. Upower, another United States-based independent power producer, also started construction in 2014 on a
US$ 190 million, 100 MW photovoltaic plant in La Gaceta. Nevertheless, there is also ongoing investment in traditional
electricity generation. Guatemalas Cementos Progreso is working with a local partner to build a US$ 125 million, 60MW,
coal-operated power plant both to supply its own factory and to sell electricity to the national electricity company.
In Nicaragua, FDI edged up from US$ 816 million to US$ 840 million from 2013 to 2014. A project that could
have a significant impact on future FDI inflows is the Nicaragua Canal (the continuing debate on that topic is covered
in box I.4). One of the largest investments in 2014 was the rapid expansion of Xinwei Telecom of China, which was
awarded six licences to provide different services in the country, leading to expected investments of US$ 300 million.
As announced in 2013, Canadas B2Gold is continuing to explore new mining options in order to expand its existing
operations, which represents a continuous investment by the company. Until now, Nicaragua has received less FDI
in renewable energy generation than other Central American nations, though the United States-based Viaspace has
invested in a 12 MW biomass power plant. However, in 2014, the Government of Nicaragua announced that it
aims to have 90% of its electricity generated by renewable sources, particularly wind and hydroelectric power. The
construction by a Brazilian conglomerate of the 253MW Tumarn dam is getting underway, but with ownership of
the project shared between the State-owned electricity companies and foreign investors.

13 The largest project is the Reventazn dam, which is expected to cost up to US$ 1.4 billion and to have generating capacity of more
than 300 MW. However, this project is being developed by the State-owned Grupo ICE and is therefore not FDI.
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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. Colombias Procaps acquired
Laboratorios Lpez, which is the countrys 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.
Italys 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 years largest telecommunications investment came from Swedens Millicom, through its local Tigo brand.
Also in telecommunications, Jamaicas 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.

Figure I.19
Latin America and the Caribbean: current account structure, 2006-2014
(Percentages of GDP)
6

2
1.4
1
0.2
0

-1 -0.6
-0.9
-1.3 -1.4
-2
-1.8
-3 -2.7 -2.7
-4
2006 2007 2008 2009 2010 2011 2012 2013 2014

Goods balance Services balance Income balance

Current transfers balance Current account balance

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 regions 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 regions current account balance. The profits of transnational corporations in the region
rose from US$19.011billion in 2002 to US$103.379billion in 2010 and they have remained at these high levels
ever since, reaching a record in nominal terms of US$123.798billion in 2013. That last amount represented 83%
of total investment income from the region and more than double the value of the services balance.
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From 2002 to 2007 the rapid growth of FDI income was offset by an equally large rise in exports. In fact both
trends were determined by the surge in commodity prices, which boosted both exports and the profits of transnational
corporations in the extractive industries. That dynamic changed substantially in the subsequent years. The global
economic crisis of 2008-2009 hit exports much harder than FDI income in the region, and the disparity between the
two has grown even more apparent in the past three years. While the goods balance declined from US$75billion in
2011 to only US$ 1 billion in 2014, the FDI income deficit14 has held steady at around US$ 100 billion (see igureI.20).
Other current account items, such as trade in services, remittances and other types of investment income, are certainly
important in many economies, but the widening FDI income deficit and the deteriorating surplus on the goods balance
have been the largest single factors contributing to the regions growing current account deficit.

Figure I.20
Latin America and the Caribbean: selected current account items
(Billions of dollars)
120

100

80

60

40

20

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Trade of good balance FDI income balance

Source: Economic commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

A large current account deficit can jeopardize economic growth if it cannot be funded on the international market
(ECLAC, 2013b). The growth rate to which countries can aspire without coming up against this external constraint
depends on four variables: (i) the net exports of each economy; (ii) the terms of trade; (iii) capital flows between the
economy and the rest of the world; and (iv) net payments to non-resident factors of production. The capacity of each
country to finance its current account deficit depends on its level of reserves, sovereign funds (if any) and degree of
access to international markets, which is mainly determined by its credit history.
It is also important to analyse the dynamics of FDI inflows and FDI income in relation to the economic cycle.
While FDI is now the largest external liability of most countries in the region, it is not a liability on which the creditor
can demand repayment, as opposed to loans and bonds. This is one reason why FDI inflows are much less volatile than
portfolio and other investments and very rarely turn negative in a crisis. At the same time, FDI income expands with
economic growth and contracts during downturns, producing a countercyclical effect on the host economy. Events
that can trigger a balance-of-payments crisis, such as terms-of-trade shocks, are likely to reduce FDI income as well.
However, this automatic adjustment is far from perfect. While the prices of export commodities started to decline
in 2012 and economic growth contracted in 2013, FDI income continued to reach new highs and declined only in
2014. Although the average profitability of FDI in Latin America and the Caribbean declined since 2008, as the FDI
stock continued to grow, total FDI income actually rose, reaching its highest level in 2013 (see annex table I.A.5).
In other words, the size of the assets that transnational corporations have in the region and their continuing growth
guarantee that the profits of transnationals remain large, despite a potential drop in profitability (see figure I.21).
The impact of FDI income on the external accounts varies significantly by country. On the whole, the countries
with FDI concentrated in the mining sector, such as Chile and Peru, posted the highest returns on FDI as commodity
prices rose. However, Brazil is one example of a country that has seen a notable rise in FDI income even though
the transnational corporations operating there are not concentrated in the extractive industries. Chile and Brazil are
14 Net FDI income is equivalent to the profits made by transnational corporations in countries in the region minus the profits made by
trans-Latin corporations abroad.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

among the few economies for which there are data on FDI income by sector. In terms of average profitability across
sectors, the mining sector in Chile stands out for its returns of up to 25% in 2010. But other sectors have also been
very profitable, including public utilities (electricity, gas and water), which have achieved returns of 10% that same
year. In Brazil, mining and oil were not among the most profitable sectors for transnational corporations; rather,
automotive manufacturing and cement production reached return levels above 10%.

Figure I.21
Latin America and the Caribbean: FDI stock and average profitability of FDI, 2001-2014
(Billions of dollars and percentages)

2 000 12

1 800
10
1 600

1 400
8
1 200

1 000 6

800
4
600

400
2
200

0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

FDI stock FDI income as a proportion of FDI stock

Source: Economic commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.

While the earnings generated in the extractive industries are higher, the effects on the balance of payments
may actually be milder if these income flows are offset by increased exports of commodities. Export-oriented FDI
can compensate for the profits it repatriates with the value of the exports it generates. By contrast, FDI income in
market-seeking activities may put more pressure on the current account as they are not offset by exports.
It is important to note that not all FDI income recorded as a debit in the current account leaves the country.
In fact, about 50% of FDI income is reinvested in the same economies a proportion that has remained relatively
stable over the years. In 2009, when the financial crisis had an impact on FDI income, transnational corporations
maintained their level of reinvested earnings and reduced profit repatriations (see figure I.22).

Figure I.22
Latin America and the Caribbean: a reinvested and repatriated FDI income, 2005-2014
(Billions of dollars)

100

90

80

70

60

50

40

30

20

10

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Reinvested earnings Repatriated earnings

Source: Economic commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 18 May 2015.
a The figures shown here do not include Brazil, since that country did not report reinvested earnings under the fifth edition Balance of Payments Manual methodology

it used until recently.

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 Economic Commission for Latin America and the Caribbean (ECLAC)

Reinvested earnings are recorded as both a debit on the current account and as a liability on the capital account.
This alleviates the pressure on the external accounts, but only at the cost of accumulating a higher liability in the
form of FDI stock. In fact, most countries in the region have been financing their current account deficits with large
inflows of capital, mainly FDI.
As noted above, the ever-burgeoning FDI stock will have a long-term impact on the current account as FDI income
swells. In fact, taking into account capital inflows and profit outflows, FDI is already having a negative impact on
the balance of payments in some countries in the region. Over the past decade, outflows of FDI income from Chile,
Colombia, Peru and the Plurinational State of Bolivia have exceeded the FDI inflows received.
Of course, in the same way that transnationals profits in the region are marked as debits on the current account,
the profits made by trans-Latin corporations abroad are registered as credits. This should offset the negative effect on
the current account of the repatriated earnings flowing out of the region, but so far it has had a limited effect: FDI
income outflows total some US$ 100 billion, whereas FDI income inflows have yet to exceed US$ 15 billion and
are concentrated in only a few countries.
Overall, the current account deficits posted in most Latin American and Caribbean economies and the role that
FDI income has played in them highlight the fact that FDI, as is the case for other forms of external capital, carries a
cost. While FDI has been praised for its stability (it rarely turns negative), its persistent effects on the current account
are significant. In order to offset these effects, FDI should promote changes in the production structure that could
boost exports in the future. Even in industries where large FDI flows have clearly increased production capacities (such
as the automotive industry), the shallowness of local value chains turns these industries into net importers as well.

F. Conclusions
FDI inflows into Latin America and the Caribbean fell by 16% in 2014. That fall was somewhat larger than expected
and has been amplified by a number of one-off events, mostly the Grupo Modelo acquisition in Mexico, which inflated
the FDI figures in 2013, and the nationalization of YPF in Argentina, which was settled in 2014 and represented a
large divestment.
The drop in commodity prices, which began in 2012 for metals and spread to oil in the second half of 2014,
led to a sizeable reduction of FDI in natural resources in the region. This represented an important change in the
cycle, as FDI had been responsible, to a large extent, for the reprimarization of some economies in the region in the
previous decade. Falling investment in the natural resources sector was partially offset by increasing investment in
the services sector, especially in market-seeking services. Manufacturing received significant FDI inflows, but mainly
in the larger economies.
FDI outflows also decreased significantly from US$ 33.251 billion in 2013 to US$ 29.162 billion in 2014. The
great majority of outflows still originate in a few Latin American countries and are directed towards other economies
within the region. Developed countries receive some investment from the trans-Latins, but the outflows to developing
countries outside the region are very small. Overall, trans-Latin corporations are not sufficiently diversified geographically
to avoid being affected by the adverse economic environment in the region.
Although the average profitability of FDI has declined in recent years, FDI income is having an ever greater
negative impact on the balance of payments. FDI income was responsible for a large share of the current account
deficit in 2014, which reached 2.7% of GDP. Addressing that growing deficit requires a large capital account surplus,
which can be partially funded through FDI itself.
In a context of subdued economic growth and lower international demand for its key exports, Latin American
and Caribbean economies will need to attract FDI projects that can raise production capacity and help diversify
their economies.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

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of Latin America and the Caribbean 2014 (LC/G.2581-P), Santiago, Chile.
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ft.com/intl/cms/s/0/ca5a6de6-8061-11e4-9907-00144feabdc0.html?siteedition=intl#axzz3LQuTK2lt.
Padilla, R. and C. Gomes (2015), Determinants and home-country effects of FDI outflows in Latin America, Mexico
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plan/documentos/propuesta/acp-proposla-relevant-information.pdf.
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article/2014/12/11/colombia-oil-idUSL1N0TV1LS20141211.
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Annex
Table I.A.1
Latin America and the Caribbean: inward foreign direct investment by country, 2001-2014
(Millions of dollars)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Antigua and Barbuda 112 80 179 95 238 361 341 161 85 101 68 138 101 167
Argentina 2 166 2 149 1 652 4 125 5 265 5 537 6 473 9 726 4 017 11 333 10 840 15 324 11 301 6 612
Bahamas 234 238 292 532 641 843 887 1 032 753 960 971 575 410 374
Barbados 87 81 167 127 240 342 476 464 247 290 384 436 5 275
Belize 61 25 -11 111 127 109 143 170 109 97 95 189 95 141
Bolivia (Plurinational 706 677 197 85 -288 281 366 513 423 643 859 1 060 1 750 648
State of)
Brazil 22 457 16 590 10 144 18 146 15 066 18 822 34 585 45 058 25 949 48 506 66 660 65 272 63 996 62 495
Chile 4 200 2 550 4 334 7 241 7 482 8 798 13 178 16 604 13 392 15 510 23 309 28 457 19 264 22 002
Colombia 2 542 2 134 1 720 3 116 10 235 6 751 8 886 10 565 8 035 6 430 14 648 15 039 16 199 16 054
Costa Rica 460 659 575 794 861 1 469 1 896 2 078 1 347 1 466 2 178 2 332 2 677 2 106
Dominica 21 21 32 27 32 29 48 57 43 25 14 29 26 36
Dominican Republic 1 079 917 613 909 1 123 1 085 1 667 2 870 2 165 2 024 2 277 3 142 1 991 2 209
Ecuador 1 330 783 872 837 493 271 194 1 058 308 163 644 585 731 774
El Salvador 0 0 0 0 512 227 1 447 539 294 -230 218 482 179 275
Grenada 61 57 91 66 73 96 172 141 104 64 45 34 114 40
Guatemala 499 205 263 296 508 592 745 754 600 806 1 026 1 244 1 295 1 396
Guyana 56 44 26 30 77 102 152 178 164 198 247 294 214 255
Haiti 4 6 14 6 26 161 75 29 55 178 119 156 186 99
Honduras 304 275 403 547 600 669 928 1 006 509 969 1 014 1 059 1 060 1 144
Jamaica 614 481 721 602 682 882 866 1 437 541 228 218 413 654 699
Mexico 30 029 24 027 18 888 25 127 24 694 20 901 32 213 28 574 17 644 25 962 23 560 18 998 44 627 22 795
Nicaragua 150 204 201 250 241 287 382 627 434 490 936 768 816 840
Panama 405 78 771 1 012 1 027 2 498 1 777 2 402 1 259 2 363 3 132 2 980 4 654 4 719
Paraguay 70 6 25 28 35 95 202 209 95 210 619 738 72 236
Peru 1 144 2 156 1 335 1 599 2 579 3 467 5 491 6 924 6 431 8 455 7 665 11 918 9 298 7 607
Saint Kitts and Nevis 90 81 78 63 104 115 141 184 136 119 112 110 139 120
Saint Lucia 63 57 112 81 82 238 277 166 152 127 100 78 95 75
Saint Vincent and 21 34 55 66 41 110 121 159 111 97 86 115 160 139
the Grenadines
Suriname -27 -74 -76 -37 28 -163 -247 -231 -93 -248 70 121 138 4
Trinidad and Tobago 835 791 808 998 940 883 830 2 801 709 549 1 831 2 453 1 995 1 394
Uruguay 297 194 416 332 847 1 493 1 329 2 106 1 529 2 289 2 504 2 536 3 032 2 755
Venezuela (Bolivarian 3 683 782 2 040 1 483 2 589 -508 3 288 2 627 -983 1 574 5 740 5 973 2 680 320
Republic of)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 18 May 2015.
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Table I.A.2
Latin America and the Caribbean: inward foreign direct investment by destination sector, 2006-2014
(Millions of dollars)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Argentina a
Natural resources 272 546 426 -37 1 148 930 708 902
Manufactures 1 291 1 698 3 249 2 307 2 511 4 063 4 354 3 692
Services 5 837 5 310 7 505 1 082 6 741 5 662 7 721 7 648
Belize
Natural resources 12 9 37 7 13 29 100 22 16
Manufactures 0 0 0 0 0 0 0 0 0
Services 83 101 117 93 79 59 90 64 116
Other 14 34 16 9 5 5 6 9 9
Bolivia (Plurinational State of) b
Natural resources 390 486 859 420 530 622 1 166 1 550 1 558
Manufactures 67 164 154 74 274 240 119 317 390
Services 126 303 290 193 132 171 220 162 164
Brazil
Natural resources 1 542 4 806 15 085 7 487 18 358 6 296 9 044 16 782 7 046
Manufactures 8 462 16 074 15 796 12 796 20 416 31 664 25 612 21 140 22 228
Services 12 702 13 147 13 704 6 334 9 509 28 493 30 454 26 001 33 138
Chile
Natural resources 3 283 6 495 4 599 7 125 5 196 17 913 12 852 2 317
Manufactures 1 154 -657 1 570 421 595 942 2 095 671
Services 2 617 6 481 8 725 3 933 6 927 4 249 8 491 10 089
Other 244 215 256 1 409 3 008 339 5 104 7 181
Colombia
Natural resources 3 797 4 452 5 176 5 672 4 976 7 336 7 970 8 385 6 618
Manufactures 815 1 760 1 696 1 364 210 1 214 1 985 2 590 2 928
Services 2 138 2 673 3 693 1 000 1 244 6 098 5 084 5 224 6 508
Costa Rica
Natural resources 59 33 467 73 31 38 -17 -5 7
Manufactures 439 689 555 407 966 737 634 306 419
Services 961 1 170 1 031 845 446 1 401 1 715 2 375 1 680
Other 10 4 26 22 23 2 0 0 0
Ecuador
Natural resources -69 -77 265 58 189 380 243 279 528
Manufactures 90 99 198 118 120 122 136 138 109
Services 250 173 595 132 -143 142 207 314 137
El Salvador
Natural resources 29 10 5 1 1 -1 -3 6 1
Manufactures 17 21 28 56 -65 149 -47 285 87
Services 182 1 315 480 165 -166 70 531 -112 187
Other (maquila) -0 101 26 72 0 0 0 0 0
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Table I.A.2 (concluded)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Guatemala
Natural resources 0 70 174 139 120 325 418 335 324
Manufactures 0 210 175 51 299 150 145 186 183
Services 0 437 369 401 363 544 636 707 824
Other 0 28 36 9 23 7 46 67 65
Honduras
Natural resources 86 30 4 10 84 62 41 70 65
Manufactures 228 384 267 98 341 392 438 325 347
Services 356 513 736 402 545 560 579 665 733
Other 0 0 0 0 0 0 0 0 0
Dominican Republic
Natural resources 107 30 357 758 240 1 060 1 169 93 -39
Manufactures -168 184 574 280 566 355 1 257 404 607
Services 1 146 1 453 1 938 1 128 1 218 862 716 1 494 1 640
Mexico
Natural resources 485 1 891 4 549 1 350 1 453 846 3 006 5 443 2 299
Manufactures 10 232 12 901 8 662 6 613 13 918 10 099 7 830 29 595 12 870
Services 10 183 17 421 15 362 9 680 10 591 12 615 8 163 9 161 7 399
Nicaragua
Natural resources 15 11 57 47 77 191 123 272 199
Manufactures 63 121 122 70 108 226 302 234 270
Services 209 250 447 318 323 550 347 346 189
Other 0 0 0 0 0 0 22 129 182
Panama
Natural resources 1 -59 -59 -34 77 94 1 164 31
Manufactures 129 161 161 104 -114 298 520 364
Services 1 765 2 106 2 106 1 190 2 760 2 761 1 296 4 259
Other 2 -11 -11 0 0 0 0 0
Paraguay
Natural resources -36 -2 3 8 -6 14 35 43 5
Manufactures 60 8 149 -109 53 105 290 -36 76
Services 70 196 56 195 163 500 413 65 155
Uruguay
Natural resources 328 338 604 253 329 383 220 378
Manufactures 96 263 261 242 131 190 340 240
Services 594 592 1 003 962 1 010 1 360 1 536 1 642
Other 476 136 238 71 820 572 440 770
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 18 May 2015.
a Data from the Central Bank of the Republic of Argentina.
b Gross foreign direct investment flows, excluding divestments.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Table I.A.3
Latin America and the Caribbean: inward foreign direct investment by country of origin, 2006-2014
(Millions of dollars)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Argentina a
United States 1 375 737 2 562 1 751 2 081 2 854 3 445 5 045
Netherlands 616 583 1 171 -120 -44 639 2 105 1 506
Spain 1 520 1 161 -2 709 1 237 1 247 -459 -918 1 186
Germany 258 363 328 312 635 267 617 999
Canada 67 629 885 -186 644 434 1 453 775
Brazil 437 847 1 436 -152 1 667 1 883 1 580 699
France 133 872 368 48 158 132 471 538
Italy -7 271 227 78 201 336 186 436
Bolivia (Plurinational State of) b
Spain 4 50 25 145 271 246 364 676 537
United Kingdom 17 24 48 70 11 2 111 309 442
Peru 26 35 26 40 82 12 56 102 442
France 38 13 36 22 89 55 73 220 200
United States 272 322 295 162 85 76 89 61 140
Brazil c
Netherlands 3 317 7 634 3 916 4 260 2 736 17 908 12 003 13 120 24 591
United States 2 784 3 744 5 007 1 963 5 348 5 572 13 509 8 742 11 505
Luxembourg 397 5 864 6 292 -483 9 132 2 452 7 648 9 311 8 679
Spain 749 1 787 2 572 3 262 313 9 779 2 073 2 307 6 356
Switzerland 0 0 0 0 6 547 1 415 5 017 3 303 4 688
France 555 1 015 2 231 2 231 3 029 4 383 2 760 2 964 3 947
Japan 826 81 4 316 1 709 2 426 7 387 1 255 3 193 3 548
Germany 0 0 0 0 498 1 434 1 171 1 539 2 670
Chile
United States 111 3 726 2 272 763 2 962 2 746 3 332 5 084
Spain 822 1 088 2 210 1 870 1 507 2 063 1 335 3 689
Canada 498 2 612 1 667 308 2 716 3 961 6 471 3 422
Japan 159 236 -28 1 116 207 1 559 545 1 696
Netherlands 327 805 824 1 377 79 716 641 984
Colombia
Switzerland 65 122 140 166 180 994 698 2 084 2 814
Panama 330 839 1 141 789 1 368 3 508 2 395 2 055 2 453
United States 2 636 2 697 2 874 2 343 1 593 2 155 2 476 2 861 2 213
Spain 671 572 1 040 830 113 1 164 628 951 2 155
United Kingdom 906 1 580 1 505 1 400 949 1 408 1 357 1 416 1 080
Bermuda 396 82 404 645 624 924 367 846 1 070
Costa Rica
United States 821 962 1 328 1 022 1 031 1 376 1 051 1 216 1 004
Spain 13 57 141 79 28 247 318 214 212
Mexico 22 71 20 7 40 183 346 147 182
Panama 28 -3 20 22 31 -3 12 283 120
Canada 345 97 64 33 49 42 8 42 100
Colombia -3 30 50 6 101 152 112 69 88
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Table I.A.3 (continued)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Dominican Republic
United States 662 536 360 455 1055 499 252 374 321
Mexico 84 -124 1055 273 433 73 -32 6 244
Canada 142 113 383 773 696 1126 851 143 158
Netherlands 41 54 -73 96 50 28 10 83 70
Venezuela (Bolivarian 17 53 11 31 208 70 55 47 44
Republic of)
Ecuador
Canada -252 49 58 65 105 252 59 28 229
China 12 85 47 56 45 80 86 94 79
Spain 7 85 190 51 -17 52 50 71 77
Netherlands 38 8 -8 -4 11 7 11 48 76
Uruguay 15 2 -37 -13 40 3 6 115 62
Switzerland 7 1 34 24 6 8 18 9 28
El Salvador
Luxembourg 0 0 0 0 -309 -41 85 42 157
Spain 0 0 0 0 -41 -0 18 170 141
United States 13 499 129 74 -124 23 6 -72 101
Guatemala
United States 4 326 229 151 343 127 227 212 358
Canada 198 25 54 74 114 305 290 269 188
Mexico 0 76 76 50 97 81 96 114 157
Colombia 0 3 15 21 22 155 48 167 136
United Kingdom 83 63 66 58 -25 121 74 -19 107
Russian Federation 0 0 0 0 0 13 134 187 86
Spain 0 13 22 6 43 4 29 17 55
Honduras
Mexico 38 92 30 168 124 154 192 266 201
United States 339 460 449 92 185 141 173 128 154
Luxembourg 0 0 0 171 133 149 124 150 147
Canada 107 139 51 -39 159 187 132 114 115
Panama 16 22 16 1 14 16 22 63 109
Guatemala 17 15 44 14 61 44 52 37 73
Mexico
United States 13 263 13 000 11 678 7 340 6 994 12 196 9 417 13 141 6 516
Spain 1 461 5 458 4 998 3 004 4 185 3 446 -781 -218 4 093
Canada 966 835 3 438 1 832 1 856 1 400 1 768 4 351 2 421
Germany 751 649 657 -32 334 378 946 1 773 1 546
Netherlands 2 805 6 656 1 900 2 633 9 222 2 783 1 460 5 257 1 490
Japan -1 434 440 519 483 536 916 1 816 1 643 1 434
Belgica 69 228 142 346 38 164 0 13 290 1 262
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Table I.A.3 (concluded)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Nicaragua
United States 53 84 126 88 88 159 121 244
Mexico 53 128 164 48 90 115 149 125
Venezuela (Bolivarian 0 47 132 147 29 45 210 108
Republic of)
Panama 101 5 4 1 1 34 78 77
Spain 10 45 59 25 33 116 -19 74
Panama
Colombia 70 134 60 135 82 486 429 1125
United States 117 163 224 -19 1120 652 -16 789
Belgium 0 0 0 0 11 23 -130 428
Switzerland 132 146 122 301 444 216 139 379
Japan 44 60 -50 4 26 6 -4 281
South Africa 17 13 19 26 879 191 612 246
Mexico 51 60 69 154 -9 171 -146 217
Paraguay
United States 84 107 190 111 255 354 59 -128 141
Brazil 52 41 42 -26 29 90 177 83 135
Netherlands 2 -30 20 -28 4 11 34 79 25
United Kingdom -1 1 -2 3 2 19 50 25 20
Spain 7 19 11 16 19 -10 63 -9 17
Trinidad and Tobago
United States 627 574 403 469 363 488 560 1272 361
India 27 21 16 17 13 2 1 2 348
Canada 3 3 2194 4 3 994 1586 357 248
United Kingdom 150 159 146 152 118 64 25 21 31
Uruguay
Argentina 282 373 534 432 588 809 975 672
Brazil 56 86 183 110 108 170 178 255
Netherlands -18 10 14 110 -2 172 78 171
Spain 81 153 232 55 75 194 136 132
France 7 25 17 23 35 -132 4 118
United States 67 43 144 167 -36 77 88 87
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 18 May 2015.
a Data from the Central Bank of the Republic of Argentina.
b Gross foreign direct investment flows, excluding divestments.
c The data for 2014 are standardized according to the methodology of the sixth edition of the Balance of Payments Manual of the International Monetary Fund (IMF).
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Table I.A.4
Latin America and the Caribbean: inward foreign direct investment by component, 2006-2014
(Millions of dollars)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Antigua and Barbuda
Capital contributions 335 328 149 79 96 61 110 65 137
Inter-company loans 18 0 0 1 1 2 6 29 23
Reinvested earnings 9 12 12 5 5 5 22 7 7
Argentina
Capital contributions 2 166 2 578 4 552 2 133 2 504 4 508 4 861 2 784 -1 184
Inter-company loans 263 1 846 4 777 -1 010 3 507 2 600 3 120 1 601 0
Reinvested earnings 3 108 2 050 396 2 894 5 322 3 732 7 343 6 916 7 365
Bahamas
Capital contributions 843 887 1 032 753 960 971 575 410 374
Inter-company loans 0 0 0 0 0 0 0 0 0
Reinvested earnings 0 0 0 0 0 0 0 0 0
Barbados
Capital contributions 265 420 339 140 222 218 225 112 185
Inter-company loans 49 24 80 94 41 178 53 -43 63
Reinvested earnings 28 32 45 13 27 -12 158 -64 27
Belize
Capital contributions 98 100 141 80 80 103 193 98 134
Inter-company loans -15 13 8 6 2 1 0 0 0
Reinvested earnings 25 30 21 23 15 -8 -4 -6 7
Bolivia (Plurinational State of) a
Capital contributions 11 27 45 1 1 5 19 17 313
Inter-company loans 306 654 850 177 141 130 282 331 889
Reinvested earnings 266 272 407 509 793 899 1 204 1 682 910
Brazil
Capital contributions 15 373 26 074 30 064 19 906 40 117 54 782 52 838 41 644 47 303
Inter-company loans 3 450 8 510 14 994 6 042 8 390 11 878 12 434 22 352 15 192
Reinvested earnings
Chile
Capital contributions 1 980 2 622 7 775 1 905 4 662 10 921 8 532 4 679 10 347
Inter-company loans -325 374 2 232 967 2 985 3 162 10 841 8 329 7 248
Reinvested earnings 7 143 10 182 6 597 10 519 7 863 9 226 9 085 6 256 4 406
Colombia
Capital contributions 5 193 7 462 7 827 4 907 3 741 8 282 9 088 9 737 9 394
Inter-company loans -31 -396 461 731 -635 1 872 1 239 2 368 2 493
Reinvested earnings 1 495 1 983 2 332 2 396 3 325 4 494 4 712 4 094 4 167
Costa Rica
Capital contributions 1 034 1 377 1 594 1 050 818 959 721 1 644 1 199
Inter-company loans 25 -2 39 -174 150 711 759 187 467
Reinvested earnings 410 521 446 471 497 509 853 845 440
Dominica
Capital contributions 5 28 39 24 9 5 16 13 22
Inter-company loans 19 9 9 13 13 7 9 8 8
Reinvested earnings 5 10 9 6 3 2 4 5 5
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Table I.A.4 (continued)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Dominican Republic b
Capital contributions 765 1 616 2 199 704 985 1 153 2 414 195 965
Inter-company loans -394 -446 278 1 096 204 79 -274 391 -177
Reinvested earnings 714 498 394 365 835 1 044 1 002 1 405 1 420
Ecuador
Capital contributions 136 151 229 278 265 252 227 424 653
Inter-company loans -260 -368 530 -226 -315 64 57 -3 -193
Reinvested earnings 395 411 298 256 213 328 301 310 314
Grenada
Capital contributions 71 140 128 97 56 39 29 109 35
Inter-company loans 12 17 1 2 3 1 0 0 0
Reinvested earnings 12 15 12 5 5 5 5 5 5
Guatemala
Capital contributions 87 260 198 94 265 198 446 208 131
Inter-company loans -21 -30 75 19 -102 58 219 416 316
Reinvested earnings 526 515 482 488 643 770 580 672 949
Honduras
Capital contributions 204 220 568 84 29 284 310 174 174
Inter-company loans 46 203 -40 65 378 56 52 240 355
Reinvested earnings 419 505 479 360 562 674 697 645 615
Mexico
Capital contributions 6 574 17 761 12 305 11 204 15 160 9 396 4 325 21 622 4 235
Inter-company loans 6 221 5 992 7 298 1 545 5 880 4 730 6 114 7 134 5 565
Reinvested earnings 8 106 8 460 8 970 4 895 4 921 9 433 8 559 15 443 12 769
Panama
Capital contributions 1 929 719 918 898 948 759 1 561 1 340 1 402
Inter-company loans 364 178 136 105 540 1 224 682 540 340
Reinvested earnings 205 879 1 348 257 874 1 150 737 2 773 2 977
Paraguay
Capital contributions 60 43 20 173 -9 391 439 242 126
Inter-company loans -11 129 132 -102 129 300 61 -322 4
Reinvested earnings 46 30 57 23 91 -73 238 151 106
Peru
Capital contributions 874 733 2 981 1 828 2 445 896 5 393 2 460 1 342
Inter-company loans 240 924 656 -782 693 2 117 -508 3 075 2 287

Reinvested earnings 2 353 3 835 3 287 5 385 5 317 4 652 7 033 3 764 3 978
Saint Kitts and Nevis
Capital contributions 107 135 178 132 116 107 106 137 118
Inter-company loans 5 3 3 1 1 1 2 0 0
Reinvested earnings 2 2 2 2 2 4 1 1 1
Saint Lucia
Capital contributions 220 254 135 135 109 80 54 76 53
Inter-company loans 6 8 21 13 13 15 16 10 11
Reinvested earnings 11 15 11 3 4 5 8 9 11
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Table I.A.4 (concluded)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Saint Vincent and the Grenadines
Capital contributions 94 102 142 100 91 79 112 157 136
Inter-company loans 3 8 8 8 2 2 2 2 2
Reinvested earnings 13 11 9 2 4 4 1 1 1
Suriname
Capital contributions 0 0 0 0 0 0 0 0 0
Inter-company loans -163 -247 -231 -93 -248 -51 113 71 -21
Reinvested earnings ... ... ... ... ... 121 11 69 27
Trinidad and Tobago
Capital contributions 497 554 2 322 426 309 0 1 0 0
Inter-company loans -20 -21 -16 -12 -11 136 698 1 040 661
Reinvested earnings 406 297 495 296 251 1 696 1 754 954 732
Uruguay
Capital contributions 576 550 1 012 990 1 617 1 412 1 665 1 866 2 111
Inter-company loans 699 448 540 82 8 263 94 306 -79
Reinvested earnings 219 331 554 457 664 828 777 860 722
Venezuela (Bolivarian Republic of)
Capital contributions -134 -806 302 -3 348 -1 319 -495 -307 -79
Inter-company loans -2 323 773 -11 367 1 457 2 752 3 292 1 784
Reinvested earnings 1 949 3 321 2 336 1 998 1 436 3 483 2 988 975
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 18 May 2015.
a Gross foreign direct investment flows, excluding divestments.
b Data standardized according to the methodology of the fifth edition of the Balance of Payments Manual of the International Monetary Fund (IMF).

Table I.A.5
Latin America and the Caribbean: inward foreign direct investment stock by country, 2001-2014
((Millions of dollars and percentages of GDP)

2001 2005 2011 2012 2013 2014 2001 2005 2011 2012 2013 2014
(millions of dollars) (percentages of GDP)
Argentina 79 504 55 139 93 199 100 821 111 361 114 076 25 25 17 17 18 21
Bolivia (Plurinational
State of) 5 893 4 905 7 749 8 809 10 558 11 206 72 51 32 33 35 33
Brazil 121 949 181 344 696 408 743 964 747 891 754 101 22 20 27 31 31 32
Chile 43 482 78 993 175 753 205 999 214 378 224 573 60 63 70 78 77 87
Colombia 15 377 36 987 97 364 112 926 128 182 141 667 16 25 29 31 34 38
Costa Rica 3 185 5 417 16 225 18 811 21 789 24 309 19 27 39 42 44 49
Dominican Republic 2 752 8 866 22 129 25 143 26 660 29 035 11 25 38 42 44 45
Ecuador 6 876 9 861 12 501 13 086 13 817 14 591 28 24 16 15 15 15
El Salvador 2 252 4 167 8 120 8 789 8 918 9 358 16 24 35 37 37 37
Guatemala 3 918 3 319 7 751 8 938 10 255 12 102 21 12 16 18 19 21
Haiti 99 150 784 963 3 4 10 12
Honduras 1 585 2 870 7 965 9 024 10 084 11 228 21 29 45 49 55 57
Jamaica 3 931 6 919 11 110 11 988 12 457 13 159 43 62 77 81 87 93
Mexico 157 305 234 149 338 975 366 564 391 879 337 750 23 27 29 31 31 26
Nicaragua 1 565 2 461 5 617 6 385 7 200 8 040 29 39 58 61 66 68
Panama 7 314 10 167 23 875 26 762 31 413 35 917 58 62 72 71 74 77
Paraguay 1 016 1 127 3 947 5 288 5 076 5 381 13 13 16 21 18 18
Peru 11 835 15 889 50 641 62 559 71 857 79 429 23 21 30 32 36 39
Suriname 742 866 1 006 1 012 17 17 19 18
Uruguay 2 406 2 844 15 147 17 407 19 564 12 16 32 34 34
Venezuela (Bolivarian
Republica of) 39 074 44 518 44 576 49 079 55 766 32 31 14 13 14
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 18 May 2015.
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 Table I.A.6
Latin America and the Caribbean: outward foreign direct investment flows by country, 2001-2014
(Millions of dollars)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Antigua and Barbuda 13 14 13 15 17 2 2 2 4 5 3 4 6 6
Argentina 161 -627 774 676 1 311 2 439 1 504 1 391 712 965 1 488 1 055 1 097 2 117
Bahamas 42 28 46 86 78 136 141 171 89 88 304 49 28 122
Barbados 1 0 1 4 9 44 82 -6 -56 -54 301 -129 106 93
Belize 0 0 0 0 1 1 1 3 0 1 1 1 1 3
Bolivia (Plurinational State of) 3 3 3 3 3 3 4 5 -4 -29 0 0 0 0
Brazil -2 258 2 482 249 9 807 2 517 28 202 7 067 20 457 -10 084 11 588 -1 029 -2 821 -3 495 -3 540
Chile 1 610 343 1 709 2 145 2 135 2 212 4 852 9 151 7 233 9 461 20 252 20 555 10 308 12 052
Colombia 16 857 938 192 4 796 1 268 1 279 3 085 3 505 5 483 8 420 -606 7 652 3 899
Costa Rica 10 34 27 61 -43 98 262 6 7 26 58 428 290 218
Dominica 4 1 0 1 13 3 7 0 1 1 0 0 2 2
El Salvador 0 0 19 0 113 0 95 80 0 5 -0 -2 3 1
Grenada 2 3 1 1 3 6 16 6 1 3 3 3 3
Guatemala 10 22 46 41 38 40 25 16 26 24 17 39 34 31
Honduras 3 7 12 -6 1 1 1 -1 4 -1 2 55 26
Jamaica 89 74 116 60 101 85 115 76 61 58 75 24 73
Mexico 4 404 891 1 253 4 432 6 474 5 758 8 256 1 157 9 604 15 050 12 636 22 470 13 138 7 610
Paraguay 6 6 6 6 6 7 7 8 8 7 0 0 0 0
Peru 237 -522 773 258 868 1 327 987 -200 3 176 1 038 1 450 2 330 1 154 4 452
Saint Kitts and Nevis 2 1 2 7 11 4 6 6 5 3 2 2 2 2
Saint Lucia 4 5 5 5 4 4 6 5 6 5 4 4 3 3
Saint Vincent and 0 0 0 0 1 1 2 0 1 0 0 0 0 0
the Grenadines
Suriname 0 0 0 0 0 0 0 0 0 0 3 -1 0 0
Trinidad and Tobago 58 106 225 25 341 370 0 700 0 0 1 060 1 681 2 061 1 055
Uruguay -6 -14 -15 -18 -36 1 -89 11 -16 60 7 3 5 13
Venezuela (Bolivarian 2 630 2 492 -370 4 294 752 1 024
204 1 026 1 318 619 1 167 1 524 -495 1 311
Republic of)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of XX May 2015.
Foreign Direct Investment in Latin America and the Caribbean 2015

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 Foreign Direct Investment in Latin America and the Caribbean 2015

Chapter II

Foreign direct investment

in the Caribbean

Introduction
A. Background
B. Trends in FDI
C. Sectoral analyses
D. FDI promotion policy
E. Trans-Caribbean enterprises
F. Conclusions
Bibliography
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 Introduction
Foreign direct investment (FDI) is very important for the Caribbean. These economies receive substantial FDI flows
relative to their size, and a large share of their economic activity is conducted by transnational corporations. The ratio
of inward FDI to gross domestic product (GDP) last year was 4.2% for the whole subregion and over 10% in several
economies (see figure II.1). By way of comparison, the ratio is 2.6% in Latin America and lower, if anything, in other
developing regions. Even compared with other small economies such as Pacific island States, Caribbean economies
receive particularly high levels of FDI in relation to their economic size.
This chapter reviews the current state of affairs with respect to Caribbean FDI flows. The next section provides some
background on the Caribbean context, and it is followed by a section detailing medium- and short-run trends in FDI
flows into the region on a country-by-country basis. After this comes an analysis of some of the sectors that are most
important for the Caribbean. This chapter then discusses the extensive and costly use of FDI promotion policies in the
region before addressing the importance of trans-Caribbean enterprises and drawing some conclusions in its final section.

Figure II.1
The Caribbean (selected economies): inward foreign direct investment as a proportion of GDP, 2014
(Percentages)
20
18
16
14
12
10
8
6
4
2
0
Saint Vincent
and the Grenadines

Saint Kitts and Nevis

Antigua and Barbuda

Belize

Guyana

Dominica

Barbados

Saint Lucia

Trinidad and Tobago

Jamaica

Grenada

Bahamas

The Caribbean

Dominican Rep.

Latin America

Haiti

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures as of 18 May 2015. Suriname

A. Background
The Caribbean subregion discussed in this study comprises the following ECLAC member States: Antigua and Barbuda,
the Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and
Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname and Trinidad and Tobago. This chapter also treats the
Dominican Republic and Haiti as part of the Caribbean subregion, although in other analyses these economies are
usually dealt with separately from the English- and Dutch-speaking Caribbean because of their large populations and
different historical background. Haiti is included because the small size of its economy and its economic vulnerability
make it similar to other Caribbean countries. The Dominican Republic also shares features with the other Caribbean
countries, even if its economic size is disproportional to that of any of the other economies in the region (see mapII.1).
Cuba is discussed in box II.1, but not included in the rest of the analysis owing to a lack of comparable data.
In addition to these countries, there are 13 other economies in the Caribbean that are associate members of ECLAC
but not fully independent States. They are: Anguilla, Aruba, Bermuda, the British Virgin Islands, the Cayman Islands,
Curaao, Guadeloupe, Martinique, Montserrat, Puerto Rico, Sint Maarten, the Turks and Caicos Islands and the United
States Virgin Islands.1 Information on FDI inflows into most of these economies is very incomplete. The Cayman Islands
and the British Virgin Islands operate as offshore financial centres for transnational corporations and, as a consequence,
1 There is a final group of economies that are not members or associate members of ECLAC. This includes some of the Dutch Caribbean
and some of the overseas regions and collectivities of France.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

register huge inflows and outflows of FDI that have little relation to productive activities in those economies. Puerto Rico is
the largest economy in this group and attracts large flows of FDI (more than the entire Caribbean subregion in some recent
years), while many other countries do not record FDI inflows at all (see also De Groot and Prez Ludea, 2014, box 1).

Map II.1
The Caribbean (selected economies): population and GDP, 2013
(Thousands of inhabitants and millions of dollars)

Pop. 11 291 Pop. 377

GDP 77 151 GDP 8 412

Bahamas
Cuba

Pop. 10 261
GDP 8 393
Pop. 3 548
GDP 103 100
Haiti

Pop. 54
Saint Kitts and Nevis
Dominican Rep. Puerto Rico GDP 763
Belize Pop. 332 Jamaica
GDP 1 625 Pop. 10 291 Pop. 90
Antigua and Barbuda
GDP 61 170 GDP 1 201
Pop. 2 784
GDP 14 271 Pop. 72
Pop. 109 Dominica GDP 517
Pop. 103 GDP 707
GDP 2 677 Pop. 182
Saint Lucia GDP 1 334
Saint Vincent and
Aruba the Grenadines Barbados
Pop. 285
GDP 4 350
Pop. 142 Pop. 106
Curaao Grenada
GDP 3 017 GDP 836
Pop. 1 341
Trinidad and Tobago GDP 24 432

Pop. 800
GDP 2 991 Pop. 539
GDP 5 296

Guyana
Suriname

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
Note: The boundaries and names shown on this map do not imply official endorsement or acceptance by the United Nations.

Most economies in the subregion have experienced economic stagnation in recent years. From 2008 to 2013,
only Guyana, Haiti and Suriname had positive rates of per capita GDP growth (see table II.1). Severe budget deficits
in nearly all Caribbean economies have limited the policy space available for improving the economy through
government action. While Saint Kitts and Nevis had a budget surplus of 2.7% of GDP in 20142 and Jamaica nearly
achieved a balanced budget, all other governments ran significant budget deficits, ranging from 1.3% of GDP (Haiti)
to 7.7% (Saint Lucia). The average national debt reached 78.6% of GDP in 2014, exceeding 100% in Jamaica and
coming close to this figure in other economies such as Antigua and Barbuda, Barbados and Saint Kitts and Nevis.
Moreover, the private-sector response to the crisis was weak, leading to sluggish domestic investment. This highlights
the importance of FDI as a source of investment financing in Caribbean-type economies, where domestic private
investment is strongly driven by public investment.
An important characteristic of Caribbean economies is vulnerability. The report by the United Nations Conference
on Trade and Development on small island developing States (UNCTAD, 2014) on the occasion of the third International
Conference on Small Island Developing States in 2014 discusses the challenges of attracting FDI to such economies.
Most of the economies included in its analysis are located in the Caribbean, and the challenges identified are very real,
with many Caribbean economies vulnerable not only to natural disasters and climate change but also to international
economic fluctuations. FDI inflows into the subregion are very large for the size of its economies, making them sensitive
to variations in these inflows, with the additional implication that their productivity depends on the productivity of
the FDI concerned. Next, in most of them, FDI is highly concentrated in specific sectors, such as natural resources in
some countries and tourism in others, which increases exposure to sector-dependent shocks. Finally, FDI is narrowly
based in terms of origin, with a great portion coming from a limited number of countries, especially Canada and
the United States. As a result, shocks that affect these countries of origin are quickly transmitted to the Caribbean.

2 In 2013, Saint Kitts and Nevis had a surplus of 14.0%, which it was forced to accumulate as part of its consolidation effort to bring
down its towering debt.
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Table II.1
The Caribbean (selected economies): summary statistics
GDP growth, GDP growth, Gross fixed
Inward Fiscal Gross public
Per capita 2014 2008-2013 capital Unemployment,
FDI, 2014 balance, 2014 debt, 2014
GDP, 2013 (percentage (percentage formation, 2013 2014
(millions (percentages (percentages
(dollars) annual growth annual growth (percentages (percentages)
of dollars) of GDP) of GDP)
rates) rates) of GDP)
Antigua and Barbuda 13 342 3.2 -2.8 167 24.6 -1.9 95.0
Bahamas 22 323 1.0 -0.4 374 26.3 -3.4 61.8 14.3
Barbados 15 264 0 -0.4 275 13.9 -7.1 97.7 11.6 a
Belize 4 894 3.6 2.4 141 17.8 -1.7 75.9 11.1
Dominica 7 177 2.4 0.8 36 12.0 -1.7 72.2
Dominican Republic 5 944 7.3 3.8 2 209 14.4 -3.0 36.4 6.8
Grenada 7 891 3.8 -0.7 40 18.6 -6.3 89.9
Guyana 3 739 4.5 4.2 255 18.6 -4.9 60.9
Haiti 818 3.5 1.9 99 15.7 -1.3 30.4 a
Jamaica 5 126 1.2 -0.8 699 21.0 -0.7 128.1 13.6
Saint Kitts and Nevis 14 133 6.3 0.0 120 29.1 2.7 95.7
Saint Lucia 6 486 -1.6 0.4 75 23.3 -7.7 80.2
Saint Vincent and 7 328 0.5 -0.3 139 25.2 -5.8 72.2
the Grenadines
Suriname 9 826 3.5 3.9 4 41.2 -5.7 29.9
Trinidad and Tobago 18 219 1.8 -0.1 1 394 14.0 -2.7 62.6 3.7 a
The Caribbean 4 934 b 4.4 b 0.1 6 027 21.1 b c -3.9 78.6

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Economic Survey of Latin America and the Caribbean 2014 (LC/G.2619-P),
Santiago, Chile, 2014; and United Nations, National Accounts Main Aggregates Database, Statistical Division, 2015.
Note: Averages for the Caribbean do not include the Dominican Republic or Haiti, unless otherwise indicated.
a 2013 data.
b Includes the Dominican Republic and Haiti.
c Simple average.

The activities of transnational corporations have much more impact on Caribbean economies than on those of
large countries like Brazil, Chile or Mexico, even if the absolute amounts of FDI are small in comparison. Investment
decisions made in Europe, the United States or Asia can have large effects on the levels of investment, employment
or tax receipts in Caribbean economies because of the relative size of individual companies in those economies.
Policies designed to maintain or attract FDI, including those aimed at making it easier to do business, are thus
particularly important there because policy changes may affect individual companies decisions, directly impacting
local economies.

B. Trends in FDI
Taken as a whole, the Caribbeans inflow of FDI shrank from US$6.322 billion to US$6.027 billion between 2013
and 2014, a decrease of 4.7%, compared with a decrease of 16% in Latin America. However, this overall trend hides
the fact that the Caribbean is a highly varied region where the different economies follow their own trends. While
most economies are highly dependent on services (tourism in particular), others, such as Belize, Guyana, Suriname
and Trinidad and Tobago, are primarily based on natural resources. This section discusses the medium-term trend for
each of the economies, using the most recent data from 2014.Table II.2 displays the latest figures for the economies
included in this chapter.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Table II.2
The Caribbean (selected economies): foreign direct investment inflows
by receiving country or territory, 2008-2014
Absolute Relative
change, change,
2008 2009 2010 2011 2012 2013 2014 2013-2014 2013-2014
(millions (percentages)
of dollars)
Antigua and Barbuda 161 85 101 68 138 101 167 66 66
Bahamas 1 032 753 960 971 575 410 374 -36 -9
Barbados 464 247 290 384 436 5 275 270 5 119
Belize 170 109 97 95 194 95 141 46 48
Dominica 57 43 25 14 29 26 36 9 36
Dominican Republic 2 870 2 165 2 024 2 277 3 142 1 991 2 209 218 11
Grenada 141 104 64 45 34 114 40 -73 -64
Guyana 178 164 198 247 294 214 255 41 19
Haiti 30 55 178 119 156 186 99 -87 -47
Jamaica 1 437 541 228 218 413 654 699 45 7
Saint Kitts and Nevis 184 136 119 112 110 139 120 -19 -13
Saint Lucia 166 152 127 100 78 95 75 -20 -21
Saint Vincent and 159 111 97 86 115 160 139 -21 -13
the Grenadines
Suriname -231 -93 -248 70 121 138 4 -134 -97
Trinidad and Tobago 2 801 709 549 1 831 2 453 1 995 1 394 -601 -30
Total 9 618 5 281 4 809 6 637 8 289 6 322 6 027 -302 -5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures as of May 2015.

1. Hispaniola
The Dominican Republic is the largest economy in the Caribbean after Cuba and the largest recipient of FDI. All sectors
are open to FDI and there is a strong presence of transnational corporations in most of them, with the partial exceptions of
financial services and agriculture. FDI inflows peaked at more than US$3 billion in 2012, when the countrys largest beer
company was acquired for US$1.2 billion. Inflows were just shy of US$2 billion in 2013 and increased by 11% in 2014.
Tourism was the largest recipient of FDI for many years, and although investments declined after the 2009
financial crisis, they picked up again from 2013. Around the year 2000, the country also received large investments
in public utilities in connection with a privatization programme that, at least in the electricity sector, was recently
reversed. FDI has also been important in developing export manufacturing, although the sums invested have never
been very large. The largest investment of the past few years has been in the Pueblo Viejo gold mine, acquired by
Barrick of Canada. Almost exclusively because of this project, FDI in natural resources averaged over US$700 million
between 2008 and 2012, while the mine was being developed. Transnational corporations profits have been high
in the Dominican Republic as a consequence of strong economic growth and new mining exports. At over 10% in
the last decade, average returns are the highest in the Caribbean and the fifth-highest in Latin America. Income from
FDI was US$2 billion in the past three years, putting it almost on a par with FDI inflows.
Mexicos Amrica Mvil started to roll out a 4G mobile service during 2014; this has cost US$225 million to
date, with a further US$750 million expected over the coming years. Mexico is one of the largest investors in the
Dominican Republic, with CEMEX opening a 1.5MW solar energy complex to power its San Pedro cement plant and
investing a further US$20million in various other elements of the plant. Another development in the electricity sector
is that AES of the United States is planning to expand its power generation capabilities from 210MW to 324MW
at a cost of around US$260 million.
In tourism, several hotels were opened or reopened by operators that included the United States-based Gansevoort
Hotel Group, which opened a high-end property on the north coast for an investment estimated by fDi Markets at
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 Foreign Direct Investment in Latin America and the Caribbean 2015

more than US$200 million. A US$85 million investment in the Amber Cove port by British-American cruise company
Carnival was also completed in 2014. Furthermore, Spains Tradebe Port Services announced an expansion of its
terminal for fuel oil and distillate products, estimated to require US$200 million of investment.3
Finally, Australian gold miner PanTerra warned that the performance of its Las Lagunas mine had been unsatisfactory,
but stated that it was planning to undertake exploration in other areas as well. The performance of PanTerra contrasts
with that of the Pueblo Viejo mine mentioned earlier, which is operating as expected.
Haiti is one of the countries that receive the least FDI in the Caribbean, both in absolute terms and in relation to
the size of the economy. FDI inflows in 2014 dropped to US$99 million after four years in which they had averaged
US$150 million.
There are many important sectors of the economy in which FDI is almost absent, for various reasons. The extractive
industries have never been developed, although Newmont Ventures of Canada and other foreign companies are
currently doing exploration work. There is also no heavy industry in the country, although the size of the economy
(and its growth potential) would support a cement manufacturing plant. The financial sector is dominated by local
banks, and electricity production and distribution are handled by a State-owned company. There is also very limited
investment in agriculture by formal enterprises, whether local or foreign.
The sector that has received the largest amount of FDI in the past few years is telecommunications. Two foreign
companies, Digicel of Jamaica and Netcom of Viet Nam, have invested substantial amounts in expanding their
networks and now offer both fixed-line and mobile telephony and Internet services. Another large foreign investor is
Heineken of the Netherlands, which bought local brewer Brana in 2011 and has invested in upgrading its facilities
to meet the growing demand for beer and soft drinks.
FDI inflows into export processing manufacturing have averaged only US$6 million a year over the past decade,
but are very important in terms of job creation. The sector is focused on garment production for the United States
market, and most investors are from Asia. Tourism is another sector with great potential, but so far investments have
been limited. The largest project registered has been the construction of a Marriott hotel in the capital, estimated at
US$50 million. There are several projects to build large resorts in the country, including one recently announced by
Carnival Cruise Lines for the construction of a port on Latortue island at a cost of US$70 million.

2. The southern Caribbean

FDI inflows into Trinidad and Tobago totalled US$1.394 billion in 2014, 30% less than the previous year. This continues
a downward trend from 2013, when FDI inflows shrank by 19% compared with 2012. The hydrocarbons sector has
traditionally attracted the bulk of FDI in the country (over 80% since 2011). The fall in oil prices since mid-2014
has created an uncertain environment in this sector, but major projects have continued despite these concerns. The
United Kingdoms BP began construction of its Juniper offshore gas project in the fourth quarter of 2014, and this
is expected to be completed in 2017. Total capital expenditure for the project may be as high as US$2.1 billion.
Australias Range Resources announced a significant investment in oil extraction at the Beach Marcelle site in 2013.
The estimated US$100 million to US$150 million investment was supposed to start in 2014, but was postponed.
In the same sector, Frances Total divested a US$473 million share of its oil-producing fields to the National Gas
Company (NGC) of Trinidad and Tobago in 2013, and this represented a significant negative inflow during that year.
Outside the extractive sector, Japans Mitsubishi announced the construction of a new methanol plant in 2013 for a
total cost of US$850 million. The original 2014 date for construction has since been postponed to 2015 at the earliest,
and it is unclear whether the project will take place. A US$63 million clay block factory, a collaboration between local
firm ANSA McAL and Italian company SACMI, was opened in 2014. Furthermore, the Government of Trinidad and Tobago
signed an agreement with China in 2014 for the construction of a port in south-west Trinidad and for the development of
seven industrial parks throughout the country. The industrial parks are meant to service both the manufacturing and the
services sectors. The projects, which are expected to cost US$500 million for the port and US$250 million for the industrial
parks, are subject to the approval of concessional funding from the Export-Import Bank of China. On the island of Tobago,

3 See [online] http://www.fdimarkets.com/.

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 Economic Commission for Latin America and the Caribbean (ECLAC)

tourism is the most important sector, but there has been relatively little investment in recent years. Bermuda-owned Coco
Reef spent US$9 million upgrading its properties during 2011-2012, but no other major foreign investments were recorded.
Trinidad and Tobago is responsible for approximately 90% of all outgoing FDI in the Caribbean. In 2013, for example,
NGC acquired a 39% share in a Phoenix (United States) gas processor from ConocoPhillips for US$600 million.4
Suriname received only US$ 4 million in FDI in 2014 compared with US$ 138 million the year before. 2014 saw
the long-awaited start of construction at the Merian gold mine by Newmont Mining Corporation of the United States,
which is expected to invest approximately US$1 billion before operations can start in late 2016. National oil company
Staatsolie also has a 25% stake in the Merian gold mine. Canadas IAMGOLD continues to operate the Rosebel gold
mine, and in 2014 it also took an option on the nearby Sarafina mine. On top of that, IAMGOLD has also completed the
largest solar energy project in Suriname to date, a 5MW project costing between US$12million and US$14 million.
Alcoa, the United States-based aluminium producer, on the other hand, has reduced its operations in Suriname recently
and is expected to divest its operations in 2015. Downstream, Kaloti Jewellery Group of the United Arab Emirates has
set up a mint house and refining facility, which opened in 2014 at an estimated cost of US$20 million.
Outside the mining industry, very little FDI arrives in Suriname. There is investment in real estate, primarily
from the Netherlands, which has a large Surinamese diaspora. Otherwise, the agricultural sector attracts the largest
share of investment, such as the takeover of 90% of the national banana company by Belgiums Univeg for some
US$ 30 million in 2014. Two former plantations, Brokopondo and Victoria, have gone through several rounds
of unsuccessful privatization and development over recent decades, but there are signs that the Investment and
Development Corporation Suriname (IDCS) will soon be able to identify a foreign investor that may be able to exploit
the land successfully in a joint venture. In 2009-2010, Atlantic Tele-Network of the United States invested an estimated
US$60million in a fibre optic cable to Suriname. In other sectors, such as services or manufacturing, it is difficult
to see any improvement in the immediate future unless the country addresses its challenges in governance, ease of
doing business and international connectivity.
FDI to Guyana increased by 19% in 2014 to US$255 million, contributing to a lower balance-of-payments deficit.
With 28% of inflows, the mining sector is the largest in Guyana, and in the bauxite, gold and diamond industries are
particularly prominent players. Although FDI in gold mining is expected to fall owing to lower prices, FDI in bauxite
is expected to increase, with continued investment by companies based in China and the Russian Federation. Bosai
Minerals (China) has invested several hundred million dollars in recent years, but its relationship with the Government
of Guyana has worsened recently, with US$100million of planned investments not materializing.5 In 2013, RUSAL
committed to investing US$20 million in the Kurubuka-22 bauxite mine. Guyana Goldfields of Canada has invested
heavily in the Aurora gold mine, which is expected to start production in 2015. Total expenditures are estimated
at US$ 240 million. Outside of the mining sector, investors, particularly from China, have also made significant
inroads into the distribution of consumer goods, for example with Haier Electronic Appliances US$10million plant,
opened in 2012. As a result, the manufacturing industry received 12% of inflows in 2014. The tourism industry,
which is relatively small in Guyana, received 11% of inflows in 2014. The sector should benefit from the opening
of a US$51million Marriott hotel, under construction since 2011 and due to open in 2015. One of the largest
planned projects of recent years has been the Amaila Hydro Power Project, estimated at US$850 million, but with
the withdrawal of Sithe Global of the United States in 2013, its future is unclear. The government is still committed
to its eventual completion nonetheless.

3. The western Caribbean

Inward FDI in the Bahamas was somewhat lower than the previous year, with a 9% decrease to US$374 million. However,
this was well below the annual inflows of earlier years, with a range of between US$750 million and US$1.05 billion
from 2006 to 2011. The country showcases some of the most ambitious tourism plans anywhere in the Caribbean, but also
faces many of the associated challenges. With 4,000 rooms, the Atlantis Resort is one of the largest resorts in the Caribbean.
Kerzner International of South Africa had to sell the property to Canadas Brookfield Asset Management in 2012 after

4 See [online] http://www.businesswire.com/news/home/20130816005664/en/ConocoPhillips-Announces-Sale-Trinidad-Tobago-Asset#.

VNzCLObF8t1.
5 See [online] http://www.guyanatimesgy.com/2014/04/07/govt-rescinds-bosais-block-37-concession/.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

failing to run it profitably. Brookfield has promised to continue investing US$50million per year there, but this shows the
difficulty of guaranteeing profitability for such a large venture. Baha Mar, another mega project, is scheduled to open in the
spring of 2015 after a US$3.5 billion investment, the largest share of which has been financed by the Export-Import Bank
of China. The project will add another 2,200 rooms to the inventory and will further saturate the market in the Bahamas;
it is not immediately clear whether this can sustain two mega hotel projects right next to each other.6
The Bahamas has had several run-ins with promising investments that turned out to be failures. United States-based
Glasslam opened a new location for small-scale high-tech manufacturing in 2009, but it was closed soon afterwards,
something the CEO of Glasslam attributed to the difficulty of doing business and bad relations with Grand Bahama
Power Company.7 Another purported manufacturing investment, by the now defunct Pegasus Wireless Corporation of
the United States, finally turned out to be a scheme to defraud investors.8 On the other hand, the Bahamas is one of the
few countries in the region with substantial outgoing investments as well. Cable Bahamas, for example, acquired four
separate cable operators in Florida for close to US$100 million in 2013. A final investment worth noting is the expansion
of Cable & Wireless, which owns 51% of Bahamas Telecommunications Company and upgraded its network at a cost
of some US$100 million in 2012 and 2013. It originally acquired a majority share in 2011 for US$210 million. The
2010 transfer for US$1.36 billion of a Bahamian oil refinery from First Reserve to Buckeye Partners, both based in the
United States, did not represent a new inflow of capital, but can be considered a vote of confidence in the country.
Jamaica received FDI inflows worth US$ 699 million, 7% more than in 2013 and the largest amount since
2008. The sector classified as otherreceived the most FDI in 2014, but tourism saw the largest increase, jumping
from US$6million in 2013 to US$ 104 million in 2014. The rise in FDI could be considered a positive signal from
investors in response to the governments commitment to financial reform and its signing of an Extended Fund Facility
with the International Monetary Fund (IMF). A major point of discussion in the country is the development of the
Goat Island Port by China Harbour Engineering Company (CHEC). The project, estimated to require an investment of
US$1.35 billion, is opposed by environmentalists but supported by both the government and much of the population.
A decision is expected in 2015 (see also box I.4 in chapterI). CHEC is also the main force behind Highway 2000, a
US$600 million project for a north-south highway which has been ongoing for about 10 years and is now projected
to be completed by 2016.
Investments in mining, most relating to bauxite, have been declining over the past few years, dropping from a high
of US$336 million (38% of FDI inflows) in 2006 to a mere US$26 million (4% of inflows) in 2014. In the latter year,
the Russian Federations RUSAL committed to building a coal-fired power plant in exchange for a two-year bauxite
levy concession. At the same time, Chinas Xinfa Group has been in extensive discussions with the Government
of Jamaica to invest up to US$3 billion in the redevelopment of Reynolds mines, together with an alumina plant
and another coal-fired power plant. The negotiations between Xinfa Group and the government have not yet been
concluded. One of the largest inflows of FDI in recent years is associated with the decision by Italys Campari Group
to acquire the spirits business of Lascelles deMercado for US$415 million in 2012.
Tourism was the major recipient of FDI a decade ago, when a series of investments by Spanish companies
increased capacity in the sector substantially. After the financial crisis, the industry suffered from overcapacity and new
investments declined to as little as US$6 million in 2012, picking up again only very recently. The Moon Palace Golf
& Spa Resort is reopening after an estimated US$100 million refurbishment by Mexicos Palace Resorts. Playa Hotels
and Resorts invested an estimated US$150 million in refurbishments and construction at the former Ritz Carlton,
which reopened in late 2014. The Royalton White Sands reopened in late 2013 after Canadas Blue Diamond Hotels &
Resorts spent US$50 million upgrading and updating it. The United States-based Apple Leisure Group, which already
operates two hotels on the island, is among companies rumoured to be considering new investments. In addition to
foreign investors, Sandals Resorts is investing in its home market by upgrading and modernizing existing properties.
The inflow of FDI into Belize increased significantly in 2014, rising by 48% to US$141 million, with real estate
being the most important sector with 35% of inflows, followed by tourism with 21%. Since 2005, tourism has been
responsible for 28% of inflows, followed by real estate with 19% and financial services with 10%. Since the country
has a relatively small economy, individual investments can cause large swings in inflows, so that next year will

6 See [online] http://www.wsj.com/articles/chinas-bahamas-project-hits-hurdles-1412092767.

7 See [online] http://www.dwmmag.com/index.php/glasslam-to-open-three-new-locations-close-one-in-2010/.
8 See [online] http://www.bahamasb2b.com/news/2011/08/another-of-christies-big-investors-turns-out-to-be-a-crook-10826.html.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

probably see a reversion to the mean. The two sectors of primary importance to Belize are tourism and agribusiness.
In the latter category, the country is one of the few in Latin America and the Caribbean to receive FDI inflows that
are significant relative to the size of the economy. One example of an international investor is United States-based
TexBel Agricultural Investments, which is in the process of putting an estimated US$45 million into the development
of coconut farming. In another example, American Sugar Refining of the United States acquired a majority share in
Belize Sugar Industries for US$100 million in 2012. In retail, Jamaicas GraceKennedy acquired the remaining third
of its Belizean subsidiary for an undisclosed amount in 2012.
In tourism, Norwegian Cruise Lines US$50 million investment in an environmentally friendly port will soon be
forthcoming, while several other far-reaching plans for cruise terminals or resorts have occasionally been floated in
the media, but without a clear path towards realization. In 2014, Caye Chapel, an island which had been part of a
bankrupt estate and ended up in the possession of Belize Bank, was finally sold for US$11.5 million to an unnamed
Mexican hotel group and is expected to be developed into a new luxury resort. On Ambergris Caye, a range of
developments are at different stages of realization, but local critics say that several of them do not adhere to local
and national regulations. Environmentalists also worry about the speed at which Belizes sensitive coastal range is
being developed. In 2011, large property on Long Caye Island was sold to Amble Resorts, which was planning to
develop it into an eco-resort, but progress has been slow and it is unclear whether any investment has taken place.

Box II.1
Foreign direct investment in Cuba
Cuba is the largest country in the Caribbean in terms of population, large influx of foreign tourists to the island and to the investment
and the only economy in the region that does not report FDI in accommodation infrastructure this will require. Toro (2015)
data. Despite the absence of exact FDI figures, it is possible to shows that some 1.1 million Canadian tourists visit Cuba each
examine some of the major policy issues relating to FDI. year (out of a total of 2.9 million tourists), while most Americans
The most important development was the introduction of have so far been debarred from visiting. The number of tourists
the Foreign Investment Act in 2014, which updated legislation from the United States is likely to be even greater owing to its
dating from 1995. The aim of this legislation is to diversify the larger population and proximity to the island. Cuba was a major
production structure, access advanced technology, substitute destination for United States tourists in the 1950s, before the
imports (especially of food) and promote integration into Cuban Revolution.
international value chains. Another of the governments At present, the largest foreign investments are State-
objectives is to change the energy matrix through investments sponsored, such as the port facilities at Mariel, costing nearly
in renewable energy a strategy that has been pursued in US$1 billion, funded through the Brazilian Development Bank
several economies in the Caribbean and Central America. (BNDES) and constructed by Odebrecht (BBC, 2014).
The law allows FDI in all sectors except education, health and Many of the other significant projects that have been
defence. More importantly, it establishes legal safeguards for undertaken in recent years are tourism-related. Two Spanish
investors, allows foreign investors to hold a majority share in hotel groups, Melia Hotels International and Hotusa, announced
an investment and introduces tax incentives such as an eight- investments in new hotels in 2013, according to fDi Markets.
year income tax waiver for investments in joint ventures with It is not clear whether those investments have actually taken
local institutions. place, however. In general, information on investment in Cuba
Compared with other investment regimes in the region, the is not readily available, although it appears that activity is now
law maintains several major restrictions. First, all investments and on the increase. A good example of the growing importance
divestments must be approved individually by the government. of the Cuban market is the opening of a sales office (for an
Second, although most sectors are open to investment, the estimated capital investment of US$ 19 million) by Spanish
government produces a portfolio of priority projects, including, winery Bodegas Fernando Castro.
for example, joint ventures with local institutions (which receive Spain is the leading investor in Cuba at present, followed
special tax treatment). Finally, all workers must be hired through by several other European countries, Canada and the BRIC
State-owned employment agencies. It is still too early to assess countries (Brazil, the Russian Federation, India and China). The
whether the introduction of this legislation has incentivized newly opened Mariel port is likely to increase the involvement
FDI inflows to Cuba. of Brazil in particular, while the fall in global oil prices will reduce
Investment opportunities may also be created by the the involvement of the Bolivarian Republic of Venezuela in the
ongoing changes in the relationship between Cuba and the Cuban economy. The United States could soon become a large
United States. United States President Obamas announcement source of foreign investment, not least from the Cuban diaspora.
of a dtente between the two countries on 17 December 2014 is Large hoteliers such as Marriott and Apple Leisure Group have
likely to encourage investment in Cuba by enterprises based in expressed interest in the development of new properties in
the United States. More importantly, it is also likely to lead to a Cuba once the investment embargo is lifted.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of BBC, Brazil-funded port inaugurated in Cuba, 27 January 2014 [online]
http://www.bbc.com/news/world-latin-america-25920580; and F. Toro, Cuba is hoping to replace Venezuelan oil with American tourists, FiveThirtyEight,
16 January 2015 [online] http://fivethirtyeight.com/features/cuba-is-hoping-to-replace-venezuelan-oil-with-american-tourists/.
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4. The Organisation of Eastern Caribbean States and Barbados

The Organisation of Eastern Caribbean States (OECS) as a whole experienced a small decline in FDI between 2013
and 2014, although the total inflow was still the second-highest since 2010. Most OECS member States saw small
drops, with Grenada being a negative exception and Antigua and Barbuda a positive one (see figure II.2).
This set of economies is strongly dependent on tourism, with very little inward FDI in other sectors. OECS
members commonly rank as the economies with the highest FDI to GDP ratios in the world (see figure II.1).
Citizenship by investment (CbI) programmes are an important instrument in several OECS member States. This is a
type of programme whereby investors can obtain citizenship in exchange for a significant investment in the country
(in most cases around US$400,000, sometimes less). This method is appreciated by many investors, who use it to
attract individual participants in large tourism projects. CbI programmes are not unique to the Caribbean, but their
use is more developed there than in other locations.

Figure II.2
Organisation of Eastern Caribbean States: total foreign direct investment (FDI), 2008-2014
(Millions of dollars)
200
Annual inflow of FDI in US$

150

100

50

0
2008 2009 2010 2011 2012 2013 2014

Antigua and Barbuda Dominica

Grenada Saint Kitts and Nevis
Saint Lucia Saint Vincent and the Grenadines

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

In 2014, Antigua and Barbuda saw a 66% increase in inward FDI, bringing inflows to the highest level since the
beginning of the financial crisis. The most significant announcement of 2014 related to the sale of some 1,522acres
of land to Chinas Yida International Investment Group for US$60 million. The company reportedly plans to construct
several luxury hotels, 1,300 residential units, the largest casino in the Caribbean and many more facilities. Estimates
for outlays over 10 years vary between US$ 740 million and US$ 2 billion. The project is expected to have an
enormous impact on the island, both economically and environmentally. Also in 2014, the United Kingdoms Cable
& Wireless Communications announced a plan to spend US$14 million upgrading the local telecommunications
network operated by its regional subsidiary LIME.
Much of the investment that took place in Antigua and Barbuda before 2014 was also in the tourism industry. The
Jamaican giant Sandals Resorts International owns several properties, including the Grand Pineapple Beach resort,
originally acquired in 2008. This resort is to receive a US$125 million makeover to become a Beaches Resort, this being
another brand operated by Sandals. Since 2012, Pearns Point has been under development as part of a plan that should
eventually cost around US$250 million. Pearns Point is backed by developers from the Netherlands and is being primarily
funded through Antigua and Barbudas CbI programme, which has helped with the effort to market it as a destination for
overseas property buyers. In 2012, Bau Panel Systems of Gibraltar, United Kingdom, held a groundbreaking ceremony
for a factory that was to supply materials for a social housing project, but no progress was made thereafter. In 2014, the
new Antiguan Prime Minister decided to withdraw the governments support for the project.
Saint Vincent and the Grenadines experienced a 13% drop in FDI inflows to US$139 million. Continuing time and
cost overruns at Argyle International Airport, under construction since 2008 and set to be completed in 2015 at a cost of
US$240 million, according to the most recent estimates, have been a burden on the overall economy. However, once
the airport is finally completed, it will improve the islands attractiveness to foreign investors, particularly in the tourism
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 Economic Commission for Latin America and the Caribbean (ECLAC)

sector. Among the largest current investments, Irelands International Investment & Underwriting (IIU) entered into a joint
venture to operate and further develop the former Raffles Resort in 2010 at a cost of approximately US$120 million.
This property became the ultra-luxurious Pink Sands Hotel and opened in 2014. The US$250million Buccament Bay
Resort opened in 2011 and was by far the largest resort at that time, with 368 rooms. Its developer, Harlequin Hotels and
Resorts of the United Kingdom, has since filed for bankruptcy, adversely affecting the individual small-scale investors
behind it but not affecting operations at the hotel. The government continues to hold out against the introduction of a
CbI programme in the country on principle, despite the success of such programmes in other jurisdictions.
Looking to the longer term, Saint Vincent and the Grenadines has welcomed investment in alternative energy sources
in order to reduce its dependence on the import of diesel. The fall in oil prices has lessened the need for such substitution,
but the government is committed to continuing work on existing projects. Icelands Reykjavik Geothermal and Canadas
Emera are still aiming to develop geothermal energy sources in Saint Vincent and the Grenadines, with the aim of
having a first plant operational by 2017-2018. Finally, Cyprus-based currency trader Exness moved its operations from
New Zealand to Saint Vincent and the Grenadines in 2014, an investment estimated by fDi Markets at US$31 million.
Saint Kitts and Nevis receives some of the most stable FDI flows of any OECS member state. 2014 saw a small
drop of 13% from US$139 million to US$120 million. The country makes successful use of its long-standing CbI
programme compared with neighbouring States. A number of projects are currently under construction, nearly all of
them funded at least partially through the CbI programme. The use of this programme means that it is not possible to
identify the exact origins of the funds, but projects do tend to be driven by specific development groups. Kittitian Hill,
on which construction started in 2010 and whose first stage opened in 2014, has cost approximately US$90 million in
total and is backed by investors from Switzerland and Trinidad and Tobago. Koi Resort and Residences, the first phase
of which is to be completed in 2016, is backed by a United States-based developer, as is Christophe Harbour, a large
project that includes residences, a marina, facilities and several hotels. The total investment committed to this group of
projects is more than US$1 billion, of which some US$350 million had been spent by the end of 2014. The first hotel
in Christophe Harbour is the Park Hyatt St. Kitts, under construction by the United Arab Emirates Range Developments
and scheduled for completion by late 2015. The largest employer on Nevis is the Nevis Four Seasons (Canada), which
was damaged by hurricane Omar in 2008. It reopened in late 2010 after a refurbishment costing some US$100 million.
Besides tourism, Saint Kitts and Nevis aims to attract investment in several other sectors, including international
education, agriculture, financial services and renewable energy. In this last sector, a second solar plant was opened in
January 2015, funded jointly with the Government of Taiwan Province of China. Speedtech Energy of Taiwan Province
of China opened a US$1.5 million solar panel manufacturing plant in 2013. Finally, Saint Kitts and Nevis also plays an
important role in international education, with four universities using the United States curriculum currently located in
the country. The best-known of those is Ross School of Veterinary Medicine, which, together with its sister University of
Medicine in Dominica, was acquired by DeVry University of the United States for US$310million in 2003.
Saint Lucia has shown a consistent downward trend in FDI inflows since 2008, with an average annual drop of
12% and a larger fall of 21% to US$75 million between 2013 and 2014. Most investment has traditionally taken place
in the tourism sector, and a CbI programme is under consideration. As in other economies, many transactions taking
place in Saint Lucia are not treated as new FDI inflows. For example, the acquisition of Hess Oil Saint Lucia by Buckeye
Partners of the United States in 2013 as part of a larger US$850 million package was a transfer of ownership between
foreign parties: while it was a commitment to the island, it did not represent a new inflow of FDI.
The bulk of investment takes place in the tourism sector, in the form of new construction, acquisition and upgrading
of existing infrastructure or gradual expansion of a property. Examples of the first include the Harbor Club Hotel and
dive centre, currently under construction by a Swiss investor at a total cost of some US$45 million, and Hotel Chocolat,
completed in 2013 at a similar cost. The second group includes the Rodney Bay Marina, purchased in 2006 by Island
Capital Group of the United States and upgraded for an estimated US$40 million, and the Capella Marigot Bay Resort
and Marina, which reopened in 2014 after a multi-million dollar refurbishment by its new United States-based owners.
An example of the final group is Windjammer Landing, owned by Canadas EllisDon since 1989. This resort is currently
investing close to US$50 million in expanding and upgrading its facilities in order to be able to continue competing
with other offerings in the region.
The large inflow of FDI into Grenada in 2013 appears to have been an anomaly, with inflows in 2014 dropping
back by 64% to US$40 million, historically a more normal figure and the lowest of any OECS member State. Like other
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OECS members, Grenada is primarily dependent on investment in tourism. This means that individual projects, whether
new developments or refurbishments, can have a significant impact on FDI inflows. In late 2013, for example, Sandals
LaSource Grenada Resort was reopened after a US$100 million refurbishment, which probably contributed to the surge
of FDI recorded in 2013. Grenada also provides a good example of the market power of large players such as Jamaicas
Sandals. In return for its investment, Sandals received a 29-year corporation tax waiver and 25-year waivers on property
taxes, customs duties on capital inputs and alcohol duty. These concessions seem particularly generous given that Grenada
is in partial default, having most recently defaulted on its debts in 2005.
Like other islands, Grenada is using its CbI initiative to attract investment, but it is not clear whether the grand ambitions
of certain investors are realistic. For example, British-Grenadian property developer Peter de Savary has been working
for several years on a property development called Port Louis, which is expected to cost between US$500million and
US$700million. The marina has now been successfully developed, but it is not clear yet whether the rest of the grand
plan to put Grenada on the global luxury map is ever going to be completed.9
Consistently at the bottom of the ranking of OECS member States when it comes to FDI inflows, Dominica actually
saw a 36% increase in FDI during 2014 to US$36 million. With GDP declining in four years out of six recently (ECLAC,
2014c), the island is looking to FDI to move the economy forward. News reports from December 2013 implied that
Chinas ASCG and the Government of China were looking to invest some US$300 million in Dominica, including a
US$70 million international hotel, hospital facilities and an international airport, but it is uncertain whether any of these
investments will actually take place. Even if they do, it is not immediately clear that the construction of an international
airport is a worthwhile investment for the Dominican economy.
The Government of Dominica has been at the forefront of efforts to attract investment in geothermal energy generation.
Several companies have been close to committing to a definitive investment in recent years, but nothing has so far come
of this. A major challenge for the island is that its market is probably too small to make geothermal energy a worthwhile
option unless it links its electricity grid to those of other islands, which would significantly increase the projected costs.
Jamaicas Digicel acquired Dominican cable television and Internet provider SAT Telecom for an undisclosed sum during
2014 after buying the mobile network of Frances Orange in 2009. Finally, an agreement was signed with the United Arab
Emirates Range Developments on the construction of a 125-room luxury hotel, with the countrys CbI programme being
used to fund the investment. So far, the islands relatively liberal CbI programme has not led to a significant inflow of FDI.
Between 2013 and 2014, Barbados saw FDI inflows increase from US$ 5 million to US$ 275 million. The Central Bank
of Barbados provides fairly disaggregated data which show that in the long run more than 60% of FDI is invested in real
estate. This is higher than elsewhere in the region, and is associated with the countrys attractions as a second residence.
Where other tourist accommodation is concerned, the island is at the mercy of international tourism flows. One of the largest
resorts on the island, Almond Beach Village, ended up in the hands of Massy of Trinidad and Tobago when it purchased
Barbados Shipping & Trading between 2008 and 2012. The property was close to bankruptcy and was finally taken over by
a government agency in 2013 for US$53 million. It was eventually resold for the same price to Sandals, which performed
a US$65 million upgrade in 2014 in order to reopen in January 2015. This is illustrative of the complicated relationship
between hotel operators and the Government of Barbados.
Since Barbados is a financial centre, it can be difficult to differentiate transactions by enterprises that are truly based there
from those that are only nominally Barbadian. There was a good example of this in 2014 with the purchase of Columbus
International, an international telecommunications operator based in Barbados, by Cable & Wireless Communications of
the United Kingdom for more than US$3 billion. At the same time, the slippage in Barbados sovereign debt rating may
put its role as a financial centre at risk. Barbadian behemoth Sagicor announced in early 2015 that it planned to move its
headquarters because of the downgrading of Barbados sovereign debt by Standard & Poors. In 2010, on the other hand,
Canadas RBC Wealth Management announced the construction of a new wealth management office at an estimated cost
of US$31 million.
Many firms have made plans for Barbados, although with varying degrees of certainty. For example, Guernsey-based
Cahill Energy has announced the construction of a US$240 million waste-to-energy plant that aims to meet about
25% of Barbados electricity demand. Furthermore, a range of hotels are scheduled to break ground in 2015, but
while the investments involved total several hundred million dollars, it is not clear how certain they are to materialize.

9 See Forbes [online] http://www.forbes.com/sites/marcbabej/2013/02/01/the-700-million-vision-to-put-grenada-on-the-global-luxury-map/.

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C. Sectoral analyses
The Caribbean consists of several groups of economies, each with its own economic story reflecting its strengths
and weaknesses. There are some sectoral trends that are common to the whole subregion, and this section deals
with those segments that attract the most FDI to it. For many economies, the tourism sector is the largest earner of
foreign exchange and the primary destination for investment. The second most important sector is natural resources.
In some economies, particularly Belize, Guyana, Suriname and Trinidad and Tobago, natural resources (in the form of
agriculture, mining or oil and gas exploration) are the most important attractors of FDI, while in others (the Dominican
Republic and Jamaica) the natural resources sector plays an important but less dominant role. The third category
is export-oriented FDI.10 This is not a single sector, but includes both export-oriented manufacturing and various
export-oriented services, such as offshore education and business process outsourcing (BPO). The final category
discussed in this section is market-seeking FDI.11 This also encompasses various sectors, mostly in services (banking,
retail, energy) but also in small-scale manufacturing.
A sectoral breakdown of FDI inflows is possible in only a few economies. Figure II.3 shows the average sectoral
breakdown over a five-year period for those countries for which disaggregated data are available. As expected,
natural resources are particularly important in Guyana and Trinidad and Tobago, but play a smaller role in the other
economies. Only in the Dominican Republic does manufacturing account for a large proportion of FDI, while transport
and communications are particularly important in Haiti and Jamaica. In recent years, these countries have received
large investments in the telecommunications sector, corresponding to both network expansion and the setting-up of
new networks.

Figure II.3
The Caribbean (selected countries): average breakdown of FDI inflows by sector
for the most recent five-year period a
100
90
80
70
60
50
40
30
20
10
0
Dominican Trinidad Jamaica Guyana Belize Haiti
Republic and Tobago

Natural resources Manufacturing

Basic services Construction, commerce and hospitality
Transport and communication Financial services
Other

Source: Economic Commission for Latin America and the Caribbean (ECLAC) on basis of official sources.
a The data for Jamaica are for 2008-2012; Belize, 2009-2013; Trinidad and Tobago, 2007-2011; Guyana, 2009-2013; and the Dominican Republic and Haiti, 2010-2014.

A final observation is that the construction, commerce and hospitality sector accounts for a large proportion of
FDI inflows to Belize, and for a slightly lesser but still significant proportion to the Dominican Republic and Jamaica.
As this sector is a a major driving factor behind tourism, it could be expected to play a key role in Barbados and the
member States of OECS, however, this cannot be confirmed as data for those economies are limited. The Bahamas,
which is a larger economy than many of the OECS member States, is a major recipient of tourism-related investment
flows, as supported by the figures concerning the contribution of tourism to Bahamian GDP.

10 Both natural resources and tourism are considered export-oriented sectors as well, but are dealt with separately because of their
particular importance.
11 A standard framework for the analysis of foreign investment incentives includes resource-seeking, efficiency-seeking and market-seeking

FDI. This chapter, however, uses the perspective of FDI-receiving economies, where market-seeking and export-oriented FDI is a more
logical dichotomy. As an example, investments in the natural resources sector are resource-seeking from a corporations perspective,
but would be considered export-oriented FDI from the perspective of the host country.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

1. Tourism FDI 12
The Caribbean is famous for its tourism, but the tourism industry in the subregion has struggled in the past few
years. According to the World Tourism Organization (UNWTO, 2014), the number of arrivals in the Caribbean has
increased only modestly in recent years. Table II.3 shows a disaggregation of tourist arrivals and tourism receipts
per Caribbean economy. Not shown, however, is the growth of tourism in the rest of the world. Between 2010 and
2013, the number of arrivals worldwide increased by 16.3% and tourism receipts by 26.5%. In the Caribbean,13 on
the other hand, these growth rates were only 8.6% and 9.0%, respectively. As a result, the Caribbeans global market
share of arrivals fell from 2.2% to 2.1% and its share of receipts from 2.6% to 2.2%. From 2008 to 2013, more than
half the economies included in our analysis saw reductions in visitor numbers.
The differences between economies are very large, however. To illustrate this, figure II.4 shows the tourism share
of total foreign-exchange receipts and the ratio of tourism earnings to GDP. The countries shown can be divided into
three groups. The first includes Barbados, the Bahamas and all OECS member States except Saint Kitts and Nevis: in
these countries, tourism is responsible for more than 30% of foreign-exchange earnings, and in many of them tourism
receipts equal more than 20% of GDP. These are economies for which tourism is a pivotal sector. The second group
of economies includes Belize, Jamaica and Saint Kitts and Nevis, where tourism receipts make up between 20%
and 30% of total foreign-exchange earnings and a substantial share of GDP. These are economies in which tourism
plays a significant role, but less so than in the first group. The third group consists of Haiti, Guyana, Suriname and
Trinidad and Tobago, where tourism receipts make up only a very small portion of total earnings. These are economies
in which tourism currently plays a much smaller role. Three of the four countries generate significant revenue from
natural resources. The Dominican Republic is an unusual case and not included in any of these three country groups.
Tourism expenditures there represent 8% of GDP but nearly 25% of foreign-exchange earnings, partly because its
economy is much larger and more diversified than others in the subregion. At the same time, the industry supports
some 200,000 jobs in the country (UNWTO, 2014) and plays an important role in its image.

Table II.3
The Caribbean (selected countries): international tourist arrivals
and international tourism receipts, 2010-2013

International tourist arrivals International tourism receipts

(thousands) Average (millions of dollars) Average
Country annual annual
2010 2011 2012 2013 change 2010 2011 2012 2013 change
(percentages) (percentages)
Antigua and Barbuda 230 241 247 244 2.0 298 312 319 299 0.2
Bahamas 1 370 1 346 1 422 1 363 -0.1 2 163 2 142 2 311 2 162 0.2
Barbados 532 568 536 509 -1.3 1 034 963 907 912 -4.0
Belize 242 250 277 294 6.7 249 247 298 351 12.5
Dominica 77 76 78 78 0.4 94 106 76 82 -2.5
Dominican Republic 4 125 4 306 4 563 4 690 4.4 4 209 4 436 4 736 5 118 6.7
Grenada 110 118 112 116 1.9 112 117 122 120 2.4
Guyana 152 157 177 ... 8.0 80 95 64 ... -6.9
Haiti 255 349 349 420 19.1 169 162 170 ... 0.4
Jamaica 1 922 1 952 1 986 2 008 1.5 2 001 2 000 2 070 2 074 1.2
Saint Kitts and Nevis 98 102 104 107 3.0 90 94 95 101 3.9
Saint Lucia 306 312 307 319 1.4 309 321 337 354 4.6
Saint Vincent and 72 74 74 72 0.0 86 92 94 92 2.3
the Grenadines
Suriname 204 220 240 249 6.9 61 61 71 84 11.6
Trinidad and Tobago 388 402 ... ... 3.6 450 472 ... ... 4.9
Total 10 083 10 473 10 472 10 469 1.3 11 405 9 620 11 670 11 749 2.1
Source: World Tourism Organization, UNWTO World Tourism Highlights: 2014 Edition, Madrid, 2014; and official figures.

12 Tourism was also one of the topics of chapter III of ECLAC (2009).
13 This refers to the World Tourism Organization definition of the Caribbean, which includes all of the islands located in and around the
Caribbean Sea.
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Figure II.4
The Caribbean (selected countries): inbound tourism expenditure as share
of total foreign-exchange receipts and total GDP, 2013
(Percentages)

70

60

50

40

30

20

10

0
Bahamas

Saint Lucia

Antigua and
Barbuda

Grenada

Barbados a b

Saint Vincent and

the Grenadines

Dominica

Belize

Jamaica

Saint Kitts
and Nevis

Dominican
Republic

Haiti c

Guyana a c

Trinidad
and Tobago d

Suriname b
Tourism share of foreign-exchange receipts
Tourism receipts as share of GDP

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Tourism Organization, UNWTO World Tourism Highlights: 2014
Edition, Madrid, 2014; and official figures.
a Data unavailable for the tourism share of foreign-exchange receipt.
b 2010 figures.
c 2012 figures.
d 2011 figures.

Forecasts for global tourism (UNWTO, 2011) show that the Caribbean is expected to continue losing market share in
the future. The main reasons for this are saturation of the Caribbean market and the entry of more and more areas of the
world into the tourism market. The global growth rate of tourism between 2010 and 2030 is forecast at about 3.3% per
year (down from 3.9% between 1995 and 2010), but the growth rate of tourism in the Caribbean is expected to decrease
from 2.4% to 2.0% over the same period. Only western Europe, northern Europe and North America are expected to do
worse between 2010 and 2030. So far, primarily thanks to the Dominican Republics strong performance, the region has
been able to slightly exceed expectations. In any case, relatively gloomy forecasts have not stopped FDI in the tourism
sector from increasing significantly in recent years. For the foreseeable future, the Caribbean can expect to see a significant
increase in tourism-related investment, with the potential exception of the Dominican Republic (UNWTO, 2011).
There are many different types of tourism in the Caribbean, reflected in the various kinds of accommodation. In terms
of total amounts spent, mega projects make up a large share of investment in the sector. The largest project in the region,
Baha Mar in the Bahamas, scheduled to open in the first half of 2015, includes five different hotels and involved a total
investment of approximately US$3.5 billion, largely financed by the Export-Import Bank of China. In Jamaica, there may
not be such large individual projects, but a major inflow of investment into the accommodation sector a decade ago has
created a very large supply in resorts and resort-style hotels. Many hotels in Jamaica are operated under management
contracts by large international players. This modus operandi is less common on other islands, although the Bahamas
enormous Atlantis Resorts is another example. The Dominican Republic is obviously the giant of Caribbean tourism when
it comes to the number of tourists attracted. Canadas Blue Diamond Resorts opened a new 323-room luxury hotel in
December 2014, while there are several very large combinations of resorts. The Gran Baha in Punta Cana, for example, has
several thousand rooms spread over different hotels. The regional giant is Jamaicas Sandals Resorts International, which has
branches on several islands. Recently opened resorts include those in Barbados (reopening in 2015 after a US$65million
upgrade), Grenada (2013), the Bahamas (2010) and Antigua and Barbuda (2008).
Luxury and ultra-luxury accommodation is an interesting sector in which there is a great deal of investor interest. Many
of the new operations in the luxury or ultra-luxury market are operated by individuals or small outfits. That applies to new
firms such as Koi Resorts (whose primary backer is based in the United States) in Saint Kitts and Nevis, where an estimated
US$200 million will be spent, Saint Lucias Windjammer Landing (a subsidiary of Canadas EllisDon) and the Crane Resort
in Barbados (reopened in January 2015 after a US$45 million upgrade and owned by a Canadian investor), as well as to
the long-established Jade Mountains Resort in Saint Lucia, whose original backers were from Canada. Accordingly, many
governments in the Caribbean focus on developing unique properties to attract high-spending tourists. Some of these hotels
charge up to US$2,000 per room per night.
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Ecotourism has led to relatively recent additions to the Caribbean accommodation stock. The concept of ecotourism
is not particularly well defined and can encompass anything from eco-conscious microenterprises to large international
corporations developing large resorts. This type of accommodation has many advantages for investors and host countries
alike. First, higher prices can be charged for ecotourism, which benefits investors. Second, the negative impacts (see also
chapter III) of tourism are reduced because of the increased environmental awareness. Third, ecotourism also encourages
increased engagement with the local economy (through suppliers and job creation), which can increase the local economic
benefits of tourism inflows.14
The third type of tourism where FDI can play an important role is in the conferencing sector. In Saint Lucia, for
example, the Harbor Club Hotel is currently under construction by a Swiss investor spending at least US$40 million with
the aim of creating the best business hotel in the Caribbean (and the only one in Saint Lucia). This is also a field in which
multinational corporations play an important role. Among the top conferencing destinations are Hilton hotels in Port of
Spain and Montego Bay (Jamaica) and the Sheraton Hotel in San Juan (Puerto Rico). The advantages of this type of tourism
are that it includes high-spending customers, which increases its impact, and that it may help to introduce destinations
to potential future visitors. The disadvantage is that spillover into the local economy is more limited, particularly where
international chain hotels are concerned.
The fourth type of tourism is primarily FDI-driven: residential investment, whereby individuals from outside the region
purchase property there.15 On some islands, this makes up a large share of FDI inflows. Unfortunately, disaggregated data
are not always available. In Barbados, 71% of FDI inflows between 2001 and 2010 were from real estate sales.16 The only
other economies reporting figures look at land sales only, with figures ranging from as little as 5% in Dominica to as much
as 63% in Saint Kitts and Nevis (2007-2011 average), giving an average of about a third of all flows in reporting economies.
Real estate investment is different in some ways from other tourism investment: beyond the construction phase, it may not
have the same kind of spillovers in terms of job creation, for example. However, in Barbados, for example, an active effort
is under way to make sure that owners contribute their vacation homes to the accommodation market when they are not
occupying them. This real estate can thus still attract tourists who will make use of auxiliary services on the island. Finally,
in certain projects, such as Christophe Harbour (Saint Kitts and Nevis), holiday homes are part of a larger effort to make
the overall project, which also includes luxury hotels, secondary services and a marina, financially viable.
In addition to the aforementioned types of investment in accommodation, two other forms of tourism FDI are important
in the region, namely FDI relating to non-stay tourism and auxiliary services. Non-stay tourism primarily involves people
arriving on cruise ships and yachts. On many islands, non-stay arrivals far exceed the number of overnight visitors, but the
impact on the local economy is much lower. The islands are attempting to capture more of these tourists spending power
through State investment in port and shopping facilities. In certain cases, though, this also involves private investment. In
Belize, for example, Norwegian Cruise Line is scheduled to open a new eco-friendly cruise terminal in 2015 at a cost of
US$50 million. In other economies, investment is mostly channelled into yachting facilities, as reflected by significant
investments in, for example, the Rodney Bay Marina in Saint Lucia and marinas associated with hotels on various islands
(such as Capella Marigot Bay and Marina in Saint Lucia and Christophe Harbour in Saint Kitts and Nevis).
FDI in auxiliary services is limited. Restaurants, tour services and other hospitality businesses tend to be locally
run, for example. The airline industry is, of course, an exception, and a highly integrated and integral part of the tourism
industry (see box II.2). Airlines also create their own secondary services. Goddard Enterprises of Barbados, for example,
provides airline catering services at many airports throughout the region. While this is not capital-intensive FDI, it creates
significant employment.
A lack of airline capacity in the region is frequently cited as a reason for high transport and shipping costs and
an obstacle to further developing some industries, such as tourism, and is due to limited economies of scale in the
region and high per-unit operating costs. Caribbean Airlines, the national airline of Trinidad and Tobago and by far the
largest regional airline, was incorporated in 2006, replacing its predecessor, British West Indies Airlines. The airline
has an alliance and code-sharing programme with British Airways. Given the worldwide trend in airline mergers,

14 UNCTAD (2010) discusses the example of the Lao Peoples Democratic Republic, which has specific guidelines on the use of local
products and the employment of local people. The discussion identifies guidelines that can be potentially useful for ecotourism in the
Caribbean as well. See [online] http://unctad.org/en/Docs/diaepcb200916_en.pdf.
15 For clarification, the term residential investment does not imply that the purchasers make the location where the investment is made

their primary residence. More often than not, this is not the case.
16 According to official estimates from the Central Bank of Barbados.
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it is not surprising that various airlines in the Caribbean have also merged; this has often involved large amounts of
merger and acquisition FDI. In the 2000s, State-owned Air Jamaica, another large regional carrier, experienced severe
financial difficulties and the Government of Jamaica began looking abroad for solutions. After discussions with the
Government of Trinidad and Tobago, in 2011 Caribbean Airlines acquired routes operated by Air Jamaica as well
as the airlines fleet. It also took on Air Jamaicas debts and many of its assets, and rehired many of its employees.
The Government of Jamaica retains 16% ownership of Air Jamaica. This acquisition makes Caribbean Airlines now
the flag carrier of three Caribbean countries: Guyana, Jamaica and Trinidad and Tobago. Another important regional
airline, especially for the countries of the eastern Caribbean, is Leeward Islands Air Transport (LIAT). This airline is
jointly owned by 11 Caribbean nations and services 22 destinations with a fleet of 16 mostly small aircraft. In 2007,
LIAT acquired Caribbean Star airlines, based in Antigua and Barbuda.

Box II.2
The relationship between airline capacity and accommodation
Market size is a primary concern for any business. The size of resorts, such as the Coconut Bay Beach Resort and Spa on Saint
the tourism market in the Caribbean is directly dependent on the Lucia, work closely with airlines (in this case British Airways) to
number of flights available to the different islands. Particularly sell package deals that include both flight and accommodation.
for some smaller markets, an additional daily flight can have a However, not all air travel has the same impact. A one-week
significant impact on the demand for accommodation. At the sample of the number of flights from different destinations to the
same time, airlines only offer flights to destinations for which Caribbean shows, first, that certain places receive a disproportionate
there is demand from travellers, which are those where there share of incoming flights. The Dominican Republic, the Bahamas
is sufficient accommodation to host tourists. and Jamaica receive 29.8%, 13.5% and 12.7% of all incoming
This phenomenon is familiar to the authorities, who make flights, respectively.a Nonetheless, intercontinental flights have
a great deal of effort to encourage both airlines and resorts to a particularly large impact because they bring tourists from far-
expand their businesses simultaneously. Individual investor away locations (primarily Europe and North America), but also
decisions can thus have a large impact on a countrys tourism because those flights tend to use larger aircraft. Saint Lucia,
capacity. For example, Sandals recent expansion into Barbados where more than half of all incoming flights are intercontinental,
is leading to an increase in air travel from Europe and North benefits more than Saint Kitts and Nevis, where a mere 18% of
America because there is more accommodation available. Other flights are intercontinental.

The Caribbean (selected countries): international air travel to different Caribbean destinations,
one-week sample, 14 to 20 January 2015
(Numbers of incoming flights)

Suriname
Saint Vincent and
the Grenadines
Dominica
Guyana
Grenada
Belize
Saint Kitts and Nevis
Saint Lucia
Haiti
Antigua and Barbuda
Barbados
Trinidad and Tobago
Jamaica
Bahamas
Dominican Rep.
0 100 200 300 400 500 600 700 800 900 1 000

Regional flights Intercontinental flights

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of FlightStats [online] http://www.flightstats.com/go/Home/home.do.
Note: Domestic flights are excluded. Regional flights include all flights from other Caribbean economies, while in the case of Belize they also include flights
from other Central American countries.

An unusual aspect of the relationship between the airlines and Haiti is an interesting case. It is the fourth most popular
Caribbean economies is that, although airlines such as Delta Air destination in the subregion for non-regional flights, mostly from
Lines, United Airlines, American Airlines and British Airways have the United States. This is primarily because Haiti has a large
a great impact on the latter, they do not usually make significant population and a large diaspora, but it suggests that there may be
investments there themselves. an opportunity to further develop tourism. Flight bottlenecks, often
a problem in developing tourism, would not be an obstacle for Haiti.
Source: Economic Commission for Latin America and the Caribbean (ECLAC).
a While the Dominican Republic has a large economy, the number of flights to some places such as the Bahamas and Barbados is particularly disproportionate

to the size of their economies.

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From a theoretical point of view, the nature of the impact of FDI on recipient economies is not clear (De Groot,
2014a). There are differences between tourism-related FDI in the Caribbean and overall FDI elsewhere. First, the
region is very dependent on inflows of foreign capital because it has a relatively low investment capacity itself,
something that is exacerbated by risk avoidance among local banks and a shortage of entrepreneurs to seek out new
productive activities. Second, many Caribbean economies rely on the tourism industry for job creation, and without
foreign investment it would not be so well developed.
A major transformative impact from foreign investment in tourism can be found in training and education. In many
of the economies, access to education is limited and investors find it challenging to hire workers with the required
skills. One exception is Barbados, which has a particularly good education structure. Workers in other countries,
including the members of OECS, do not have a similar level of access to education. As a result, many of the larger
investors in the Caribbean have extensive training programmes for their staff. For example, the Coconut Bay Beach
Resort and Spa on Saint Lucia, realizing that young people are not able to afford higher education after finishing
secondary school, hires many local students for internships or as part-timers, providing full training in the hard
skills that will enable these workers either to become a valuable part of the resorts workforce or to go on to higher
education after a few years. Other examples of training provided by employers include extensive safety training, food
and beverage service training, and soft skills. While such training may not be equivalent to higher education, it has a
substantial impact on the employability of workers. Local investors may be willing to offer similar types of training.
However, foreign-owned businesses tend to be larger and have a stronger focus on consistently high service quality.
There may be limited spillovers for local establishments from large foreign-owned resorts. Since many such
resorts and hotels are full-service, tourists often tend not to venture away from them; they may be encouraged to
participate in excursions, but since these are often run by the hotel, they have a limited impact on the rest of the
economy. Other businesses such as restaurants and local tour operators capture only a small fraction of tourists
spending. Of course, the resorts themselves require many inputs, including construction materials, furnishings,
agricultural products and public services. However, in many cases local sourcing of such products (with the obvious
exception of public services) is very limited. This is partly due to inconsistent product supply and quality and, in
the case of technical equipment, partly a matter of preference, furnishings being a possible example, and partly
due to the high costs of local production. It should be a matter of concern to governments, however, that investors
import agricultural products even when the same product is produced locally. This happens in cases when local
production cannot compete cost-effectively with imports or, more commonly, local goods of a consistently high
quality are not available.
Governments should focus on improving the ability of domestic producers to supply the inputs required by large
investors. While the situation differs between countries, the capacity of local producers is often considered to be very
low. If local producers can develop the capacity to supply the tourist infrastructure sustainably, this can significantly
increase local spillovers and the benefits an economy derives from tourism investment. In some cases, a regional
approach to scaling up production of agricultural and other products might be able to make them cost-competitive.
Another important consideration for governments is guaranteeing the quality of the workforce. Finding qualified
employees can be hard in the Caribbean, even if job types are relatively standardized. This raises questions concerning
the quality of the hospitality-oriented educational institutions that should provide the necessary basic qualifications.
Currently, the subregion relies on investors to provide training even when there is an opportunity for governments
to take responsibility in this field.

2. FDI in natural resources

The primary sector is much less important in the economies of most Caribbean countries than in those of South America,
but there are some major exceptions. Belize, Guyana, Suriname and Trinidad and Tobago are very dependent on natural
resources, while the Dominican Republic and Jamaica are more diversified but still host important operations in the
extractive industries. Furthermore, limited local capabilities mean that most investments in the extractive industries
(this is less the case in agriculture and forestry) are conducted by transnational corporations.
The largest investments in natural resources are in oil and gas extraction in Trinidad and Tobago. The country
produces 81.3 thousand barrels per day (tbd), and the sector contributed 45% of GDP in 2014. There are two State-
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owned companies in the sector, Petronin and NGC, but the majority of investments are carried out by foreign
companies. These have been present in the country since the 1940s, and currently the largest are BP, BG and BHP
Billiton, all of the United Kingdom, and Repsol of Spain. Foreign companies negotiate separate production-sharing
agreements with the government for each concession. In recent years, 90% of total FDI in Trinidad and Tobago
has been in the oil and gas industry.
Oil and gas is far less important in other countries of the Caribbean. Still, there is production in Barbados (1tbd),
Belize (1.8 tbd) and Suriname (15 tbd) that is significant for the size of these economies, especially in Suriname.
There have also been substantial exploration efforts. Surinames State-owned oil company signed contracts with
Apache and Tullow Oil of the United States in 2012, while Repsol is carrying out exploration in Guyana.
Mining is currently very important for Guyana and Suriname. In Guyana, large-scale mining is concentrated
in bauxite extraction, with Bosai Minerals of China and RUSAL of the Russian Federation both having large
investments. Gold mining is usually carried out through small-scale operations, although the large Aurora mining
project, owned by Canadian investors, is currently under construction, with an estimated initial capital investment
of US$249 million. In Suriname, bauxite production has lost ground relative to both oil and gold. IAMGOLD of
Canada is the largest player in the industry. The Economist Intelligence Unit forecasts total investment inflows of
between US$1 billion and US$1.5billion in gold mining, targeting both the expansion of existing operations
and the opening of new mines.
Jamaica produces bauxite and limestone. RUSAL and CEMEX are the largest companies, but investments
have decreased in recent years. In 2013, Nippon Light Metals began a US$ 3 million exploration for rare earths
which, if successful, could lead to large FDI inflows.
The largest mining investment in the Caribbean has been the Pueblo Viejo gold mine in the Dominican Republic,
owned by Barrick of Canada. The company has invested a total of US$4.3 billion over several years. During the
construction phase of the mine in 2011 and 2012, FDI inflows in the sector reached over US$1 billion per year.
The mine started to produce in January 2013, but while there are plans for expansion, the company has shelved
them due to the fall in the gold price and is currently focusing on cost reduction. This single project has been
significant for the country in terms of investment, exports and fiscal revenue. In fact, the government demanded
a renegotiation of the fiscal agreement with the company, which was finally completed in 2012. This reduced
some of the privileges previously granted to it and therefore raised the revenue the government will receive.
Agriculture is a sector that receives relatively little FDI in any country (see ECLAC, 2013, chapter III), and most
countries in the Caribbean are not land-abundant. Belize and Guyana are exceptions, and both have attracted the
attention of investors from neighbouring countries like Barbados, Guatemala and Trinidad and Tobago looking to
produce rice, sugar and other products. Asian investors are interested in producing sugar and palm oil on large
plantations, mostly in Guyana and Suriname. In 2007, Complant Sugar of China acquired assets in the Jamaican
sugar industry for US$ 92 million. In 2012, State-owned Belize Sugar Industries was sold to American Sugar
Refining in a deal that may involve up to US$100 million of investment. Another example from Belize is the
investment by United States-backed TexBel Farms in the production of both oranges and coconuts with a view
to exporting to the United States.
Lastly, there are many foreign companies, particularly from Brazil and Asia, in the Guyana logging industry,
but very little information is available on their operations.
While agriculture and logging are carried out mostly by local investors, extractive industries have largely
been developed by foreign companies. FDI in oil and gas has transformed the economy of Trinidad and Tobago,
and mining investments have had a large impact on the Dominican Republic, Guyana and Suriname. It is partly
because of these sectors that this group of economies has outperformed the rest of the Caribbean subregion
over the past decade. With the reversal of the commodity cycle, FDI in natural resources is likely to fall over the
coming years. Alcoas announcement in March 2015 concerning the rapid divestment of its Surinamese assets
supports this thesis.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

3. Other export-oriented FDI

Export-oriented FDI is a form of FDI that seeks to exploit local production advantages in order to supply an external
market. The most common advantages that host markets display include low costs, connectivity and trade relations.
By and large, the Caribbean does not enjoy such benefits, so export-oriented FDI is relatively limited.
Tourism affects the balance of payments much as export-oriented businesses do, since it is a locally produced service
sold primarily to foreign customers (namely tourists). Thus, tourism brings an inflow of capital during the investment
stage, but also during the operational stage. This sets it apart from market-seeking FDI, as discussed below. Leaving aside
tourism and mining, two forms of export-oriented FDI remain: manufacturing and services. Export-oriented manufacturing
is important in few Caribbean economies, primarily the Dominican Republic and Haiti. Export-oriented services, on the
other hand, play a more important role in a larger range of economies. This sector is able to make use of the relative cost
advantage of labour in the Caribbean as compared with the United States and the fact that a large part of the Caribbean
is English-speaking. Specific sectors include finance, business process outsourcing (BPO) and education.

(a) Manufacturing
Manufacturing exports from the Caribbean economies covered in this chapter are very modest, the primary
exception being the Dominican Republic. Manufacturing exports from the Bahamas, Guyana, Suriname and
Trinidad and Tobago are largely confined to some processed natural resources (oil, pearls, sugar), as discussed
in the previous section, and only in Barbados are there a few modest exports of pharmaceuticals and optical
equipment. Manufacturing exports from Jamaica have declined significantly over the past two decades.
The Dominican Republic, on the other hand, has a large export processing industry which was originally
built around the production of apparel and has slowly diversified, mostly into the production of medical and
pharmaceutical devices. Some 78% of accumulated investment in the countrys export processing zones (EPZs)
is foreign (CNZFE, 2014), coming mostly from the United States, and recorded FDI in the sector has averaged
US$150 million in the past three years.
Investment, production and employment in this industry declined significantly from 2005 to 2010 as a
consequence of Chinese competition in apparel manufacturing and the financial crisis in the United States.
Employment dropped by 41% between 2004 and 2009, and the industry reacted by diversifying away from
apparel and increasing the value added of local operations, for example by providing complete packaging.
There has been a partial recovery since 2010, with employment growing but still significantly below the level
of a decade ago.
Haiti is the other country in the Caribbean with an export processing industry, focused almost exclusively
on garments. The country suffers from low capacity and particularly high non-labour costs, but the garment
industry remains competitive because of the advantage provided by the Haitian Hemispheric Opportunity through
Partnership Encouragement (HOPE) Act of 2006 in the United States. This legislation offers free access to the
United States market for garment products manufactured in Haiti irrespective of the provenance of the textiles.17
This advantage has been granted until 2020 but may be extended on the basis of humanitarian considerations.
Almost all investments in EPZs in Haiti are foreign, predominantly from Asia but also from the Dominican
Republic. FDI in EPZs in 2013 was US$12million, a significant increase over earlier years but still indicative
of the modest size of the industry.
Overall, the scope for attracting large amounts of FDI into export-oriented manufacturing in the Caribbean
is limited. In different degrees, all the economies suffer from high energy costs, poor infrastructure and low
capabilities. Wages are generally higher than in Central America or Asia, and the generous tax concessions
awarded to these industries are matched elsewhere. The Dominican Republic has been the largest recipient of
investments in this sector, but even there industry is struggling to accommodate the rise in wages that comes

17 By comparison, garments produced in the Dominican Republic or any Central American country have to be made with inputs from
those countries or the United States. In practice this means that manufacturers based in Haiti can source their textiles directly from
Asian countries.
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 Economic Commission for Latin America and the Caribbean (ECLAC)

with economic growth. If the specific advantages of the HOPE Act are maintained, Haiti has the potential to
attract more investments in this sector.
On a smaller scale, there are interesting examples of export-oriented manufacturers operating outside of the
Dominican Republic and Haiti. One is Lenstec of the United States, which has had a high-tech production facility for
intraocular lenses in Barbados since 1996. This can be seen as the poster child for FDI, creating relatively highly paid
jobs and making use of Barbados high levels of education and relatively low costs and the fact that the population
is English-speaking. Another example is Nucor of the United States, which reassembled a mothballed steel plant
from Louisiana in Trinidad and Tobago in 2005 and has since expanded it several times, producing steel for export.
Each of these cases involves investments that are small by international standards but substantial by those of the
recipient economies. Another distinguishing feature is that they focus on very specific strengths in these economies,
whether they be the highly educated population base of Barbados or the availability of affordable gas upon which
steel production depends in Trinidad and Tobago.

(b) Business process outsourcing (BPO)18

By and large, BPO is the most important type of export-oriented service in the Caribbean. BPO is an appealing
sector in economies where wages are competitive but capital investment is relatively expensive. It is also attractive for
the host country because it creates a large number of jobs per million dollars invested (see ECLAC, 2014a, chapterIII).
It is a broad sector that can include a range of segments of varying degrees of sophistication. At the low end, there are
call centres, but at the high end it includes technical support, accounting and even management. The primary issue in
attracting FDI in services is the ability to provide a product cost-efficiently, but worker education levels take on more
importance when it comes to moving up the BPO value chain. Thus, several companies in Suriname provide call centre
services for the Netherlands, benefiting from linguistic and cultural familiarity and a relative cost advantage. Similarly,
Guyana provides primarily low-level call centre services to companies in the United States, again benefiting from a
common language. Somewhat higher up the value ladder, the Dominican Republic has several operators that offer
bilingual services in English and Spanish and are thus able to capture a larger share of the market. Jamaicas BPO sector
employs some 14,000 people, not only in call centres but also in firms providing extensive financing and accounting
services (JAMPRO, 2014). Cost, language and proximity to the United States are the primary attractions for investors.
One of the primary operators in this business-to-business sector is KM Solutions of the United States. Within the
Caribbean, the firm has operations in Barbados, the Dominican Republic, Grenada and Saint Lucia. Having originally
started in Saint Lucia, it encountered physical capacity issues there and expanded internationally. In Barbados, it employs
around 750 people in a rapidly expanding business. It benefits from the highly educated workforce in Barbados, as
well as the language and cost advantages mentioned earlier. At the highest end of BPO, although this goes beyond
traditional BPO operations, Canadas Gildan Activewear has substantial management operations in Barbados, where
it has been running back office finance, marketing, production planning and international sales since 1998. This is
different from traditional BPO in several ways: first, the company is not outsourcing the services to another company,
but simply operates its divisions from Barbados. Second, it creates high-quality jobs that are well paid and make use of
the highly educated local population. Finally, while operators such as KM are flexible when it comes to downscaling
and upscaling (being willing to recruit and shed staff as needs require), Gildans commitment to the local economy is
more permanent. Altogether, such an investment thus yields significant benefits to the Barbadian economy.

(c) Financial services

Financial services are important throughout the Caribbean region. While some economies, such as those of the
British Virgin Islands and the Cayman Islands, are especially renowned for their financial services industry, others
also attract significant investment. This is not a capital-intensive sector, of course, so the total quantity of investment
may not be large, but the quality and quantity of employment are substantial. The existence of an active financial
services sector may also have positive spillovers for human capital accumulation. With respect to employment, the
financial services industry is at the high end of BPO, so it is not surprising to see that the major players once again
include Barbados, as well as some of the territories not covered in this chapter (such as those of the Dutch-speaking

18 The topic of BPO is discussed extensively in ECLAC (2009), chapter II.

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 Foreign Direct Investment in Latin America and the Caribbean 2015

Caribbean). A necessary condition for the development of a successful financial services sector is a strong tax treaty
network. Figure II.5 shows that Barbados leads the region with respect to different types of tax treaties, though certain
jurisdictions, such as the Bahamas, do not levy any income tax and thus do not require double taxation agreements.

Figure II.5
The Caribbean (selected economies): international tax treaties per jurisdiction, 2011
(Number of tax treaties)
25

20

15

10

0
Barbados

Trinidad and
Tobago a

Jamaica

Saint Kitts
and Nevis

Dominica

Antigua and
Barbuda b

Belize

Saint Vincent and

the Grenadines

Saint Lucia a

Grenada

Guyana

Bahamas

Dominican
Republic

Suriname
Income Transport Information Income and capital

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD),
Country-Specific Lists of Double Taxation Treaties [online] http://unctad.org/en/Pages/DIAE/International%20Investment%20Agreements%20%28IIA%29/
Country-specific-Lists-of-DTTs.aspx.
a 2010 figures.
b 2008 figures.

(d) Offshore education

Another non-traditional export-oriented service sector is offshore education. Since the 1980s, in response to the
rising costs of (particularly) medical education in the United States, offshore schools have been set up, primarily in the
Caribbean. These schools focus mostly on the North American market and attract students by their relatively low costs
and attractive locations. They only have a marginal presence in the local education market and are generally operated as
profit-making businesses. Today, medical schools still make up the great majority of such establishments, although there
are also offshore schools for dentistry and veterinary medicine. Most schools have programmes that encourage local
students to enrol as well, although the latters share of total enrolment remains low. In secondary education, there are
some foreign-owned establishments, such as the International School of Port of Spain, but these are not export-oriented,
focusing instead on the domestic market.
As shown in figure II.6, Saint Lucia hosts the largest number of medical schools, with seven institutions. The other
OECS member States also host a substantial number (13 in total), while Guyana has two and a few other economies
just one. As evidence of the value of such establishments, Canadian private equity firm Atlas Partners LP and pan-Asian
firm Baring Private Equity Asia spent US$750 million to acquire a majority stake in Grenadas St. Georges University
in 2014.19 Offshore education is a sector that offers many advantages to economies: it is not capital-intensive, but it
does create relatively good jobs and attracts consumers who spend a significant amount of time and money on the
island, benefiting the balance of payments. According to the newly established (2011) American University of Barbados
School of Medicine, there are also significant spillovers for tourism establishments, both from visits from family and
friends and from the holding of medical conferences. Governments do not have many incentive programmes for
offshore education, even though these have the potential to attract more investment into this potentially beneficial
sector, especially in economies that are not currently involved in it. DeVry University Group of the United States is one
of the largest players in offshore education, having acquired the Ross University School of Medicine (Dominica) and
School of Veterinary Medicine (Saint Kitts and Nevis) in 2003 for US$310 million and the American University of the
Caribbean (Sint Maarten) in 2011 for US$235 million.

19 See The Wall Street Journal [online] http://blogs.wsj.com/atwork/2014/08/08/st-georges-university-lands-750m-investment-deal/.

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Figure II.6
The Caribbean: numbers of offshore medical schools per jurisdiction, 2015
Saint Lucia
(7)

Other a
(14)

Saint Kitts
and Nevis
(4)

Jamaica Saint Vincent and

(1) the Grenadines
Grenada (4)
(1)
Dominican Guyana
Rep. (3)
Barbados Dominica Antigua and
(1)
(1) (2) Barbuda
(2)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Foundation for Advancement of International Medical Education and
Research (FAIMER), International Medical Education Directory, 2015 [online] https://imed.faimer.org/.
a Other locations are primarily in the Dutch-speaking Caribbean.

4. Market-seeking FDI
Market-seeking FDI is defined as FDI whose purpose is to produce and sell a product in a specific market, rather
than export it. This is one of the main types of FDI around the world. Usually, market-seeking FDI focuses on
large markets and promising growth prospects. The first of these conditions is not applicable in the Caribbean,
while the second only applies to a limited number of economies. However, two strategies make the Caribbean
attractive for market-seeking FDI. First, certain companies do not see the individual economies as their markets,
but operate throughout the region, thus achieving an economy of scale that makes investment worthwhile. This
is particularly the case in the banking and telecommunications sectors. Second, low levels of competition in
individual markets make profit margins relatively high. In many markets, there are only a few firms that offer
certain products. This applies not only to telecommunications, but also to building materials and certain basic
foodstuffs. Moreover, some market-seeking FDI in banking and food and beverages, for instance, centres on
mergers and acquisitions to consolidate a market position.
In the Caribbean, the banking sector is controlled almost completely by market-seeking FDI, primarily
from banks based in Canada. The largest player is Scotiabank, which has been operating in the subregion since
1889, when it opened a branch in Jamaica. It is now active in countries throughout the subregion, including
the Dominican Republic and Haiti, and also has branches in Asia, Europe and North and South America. As
Scotiabank has a large banking network in the Caribbean, improved financial integration could be partially
achieved by improving interoperability between its branches, which do not currently cooperate much across
countries. Conversely, local banks are dominant in the Dominican Republic and Haiti.
In telecommunications, there are just three primary players in the entire Caribbean. The United Kingdoms
Cable & Wireless Communications descends from the original monopolist in most jurisdictions, where it now
operates through its subsidiary LIME. LIME is active in all OECS member States, as well as Barbados and Jamaica.
Furthermore, it owns shares of around 50% in operations in the Bahamas and Trinidad and Tobago. LIME is in the
process of expanding its network coverage, which involves significant investment flows. Digicel, based in Jamaica,
has operations in most economies as well, including Haiti since 2006, although the Dominican Republic is a
notable exception. Barbados Columbus Communications has significant operations in Barbados, the Bahamas,
Grenada, Jamaica and Trinidad and Tobago through its subsidiaries Flow and Cable Bahamas. During 2014 it was
taken over by Cable & Wireless Communications for US$3 billion. Finally, Amrica Mvil is the largest player in
the Dominican Republic through its Claro subsidiary, but it withdrew from the Jamaican market in 2011 by selling
its assets to Digicel.
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 Foreign Direct Investment in Latin America and the Caribbean 2015

The energy market in the Caribbean is relatively fragmented, which is troublesome because of the small
size of the individual markets. Particularly in the eastern Caribbean, integration of the different networks would
have the potential to yield significant scale advantages. Several international players have Caribbean operations,
although these are primarily focused on the larger markets. In 2007, Japans Marubeni purchased 80% of JPS
of Jamaica for US$553million, of which half was later resold to Korea East-West Power. Marubeni also has
significant assets in Trinidad and Tobago. Interenergy (co-owned by the International Finance Corporation) is
a large player in both the Dominican Republic and Jamaica. AES Corporation of the United States also owns a
large power plant in the Dominican Republic. One international investor that is also involved in smaller markets
is Canadas Emera, which controls significant assets in the energy markets of the Bahamas, Barbados, Dominica
and Saint Lucia.
Other small-scale market-seeking investment can also be seen in individual economies. Caribbean Grains, a
grain-processing company operating in several parts of the Caribbean, is one example. It recently started operating
a new flour and feed mill in Saint Lucia, in addition to existing assets in the French-speaking Caribbean. For the
company, operating in Saint Lucia has the advantage that it is the only grain mill in the country and can corner
the market thanks to its first mover advantage. Similarly, Trinidad and Tobago-based TCL Group has a number
of subsidiaries in different Caribbean economies to supply cement to those individual markets. Subsidiaries
include Arawak Cement in Barbados and TCL Guyana.
Only a few economies in the Caribbean can claim to have markets large enough on their own to attract
significant investment. The Dominican Republic, Haiti, Jamaica and Trinidad and Tobago are among those
that occasionally attract substantial amounts of purely market-seeking investment. One example of a highly
internationalized sector is the beer sector. Of the leading beer producers, only Carib Brewery (Trinidad and
Tobago) is still locally owned. Cervecera Nacional Dominicana was sold to Anheuser-Busch Inbev in 2012,
Brana of Haiti was sold to Heineken of the Netherlands in 2011 and Diageo of the United Kingdom has owned
a majority shareholding in Jamaicas Desnoes & Geddes since 1993 (see also box I.3).
Market-seeking FDI can bring significant benefits to local economies. By increasing competition, it improves
service delivery and reduces prices, thus increasing consumer surplus. Although beneficial in principle, such
investment has a cost. As discussed below, Caribbean investments are often associated with significant fiscal and
non-fiscal benefits, the costs of which are borne by taxpayers. Market-seeking FDI is intended to take market
share from other (possibly locally owned) companies, and it is thus more likely than other kinds to crowd out
domestic entrepreneurs, which makes the long-term impact on the balance of payments less clear. While the
immediate capital account inflow benefits the country, outflows of income from FDI in subsequent years can
represent a permanent burden on the current account. Looking beyond the impact on the balance of payments,
market-seeking FDI can have positive impacts on the local economy through its effects on secondary suppliers,
as well as the lower prices already mentioned.

D. FDI promotion policy20

As noted above, the level of incoming FDI in the Caribbean is relatively high by comparison with other regions.
Caribbean nations have an average FDI to GDP ratio of 4.2%, as compared with 2.6% in Latin America. Small
economies generally tend to have somewhat larger FDI ratios, as can be seen in figure II.7, but the Caribbean has
attracted particularly significant amounts of FDI, even if there has been a decrease in inflows since the financial crisis.
Only the two worst-performing Caribbean nations, which in 2014 were Haiti and Suriname with ratios of 1.1% and
0.1 respectively, lag the global average of 1.9% (for 2013). One of several reasons why the Caribbean is able to attract
such large amounts of FDI is because of FDI promotion policies, both financial and non-financial. It is difficult to
quantify such policies precisely, but they appear to be more generous than in other regions.

20 This section is partly based on De Groot and Prez Ludea (2014) and De Groot (2014b).
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 Economic Commission for Latin America and the Caribbean (ECLAC)

Figure II.7
The Caribbean and the rest of the world: foreign direct investment (FDI)
to GDP ratio in relation to population size, 2013
5

Log (FDI/GDP ratio)

2

1 Global
average
0
0 2 4 6 8 10 12 14 16
-1

-2

-3

-4
Log (population)

Caribbean countries Rest of the world

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations, National Accounts Main Aggregates Database,
Statistics Division, 2015 [online] http://unstats.un.org/unsd/snaama/dnllist.asp; United Nations, World Population Prospects: The 2012 Revision, 2014 [online]
http://esa.un.org/unpd/wpp/index.htm; and United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2014 (UNCTAD/
WIR/2014), Geneva, 2014.

Putting these two facts together could be construed as saying that the Caribbeans policy of attracting FDI has been
very successful, but such causality cannot be assumed without further proof. After all, FDI inflows cannot necessarily be
tied to the generosity of the incentives. Moreover, even if there is a causal relationship between FDI promotion policies
and FDI inflows, this does not in itself say anything about the impact of FDI. Whether that impact is positive is a matter
of ongoing debate, as discussed in De Groot (2014a). Finally, even if incoming FDI does have a positive impact, a cost-
benefit analysis would be required to determine whether the regions generous FDI promotion policies are justifiable.
De Groot (2013) outlines a methodology for analysing the impact of FDI promotion policies in the Caribbean.21
The first step is to determine the objectives of the policy (UNCTAD, 2012b). These may be to increase employment or
the capital base, but may also reflect a desire to improve the level of technology used in an economy. To achieve these
objectives, a policymaker may propose certain FDI promotion policies. Different types of such policies are discussed
below, but in principle they can include anything aimed at increasing the level or quality of FDI. These policies exercise
an influence on the level or quality of FDI, which then links back to the policy objectives. Even though some policies
(reducing unnecessary regulation, increasing judicial efficiency) may have positive non-FDI side effects that seem to
justify them, only once all the corresponding linkages are confirmed is an FDI promotion policy truly justified.22

1. Different types of FDI promotion policies in the Caribbean

Bartels and De Crombrugghe (2009, p. 2) argue that FDI promotion policies are meant, at best, to shape or even
distort the economic environment of the host country in order to attract and retain higher levels of value-adding
FDI. FDI promotion policies can include a range of measures, which may be separated into four different types:
Policies that focus on improving the overall business climate, benefiting both domestic and foreign producers.
Examples of such policies include reducing bureaucratic hurdles to setting up a business, improving the
judiciary by guaranteeing property rights, and increasing the level of security in regions that require this.
Policies that focus on removing or reducing obstacles specific to foreign investors. They may include, for example,
liberalizing migration policies for foreign workers, guaranteeing non-discrimination in government procurement
between domestic and foreign suppliers or concluding double taxation agreements with other countries.
Active investment promotion by an investment promotion agency, focused on resolving information asymmetries
between foreign and domestic investors. Examples include the opening of trade offices in foreign countries,
both to provide potential investors with marketing information and to assist such investors in overcoming the
challenges of investing in a new area.
21 That model is inspired by Blomstrm and Kokko (2003), who discuss the conceptual framework in which FDI operates. It differs somewhat
from the outline provided by UNCTAD (2012b), which focuses more strongly on policy coherence and the sustainability of development.
22 This linkage has been the subject of many academic contributions, including Harding and Javorcik (2011) and Lim (2005).
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 Foreign Direct Investment in Latin America and the Caribbean 2015

Policies that use financial measures to stimulate FDI, primarily tax holidays of different types or exemptions
from import and export duties. However, financially costly measures can also include generous grants or
subsidies for the initiation or continuation of certain investments.
The first of these (improving the overall business climate) is likely to have the strongest impact on economic growth,
since it stimulates both domestic and foreign investment. This approach has long been used in the Caribbean and as
a result many economies have very low corporate and income tax rates (there is, for example, no income tax in the
Bahamas), but has rarely moved beyond the financial aspect of the business climate. According to the Doing Business
2015 report (World Bank, 2014), most Caribbean economies do not rank high for ease of doing business. Figure II.8
shows that only Jamaica, ranked fifty-eighth in the world, performs substantially better than the Latin America average,
with some economies ranking among the worst in the world. The rankings of Haiti (180th) and Suriname (162nd) can
be put in perspective by considering the rankings earned by war-torn nations such as Iraq (156th), Sudan (160th) and the
Syrian Arab Republic (175th). Clearly, the Caribbean is lagging the rest of the world in its efforts to lower bureaucratic
hurdles and improve judicial efficiency.

Figure II.8
The Caribbean (selected economies): distance to the frontier a
on ease of doing business and global ranking, 2015
Rank

Jamaica 58
Trinidad and Tobago 79
Dominican Rep. 84
Antigua and Barbuda 89
Latin America 91.8
Dominica 97
Bahamas 97
Saint Lucia 100
Saint Vincent and the Grenadines 103
Barbados 106
Belize 118
Saint Kitts and Nevis 121
Guyana 123
Grenada 126
Suriname 162
Haiti 180
0 10 20 30 40 50 60 70

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank, Doing Business 2015: Going beyond efficiency,
Washington,D.C., 2014.
a The
Doing Business indicator is a composite of subindicators, each of which is maximized at 100 for the best-performing country: the frontier. A score of 60 thus
implies that a country scores 40% below the top performer on the average subindicator.

The quality of governance in the Caribbean is relatively high compared with other regions at a similar stage of
development. Of the elements of governance discussed by Kaufmann, Kraay and Mastruzzi (2009), regulatory quality
should be a particular area of focus for Caribbean governments since it directly influences the business environment
in which foreign investors thrive.
Owing to the relatively small size of Caribbean economies, individual policy actions can make a significant
practical difference in the day-to-day operations of foreign investors. Thus, monitoring investor experiences and
attempting to ameliorate the bottlenecks identified by investors continues to be an important task for investment
promotion agencies. Governments can also do more to encourage the building of local capacities. Foreign investors
are often attracted to locations where local markets can provide the inputs they need; and Caribbean economies tend
to fall short in this respect. While the level of education is relatively high, workers skills are not sufficiently developed
to meet the needs of the labour market. Similarly, many economies lack local producers of the intermediate inputs
needed by investors. In addition to increasing an economys attractiveness for investors, encouraging the production
of intermediate goods also deepens the quality of local value chains and thus greater benefits are derived from FDI.
The second type of FDI promotion policy relates to foreign investors only. In 1994, all Caribbean Community
(CARICOM) members except Suriname signed a double taxation agreement between themselves. As discussed above
(see figure II.5), the size of tax treaty networks differs by country. Although most countries have concluded double
taxation agreements with their primary investment partners (the Netherlands, the United Kingdom and the United
States), further strengthening the network of double taxation agreements could provide additional incentives for
investors to consider certain investment locations. With respect to migrant worker policies and non-discrimination
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 Economic Commission for Latin America and the Caribbean (ECLAC)

clauses in government procurement, the region still lags. Only Belize has specific regulations that allow foreign
investors to benefit from eased migration restrictions. Similarly, few of the subregions governments provide
equal opportunities to foreign and domestic companies in government procurement. Volosin (2012) compares
procurement procedures throughout Latin America and the Caribbean. She finds that only 38% of countries in
the Caribbean stipulate competitive processes as a fixed rule, while elsewhere in Latin America some 58% do
so. The evaluation criteria used in public procurement are unspecified or insufficiently specified in 10 of 13
Caribbean countries, as against just 5 of 19 other countries. The positive exceptions in the Caribbean are Antigua
and Barbuda, Grenada and Jamaica.
Improving these non-financial features of FDI promotion policies could help to stimulate investment in, for
example, infrastructure, which has benefits that are particularly likely to spill over into the rest of the economy.
Non-financial FDI promotion policies have the added benefit that they are less costly than financial ones.
Citizenship by Investment (CbI) programmes are another interesting example of a non-financial FDI promotion
policy aimed specifically at foreign investors. First pioneered by Saint Kitts and Nevis in 1984, and later adopted
by both Dominica and Antigua and Barbuda, these programmes provide investors with citizenship in the target
country in exchange for a relatively small investment (or donation). In Saint Kitts and Nevis, this is a primary
means of financing much investment in tourism infrastructure, with interested persons purchasing US$400,000
shares in new developments in exchange for usage rights and citizenship. This programme is considered to have
been very successful in attracting both short- and long-term investors, largely from Asia, the Middle East and
the Russian Federation.
CbI programmes have some potential downsides as well. Since citizenship of OECS and CARICOM countries
brings with it certain mobility rights in other States, such programmes can attract some ire from nearby neighbours,
although these other nations may also benefit from such investments. Second, one of the advantages of being a
citizen of Saint Kitts and Nevis (or other CARICOM countries) is visa-free travel to many countries, particularly
the United States. The United States thus frowns upon the granting of citizenship to individuals who may pose
a threat to the country. Thanks to what are claimed to be careful background checks, there have not been many
problems so far, but if the United States were to withdraw visa-free access for CARICOM citizens, this would
be a great blow to the region.23 Finally, as shown by the launch of Antigua and Barbudas and Dominicas CbI
programmes, the benefits are so apparent that the market for citizenship has attracted competition from other
jurisdictions, driving down prices. Dominica, for example, only requires an investment of US$100,000, the
cheapest in the world. Grenada used to have a CbI programme that required investment of as little as US$40,000,
but it was abolished after the attacks of 11 September 2001 in the United States. Grenadas new programme,
introduced in 2013, is supposedly limited to investors who are specifically invited to apply. A potential problem
with CbI programmes may be that land purchases in small, land-scarce islands puts prices beyond the reach of
the local population.
The third type of FDI promotion policy involves the role played by investment promotion agencies (IPAs). This
is a challenging aspect of promotion policy, since many of the economies involved are relatively small and thus
cannot afford large information campaigns and may have trouble attracting qualified staff. This is unfortunate,
since the literature (for example, Harding and Javorcik, 2011) argues that the use of IPAs may be the most
cost-efficient way of increasing FDI. The approach taken to this by the Caribbean Forum of African, Caribbean
and Pacific States (CARIFORUM) could be considered a blueprint for similar regions. In 2007, it created the
Caribbean Association of Investment Promotion Agencies (CAIPA), a single body that promotes the interests of
all its 19 members. This is done through two primary channels: first, in thus combining, its members can build
capacity more effectively by jointly purchasing important inputs (such as informational databases) and holding
training sessions; second, CAIPA takes a regionwide approach to promotion, recognizing that organizations
often choose a region before settling on a specific country. In this way, local IPAs do not have to take such a
broad approach in their own activities.
Unfortunately, as in other regions, and some limited academic literature aside, there is little evidence from
formal analysis of these agencies effectiveness and real impact on inward FDI. Many of the economies are too
small to be able to sustain IPAs with sufficient capacity to manage all the duties performed by these agencies in

23 The United States has given a warning to Saint Kitts and Nevis to this effect and Canada has instituted visa requirements for the countrys
citizens due to an incident involving one of its passport holders.
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more developed countries. There is also great variation between different economies in investor appreciation for
the IPA. An organization such as SKIPA (Saint Kitts) is a true one-stop shop that is able to provide the full range of
investment-related services and is highly appreciated by the investors making use of it. At the other extreme, there
are countries where IPA services are merely an afterthought for another State agency.
The fourth and most important channel for FDI promotion policies are financial incentives. Here, Caribbean
governments are very active. Among the most typical financial incentives are the following:
Income taxes: All economies provide some relief from income taxes (except for the Bahamas, which does not
levy income tax), but do so under very different regimes, with a 15-year full exemption being most common.
While some economies limit exemptions to specific sectors and others such as Belize allow exemptions
only in special free zones, in other economies these exemptions are provided without reservations.
Dividend taxation: Most of the economies that have any sort of withholding tax on dividends also provide
an exemption for foreign investors, although this is usually limited to the first 10 to 20 years after investing.
Duties on imported materials: Nearly all the economies provide some sort of reduction or exemption for
the imported goods and materials required by a new investment. OECS member States, in particular, tend
to provide full exemptions without time limits. Some economies have very specific regulations for vehicle
importation that may benefit specific individuals or businesses. In Jamaica, for example, there is a tax
exemption for the import of agricultural vehicles.
Property taxes: Property tax regimes differ greatly between economies. In Guyana, for example, no property
tax concessions are available. In many OECS member States, on the other hand, investors are eligible for
a 15-year full exemption.
Other financial incentives: In addition to the above, there are several other regulations in particular
countries aimed at making economies more attractive to foreign investors. Where they are in place, foreign
investors are often exempted from exchange controls, and stamp duty on land purchases is also often
reduced or waived. Some of the economies in the region also provide specific training grants or research
and development (R&D) subsidies (for example, Jamaica and Grenada), or even subsidies for renting office
space (Barbados). Accelerated depreciation allowances are also offered to investors.
It is clear that the incentives available in the region are very generous; moreover, the conditions for qualifying
for them are often not strict. While they are sector-specific in certain countries (often focusing on tourism,
manufacturing or agriculture), only a few economies have strict qualifying regulations. Barbados, for example,
requires financing sources to be external, while Belize requires companies to create employment, transfer skills
and earn foreign exchange if they are to be eligible for any subsidies. Many governments do state preferences
with regard to foreign investment, although these are not necessarily hard requirements, and most have stated
goals for employment creation or the generation of foreign-exchange inflows.
Many Caribbean economies provide a full tax holiday for investors in export-oriented activities. The BPO
industry is practically exempt from any income tax. Even the extractive industries, which in most other regions
are subject to stricter tax regulations that often include royalties, benefit from incentives in the Caribbean. The
bauxite mining industry in Jamaica enjoys tax advantages. Guyana levies a modest royalty (5%) on gold mining
and none on bauxite. The only major exception is the oil industry in Trinidad and Tobago, where private companies
(most of them foreign) enter into revenue-sharing contracts with the government; these are negotiated case by
case and provide the government with substantial income. In Suriname, the national oil company, Staatsolie, also
continues to play an important role in the exploitation of the countrys reserves, and any foreign participation is
strictly under its leadership.
Besides the generous tax exemptions formalized in law, governments add discretionary waivers for individual
companies. As a result, there is often great uncertainty about the kinds of incentives available to investors and
significant flexibility for decision-makers that does not necessarily enhance the effectiveness of incentive schemes.
In Haiti, this has been identified by investors as their foremost concern about the investment climate. Increasing
transparency in the allocation of financial incentives should be a goal in itself, since it would also lead to a more
efficient distribution of scarce resources (Goyal and Chai, 2008). The Government of Jamaica, for example, has
taken a step in this direction with the Omnibus Tax Incentive Act, passed in December 2013, which replaces all
existing tax incentives and bans further discretionary waivers. Despite liberal incentives, FDI in the region has
often shifted to locations outside it when these expire.
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2. The impact of FDI promotion policies

The impact of FDI promotion policies is complex to analyse. It is beyond the scope of this chapter to scrutinize the
entire system, but it is worth looking at whether the FDI promotion policies in place are having the desired impact.
Of course, this is contingent on knowing what impact is being sought by governments in the region. The following
are the most important reasons identified by policymakers for pursuing such policies:
FDI is sought to decrease unemployment. Unemployment rates are very high in some economies such as
Saint Lucia, and in those cases the primary concern of policymakers is to reduce the unemployment rate,
particularly for the young.
Policymakers in the region are worried that there is a degree of underinvestment in their economies as a result
of their low investment capacity. However, data from the United Nations Statistics Division (United Nations,
2015) show that the rate of gross fixed capital formation (GFCF) in the Caribbean is actually somewhat above
that of comparable economies. Moreover, as shown in figure II.9, the correlation between FDI and GFCF is
very weak in most economies. In only four economies is there arguably a statistically significant relationship
between the two.
A third reason for attracting FDI is the hope that there will be technological spillovers from these investors
in the local economy. Such spillovers can help companies or even entire economies to climb up the global
value chain.
The final major reason is that in the Caribbean, whose primary product is tourism, investments on the scale
needed to keep accommodation up to the constantly rising standards of international rivals and thereby stay
competitive require the participation of large international investors. This also applies to the extractive industry,
which in the Caribbean is likewise dependent on FDI inflows.
The question then becomes whether the FDI promotion policies currently in place actually address these issues.
Policymakers often believe that investment would quickly dry up without them. However, investors do not rank
financial incentives among the top reasons for investing in the region (CAIPA, 2013). Rather, they are attracted by its
strategic location, its educated and English-speaking workforce or the availability of a relatively large pan-Caribbean
market. At the moment, there is little hard evidence for the impact on FDI and economic growth of the generous
incentives given by Caribbean governments. It seems likely that policies to enhance the overall investment climate
would have more success, and they would benefit domestic and foreign investors alike. Also, given high levels of
debt in the region, the opportunity cost of these incentives in terms of foregone public investment in infrastructure,
human capital and the business environment can be quite high.
Goyal and Chai (2008) are among the few academics to have looked at tax incentives in the Caribbean,
analysing tax regimes in different OECS members. According to these authors, countries forego some 9.5% to 16%
of annual GDP in tax incentives, without much noticeable impact. They believe that investors are, in fact, not very
price-sensitive, and that the removal of generous financial subsidies could yield potential revenue of between 7%
and 13% of GDP. This research only deals with firms outside the all-important tourism sector. Nonetheless, on the
basis of these results, it seems unlikely that positive spillover effects from FDI justify the cost. Over and above, the
use of tax policy to favour certain foreign-driven sectors over domestically run ones results in a cost transfer to these
domestic investors, putting them at a competitive disadvantage.
The situation is made worse by the stressed public finances of most Caribbean countries, as seen in table II.1.
ECLAC (2014c) reports that the average budget deficit in 2014 was 3.9% of GDP (excluding the Dominican Republic
and Haiti), with six countries having deficits of over 5%. The total national debt reached close to 100% of GDP in
Antigua and Barbuda and Barbados and 127% of GDP in Jamaica, further increasing these economies vulnerability.
At a time when many Caribbean countries are reducing their fiscal deficits, the incentives granted to foreign investors
have to come from higher taxes on other constituencies. These raise the costs of doing business in the economy and
may even be pushing many local companies into the informal economy. The impact of FDI promotion policies and the
size of the benefits from FDI overall are the subject of a lively academic debate, as summarized in De Groot (2014a).
Exemptions from import duties are a special case, however. Import duties in the Caribbean are relatively high and,
combined with the high costs of transportation to the region, impose a significant burden on business. Particularly
in the early-stage development of new projects, when many inputs are required, import duty waivers are critically
important. It is not clear, however, why a distinction should be made between local and foreign investors when these
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waivers are granted. Rather, CARICOM ought to pursue cuts in common tariffs to reduce the need for waivers. This
is particularly the case when duties are levied on products that have clearly positive spillover effects, such as solar
power generating equipment. One complicating factor is that import duty waivers reduce incentives for local sourcing,
which is among the primary benefits of investment. However, when local companies are able to deliver consistently
high product quality, they should be able to compete with imported products on this rather than on price alone.

Figure II.9
The Caribbean (selected countries): foreign direct investment (FDI) to GDP
and gross fixed capital formation (GFCF) to GDP ratios, 2001-2013

A. Antigua and Barbuda B. Bahamas C. Barbados

0.6 0.4 0.20

0.3 0.15
0.4
0.2 0.10
0.2
0.1 0.05

0 0 0
0 0.2 0.4 0 0.05 0.10 0.15 -0.1 0 0.1 0.2

D. Belize E. Dominica F. Dominican Republic

0.3 0.3 0.3

0.2 0.2 0.2

0.1 0.1 0.1

0 0 0
-0.05 0.00 0.05 0.10 0.15 0 0.05 0.10 0.15 0 0.05 0.10

G. Grenada H. Guyana I. Haiti

0.6 0.3 0.20

0.15
0.4
GFCF/GDP

0.2
0.10
0.2 0.1
0.05

0 0 0.00
0 0.1 0.2 0.3 0 0.05 0.10 0.15 0 0.02 0.04

J. Jamaica K. Saint Kitts and Nevis L. Saint Lucia

0.3 0.8 0.6

0.6
0.2 0.4
0.4
0.1 0.2
0.2

0 0 0
0 0.05 0.10 0.15 0 0.10 0.20 0.30 0 0.1 0.2 0.3

M. Saint Vincent and

N. Suriname O. Trinidad and Tobago
the Grenadines
0.4 0.6 0.4

0.3
0.4
0.2 0.2
0.2 0.1

0 0 0
0 0.1 0.2 0.3 -0.10 -0.05 0 0.05 0 0.05 0.10 0.15

FDI/GDP

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations, National Accounts Main Aggregates Database,
Statistics Division, 2015 [online] http://unstats.un.org/unsd/snaama/dnllist.asp [date retrieved: 7 January 2015].
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Tax competition is leading to a race to the bottom in which tax advantages offered by one jurisdiction are matched
by others competing for FDI. This is more problematic in the Caribbean than in other regions because economies are
often competing for the same projects, particularly in tourism and BPO. It is difficult for governments to differentiate
their own product offering in these markets. Klemm and Van Parys (2012) analyse this form of strategic interaction in
taxation rates and find that it is particularly marked in Latin America and the Caribbean.
In CARICOM, there are currently proposals to harmonize incentives that, if approved, will cap these at a common
level to reduce the burden of financial FDI promotion policies without negatively affecting the level of overall FDI.
This could go a long way towards addressing the problem in the Caribbean region whereby the costs of attracting FDI
may be larger than the benefits from such investment. Bird (2000) argues that [w]hy so many governments opt for
incentives in the absence of any solid evidence that they produce economically significant results remains a puzzle
to many economists (p. 201). He believes that with tax coordination across the region (admittedly a challenge),
overall welfare could be increased. The World Economic Forum (WEF, 2013, p. 8) describes investment subsidies
as a coordination failure among governments [that] are, like most subsidies, inefficient. Additionally, it argues
that they divert attention away from truly hard decisions about measures to improve the overall business climate.
While doing so could help domestic and foreign investors alike, it is usually more difficult than offering incentives.
Furthermore, even if policymakers were eager, it is not certain that many of the economies in the subregion actually
have the institutional capacity to make such changes.

3. FDI and economic development in the Caribbean

The relationship between FDI and economic development is ambiguous and the subject of much academic
debate. One of the most relevant questions is: how does FDI impact economic development? The previous
subsection showed that thereis no clear causal link between FDI and increased fixed capital formation and that
the Caribbean is not suffering from a lack of capital investment. Furthermore, FDI may lead to the creation of
jobs for the local population or value chains from which local enterprises can benefit. One last hypothesis is that
FDI may simply be necessary to compensate for the large current account deficits in the Caribbean countries.
Since unemployment is a serious issue in many Caribbean economies, jobs created by foreign investment
would theoretically have a beneficial impact in terms of economic development. However, it is not clear that
foreign investors are better job creators than local investors. Indeed, foreign investors are more likely to use foreign
staff for the best-paid jobs and local investors may be better able to make optimal use of local labour market
conditions. This leads to a second point: the skills of many workers in the Caribbean do not match the needs of
employers. As a result, large employers, which tend to be foreign, are required to provide extensive training in
order to build the skills they need in their workforce. In this regard, therefore, FDI can be considered to impact
positively on economic development since it works as a channel to improve the skill level of local workers.
Local value chains do not tend to attract much attention in the Caribbean, even though policy can play
an important role, for example, in connecting local goods producers and foreign investors. Currently, many
foreign investors import a large share of their inputs, despite the high cost of doing so in the Caribbean. They do
so because of limited local capacity to provide those inputs. While it is understandable that not every country
can manufacture high-tech inputs, it would perhaps be feasible for these economies to aim to provide the
agricultural inputs required by large hotels and resorts. Investors argue that the local producers are not able to
deliver goods of a sufficiently high and consistent quality, which should be a call to action for the governments
of the subregion. Policies that focus on improving the capacities of local producers to enter the value chains of
these different industries would significantly enhance the benefits derived from inward FDI.
With respect to the balance of payments, as discussed earlier in this chapter, the impact of FDI can be
ambiguous. When the initial investment is made, whether in the form of a greenfield project or an acquisition,
there is an inflow of foreign exchange into the country and an improvement in the capital account. The long-term
effect on the current account is more complicated, however. As the company makes profits, they are recorded as
a debit in the current account (income from FDI). Some of this is repatriated and some reinvested, whereupon
it will be accounted for as a capital inflow again.
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Capital outflows in the form of income from FDI can be quite substantial, although central bank data show
that profitability is relatively low in the subregion. Figure II.10 shows average profitability in recent years for foreign
investors in the Caribbean. Profits are highest in Suriname, where they average around 18%, having been particularly
strong during 2011 and 2012. Barbados does not have complete data available, but profitability is also strikingly
high for the years in which it does. Investors in Belize, the Dominican Republic and Trinidad and Tobago also make
healthy returns of between 9% and 10%. All other countries for which data are available, however, have very low
profitability, particularly by Latin American standards (see chapter I). This is partly down to the economic cycle, since
tourism, the most important industry in many economies in this group, has been in decline in recent years.

Figure II.10
The Caribbean (selected economies): returns on FDI, 2008-2013 average
(FDI income divided by the stock of FDI, in percentages)
20
18
16
14
12
10
8
6
4
2
0
Suriname a

Barbados b

Belize a

Trinidad and
Tobago c

Dominican Rep.

Average d

Grenada

Haiti a

Jamaica

Dominica

Antigua and
Barbuda

Saint Lucia

Saint Kitts
and Nevis

Saint Vincent and

the Grenadines
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD),
World Investment Report 2014, Geneva, 2014; and official figures.
Note: Data on stocks are taken from UNCTAD to ensure that figures are consistent across countries.
a All investment income is taken rather than only income from FDI. FDI stock data in Suriname are imputed on the basis of official figures for the period from 2008 to 2010.
b Data only cover the period from 2008 to 2010.
c In 2012 and 2013, all investment income is taken.
d Excludes the Bahamas, Barbados, Guyana and Suriname.

The values in figure II.10 are FDI income divided by the stock of FDI in the country. Thus, economies with very large
stocks can have low rates of return but still register large outflows of foreign reserves. TableII.4 shows FDI income in
recent years. The final column shows how average FDI income compareS with inflows of FDI in recent years. In Belize,
Suriname and Trinidad and Tobago, more foreign exchange leaves the country in the form of FDI income than is received
as FDI inflows, while in Barbados and the Dominican Republic, FDI is almost neutral for the balance of payments.

E. Trans-Caribbean enterprises
Inflows of FDI into the Caribbean get far more attention than outflows. While nearly every country reports FDI
inflows in its balance of payments, many countries do not consistently report the amount of outward FDI, so it
is difficult to assess net FDI flows from the Caribbean. Nonetheless, some Caribbean countries are sources of
FDI as well, with companies investing not only in their home markets, but also in other Caribbean economies
and countries outside the region.
Indeed, this outbound FDI has been ongoing for some time and has often had significant consequences.
The Massy Group conglomerate began investing in Guyana, Jamaica and Barbados in the 1970s. The foreign
subsidiaries of some trans-Caribbeans are very large and make their own investments in turn. In early 2014,
for example, Sagicor Group Jamaica signed an agreement to fully acquire RBC Jamaica from Royal Bank of
Canada. This also shows that FDI from the region can involve the acquisition of assets from parties based in
developed countries.
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Table II.4
The Caribbean (selected economies): FDI income and inflows of FDI, 2008-2013
Average FDI income as
FDI income
a share of FDI inflows
(millions of dollars) (percentages)
2008 2009 2010 2011 2012 2013 2008-2013
Antigua and Barbuda 40.6 35.5 33.3 36.5 50.3 28.7 35.3
Barbados 264.5 310.9 249.8 89.7
Belize a 164.8 89.3 137.4 97.7 118.3 117.8 102.6
Dominica 12.5 13.4 7.8 5.0 5.1 15.2 37.7
Dominican Republic 1 668.5 1 518.1 1 528.4 1 802.0 1 836.0 2 397.6 77.8
Grenada 31.7 55.4 30.8 20.6 18.8 13.2 40.2
Haiti a 22.5 18.3 10.4 3.2 4.0 15.0 23.8
Jamaica 376.2 231.8 127.0 111.8 125.7 135.5 37.5
Saint Kitts and Nevis 23.4 20.3 18.2 18.7 12.7 19.4 15.1
Saint Lucia 52.5 35.3 31.7 12.0 23.3 15.7 23.1
Saint Vincent and the Grenadines 18.1 12.4 11.0 7.4 5.6 1.4 8.1
Suriname a 21.8 25.0 130.4 278.3 218.5 149.2 133.6
Trinidad and Tobago 903.6 781.0 827.0 3 068.6 3 387.3 a 2 254.5 a 119.3
Total b 3 336.2 2 835.7 2 893.4 5 461.9 5 805.5 5 163.1 64.5
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
a Data for total investment income rather than FDI investment income only.
b Excludes Barbados.

Table II.5 lists four of the largest Caribbean-based companies or conglomerates, all of which have significant
operations in the Caribbean outside their home country. All four derive very substantial proportions of their revenue
from other countries, although revenue data broken down in this way are not available for all companies.
Table II.5
Data on selected large trans-Caribbean conglomerates
Massy Group ANSA McAL Group Sagicor Group Goddard Enterprises
Home country
Trinidad and Tobago Trinidad and Tobago Barbados a Barbados
Total revenue in 2013 (dollars) 9.4 billion 6.2 billion 1 billion 962 million
Approximate share of 47 - 60 -
revenue from outside home
country (percentages)
Principal areas of business Automotive, distribution, energy Automotive, beverages, Finance, insurance Aerosols and liquid detergents,
and industrial gases, finance, distribution, financial services, airline catering, automotive,
industrial equipment, insurance, manufacturing, services, property baking, beverages, general
property, retail and technology trading, ground handling,
industrial and restaurant
catering, insurance, investments,
meat processing, packaging,
pharmaceuticals, printing,
property, shipping agents,
stevedoring and tours, water
purification and bottling
Primary foreign investment Antigua and Barbuda, Barbados, Barbados, Guyana Jamaica, the United States and Antigua and Barbuda, Bolivarian
destinations Guyana, Jamaica, Saint Lucia, other Caribbean countries Republic of Venezuela,
Saint Vincent and the Grenadines, Colombia, El Salvador, Grenada,
the United States and others Guatemala, Honduras, Jamaica,
Saint Kitts and Nevis, Saint
Lucia, Saint Vincent and the
Grenadines, Uruguay, and
other Caribbean countries
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of annual and quarterly reports from the respective companies.
a In January 2015, Sagicor Group announced its intention of redomiciling elsewhere to avoid the impact of Barbados financial instability. What prompted this move

was a downgrade of Sagicor Lifes bond rating by Standard & Poors as a result of the downgrading of Barbados sovereign debt.

Overseas investments are important for a companys bottom as well as top lines. For example, Massy Group
derives 41% of its before-tax profits from outside Trinidad and Tobago, with nearly all of this coming from Barbados,
Guyana and Jamaica.
Most of the FDI undertaken by large trans-Caribbean companies is in the form of mergers and acquisitions.
This often leads to restructuring and streamlining of the existing operation, usually resulting in job cuts and other
revenue-saving measures. When a gap in the market exists, a greenfield investment is more likely. For example,
Sagicor Group made greenfield investments in subsidiaries in Belize and Panama to expand its insurance operations.
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Large transnational Caribbean companies tend to be conglomerates, that is, groups of several corporations, some
operating in entirely different businesses. This structure is important for the Caribbean, which, even as a whole, is a
small market. Because of its economic and geographical properties, the Caribbean is especially prone to economic
and environmental shocks. Operating as a conglomerate is thus an important way of smoothing risks, since if one
corporations business is severely affected in a downturn, it can be supported by other parts of the conglomerate
operating in different industries. When several corporations operate in related fields, conglomerates can also provide
opportunities to form value chains. Of course, this structure has its dangers too if a conglomerate does not divest
failing enterprises, its successful branches may be burdened by the need to support them in perpetuity. This contributed
to the collapse of Colonial Life Insurance Company of Trinidad and Tobago in 2009.
Sandals Resorts is exceptional in the region in that it is not a conglomerate but a highly focused enterprise. It is
a giant trans-Caribbean company operating all-inclusive resorts throughout the region. Based in Jamaica, the firm
began operating in 1981 and continued adding resorts there before opening its first international resort in Antigua in
1991. Now the company has 15 all-inclusive couples-only resorts in 6 countries. Sandals also operates the family- and
singles-friendly Beaches Resorts in Jamaica and the Turks and Caicos Islands.
Sandals caters to international visitors, especially from the United States. The opening of a resort can be a major boost
for the local economy, stimulating tourism development and even bringing an increase in air travel as airlines respond
to increased demand. Investments can take the form of acquisitions, renovations and expansions of existing resorts,
sometimes saving them from closing entirely, with all the negative impact this would have on the local economy. Resorts
also provide highly coveted jobs; when one opened recently in Barbados, about 5,000 people applied for 600 positions.
The Dominican Republic has no major foreign investments, despite being the largest economy in the Caribbean.
There are no official data on FDI outflows, but the few known foreign investments by companies from the country are
in Haiti. Grupo M, for example, has garment manufacturing plants employing 9,000 workers, while Grupo Estrella
has several construction projects in Haiti.

1. Investments beyond the Caribbean

Economic growth in the Caribbean has been modest at best in recent years, as the subregion continues to recover from
the 2008 drop in asset prices and resulting recession. Jamaica, now undergoing a fiscal restructuring in close cooperation
with the IMF, has been having particularly severe problems. It is an important target market for many trans-Caribbeans,
and its economic woes have negatively impacted businesses in the region. Massy, for example, reported a 24% drop
in its Jamaica-based business in 2013 due to both falling consumer demand and currency depreciation (see box II.3).
These economic factors, along with a drive to explore new and larger markets, have helped push Caribbean
companies to invest outside the region, particularly in Latin America. Goddard Enterprises is an example of a company
with a significant amount of its business based outside the Caribbean. The conglomerate has substantial catering and
ground handling operations in several Caribbean countries and in Latin America, including the Bolivarian Republic of
Venezuela, Colombia, Ecuador, El Salvador, Guatemala, Honduras and Paraguay. Massy Group rebranding decisions
have been influenced by a desire to broaden its activities in Latin America, as discussed in box II.3.
Of course, investing in Latin America has its own problems. The Bolivarian Republic of Venezuela is seemingly
a natural target market for trans-Caribbean companies. It is geographically close and has developed strong ties to
many countries through bilateral agreements, the PetroCaribe arrangement24 and trade. However, the country has
recently been in an economic slump (like the Caribbean region itself), which could make it less attractive for FDI
from the Caribbean. Furthermore, the risk of currency devaluation combined with government currency controls
can make it difficult for companies operating in the country to trade Venezuelan currency for United States dollars
or another currency that serves for international trade or profit repatriation, and this has been reported as a problem
by some Caribbean enterprises attempting to operate in the Bolivarian Republic of Venezuela (McLean and Khadan
2014; bkp Development Research & Consulting, 2014).

24 The PetroCaribe Energy Cooperation Agreement is an arrangement between the Bolivarian Republic of Venezuela and a number of nations
in the Caribbean and elsewhere whereby subsidized petroleum is supplied for cash or the equivalent in goods and services. There are
questions about the future of the programme because of the fall in oil prices, which has had a large impact on the Venezuelan budget.
All the economies discussed in this chapter except Barbados and Trinidad and Tobago are parties to the PetroCaribe arrangement.
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Box II.3
The Massy rebrand
Massy Group, the largest Caribbean conglomerate, had its beginnings In terms of strategy, the decision to bring all group businesses
in 1923 with the founding of the Neal Engineering Company. In under the umbrella of a single name directly relates to the
1932, this merged with Massy to form Neal and Massy Engineering growth strategy of this pan-Caribbean conglomerate. It increases
Company. The firm continued to grow into a conglomerate, eventually synergies between the different components of the business,
becoming Neal & Massy Group, with more than 60 companies while retaining the risk-spreading strengths of the diversification
operating in the region. Some of its most important acquisitions strategy. Elsewhere in the world, large companies tend to
as it grew included Cannings & Company (of Trinidad and Tobago) become more specialized with size, since they benefit more from
in 1975 and Barbados Shipping & Trading Company in 2008. dominating a single product than they do from winning a smaller
International expansion and the diversification of industries share of more different markets. The situation in the Caribbean
under the groups umbrella led executives to believe a rebranding is different in that even complete dominance in a single product
campaign was needed. In order to build brand image and recognition, market still produces only a very small base for a company. Thus,
in 2014 the different firms within the Neal & Massy Group were spreading across different product markets increases potential
rebranded to Massy, and Neal & Massy Group itself changed its market size while at the same time reducing risk.
name to Massy Group. Massy Group is a conglomerate of various The unification of the companys businesses extends
subsidiaries operating in the automotive, distribution, energy beyond the use of a common name. Massy is also taking steps
and industrial gases, finance, industrial equipment, insurance, to increase cooperation and improve integration between its
property, retail and technology sectors. These encompass dozens different components and to encourage subsidiaries to work
of different businesses and brand names now relabelled as Massy. together. For example, companies under the Massy umbrella
For example, Hi-Lo Food Stores is now Massy Stores, while Neal sold automobiles (Neal & Massy Automotive), provided vehicle
& Massy Automotive, Nealco Motor Mart, Neal & Massy Auto insurance (United Insurance) and provided finance for vehicle
Rentals and Tobago Services have now been rebranded under purchases (General Finance Corporation). Now all these companies
the single name of Massy Motors. have been rebranded under the Massy name and steps have
Some of these names are iconic in Trinidad and Tobago been taken to ensure that they communicate and cooperate
and the Caribbean. During the rebranding process, many in the with each other. This could result in both increased revenues
region have been learning for the first time how many brands for Massy Group and more convenient shopping for customers.
and businesses are in fact part of Neal & Massy, now Massy. The decision by Massy Group to brand all its products under
The choice of the conglomerates new name, Massy, was made the Massy name is also related to its intention to continue to
after consideration of thousands of candidate names. It was focus on expanding into Latin American markets. In Spanish,
chosen because it was familiar many people already referred to ms s means more yes or perhaps More? Yes!.This was
some Neal & Massy companies simply as Massy.The heritage a factor in managements decision to choose the name Massy
reflected in the original name is captured by the companys new as its branding focus.
symbol, which includes both an N and an M.
Source: Economic Commission for Latin America and the Caribbean (ECLAC).

The third major destination for FDI by Caribbean companies, after other Caribbean countries and Latin America,
is the United States. The United States is the worlds largest FDI source and destination. Much FDI going from the
Caribbean to the United States is designed to take advantage of Miami as a major goods and services distribution
port. Because transport and travel between Caribbean countries remains underdeveloped, Miami is an important hub
for intraregional trade. FDI in the United States can thus facilitate increased trade and investment with countries in
the Caribbean. Some FDI is also for access to markets in services such as insurance.
Digicel Group is an excellent example of a company that has used its strength in the Caribbean to learn and develop
a new business model that can be applied elsewhere as well.25 The company now operates in most Caribbean markets
and has aggressively pursued investments in markets outside the region, with operations in several countries of Central
and South America. It was in discussions to develop telecommunications networks in Myanmar, but failed in its bid to
obtain one of two licences offered by the government. Digicels expertise in developing mobile phone networks in small
island countries has allowed it to branch out and operate in some South Pacific island economies as well, including
Fiji, Nauru, Papua New Guinea, Samoa, Tonga and Vanuatu. It has even used its reach to fill a financial-sector niche:
Digicel mobile money allows users to send and receive money and pay bills through their phones.

2. The advantages and disadvantages of intraregional FDI

Outbound FDI is sometimes portrayed negatively by the media and other institutions, particularly when it goes to
developed countries. It can be seen as the relocation of jobs and productive enterprises out of the home country, to
the latters detriment. Nonetheless, outbound FDI has several advantages for both employment and economic growth
in the source country, and some of these advantages are particularly relevant to small island developing States.
25 Digicels operations are mostly in the Caribbean, with its headquarters in Jamaica; however, the founder is from the Republic of Ireland.
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Investing in foreign countries can be a way for Caribbean companies to cope with the problem of small markets
and the resulting low demand at home. Expansion can lead to economies of scale, and thence increased production
and distribution. These economies of scale would be more difficult to achieve in a single Caribbean country or even
the whole Caribbean region.
Caribbean economies are well known to be susceptible to both economic and environmental shocks. Geographical
diversification can make them more sustainable at home. A company which restricts itself to a small domestic market
with wide fluctuations in supply and demand is unlikely to survive. This is especially true in Caribbean economies, which
have fairly open trade; domestic companies must compete with large, international ones, whether at home or abroad.
When a Caribbean company makes foreign investments, it opens up to a larger market than its domestic one.
This can directly lead to an expansion of production and employment in the home country if the company uses inputs
from there. Although trade is most commonly seen as a way for Caribbean nations to tap world markets through
exports, FDI can achieve the same goal.
FDI within the region has, at least initially, zero net effect on the regions balance of payments as a whole,
something that has both positive and negative aspects. With intraregional FDI, there is no initial transfer of capital
to the region (although of course there is between countries within the region). Similarly, profits, even if repatriated,
stay within the Caribbean; for the region as a whole, this prevents a continued drain on the current account from
profit repatriation. Of course, that does not preclude a disparate share-out of FDI returns, depending on the capacity
of individual countries to invest competitively in others.
Caribbean transnational companies may be more committed and better positioned to contribute to community
development in the Caribbean than other sources of FDI. Goddard, for example, highlights its contributions to the
Caribbean in its annual report; these include a donation in pursuit of UNESCO World Heritage Site status for several
areas in Saint Vincent and the Grenadines and support for athletic activities in a number of Caribbean countries.
Sagicor has also funded community development projects throughout the Caribbean, focusing on education, health,
community and youth involvement and sports. ANSA McAL funds awards to recognize Caribbean achievements in key
fields and maintains a foundation which champions various social causes in the Caribbean. Massy Group sponsors
activities to promote innovation, youth development, education, womens empowerment, physical fitness and other
goals. Caribbean Airlines is involved in a number of community and charitable activities including, for example,
backing for a paediatric cancer patient support organization. This is not to say that foreign firms cannot contribute to
social development in the Caribbean as well; BP, for example, contributes to several projects in Trinidad and Tobago.
Caribbean transnationals, as large companies which must compete internationally, can also be important for the
development of human capital in the region. They are probably more likely to train and hire local staff as managers
than investor companies from outside the region. Nonetheless, their ability to hire locals for some positions is limited
by human capital constraints. For example, there are few formal insurance education programmes in the Caribbean,
so actuarial experts must often be hired from outside the region.
The choice of where to invest in the Caribbean may be strongly influenced by bureaucratic obstacles and the
time required to set up a new business. The region is subject to various economic and environmental risks, which
investors must also take into account. Furthermore, most of the markets are small, so industries with high entry or
fixed costs may struggle to attain profitability.

F. Conclusions
There is no doubt that FDI is playing a major role in the economic development of the Caribbean. FDI inflows are
very large compared with the size of local economies, many of which suffer from large current account deficits that
governments are trying to compensate for with inflows of FDI. In tourism particularly, the role of FDI cannot be
overstated, since many projects require such substantial investments that local investors would not be able to defray
them. A similar argument can be made in the natural resources sector, although joint ventures between local and
international enterprises are more common in that field. Cuba and Haiti are the two exceptions in the Caribbean,
receiving very little FDI for the size of their economies.
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Since 2008, FDI inflows into the Caribbean have decreased by 37% to US$ 6.027 billion. The experience of the
regions different economies has varied greatly, however. The likes of the Dominican Republic, Jamaica and Trinidad
and Tobago receive substantially larger amounts of FDI than smaller economies, which reflects their economic size.
Over time, Guyana and Haiti have seen significant increases in FDI inflows, while the Bahamas and Barbados have
experienced the largest falls.
With respect to the balance of payments, the impact of FDI is ambiguous. While it is true that economies with temporary
current account deficits may be able to offset them with a capital account surplus, many economies in the Caribbean have
permanent current account deficits, and the continuous inflow of FDI that would be required to offset them would lead
to a large build-up of foreign capital. Furthermore, such inflows are then associated with outflows of capital in the form of
income from FDI. On average, outflows of income from FDI are equivalent to more than three quarters of FDI inflows in
the Caribbean, and they are particularly substantial in Barbados, Suriname and Trinidad and Tobago.
The degree to which FDI crowds out local investment also affects its impact on the balance of payments. A local
investment will not give rise to an influx of capital at the time the initial expenditure is carried out and does not lead
to significant outward current transfers compared with a similar amount of FDI. Export receipts can rise whatever
the source of the investment. Although local investment may seem more likely to have a beneficial long-term impact
on the balance of payments than a similar amount of FDI, it is important to remember that FDI is often sought by
countries because local firms do not have the resources to make the same types of greenfield investments that large
multinational corporations do.
Besides the impact on the balance of payments, there is potential to positively affect economic growth in the
different economies. Many Caribbean economies have long been suffering from a lack of competitiveness, and FDI
could help to transform them. However, evidence for a transformative impact is limited. Empirically, it has not been
shown that inflows of FDI lead to subsequent economic growth. There are exceptions: particularly in the case of
investments too large to be borne by local economies, such as in mining, the absence of FDI would hamper economic
development. In other cases, likewise, foreign investors may be able to invest larger sums within a shorter period,
quickly providing employment opportunities. In certain economies, furthermore, inward FDI has the potential to yield
significant benefits. This is particularly true of Cuba and Haiti, as developing countries that receive very little FDI. In
these cases, inbound FDI has the potential to be truly transformative in terms of employment creation, technological
spillovers and economic growth. However, both these economies are clear exceptions within the Caribbean context.
The impact of the extensive use of FDI promotion policies in the Caribbean is a subject of debate. The effectiveness
of different policies of this type has not been sufficiently researched in the Caribbean context, making them difficult
to justify at a time when many governments in the subregion are suffering from significant revenue shortfalls.
Exacerbating the harmful impact of FDI promotion policies is the arbitrary way they are applied in many jurisdictions.
At present, investment incentives are too often granted on the basis of individual negotiations between investors and
policymakers. Unfortunately, this is not always a relationship between equals in the Caribbean, with investors having
substantially more bargaining power.
The result of such unbalanced relationships and of the fact that many Caribbean economies offer very similar
products has been a race to the bottom between the different governments, which match one anothers incentive offers.
Caribbean governments should thus be encouraged to cooperate more energetically on reducing the FDI promotion
policies available to investors, particularly those that do not seem to directly affect the variables which governments wish
to act upon, such as employment creation. Only if governments cooperate closely through forums like CARICOM and
OECS can they stand up to the market power of some of the larger corporate players in the region. If they achieve this,
they will be in a position to use their resources more productively. In particular, rather than having blanket fiscal subsidies,
they could target specific sectors with reforms that can increase the local benefits of FDI. With respect to tourism, for
example, this means encouraging local companies to produce a consistent supply of high-quality inputs for the sector.
An underlying challenge is that FDI promotion policies would not be so necessary in the Caribbean if it were able
to improve its business environment. Investors are looking to optimize their overall business, and it is not uncommon
for them to say that higher taxes would not be a problem if the business environment were better. More effective
government, less bureaucracy, better public services, a faster judicial system, better contract enforcement: all these
would make it easier to do business, benefiting domestic and foreign investors alike. If such improvements were to
take place in the region, the call for further FDI promotion policies would not be as strong and would anyway be
easier for policymakers to ignore.
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FDI inflows into the Caribbean are likely to increase moderately in the near future, once economies are able
to return to growth. Since the regions overall FDI figures are primarily driven by large investments in the natural
resource sector, the future of the headline FDI figure largely depends on what happens to commodity prices in the
international market. Much also hangs on the degree to which Cuba and Haiti are able to start attracting significant
investment. These two economies are large by Caribbean standards and their entry into the FDI arena could have a
large impact. For individual economies, it is important to remember that what truly matters is not the quantity of FDI
but its transformative impact.

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JAMPRO (2014), Doing Business in Jamaicas Knowledge Services Sector, Kingston.
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Chapter III

Transnational corporations
and the environment

Introduction
A. Production structure, corporate strategies and the environment
B. Looking to the future: foreign direct investment and sustainable development
C. Environmental policy and investment promotion policy
D. Conclusions
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 Introduction
At the United Nations Conference on Sustainable Development (Rio+20), the participating countries agreed on
the need to move towards a new form of consumption and production that does not endanger the environmental
balance of the planet. In this regard the success of efforts to reduce poverty and inequality, and to promote
development, will be contingent on ecological constraints and environmental degradation.
In Latin America and the Caribbean, environmental problems are complex and encompass several dimensions
(ECLAC, 2012). The region is highly urbanized, with more than 80% of people living in cities. While this is
beneficial to the quality of life of much of the population, it has also created significant social and environmental
problems, such as inadequate basic services and air and water pollution in many urban areas. Despite considerable
progress, solid waste management remains a critical issue in many neighbourhoods owing to the poor management
of economic incentives, low collection coverage and a shortage of sites for final disposal.
Latin America and the Caribbean is also home to the planets greatest biodiversity, but this wealth is at risk
of being lost. The world failed to meet the 2010 Biodiversity Target adopted by the Convention on Biological
Diversity, mainly owing to land-use changes and the consequent reduction, fragmentation and loss of habitats.
Large-scale export agriculture, tourism and unplanned coastal development all have a major impact on this
process. Deforestation is another key issue for in the region, which accounts for one third of global forest losses.
Having accelerated in South America between 1990 and 2005, the phenomenon has since slowed thanks to a
number of steps taken in the Brazilian Amazon. The degradation of desert and arid land is also causing biodiversity
loss and is detrimental to the economic productivity of agriculture and related activities.
The region has plentiful water resources, but they are unevenly distributed and their quality may be degraded
by urban growth and the expansion of certain economic sectors. Chemical production is partly responsible for
this degradation, since neither the industry nor consumers are willing to pay for the proper disposal of chemicals.
Although some institutional progress has been achieved in this sphere, and most countries have adopted strategies
for the management of these products, some implementation problems remain.
The region is also experiencing the same climate change impacts as the rest of the planet, with the Caribbean
and other coastal territories particularly affected. In fact, addressing climate change is one of the priorities of
the Programme of Action for the Sustainable Development of Small Island Developing States. The regions per
capita greenhouse gas emissions are slightly higher than the world average, and are largely accounted for by
the energy sector (42%), agriculture (28%) and changes in land use (21%) (ECLAC, 2014b).
The post-2015 development agenda is structured around sustainable development goals (SDGs) which
mainstream the concept of environmental sustainability. The agenda also emphasizes that all actors, including
the private sector, need to be included in efforts to achieve the SDGs. In Latin America and the Caribbean,
transnational corporations are a key actor: on some occasions they have been almost entirely responsible for
the development of sectors with major environmental impacts, while also making a decisive contribution to the
introduction of unsustainable consumption patterns (for example, private vehicle use), which will be difficult to
reverse in the near term. However, many transnational firms have the capacity to help introduce more sustainable
practices, thanks to their experience in countries with stricter environmental regulations, more advanced
technology, or greater exposure to civil society and international financial markets.
This chapter explores how business strategies can help or hinder the transition towards a more environmentally
friendly production structure, with a particular focus on foreign direct investment (FDI). Increased social and
political demand for environmental protection has recently led to change in the relationship between FDI and the
environment. Technological advances have also expanded the range of solutions to many environmental problems,
with transnational corporations the main proprietors of these technologies. Lastly, FDI inflows into Latin American
and Caribbean economies have increased over the past decade, and in some countries have been channelled more
intensively into the natural resources sector, which has a potentially high environmental footprint.
Measuring the environmental impact of FDI is beyond the scope of this chapter, although the influence of production
structures on these impacts, and the conditions needed to make best use of positive contributions by transnational
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corporations, are examined. The chapter also reviews the environmental impact of transnational corporations from
a broad vantage point, as well as how public policies are channelling this impact. Consideration will be given to
past actions (pollution and environmental liabilities, among others) and future prospects (how FDI can make the
regions production structure more sustainable). Government policies are also analysed, with special reference to the
convergence or divergence of environmental and investment policies. Several boxes included in the chapter give a
detailed account of recent environmental developments and corporate performance in specific sectors.

A. Production structure, corporate strategies

and the environment
As chapter I explained, despite weaker FDI flows in 2014, transnational corporations have been increasing their
presence in most of the regions countries for the past decade: it is only natural that their environmental footprint should
increase too. However, the magnitude of that impact, whether positive or negative, will not be directly proportional
to the amount of investment received, but will depend on the production structure and regulatory framework of
the country in question, and on business strategies relating to the location of investment, the development of clean
technology or the adoption of other environmental measures.
Environmental impacts differ greatly according to economic sector. Accordingly, transnational corporations
are likely to have a limited impact in countries where FDI is concentrated in services or light manufacturing, and
a significant direct impact in countries that attract FDI to heavy industries or the development of natural resources.
Transnational corporations have the capacity to situate polluting operations in countries with laxer environmental
regulations. In the same way as some transnational firms are accused of locating their activities in certain countries so
as to minimize their tax burden or labour costs, so they stand accused of attempting to minimize their environmental
protection costs by transferring their dirtiest operations to countries with more permissive environmental regimes
(see section 2).
Transnationals can also use their greater technological expertise to promote environmental sustainability by
introducing cleaner modes of production and helping to build local capacity in that sphere. They can also make
a positive contribution by showing greater willingness to undertake voluntary initiatives in favour of sustainability.

1. Sectoral distribution and the environmental impact of FDI

It is estimated that 42% of all inward FDI in Latin America and the Caribbean goes to the services sector, while
manufacturing receives 32% and natural resources the remaining 26%. However, countries differ significantly
owing to their varied comparative advantages and production patterns. Since these activities affect the environment
in different ways, the ecological consequences of FDI are primarily contingent on the production structure of
each country.
There are many dimensions to the environmental impacts of different economic activities, and therefore it
isnt possible to quantify them using a single variable. Golub, Kauffmann and Yeres (2011) define the following
environmentally relevant sectors: agriculture, extractive industries, manufacturing, construction, transport, and
electricity, gas and water services. This extremely broad definition only excludes services whose ecological impacts
are mainly indirect, such as retail and banking. By focusing on a single variable, it is possible to gain a more
specific measurement of impacts on certain sectors. For example, the sectors with the largest impact in terms of
energy intensity (as an approximation of their potential contribution to greenhouse gas emissions) were paper
manufacturing, steelmaking, cement production and mining. Figure III.1 shows energy intensity by sector in the
United States in 2011.
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Figure III.1
United States: energy intensity in selected sectors, 2011
(Thousands of British thermal units (BTUs) per dollar of output)

Electronics

Garments

Construction

Machinery

Oil and gas

Metalworking

Food

Agriculture

Chemicals

Mining

Cement

Steel

0 2 4 6 8 10 12 14

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of the United States Department of Energy, Energy Intensity Indicators,
2015 [online] http://www1.eere.energy.gov/analysis/eii_index.html.

Environmental degradation often caused by mining or heavily polluting industries is not necessarily a
consequence of FDI, and would still exist if these activities were performed by local firms. Moreover, in many
economies (particularly small and medium-sized ones) transnational companies are the only enterprises with the
capacity needed to develop certain industries, with the result that there is no way of distinguishing the environmental
impact of the sector from that of FDI.
The sectoral concentration of FDI in a given production structure may be observed by comparing each sectors
share of the cumulative stock of FDI with its share of total capital. In general, transnational corporations will tend
to dominate sectors that have large economies of scale, are capital intensive, or which allow them to exploit their
technological advantages, brands or patents. Figure III.2 shows this comparison for Brazil, the only country in the
region for which there is an estimate of capital stock broken down by sector. Taking into account only the most
polluting sectors, and compared with total investment, FDI was more highly concentrated in extractive industries,
electricity, gas and water, and manufacturing, and less so in construction and agriculture.

Figure III.2
Brazil: FDI stock and total capital stock in environmentally sensitive sectors, 2012
(Percentages)
45

40

35

30

25

20

15

10

0
Agriculture Extractive Manufacturing Electricity, gas Construction Transport
industries and water

Capital stock (2009) FDI stock (2010)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and Marcel P. Timmer (ed.), The World Input-Output
Database (WIOD): contents, sources and methods, WIOD Working Paper, No. 10, 2012 [online] http://www.wiod.org/publications/papers/wiod10.pdf.

The observations presented in figure III.2 cannot be extrapolated to all of the regions countries, though some
trends are indeed comparable. Local investors predominate in agriculture, construction and transport in almost all
countries. Conversely, the relative importance of FDI in extractive industries varies greatly, being larger in Argentina,
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Chile, Peru and Trinidad and Tobago than in Brazil and Mexico. The relative magnitude of FDI in the electricity and
manufacturing sectors is also highly variable.
It is estimated that these six sectors account for 41% of FDI worldwide, 46% of FDI in developing economies
(Golub, Kauffmann and Yeres, 2011) and 62% of FDI in Latin America and the Caribbean. In other words, the sectoral
distribution of FDI in the region means that the potential impact on the environment is high (in comparison with the
world average).
Different manufacturing industries have diverse environmental impacts. One way of measuring them is to study
the pollution abatement costs incurred by corporations (per unit of output, in the United States economy) (Mani
and Wheeler, 1997). According to 2005 data, six industrial sectors were identified as producing the most pollution:
iron and steel, pulp and paper, industrial chemicals, leather, petrochemicals and non-metallic minerals (cement)
(EPA, 2008). Almost all are fairly intensive in capital, energy and land, and have high fixed costs. By contrast, the
manufacturing of textiles, garments, machinery, transport materials and professional and scientific instruments are
subsectors that are deemed to have low environmental impacts.
By this criterion, the regions two largest economies exhibit very different patterns. In Brazil, natural-resource
processing industries have developed most, while in Mexico labour-intensive and medium-high-tech industries such
as machinery, automobiles and electronics have dominated. For this reason, FDI flows to the most polluting industries
are much stronger in Brazil, although total FDI in the manufacturing sector (US$ 17 billion per year in the past decade)
is comparable to that received by Mexico (US$ 12 billion per year). In Mexico, the polluting industries accounted
for just 15% of FDI, compared with 49% in Brazil. Much of the difference is due to the enormous investment inflows
in the Brazilian steel industry in recent years (see figure III.3), though Brazil receives much more FDI than Mexico,
both in absolute and relative terms, in almost all of the most polluting sectors.

Figure III.3
Brazil and Mexico: cumulative FDI in polluting manufacturing industries, 2007-2013
(Percentage of total FDI in manufacturing)
45 000

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0
Chemicals Metallurgy Petrochemicals Pulp and paper Cement

Brazil Mexico

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Disaggregated data are not available for Central America and the Caribbean, but the absence of steelmaking and
other heavy industries and the specialization in labour-intensive export manufacturing suggests that the environmental
impact of industrial FDI in those countries is equal to or less than that of industrial FDI in Mexico.
These comparisons between countries are based on overall environmental impact patterns and might not
reflect the impact of individual investment projects in these countries. Even within the same industry, processes
may have different (positive or negative) environmental impacts depending on national regulations, natural or social
circumstances at the location, and individual corporate decisions. One example is that of CO2 emissions per unit
of electricity generated: in power systems that mainly rely on fossil fuels (for example, those of northern Chile or
Mexico), electricity-intensive industries will generate many more indirect emissions than they would in countries
where electricity is mainly generated from renewable energies (such as Brazil or Colombia).
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Classifying environmental impacts in the services sector, which accounts for half of the regions FDI, is more
difficult since effects tend to be more indirect. A good example is the retail trade, a service sector whose FDI
inflows are among the strongest in the region.1 While its operations are not especially dirty, this sector can exert
significant influence over the value chain of many other products. In 2009, the Brazilian subsidiary of United
States retailer Walmart signed a sustainability pact with other companies, designed to achieve specific internal
targets such as increasing the energy efficiency of stores by 25% and reducing the use of plastic bags by 50%
(a target that was reached in 2012). Other goals involved the requirement that wood, livestock and soybean
suppliers hold certificates guaranteeing that their production processes do not contribute to the deforestation
of the Amazon.
The financial services sector also has significant potential to influence the rest of the economy. For example,
the Equator Principles2 were designed by international public banks to be applied in major infrastructure projects,
but commercial banks have increasingly applied them to all large and medium-sized loans. The 80 banks that
adhere to these principles include the main foreign banks operating in the region (Citigroup, Santander, BBVA)
and many of the regions major financial institutions, notably those of Brazil (Ita, Caixa Econmica Federal,
Bradesco, Banco do Brasil and Pine). In that country, a new regulation requires that banks assume responsibility
for environmental impact studies in the projects they finance, thereby adopting the practice of the principal
international banks.
For many of the regions economies, mining and oil companies are likely to have the greatest environmental
impacts. Worldwide, the percentage of FDI allocated to natural resources stands at less than 10%, while in Latin
America and the Caribbean it is 26% (Golub, Kauffmann and Yeres, 2011) and in countries such as Chile, the
Plurinational State of Bolivia and Trinidad and Tobago, the figure exceeds 50%. This trend has intensified with
the reprimarization process of the past decade, which in many cases has been spurred by high levels of FDI in
extractive industries, especially mining (see the section in chapter I on sectoral distribution).
Extractive industries are voracious energy consumers and are therefore responsible for considerable indirect
greenhouse gas emissions. In the north of Chile, mining firms have increased their power consumption by 33% in
the past eight years, drawing electricity from a grid that is 83% coal-powered.3 At the same time, these companies
have increased their direct greenhouse gas emissions from 3 million to over 5 million tons of CO2 equivalent in
the past 10 years, largely owing to the increased use of trucks in open-pit mining. These growing environmental
impacts reflect the more intensive use of energy because of declining ore grade in working deposits. Many of
these corporations (both domestic and foreign) are striving to improve their energy efficiency and increase the
use of renewable energies in their operations; however, this has not yet managed to reverse the underlying trend.
Environmental liabilities caused by extractive industries pose a more local, but no less important problem.
The management of these liabilities is at the heart of many of the disputes concerning heavy industrial operations
by transnational corporations in the region. Particularly problems have arisen in operations that changed hands
without a sufficiently clear attribution of this responsibility to one of the parties, as in the dispute between
Ecuador and Chevron. More recently, Barrick Gold faced similar problems following a case of water pollution
at its mine in the Dominican Republic.
In short, mining, hydrocarbons and other primary sectors such as forestry have a considerable environmental
impact at the global and local levels (see box III.1), and in many countries these activities have taken place thanks to
foreign investment. For as long as the extractive industries dominate the Latin American and Caribbean production
structure, foreign (and domestic) investment will continue to have a significant bearing on the environment.

1 During the past decade, the services sectors annual FDI inflows exceeded US$ 1.0 billion in Mexico and US$ 3.0 billion in Brazil.
2 The Equator Principles are an environmental and social risk management framework for developing countries, adopted by financial
institutions, which provides a minimum standard for due diligence to support responsible risk decision-making.
3 See Mining Council [online] http://www.consejominero.cl/ambitos-estrategicos/energia-y-cambio-climatico/.
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Box III.1
Mining in the spotlight: governments and civil society demand better environmental performance
from mining corporations
Mining is one of the sectors that attracts most FDI to Latin although the Cobre Panam project in the province of Coln
America, but it also generates one of the largest environmental remains on track. In Costa Rica, environmental concerns have
impacts. In fact, environmental impact management is often led to a near-total ban on large-scale mining.
a decisive factor when undertaking investment projects, Quite apart from the surge in mining investment, the number
beginning with the initial operating permit that is granted of complaints has risen because the affected communities are
after the environmental impact assessment and continuing increasingly well informed and have more and more avenues open
throughout the useful life of the mine. In recent years there to them to make their voices heard. Moreover, Governments are
has been a proliferation of cases in which mining operations taking steps to improve access to information and justice and
have been suspended and even cancelled because of protests to increase participation in environmental issues by undertaking
by the directly affected communities or by national civil society. institutional reforms such as Chiles General Environmental
The most common causes of contention are environmental Framework Law of 2010 (ECLAC, 2014a). At the regional level,
(pollution, water use and the accrual of environmental liabilities), ECLAC is leading the process for the application of Principle
but complaints have also been made of human rights abuses, 10 of the Rio Declaration, which recognizes the right to public
the displacement of communities, unfulfilled expectations of participation in environmental issues, and which already counts
shared mining royalties and negative impacts on traditional 19 of the regions countries as signatories (see [online] http://
production activities (Saade Hazin, 2013). www.cepal.org/rio20/principio10). Provisions on rights of access
Such conflicts which vary somewhat from one country to information may also be included in international agreements
to the next abound all over the world, although Latin America such as the bilateral investment treaty signed between Uruguay
accounts for a disproportionate number even taking into account and the United States.
the magnitude of the sector in some of the regions countries. Another legal instrument that has facilitated citizen
In Chile, most conflicts have been confined to legal action. participation is International Labour Organization (ILO) Convention
The largest in terms of investment was the Pascua Lama No. 169 concerning indigenous and tribal peoples, which
case, in which Canadas Barrick Gold Corporation called a halt stipulates that consultations with indigenous communities
to its mining operation on the Argentine-Chilean border in April must be held before mining projects affecting them can be
2013 after a court ruled that the company was responsible for carried out. Fifteen countries in the region have so far signed
reducing indigenous communities access to water. The setback up to the Convention, which has been instrumental in at least
proved so serious for the company that it was forced to take one important case, when in 2013 a Chilean court suspended
an asset write-down of US$ 5 billion, although Barrick Gold is work at the El Morro gold mine, owned by Canadas Goldcorp
confident that it will be able to resume the project in future. and for which investments to the tune of US$ 3.9 billion had
In Peru, communities and groups opposed to mining been planned, on the grounds that the consultation process
projects have more commonly opted for direct action, which did not comply with the Convention.
in one case in 2013 paralysed the Yanacocha mine, under the Mining companies will be forced to adapt to civil society
majority ownership of Newmont of the United States, for empowerment and growing environmental awareness, which
several months and caused Peruvian gold exports to fall by are structural trends that will not change in the short or medium
25%. In Colombia, the Government halted coal exports by the term. Change is, however, taking place in the economic climate
Drummond Corporation, again from the United States, for reasons in which projects are implemented. Over the past decade, FDI
of marine pollution, and protests by residents have delayed in mining has returned extraordinarily high profits, which in Chile
several major projects such as those run by AngloGold Ashanti stood at 25% per year between 2007 and 2011 (see ECLAC,
in Tolima department and Eco Oro in Santander department 2013, chapter II). It is possible that the perception that mining
(The Economist, 2014). In the Dominican Republic, another companies have reaped a windfall has fuelled the demands of
legal claim has been filed against Barrick Gold for use of public civil society, though it is also true that the strong profitability
spaces in its Pueblo Viejo project. of mining projects has allowed corporations to make real
One of the reasons for the increased number of conflicts efforts to accommodate these demands, despite the additional
is that mining investment in the region has boomed in the cost involved.
past decade. As well as expanding their presence in traditional In the current context of falling mineral prices and declining
mining countries, corporations are seeking new opportunities investment (see chapter I), corporations might adopt another
elsewhere, leading to social conflicts with the potential to derail strategy to cope with the rising number of environmental
major projects. In Uruguay, the Zamin mining company plans complaints, and ecological concerns and alternative livelihoods
to invest more than US$ 1.0 billion to develop the Aratir iron to mining may come into conflict with the need to save jobs in
ore mine, but the determined opposition to the project from the sector. Governments should mediate in these conflicts, with
society could make it difficult to implement. In Panama, in 2012 the ultimate goal of promoting responsible mining investments
the Government cancelled mining concessions in the territory and penalizing those which do not respond to expectations of
of the Ngbe-Bugl ethnic group after a number of protests, sustainable development in the region.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of The Economist, Digging itself out of a hole, 15 March 2014;
and ECLAC, Foreign Direct Investment in Latin America and the Caribbean, 2012 (LC/G.2571-P), Santiago, Chile, 2013.
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2. Foreign direct investment and the relocation of polluting activities

Transnational corporations may have different strategies to national ones, since they have the ability to transfer production
processes between countries, with one possible reason being the avoidance of costly environmental regulations. This is
known as the pollution haven hypothesis, and could be significant since almost half of FDI in the aforementioned dirty
industries flows from developed to developing countries. While environmental controls and restrictions in developing
countries will presumably converge with the standards of developed countries, the asymmetry in environmental
regulations will remain significant in the near term.
Proving or disproving this hypothesis is a complex task, given the multitude of factors that determine the location of
investments. While most studies, including those by Rezza (2014), Sanna-Randaccio and Sestini (2011), Smarzynska and
Wei (2001), and Mani and Wheeler (1997), have found no evidence for the phenomenon, Wagner and Timmins (2009)
found evidence to support the hypothesis in the case of the German chemicals industry, as did Dean, Lovely and Wang
(2009) in relation to investments in China by companies based in the Hong Kong and Macao Special Administrative
Regions and Taiwan Province of China.
The gulf between the environmental regulations found in different countries, as well as in their application and in
conflict resolution mechanisms, does not explain the location of pollution-intensive activities (or only does so partially).
There are several reasons for this, the first of which is that the costs incurred by corporations in controlling environmental
damage are relatively modest. According to the Pollution Abatement Costs and Expenditures Survey, for manufacturing
as a whole, current environmental costs in 20054 amounted to less than 0.5% of sales, while investments in treating or
preventing pollution accounted for 4.6% of total investment (EPA, 2008).
In the case of energy-intensive industries, offshoring may be indirectly motivated by environmental policies. Such
industries include that of aluminium production in the European Union, in which climate change mitigation regulations
increased production costs by 8% between 2002 and 2012 (Oliver, 2014). Since 2007, almost half of European plants have
closed and aluminium producers may have some incentive to relocate smelters to countries with lower energy costs. This
production shift may reflect intrinsic competitive advantages in energy production and help reduce global CO2 emissions
if the plants relocate to countries with a range of renewable energies available (especially hydropower, as in many Latin
American countries). However, the relocation could also reflect disparities in countries climate-change-mitigation regulations,
and could cause increased emissions if production were transferred to locations more reliant on dirtier energy sources.
Corporations wishing to take advantage of more permissive environmental regulations should consider that the
existence of different production systems within the same enterprise entails extra coordination costs. While it is difficult
to generalize, transnational firms tend to homogenize modes of production among their subsidiaries in order to gain
flexibility and economies of scale. This would require that the most exacting environmental standards be applied in all
countries (UNCTAD, 2010b).
Another important factor is that pollution-intensive industries such as steel, petrochemical and cement production
also happen to be the least mobile, since they have high fixed costs and investments are recovered over long periods
(Ederington, Levinson and Minier, 2005). The cost of transporting cement is so high compared with the value of the
product that its international trade is negligible. The industry therefore responds exclusively to domestic demand patterns,
with no space for expanding or reducing capacity according to environmental regulations.
Among these polluting industries, a trend has been observed whereby production is displaced from developed to
developing regions, mainly Asia but also Latin America. Relocating production in this way, which could also indicate a
preference for avoiding the strictest environmental regulations, should primarily be understood as a response to demand,
which is stagnant or weakening in developed countries and strengthening in emerging economies (see box III.2).5 In
fact, the prospect of burgeoning demand has led to major investment in Latin Americas heavy industries, which in turn
will determine the intensity of emissions and other pollutants from these industries in the coming decades. For example,
the fastest growth in the regions steel production capacity has been recorded at Brazils integrated plants, which emit
six times more CO2 than semi-integrated plants. Projects such as the steel mill Companhia Siderrgica do Atlntico
opened in 2010 by ThyssenKrupp with a production capacity of 5 million tons per year, have contributed to inertia in
the emissions intensity of the steel industry.
4 Includes the operating and maintenance costs of equipment for the mitigation of air and water pollution, as well as solid waste
management payments to the public and private sectors.
5 This trend is examined in detail in chapter III of ECLAC (2010), on the steel industry.
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Box III.2
Heavy industry and emission reduction strategies
Industrial CO2 emissions, which account for 19% of the total, are Lafarge and Holcim. Trans-Latin corporations, some with genuine
highly concentrated in a handful of sectors, led by steel (30%) global presence, also operate in these sectors and include the
and cement (26%), followed by chemicals and petrochemicals steelmakers Techint (Argentina), Gerdau and CSN (Brazil), and
(17%), pulp and paper (2%) and aluminium (2%) (IEA, 2014). the cement producers Cemex (Mexico), Argos (Colombia) and
Despite continual improvements to reduce its carbon intensity, Votorantim (Brazil).
heavy industry is expected to be a major emitter in future, and While Brazil and Mexico account for 79% of the regions
emissions will be a decisive factor in business strategies. total steel production, nearly all countries produce cement and
The steel and cement industries are highly transnationalized. little international trade is carried out this subsector. Foreign
Many European and some Asian companies operate in the direct investment figures show that steel production capacity
region, notably the steelmakers ArcelorMittal, ThyssenKrupp, is concentrated in Brazil, which has received the lions share
Vallourec, Nippon Steel and Posco, and the cement manufacturers of FDI in the industry in recent years (see figures 1A and 1B).

Figure 1A
Latin America and the Caribbean: distribution of steel production, 2014
(Percentages)
Colombia Others
(2) (4)
Chile
(2)
Venezuela
(Bol. Rep. of)
(2)

Argentina
(9)

Brazil
(52)

Mexico
(29)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information from the World Steel Association (WSA).

Figure 1B
Latin America and the Caribbean: cumulative FDI inflows in the steel sector, 2005-2013
(Percentages)
Argentina
(4)
Mexico
(8)

Brazil
(88)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Demand for cement in the region increased by 6% and in terms of emission reduction commitments, but the clear
5% in 2011 and 2012 respectively (the most recent years displacement of demand to emerging economies makes it
with data available), while demand from Europe fell; steel difficult to determine whether environmental regulations are
consumption followed a similar trend. For that reason, European responsible for the transfer of production capacity.
steel firms (ArcelorMittal, ThyssenKrupp and Vallourec) and Although the corporations operating in Latin America
cement makers (Lafarge and Holcim) have stepped up their and the Caribbean are not yet subject to any formal emission
investment in the region. Companies certainly face different reduction obligations, they should now be preparing for future
environmental regulations in Europe and Latin America, especially controls. As in other industries, iron and steel companies have
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Box III.2 (concluded)

argued for a sectoral agreement that gives them a measure of emissions by an estimated 9% to 18% (IEA, 2007) there will
control over how they reduce emissions and which guarantees be a trend towards investment in plants that use less carbon-
similar competitive conditions for all companies (WSA, 2014). emitting processes.
They have also urged governments to adopt a life-cycle approach Accordingly, a long-term shift in production capacity is
when considering CO2 emissions, rather than focusing only on expected away from high carbon-emitting coke blast furnaces
the industry that manufactures the product: this would allow towards gas-based direct reduction modules (whose emissions
the extra CO2 emitted in producing lighter steels to be offset are lower), and semi-integrated plants (whose emissions are
against the reduced emissions from vehicles made from such much lower). This will be no easy transformation and the process
steels, which would consume less fuel. Through this strategy, will be slow and incomplete, even if it were accompanied by
the industry aims to guarantee its growth towards higher strong incentives, such as taxes on CO2 emissions, carbon
value-added products, even in a context of significant emission intensity-based barriers to trade in steel or direct subsidies
restrictions. The European cement industry has also published on investment in new plants. This adaptation will also depend
a road map proposing a 32% reduction in its CO2 footprint on each countrys relative abundance of coal, natural gas or
compared with 1990 levels, using conventional technology. electricity, as well as iron ore and scrap. In Latin America there
With the application of more radical methods, such as carbon is a relative abundance of iron ore and a lack of scrap (with
capture and storage, this reduction could be as high as 80%.a the exception of Mexico, which imports it from the United
The scale of the emission reductions that Latin American States), hampering the expansion of semi-integrated plants.
steel and cement firms will be required to make, and their Efforts to reduce steel-industry emissions in Latin America
time frame for doing so, remain to be decided. Nevertheless, and the Caribbean have been much more limited than those
there is little doubt that their future will be determined by proposed in Europe, for example. In Brazil, the Sectoral Plan
their ability to adapt to a less carbon-intensive world. Aside for the Reduction of Steel Industry Emissions focused on the
from upgrades to existing plants, which could reduce global sustainable use of charcoal.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Energy Agency (IEA), Energy Technology Perspectives
2014 - Harnessing Electricitys Potential, 2014; World Steel Association (WSA), Steels Contribution to a Low Carbon Future. Worldsteel position paper,
2014 [online] http://www.worldsteel.org/dms/internetDocumentList/bookshop/Steel-s-contribution-to-a-Low-Carbon-Future-2014/document/Steel_s%20
contribution%20to%20a%20Low%20Carbon%20Future%202014.pdf.
a See European Cement Association [online] http://www.cembureau.be/post-2020-climate-and-energy-legislation-proposal-european-cement-industry.

3. Transnational corporations, green technology

and clean modes of production
One area where FDI can benefit the environment is through the transfer of clean technologies. Shifting Latin
Americas production patterns towards sustainable alternatives, as well as replacing certain industries and products,
will require the development and dissemination of new technologies. Transnational corporations are key actors in
creating and distributing this technology, and their investment strategies will determine the pace of adoption by the
regions economies.
There is no precise definition of a green technology, since different activities require different technological
solutions. Existing indicators are limited to measuring progress in the areas of energy and pollution mitigation and
control (OECD, 2014) and, although useful for illustrating trends, they exclude innovations in other sectors, especially
those with cross-cutting applications such as information and communications technologies and the development of
new materials, which can be hugely effective in reducing the environmental footprint of economic activities.
Regardless of how they are measured, most of these technologies are still being created in developed economies
and despite some progress by developing countries, they still lag behind (Krishna, 2009). Between 1978 and 2005, a
very small number of countries (Germany, Japan and the United States) accounted for most patents in climate change
mitigation technologies (Dechezleprtre and others, 2011).
Latin America and the Caribbean has limited capacity for creating these technologies. According to the Organization
for Economic Co-operation and Development (OECD), between 1999 and 2011 the regions six largest economies
(Argentina, the Bolivarian Republic of Venezuela, Brazil, Chile, Colombia and Mexico) filed fewer than 300 patents
for green technologies, out of a total of 4,300. Figure III.4 shows the percentage of green patents registered in each
country. While this percentage is increasing slightly, reflecting the growing importance of the environment as a focus
of research efforts, both the percentage and the total number of green patents remain at very low levels.6

6 Brazil registered 2,503 patents, of which 170 were considered green technologies. Colombia registered 112 (6.5 of which were green),
Argentina 575 (33.5 green), the Bolivarian Republic of Venezuela 70.5 (4 green), Mexico 780 (47.5 green) and Chile 299 (37 green).
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Figure III.4
Latin America (6 countries): patents in green technologies, 2000-2011a
(Percentage of total patents in each country)
0.25

0.20

0.15

0.10

0.05

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Venezuela (Bol. Rep. of) Chile

Colombia Mexico
Argentina Brazil

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from the Organization for Economic Co-operation and Development
(OECD).
a Data refer to averages of two consecutive years, in order to smooth out shocks.

With technical capacity thus divided, it is no surprise that international technology flows tend to run in a North-
South direction. Some 22% of recorded transfers of climate-change mitigation technologies were from OECD countries
to developing economies;7 for technology transfers in general the figure stood at 16% (see table III.1). South-South
technology transfers accounted for no more than 1% of the total. The question remains: what role does FDI play in
these North-South technology transfers?

Table III.1
World: distribution of exported technologies in general and climate-mitigation technologies, 2000 to 2005
(Percentages)

Destination
Origin
OECD Non-OECD
Exports of all technologies
OECD 77 16
Non-OECD 6 1
Exports of climate-mitigation technologies
OECD 73 22
Non-OECD 4 1
Source: Antoine Dechezleprtre and others, Invention and transfer of climate change-mitigation technologies: a global analysis, Review of Environmental Economics
and Policy, vol. 5, No. 1, 2011.

It may be supposed that transnational corporations generally have a superior level of green technology to
local firms, if only because of their size and the sectors in which they operate. Several studies have confirmed
that in developing economies, foreign-owned companies are more energy efficient than their domestic
counterparts (Peterson, 2008). Many transnational firms base their competitiveness strategy on the ownership
of clean production technologies, especially in medium-high-tech manufacturing sectors such as component
manufacturing (Siemens, Alstom).
Some of these companies may exploit their advantages through the manufacturing and export of components
such as the Danish firm Vestas, a worldwide exporter of wind turbines produced in Denmark but many others
are obliged to invest in their destination markets. For example, the power company Enel wishes to leverage its
expertise in smart grids (acquired in Italy, where it has installed a large number of smart meters) by investing in

7 Data from European Patent Office, Worldwide Patent Statistical Database (PATSTAT) [online] http://www.epo.org/searching/subscription/
raw/product-14-24.html.
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its distribution subsidiaries in Latin America. In such instances FDI has a direct positive environmental impact
on the regions economies.
Foreign direct investment can also have an indirect positive impact where the introduction of cleaner
technology is be transferred to local firms through production linkages. There is little evidence of such technology
spillovers in Latin America and the Caribbean, and the few studies carried out on green technologies confirm
that potential is limited at present (Zarsky and Gallagher, 2009).
Transnational corporations superiority in green technology may reawaken perennial concerns over the
regions technological dependence. If cleaner production systems are ultimately imposed (either by market
forces or by government regulation), and these systems include advanced technologies owned by foreign firms
and governments, then technological dependence will increase. To avoid this situation, increased efforts should
be made and mechanisms established to build local capacity in environmental technologies. While multilateral
climate change negotiations always mention the transfer of technology to developing countries, a method for
implementing such transfers has not yet been developed beyond some specific and limited efforts, such as the
request by some countries (notably China) that Clean Development Mechanism projects contain a technology
transfer component.
One way of creating local capacity is through the research and development (R&D) activities undertaken by
transnational corporations in the region. Although on a much smaller scale than in the firms home countries,
these activities are still significant: at least 20% of the green patents filed in Brazil in 2014 belonged to
transnational firms such as Dow, Fiat and Whirlpool.
Specific examples of foreign investment in the development of clean technologies include the Alstom centre
of excellence in geothermal energy in Morelia, Mexico, and the development of second-generation ethanol in
Brazil by a combination of domestic and foreign corporations (including Shell). In both cases, the transnationals
are carrying out research on technologies that exploit the specific natural advantages of the host country: Mexicos
abundant geothermal energy and Brazils vast sugarcane crop.
Private investments in clean technologies generally respond to specific government incentives. If the regions
governments do not set environmental targets in certain key sectors (as they do in Europe and the United States),
then foreign and domestic companies will not invest in developing the technologies needed to meet these targets.
The automotive sector provides a clear illustration of the relationship between environmental regulations and
standards and investment in new technologies (see box III.3).

Box III.3
The automotive industry: technological efforts and environmental standards
The automotive industry is one of the regions most crucial sectors Automotive firms have two main technical objectives: to
(in Brazil it accounts for 5% of GDP) and is currently in a growth make vehicles more efficient and to meet the emission standards
phase (see section B.2 of chapter I). The sector is dominated by set by governments. These standards were introduced for the
transnational corporations: all of the regions vehicle assembly first time in the United States and Europe in 1987 and 1992
firms and the largest auto parts manufacturers are foreign owned. respectively, have been updated several times, and are now
The industrys environmental sustainability is under scrutiny applied in most of the worlds countries.
because of the direct impact of the vehicles it produces, rather Governments may have different motivations for adopting
than that of its operations. In Latin America, road transport emission standards, from fulfilling their emission reduction
generates 32% of CO2 emissions, double the global average commitments to alleviating local pollution in cities. Another
(Lee Schipper, Deakin and McAndrews, 2010), and is one of the reason relates to industrial policy: developing countries with
main causes of unacceptably high pollution levels in Lima, Rio de automotive sectors that receive FDI have shown much greater
Janeiro (Brazil), Santiago and the continents other major cities. Of inclination to set standards for polluting emissions than those
the many dimensions to environmental sustainability in vehicles, that do not have an automotive industry. This is because setting
the most important is the reduction of CO2 and other pollutant standards incentivizes innovation by the enterprises operating
emissions per kilometre travelled. Various alternative technologies in the country. Brazil, China, India and Mexico have all seen a
seek to address this: reducing the vehicles weight, improving jump in the number of patents filed by the sector after emission
its mechanics, developing more efficient internal combustion standards were introduced (Saikawa and Urpelainen, 2014).
engines, increasing the use of biofuels and introducing electric To what extent has industrial policy has played a part
engines. Automakers are allocating much of their huge research in the adoption of emission standards in Latin America? The
and development budgets to the design of vehicles that produce two countries that account for the bulk of the regions vehicle
fewer and fewer emissions, though it is not yet known which production Mexico and Brazil receive extremely high levels
technological solutions will ultimately prevail. of foreign investment in their respective auto industries. While
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Box III.3 (concluded)

Mexican production is geared towards supplying the United States sidelined by the Governments decision to keep gasoline prices
and Canadian markets, in Brazil the sector is largely focused on below the cost of production as a means of controlling inflation.
domestic consumption and, to a very limited extent, exports to This policy has had a heavy impact on ethanol producers, who
South America. The Mexican automotive industry is therefore decided to suspend their expansion plans as a consequence of
largely insensitive to domestic environmental regulations and highly falling demand. Moreover, the latest incentives for the automotive
attuned to those of the United States. Consequently the Mexican industry are designed to strengthen local capacity and increase
Government has little scope for influencing the technological value added, rather than making cars less polluting; this contrasts
development of its industry through emission standards, and with the State assistance that the industry received after the
has been unable to close the gap with United States standards. crisis in Europe and the United States.
By contrast, Brazil is noteworthy for an original policy based There is a worldwide trend towards more efficient vehicles
on the uptake of technologies that enable the use of ethanol in which, though potentially endangered by the recent fall in oil prices,
vehicles. Between 2002 and 2005, in response to fiscal incentives, will push corporations to innovate in this area. For example, in
the countrys main automakers launched flexible-fuel or flex-fuel 2014 Italys Pirelli announced that it was investing US$ 210 million
vehicles capable of running on either gasoline or ethanol. This in a green tyre plant in Brazil, which will produce tyres that
technology has been highly successful and is now incorporated help reduce fuel consumption. However, explicit public policies
into nearly all of the cars sold in the country, creating a boom in are required if countries are to attract investment in innovative
ethanol consumption. However, in recent years the policy has been technologies such as flex-fuel engines.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of E. D. Lee Schipper and C. McAndrews, Carbon dioxide emissions
from urban road transport in Latin America: CO2 reduction as a co-benefit of transport strategies, Transport Moving to Climate Intelligence, New York,
Springer, 2010; E. Saikawa and J. Urpelainen, Environmental standards as a strategy of international technology transfer, Environmental Science and
Policy, vol. 38, 2014.

4. Codes of conduct and voluntary initiatives

by transnational corporations
Investment strategies may include various actions in response to price signals and public regulation, but beyond such
actions, corporations have considerable scope for decision-making that involves a greater commitment to looking
after the environment.
One of the first things that firms can do is to compile and publish information about their environmental footprint.
The organization Global Reporting Initiative (GRI) registered a total of 4,102 sustainability reports in 2013, a tenfold
increase on 2005. In fact, there are now few large enterprises that do not publish these reports and, though they
remain voluntary, efforts are being made to require companies to report significant aspects of their activity. GRI also
manages specific reporting criteria, which are used for the grading of corporate sustainability reports.8
Many firms are also choosing to count and report their greenhouse gas emissions. In fact, most of the major
transnational corporations already do so, albeit to different levels of detail.9 More than 4,500 corporations from 80
countries report their emissions through the Carbon Disclosure Project (CDP), in which 80 of the largest firms in
Latin America were asked to participate, although only 42, mostly from Brazil, responded (PriceWaterhouseCoopers,
2014). Of these corporations, only eight were included among the worlds most transparent companies (according
to the Climate Disclosure Leadership Index). None of them figured in the Climate Performance Leadership Index
that recognized 187 businesses in 2014, almost all of which were from developed countries, although one was from
China, five from India and six from South Africa.
There are several reasons for businesses to calculate and report their carbon footprint, perhaps the most important of
which is growing demand from financial markets. CDP was set up on behalf of 767 institutional investors, representing
US$ 92 trillion in assets, who wished to receive insight into companies climate performance. Many businesses
understand that the need to quantify, report and in all likelihood reduce emissions will soon be an inescapable
legal obligation. In the European Union, some 6,000 enterprises will be required to publish specific information on
their environmental, social and governance performance as part of their financial reporting to investors. In China, the
Government will require that more than 20,000 businesses provide information on their greenhouse gas emissions.
It will not be long before Latin American companies are obliged to participate in this worldwide trend.

8 For further information, see Global Reporting Initiative, Sustainability Disclosure Database [online] http://database.globalreporting.org/.
9 Emissions may be quantified in three scopes. Scope 1 includes emissions from company-owned facilities; Scope 2, those generated
in the production of the electricity used by the company; and Scope 3, indirect emissions released at any point in the value chain as
a result of the companys activity (PriceWaterhouseCoopers, 2014).
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Another increasingly common practice is ISO 14001 certification. This management tool, designed to help
companies identify and control their environmental impacts,10 was employed by almost 11,000 businesses in the
region in 2013, as compared with 3,000 in 2004. Brazilian firms have been most active in seeking this certification,
while Colombian businesses have shown the fastest rate of uptake in recent years. Mexico has relatively few certified
companies (see figure III.5).

Figure III.5
Latin America and the Caribbean: ISO 14001 certifications, 2004-2013
(Number of firms)
4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Central America and the Caribbean Other South American countries

Colombia Chile
Argentina Mexico
Brazil

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from International Organization for Standardization (ISO)
[online] http://www.iso.org.

There are no data on the prevalence of ISO 14000 certifications among the subsidiaries of foreign enterprises in
the region, although in other developing countries it has been observed that firms from developed countries are more
likely to obtain this certification (Tambunlertchai, Kontoleon and Khanna, 2012). As with other corporate practices,
the presence of foreign firms that have obtained ISO 14000 certification may serve as an incentive for local firms to
follow suit (Prakash and Potoski, 2007). Leadership by foreign enterprises was also found to have been a factor in
the growth of sectoral certifications such as Responsible Care11 in the chemical industry (Garcia-Johnson, 2001) and
the forestry sectors commitment to fighting deforestation (CDP, 2014a).12
In many cases, companies are motivated to join these initiatives simply to improve their image, as part of their
marketing strategy. This kind of strategy will carry more weight in certain sectors, for example tourism, since it will
help the company gain market share among the increasing number of consumers who are sensitive to such concerns.
Another reason is to facilitate funding. Many institutional investors require that corporations reveal their exposure
to environmental risks, sometimes because of ethical concerns, but increasingly because they believe that activities
that are incompatible with the preservation of the environment are also financially unsustainable, since sooner or
later governments will encumber them with taxes or restrictions. In recent years and in view of falling oil prices,
oil firms have seen some of their main investors deciding to divest13 in the belief that the hydrocarbons business
could be rendered unviable by future climate-change mitigation activities. One notable initiative in Latin America
and the Caribbean is that of the So Paulo Stock Exchange, with the support of the World Bank and the Business
Administration School of So Paulo at the Getulio Vargas Foundation (FGV-EAESP), which has prepared an index of
10 There are various certifications within the ISO 14000 family. ISO 14001 and ISO 14004 relate to environmental management systems,
while other standards focus on specific approaches such as life cycle analysis, communications and audits.
11 Launched in 1985, Responsible Care was the chemical industrys response to the Bhopal disaster in India, when a gas leak at a pesticide

plant owned by Union Carbide, a transnational corporation, caused the worst industrial accident in history. Five hundred thousand
people were directly affected, thousands of whom died.
12 One hundred and sixty-two of the worlds largest forestry companies (including the 10 leading firms) heeded the call of the Carbon

Disclosure Project by making a commitment to reduce deforestation and to share information about their activities, even where the
reporting finds significant inconsistencies in many of these actions. The initiative met with little response from Latin Americas main
forestry companies: only one of the regions seven largest firms (Brazils Klabin) agreed to participate.
13 According to estimates by Arabella Advisors (2014), 180 institutions and hundreds of individuals, representing more than US$ 50 billion in

assets, have pledged to divest from fossil fuels.

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the 40 corporations with the best performing sustainability indicators of the 200 firms with the most liquid stocks
on the market. The resulting index is highly valued by many institutional investors and therefore by the corporations
themselves (Macedo and others, 2012).
As well as the advantages to be gained in their client and investor relations, corporations also mention cost savings
as one of the main reasons for reducing their environmental impact. In this regard, most actions taken by companies
involve lowering their consumption of inputs or energy, which undoubtedly requires a management effort and an
attitude change, but which delivers an immediate and long-term cost reduction. The projects undertaken by the
187 leading companies in emission reduction enjoyed very high internal rates of return (CDP, 2014b).
In summary, there is a broad spectrum of voluntary activities whereby corporations can diminish their environmental
footprint, and more and more firms are signing up to such initiatives. While it is impossible to quantify their actual
impact, an effort to standardize and oversee corporate carbon footprint accounting could provide sound data on CO2
emissions. Until then, it will be difficult to avoid the suspicion that many such activities are public relations strategies
without any real benefit for the environment. Even where voluntary initiatives might have a material impact, or be
used as a benchmark in policy design, they should never be taken as substitutes for public regulation.

Box III.4
Sugarcane: at the nexus of land, water, energy and food
Agriculture is a major driver of greenhouse gas emissions in (United Nations, 2014). Moreover, a change in energy policy,
Latin America and the Caribbean. The sector is responsible for which in recent years has prioritized low gasoline prices, led
28% of the regions total emissions (as against 13% of global to a profitability crisis in the sector and halted its growth.
emissions), while changes in land use, often associated with The Government of Brazil and the companies themselves
agricultural activity, account for further 21% (compared with have responded, through various initiatives, to environmental
5% of global emissions). Although emissions from changes in criticism of sugarcane expansion. First, to reduce the potential
land use have fallen in the region over the past two decades, impact of sugarcane crops on biodiversity, an agro-environmental
those from agriculture have risen by 20% (ECLAC, 2014b). zoning system was launched in 2008 to allow sugarcane
The presence of FDI in the agriculture sector is small. In plantations in certain areas (Secretariat of Environment/
the countries that reported data, FDI in agriculture stood at So Paulo State Government, undated). Second, to reduce
less than 2% of the total, with only Uruguay (22%), Guatemala environmental costs, in 2007 sugarcane companies signed a
(13%) and Belize (9%) posting higher figures (ECLAC, 2013). voluntary agreement to mechanize 90% of the harvest in the
Nonetheless, some subsectors, such as the sugarcane industry State of So Paulo (Brazils largest producer). This target was
in Brazil, have attracted sizeable investments. met in the harvest of 2013/2014, dramatically reducing the
Originally developed under a State energy security policy, environmental impact (mechanization eliminates the need for
the Brazilian sugarcane industry was deregulated in the 1990s, pre-harvest burning) and improving working conditions. Away
leading to a deep restructuring of the production chain. Larger from Brazil, other corporations are taking steps to mechanize
enterprises, including many transnationals, entered the market and production, including Grupo Pantalen, a Central American
integrated its agricultural (the sugarcane harvest) and industrial company that has measured its CO2 emissions since 2012.
dimensions (the production of sugar, ethanol and biomass Another significant initiative for enhancing the industrys
electricity). In 2008, foreign firms accounted for 23% of output, sustainability is the development of second-generation ethanol.
a percentage that has certainly increased since then. The largest This is an innovation in the industrial process that enables the
producers currently include energy companies including Shell extraction of ethanol from sugarcane cellulose, thus increasing
and BP, and agricultural concerns such as Cargill and Tereos, often productivity per cultivated hectare and reducing emissions.
in strategic partnerships with local companies. The industry has The first second-generation ethanol plant was opened in
also attracted FDI in countries such as Colombia, Guatemala September 2014 by the firm GranBio (the Brazilian Development
and Nicaragua, albeit on a much smaller scale. Bank (BNDES), which is promoting the development of this
For transnational corporations and energy companies technology, holds a 15% share in the company). The second
in particular sugarcane was a means of diversifying from plant was opened shortly afterwards by Raizen (50% owned
fossil fuels, since controls on greenhouse gas emissions by Anglo-Dutch energy company Shell).
threatened their future development. From this perspective, Sugarcane production in Brazil and other countries has
investment in Brazil would increase the global sustainability potential for expansion but can also lead to severe environmental
of biofuel production, since sugarcane ethanol is much more impacts. This has led to scrutiny of the sector by governments
efficient than other types of biofuel (BNDES/CGEE, 2008). and ecological organizations, and leading to positive changes
The prospect of expansion also raised environmental such as mechanization and second-generation ethanol. Foreign
concerns, since the levels of sugarcane production that some direct investment, along with the development of national
studies suggested were needed from an emission-reduction firms and the participation of public-sector organizations such
perspective would also create a demand for land and water as BNDES, has helped build the requisite capacity for making
that would be incompatible with other sustainability criteria these improvements.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of ECLAC, The economics of climate change in Latin America and the
Caribbean Paradoxes and challenges of sustainable development (LC/L.2624), Santiago, Chile, 2014; ECLAC, Foreign Direct Investment in Latin America
and the Caribbean, 2012 (LC/G.2571-P), Santiago, Chile, 2013; Brazilian Development Bank/Centre for Strategic Management and Studies (BNDES/CGEE),
Sugarcane-Based Bioethanol: Energy for Sustainable Development, Rio de Janeiro, 2008; and United Nations, Prototype Global Sustainable Development
Report, New York, 2014 [online] http://sustainabledevelopment.un.org/globalsdreport/.
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B. Looking to the future: foreign direct

investment and sustainable development
Reducing the environmental impact of activities will require a behavioural shift among companies and consumers,
as well as plentiful investment. Many of the necessary adjustments can be made with the current endowment of
capital and infrastructure, but others will require radical changes in transport and energy infrastructure, irrigation
systems and industrial plants. Some of these changes involve significant investments in fixed assets that will only be
recovered in the long run, while other solutions (for example, carbon capture and storage) are still in a development
or pilot phase, requiring large outlays on research and development. This section will explore the possible role of
foreign direct investment in covering these requirements in the region.
Calculating the investment needed to make societys activities more environmentally sustainable is difficult in
the extreme. Even when agreement exists over a specific goal (for example, reducing greenhouse gas emissions to
a certain level, or extending sanitation services to a certain population), there is no single way of achieving that
objective, with different paths requiring different levels of investment. Moreover, some facilities are still at the edge
of technical capacity and the cost of their mass installation is highly uncertain.
One effort to quantify global investment needs for sustainable development (in all its dimensions) was recently
made by United Nations Conference on Trade and Development (UNCTAD) in its publication World Investment
Report 2014 (UNCTAD, 2014). The report estimated that the investment required to meet the sustainable development
goals (SDGs) in developing economies amounted to US$ 3.9 trillion per year, with the countries currently facing an
annual gap of US$ 2.5 trillion. The report also highlighted three specific environmental goals in which investment
needed to be found: climate change mitigation and adaptation, biodiversity and ecosystem maintenance, and water
and sanitation services. Table III.2 summarizes these investment estimates.

Table III.2
World: annual current investment and estimated investment needs to meet the sustainable
development goals on the environment, 2015-2030
(Billions of dollars and percentages)

Investment Private-sector participation

(billions of dollars) in current investment
Goal 2015-2030 (percentages)
Current investment
(latest available year) Estimated investment Investment gap Developing countries Developed countries
required
Climate change mitigation 170 550-850 360-680 40 90

Climate change adaptation 20 80-120 60-100 0-20 0-20

Ecosystems and biodiversity a 70-210

Water and sanitation 150 410 260 0-20 20-80

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD),
World Investment Report 2014. Investing in the SDGs: An Action Plan, Geneva, 2014.
a The investment gap relating to ecosystems and biodiversity is not included owing to an overlap with other goals.

Huge investment is needed to achieve these goals. Worldwide, the estimated annual gap between current investment
and the investment needed to meet the environmental SDGs by 2030 ranges from US$ 680 billion to US$ 1 trillion. While
the public sector will always retain a key role, there is room for more private investment to help meet the sustainable
development goals. The private sector currently contributes 40% of investment in climate change mitigation in developing
countries, though this figure may be expected to rise (in developed countries it stands at 90%).
Different sources of funding are available within the private sector. Banks and pension funds hold total cumulative
assets of US$ 8.8 trillion and US$ 1.4 trillion, respectively, in developing countries, while the assets of transnational
corporations are in the same order of magnitude: US$ 7 trillion (US$ 2 trillion in Latin America and the Caribbean), plus
US$ 5 trillion in cash holdings (UNCTAD, 2014). Foreign direct investment also has a number of potential advantages as
a source of financing for projects to enhance the sustainability of economies. First and foremost, this type of investment
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is accompanied by knowledge, which is particularly important in investments that require capacity-building. The regions
greatest success story of recent years relates to investment in power generation from renewable sources (see box III.5).

Box III.5
Power from renewable sources: policies, markets and foreign direct investment
Power generation from renewables is a sector that is enjoying Uruguays wind capacity stood at 490 MW, a sixth of total
worldwide growth. At present, just 22.1% of the worlds electricity power generation, and is likely to reach 1.2 GW by the end
is generated from renewable sources, mainly hydropower. Wind of 2015. The Government of Uruguay has boosted the sector
power accounts for about 3% and solar photovoltaic energy through subsidies, public-private partnerships and long-term
less than 1%, though both are growing much faster than agreements with the domestic electricity distributor.
conventional energy sources. In the past five years, investment Solar photovoltaic is now the fastest-growing source of
in renewable energy has outstripped investment in fossil fuels, energy. GTM Research estimates that 805 MW of new photovoltaic
with wind and photovoltaic the fastest growing destination capacity was installed in the region in 2014 (compared with
sectors. In Latin America, hydropower is much more important 131 MW in 2013 and a projected 2,313 MW in 2015). At present,
(supplying over half of electricity), while the proportion and the the most active country in photovoltaic power generation is Chile,
growth rate of wind and photovoltaic power are in line with which installed 308 MW of capacity in 2014 and is projected to
the rest of the world. add a further 1 GW in 2015; however, GTM Research forecasts
In Latin America and the Caribbean, the countries that that Mexico will be the leading market in the future. The largest
invested most in renewable energies in 2013 (not counting project under construction is Luz del Norte in Copiap, Chile,
large hydropower plants) were Brazil (US$ 3 billion), Chile operated by First Solar of the United States, and which will
(US$ 1.6 billion) and Mexico (US$ 1.5 billion) (Frankfurt School/ have a capacity of 141 MW when it comes online in December
UNEP, 2015). In mid-2014, the generating capacity of Brazils 2015. Other significant operators include SunEdison, which has
wind power sector topped 5 GW, while estimated investment 155 MW currently in operation and a further 163 MW under
stood at US$ 7 billion, more than double the 2013 figure and construction in South America. In Chile, SunPower is the market
comparable with 2011 and 2012 levels. This increase in capacity leader, while Italys Enel also has projects with a combined
was the outcome of a system of auctions in which wind power capacity of 169 MW pending completion.
proved most competitive, thanks to steady winds in the south Rising investment in new renewable energies has been
and north-east of the country. driven by a combination of State support, favourable market
Considering the size of their economies, notable investment conditions and foreign direct investment. Most Latin American
efforts were also made in Uruguay (US$ 1.1. billion), Costa Rica governments have now set renewable energy targets (shown
(US$ 600 million) and Nicaragua (US$ 100 million). In 2014, in the table below).

Latin America and the Caribbean: renewable energy targets

(Percentage of total electric power generation)

Target
Country Current share (2012) Notes
Percentage Year
Antigua and Barbuda 0 10 2020
15 2030
Argentina - 8 2016 Target excludes large hydropower.
Bahamas 0 30 2030
Barbados - 29 2029
Bolivia (Plurinational State of) - None
Brazil 85 42.7 GW 2021 19.3 GW in bioenergy.
7.8 GW in small hydropower.
15.6 GW in wind.
Current share includes large hydropower.
Chile 38 20 2025 Target excludes large hydropower.
Current share includes large hydropower.
Colombia 81 6.5 and 20 2020 Current share includes large hydropower. Targets
refer to grid-connected and off-grid respectively,
and do not include large hydropower.
Costa Rica 92 100 2021
Dominican Republic 14 25 2025
Ecuador 55 None
El Salvador 62 None
Guatemala 64 80 2027
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Box III.5 (concluded)

Target
Country Current share (2012) Notes
Percentage Year
Haiti - None
Honduras 44 60 2022
80 2038
Jamaica 5 15 2020 The Government is considering raising
20 2030 the target to 30% in 2030.
Mexico 15 35 2026
Nicaragua 43 74 2018
90 2020
Panama - None
Paraguay - None Renewable sources already provide more
than 100% of the countrys electricity.
Peru 55 66 2024
Saint Kitts and Nevis 0 20 2015
Saint Lucia - 15 2015
30 2020
Saint Vincent and the Grenadines 17 30 2015
60 2020
Trinidad and Tobago - 5 2022
Uruguay 60 90 2015
Venezuela (Bolivarian Republic of) 64 None

Source: Renewable Energy Policy Network for the 21st Century (REN21), Renewables 2014 Global Status Report, Paris, 2014.

State aid (modest by comparison with that provided in United States is to build a 69.5 MW installation, with a total
Europe) has coincided with a sharp decrease in the cost of investment of US$ 130 million, part-funded by Corpbanca of
renewable energy. In the past five years, the cost of solar Chile and BBVA of Spain. Most investments in Brazil, including
photovoltaic energy has plummeted by 50%, while wind by foreign companies, are mainly funded by loans from the
power became 15% cheaper thanks to technological advances Brazilian Development Bank (BNDES).
and expanded input production capacity. Latin Americas The electricity sector is dominated by three types of
excellent resources make the region particularly suitable for company: State-owned enterprises, private corporations (either
the development of these technologies, as do the presence of foreign or national) and small businesses (again, either foreign
geothermal energy (especially in Mexico and Central America) or national) that operate in specific subsectors. The latter are
and biomass energy (associated with sugarcane production). particularly active in power generation from renewable sources,
Foreign direct investment has played a central role in and include many foreign investors.
the rapid development of wind and solar photovoltaic energy Some of the regions countries are taking advantage of
in the region. This would not have been possible without the the investment boom to develop industrial capacity in the
technical and financial capacities that were developed in the sector. The most remarkable case is Brazil, where access
United States and especially Europe, and then brought to the to credit from BNDES (practically the only source of funding
region by transnational corporations. On the other hand, the for energy projects) is contingent on compliance with local
growth of these industries in Latin America and the Caribbean requirements. This policy has applied to the wind power
provided a business opportunity for European (chiefly Spanish) sector for several years and is now being implemented in the
companies at a time when European investment in renewables solar photovoltaic sector. Meanwhile, Trinidad and Tobago is
was on the wane. Latin America has also had the opportunity planning to commence the production of photovoltaic panels.
to avoid the mistakes that some European countries made in In the Caribbean, electricity usage from renewable sources
the design of incentives. is currently much lower than in Latin America (as the table
Not all activities by transnational corporations in this sector shows), despite inferior access to non-renewable energy
are recorded as foreign direct investment. For example, Spains sources and higher energy prices than the Latin American
Aljaval is building a 33 MW solar farm in Chihuahua, Mexico, to subregion. Saint Vincent and the Grenadines and Saint Lucia
be operated by local firm Rancho El Trece Solar PV. The Spanish adopted new national energy policies in 2009 and 2010,
companys contribution will be counted as imported goods and respectively. Some economies are interested in developing
services. In the wind power sector, many facilities are installed sources of geothermal energy, although doing so effectively
and operated by foreign firms, but are mostly funded by local may require the installation of electricity interconnectors
banks through project finance. For example, SunEdison of the between countries.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Frankfurt School/United Nations Environment Programme (UNEP),
Global Trends in Renewable Energy Investment 2014, 2015 [online] http://fs-unep-centre.org/publications/gtr-2014; Renewable Energy Policy Network
for the 21st Century (REN21), Renewables 2014 Global Status Report, Paris, 2014.
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Much of the investment needed to ensure sustainability will be channelled into infrastructure. Power-generation,
transport and irrigation infrastructure will all have a profound impact on the sustainability of the regions economies.
All of these sectors require substantial upfront investments that will be recouped over a lengthy period, with the
result that foreign direct investment (and all private investment) is highly sensitive to current regulations and to
investors perceptions of their long-term stability.
Almost all of the regions governments are working to promote FDI in infrastructure projects, but in practice
few countries have regulatory frameworks and markets with the potential to attract these inflows. Foreign direct
investment in infrastructure has been relatively limited in the region, except in some specific segments (such as
airports and ports in general, and highways in Chile). Foreign enterprises fulfil an important role in the construction
of many major infrastructure projects such as the Panama Canal expansion (carried out by a consortium led by
Spains Sacyr Vallehermoso and Italys Impregilo), but this does not extend to ownership or management once the
projects are completed.14
In any case, it is governments that are responsible for designing sustainable transport infrastructure, although
foreign firms may provide technological solutions in order to mitigate environmental impacts during construction.
Railway construction and management has significant potential for FDI and can contribute to enhancing the
sustainability of the regions transport system. However, efforts to attract foreign companies to this sector, especially
for the high-speed lines planned in Brazil and Mexico, have not yet borne fruit.
In terms of energy infrastructure, besides the renewable power installations mentioned in box III.5, there is
potential for increased investment in smart grids and energy storage; these are relatively new technologies whose
uptake has been limited in Latin America and the Caribbean. Worldwide, investment in these sectors has amounted
to almost US$ 34 billion per year since 2011, almost half of which has been spent on research and development
(Frankfurt School/UNEP, 2015).
The need for a smaller environmental footprint has also led to the emergence of new business opportunities in the
transport and water-management sectors. One recent study found that investment in clean technologies in developing
economies could amount to US$ 6.4 trillion over the next decade (infoDev, 2014). To make their economies more
sustainable, the regions governments must encourage FDI in these sectors, and should consider local capacity-building
in new industries and sectors whose markets are expected to grow vigorously in the coming decades. In Latin America,
biofuels and water and sanitation are sectors with particularly interesting prospects.
Water and sanitation services is one of the sectors that has received least FDI in Latin America and the Caribbean,
despite many countries having implemented privatization programmes that induced some foreign firms to enter
the market. Compared with other regions, Latin America and the Caribbean has achieved good drinking water
and sanitation coverage. In urban areas, which are most likely to receive foreign investment in this sector, the only
countries where less than 90% of the population has access to drinking water are the Dominican Republic and Haiti.
There are greater shortcomings in sanitation coverage, which is still at very low levels in Haiti, Nicaragua and the
Plurinational State of Bolivia (see table III.3).

Table III.3
Latin America and the Caribbean: share of urban population with access to basic services
in countries with the lowest coverage, 2012
(Percentages)

Drinking water Percentage Sanitation Percentage

Haiti 75 Haiti 31
Dominican Republic 82 Bolivia (Plurinational State of) 57
Peru 91 Nicaragua 63
Ecuador 92 Jamaica 78
El Salvador 95 Panama 80

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from CEPALSTAT.

14 Infrastructure projects by foreign firms are usually recorded as goods and services imports. Only when the foreign enterprise undertakes
to operate the infrastructure (usually through a time-limited concession) is it counted as FDI.
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The social return from covering these needs is clearly positive and more than justifies the investment, yet it
remains difficult to find business models that are socially acceptable and which attract investors, particularly in the
case of sanitation infrastructure. In fact, a goodly number of the foreign firms that invested in the sector in the late
1990s withdrew in the 2000s, which illustrates the difficulty of finding a balance between public and private interests
in a sector that is extremely sensitive to social and political pressures (Ducci, 2007).
When promoting investment in these activities, consideration should be given to the balance between the
liberalization of goods and services and the regulation needed for investments to achieve their public policy goals.
It will also be very important to find the right combination of private financing and State support (either financial or
regulatory). In Latin America and the Caribbean, many governments have found a successful way to attract investment
in power generation from renewable sources, and such efforts should be expanded to the other types of investment
needed to meet the sustainable development goals. Foreign direct investment has considerable potential in this regard,
and the next section will review the status of the policies designed to capture it.

C. Environmental policy and investment

promotion policy
All countries have environmental protection policies, as well as institutions that promote and regulate foreign direct
investment. Yet despite the potential environmental impact of the activities carried out by transnational corporations, there
is still little coordination between these two areas of public policy. This section first examines the environmental dimension
of FDI policies, and then reviews some case studies in which other policies have a direct impact on FDI promotion.

1. Investment promotion agencies and environmental sustainability

This section is based on information from a survey of the regions investment promotion agencies,15 who were
questioned on the importance they attach to environmental issues in their work, the specific instruments that they
use, and their outlook for the short and medium term.
Ninety per cent of agencies indicated that climate change mitigation was important in their FDI promotion policies.
One a scale of one to five, with five being the most important, climate change mitigation received an average score
of 3.7 points. Other environmental considerations (local pollution, deforestation and others) were regarded as more
important, returning an average score of 3.9 points.
The percentage of agencies that attributed maximum importance to climate change mitigation shot up from 17%
in 2010 to 33% in 2014.16 Moreover, the percentage of agencies that attached little importance (2 points) to climate
change mitigation in their policies more than halved, from 17% in 2010 to 8% in 2014.
Sixty-one per cent of agencies stated that they were actively seeking to attract foreign investments with a low
environmental impact. This is an improvement in comparison with 2010 when only 50% declared that they were
actively seeking to secure low-carbon foreign investment.
None of the agencies that claimed to be trying to attract green FDI had prepared any specific policy document
on the environmental impact of foreign investments.17 However, the Colombian agency had a document setting
out out sustainability guidelines (including on environmental sustainability) (MCIT, 2012), while the export, tourism
15 A questionnaire was sent to 31 national investment promotion agencies in the region between October and December 2014. Some
of the questions were the same as those included in a questionnaire prepared by UNCTAD in 2010 (UNCTAD, 2010a). The response
rate to the questionnaire was 61%, thanks to the participation of agencies from the following 19 countries: Antigua and Barbuda,
Argentina, Barbados, Belize, Bolivarian Republic of Venezuela, Chile, Colombia, Costa Rica, Dominica, Dominican Republic,
El Salvador, Grenada, Guatemala, Guyana, Montserrat, Nicaragua, Peru, Saint Kitts and Nevis and Uruguay.
16 The same agencies responded to a similar survey in 2010 (UNCTAD, 2010a).
17 The document mentioned by the Peruvian agency was actually prepared by the Zofnass Program for Sustainable Infrastructure at

Harvard University and refers only to a case study on the La Chira wastewater treatment plant and marine outfall (see Gzman, 2013).
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and investment promotion office, Proexport Colombia,18 prepared its first Sustainability Report in 2013 (Proexport
Colombia, 2013), which detailed its main achievements in relation to different sustainability objectives, including
environmental sustainability.
Figure III.6 shows the target sectors in which, owing to their positive environmental impacts, countries aim to
attract investment. The most important target sectors are power generation from renewable sources (23% of responses),
agribusiness and forestry (21%), tourism (16%) and manufacturing (16%).

Figure III.6
Latin America and the Caribbean:a target sectors for attracting green investment
(Percentage of total responses)
Other Renewable energy
(17) (23)

High-tech
manufacturing
(4)

Solid waste
treatment
(4)

Information and
communications
Agribusiness
technologies
and forestry
(4)
(21)

Light
manufacturing
Tourism
(12)
(15)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by the respective countries.
a Includes responses by investment promotion agencies in 19 of the regions countries, out of a possible 31, to a survey conducted between October and

December 2014.

Regulatory standards and the promotion of renewable energy markets were the policy areas that investment
promotion agencies considered most important in terms of the environmental impact of foreign investments (see
figure III.7). On average, the areas deemed least important were processes led by international donors (3.4 points),
bilateral aid (3.6 points) and the creation of a carbon market (3.6 points).

Figure III.7
Latin America and the Caribbean:a importance of policy areas in relation to the environmental
impact of foreign investments
(Scores from 1 to 5, where 5 indicates the greatest importance)

Regulatory standards 4.6

Promotion of renewable
4.5
energy markets

Promotion of linkages 4.0

Promotion of technology transfers

4.1

Intellectual property rights 3.9

Incentives 3.9

Creation of a carbon market 3.6

Bilateral aid 3.5

Processes led by 3.3

international donors
0 1 2 3 4 5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by the respective countries.
a Includes responses by investment promotion agencies in 19 of the regions countries, out of a possible 31, to a survey conducted between October and December 2014.

18 Proexport Colombia was renamed ProColombia in November 2014.

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The most important policy instruments used by investment promotion agencies to attract environmentally sustainable
foreign investment were specific investment missions and the mapping of investment opportunities (both received
an average score of 4.3 points), as well as the targeting of specific transnational corporations (4.2 points). On the
other hand, specific advertising was seen as least important in attracting environmentally sustainable FDI (3.4 points).
Most agencies expressed the view that the environment would gain importance as an issue in the medium term
(in the next three years). Only 26% of agencies said that it would be very important (score of 5) in the short term,
although the figure rises to 47% in the medium term. Conversely, the percentage of agencies that see environmental
issues as less important (3 points) falls from 37% in the short term to 11% in the medium term.
Despite the seemingly evident trend towards increased environmental consideration in FDI promotion, investment
promotion agencies are in fact severely constrained in their scope for action. Environmentally sound FDI promotion
activities are not necessarily coordinated with other policy areas, so that governments might incentivize power
generation from renewable sources while simultaneously subsidizing fossil fuels, for example.

2. Environmental policies and implications for FDI promotion:

some case studies
The regions countries differ greatly in terms of the importance attributed to the environmental aspects of FDI promotion
policies. That said, some countries have clear policies that are focused on supporting the activities of firms with better
environmental management. This section provides information on the environmental policies of some of the regions
investment promotion agencies.

(a) Brazil: environmental aspects of industrial policy

Brazils investment policy is primarily determined by the Plano Brasil Maior (Bigger Brazil Plan), which
establishes specific industrial development targets in a number of sectors, one of which is renewable energy. Systemic,
cross-sectoral measures, such as those on sustainable production, form the basis of efforts by the Brazilian Export
and Investment Promotion Agency (Apex-Brasil) to promote the renewable energy sector. As box III.5 notes, in recent
years these efforts have focused on wind power, a sector that has received substantial FDI inflows in both generation
and equipment manufacturing. The first auction exclusively for solar photovoltaic energy projects was held in 2014,
following the same structure as the auctions for wind power. Apex-Brasil is presently in the early stages of considering
investment promotion in the environmental goods and services sector.
Besides the activities of Apex-Brasil, many aspects of environmental policy have a bearing on domestic and
international investments. One of Brazils hallmarks is its high level of decentralization, with States and even
municipalities having a significant say in environmental decision-making (one such example is the agreement between
the State of So Paulo and the sugarcane industry, as mentioned in box III.4). Another feature particular to Brazil is the
power invested in the Public Prosecutors Office, which is independent of the other three branches of government and
has the authority to bring charges over possible crimes. On several occasions it has revoked environmental permits
previously granted by the executive branch.
Environmental policy in Brazil places special emphasis on preserving biodiversity, particularly as regards the
need to halt the deforestation of the Amazon. Environmental zoning, established in 2008, was a highly significant
development for companies operating in the agriculture and forestry sectors.
Investment policy has generally prioritized industrial capacity-building over environmental criteria. For
example, the measures launched in 2013 to boost the automotive sector (see box I.2 in ECLAC, 2014a) proposed to
develop local capacity, but passed up the opportunity to strengthen environmental standards in the sector. On other
occasions, the two objectives have been combined, as in the case of ethanol. Based on its competitive advantage in
sugarcane production, for decades Brazil has pursued a policy that supports the use of sugarcane bioethanol in road
transportation. This policy led to the development of flexible fuel vehicles, a homegrown technology that allows most
new vehicles to be fuelled with either gasoline or ethanol. Moreover, in Brazil the ethanol blend in gasoline stands
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at 25%. Combined with the fact that 85% of electricity is generated from renewable sources, it may be concluded
that Brazil has the least carbon-intensive energy mix of any major world economy.
As in other areas of economic policy, the Brazilian Development Bank (BNDES) plays a crucial role. Two
instruments are particularly relevant: environmental subcredits, which are compulsorily added to all large loans and
which must be used to mitigate environmental damage, and the National Climate Change Fund, which is financed
from oil revenues and is jointly managed by BNDES and the Ministry of Environment. The bank is also very active in
technology policy and has assumed a prominent role in the development of second-generation ethanol (see box III.4).

(b) Chile: supporting opportunities in renewable energy

Chiles Foreign Investment Committee (CIEChile) endorses environmentally friendly activities, mainly electric
power generation from renewable sources. In this sector, CIEChile promotes investment opportunities in hydropower
and non-conventional renewable energies such as wind, solar, geothermal and biomass, underpinned by the clean
power generation targets set by the Government. At present, hydropower accounts for 26.6% of the electricity
produced in Chile, while only 6.3% comes from non-conventional renewables. The National Energy Strategy
2012-2030 aims to increase hydropower generation to between 45% and 48% by 2024, while Law No. 20698
encourages the expansion of the energy mix to include non-conventional renewable sources, stipulating that 20%
of the electricity sold in the country should come from these sources by 2025.
Beyond the power sector, CIEChile promotes the growth of environmental activities that are sustainable but
which as yet account for a small proportion of the countrys economic activity, such as sustainable tourism and
organic winemaking. The Chilean wine industry has developed the worlds most comprehensive and ambitious
sustainability accreditation system, and is seeking to position itself as the world leader in sustainable wine
production by 2020.

(c) Colombia: indicators for measuring the environmental impact of FDI

A document prepared by the Ministry of Commerce, Industry and Tourism (MCIT) of Colombia establishes
guidelines for its sustainable investment promotion policy, including criteria in relation to environmental sustainability.
In this sense, the document states that the goal is to attract sustainable investment and enhance the sustainability
of inward investment in the country (MCIT, 2012, page 4). These sustainability guidelines are intended for the use
of the countrys export, tourism and foreign investment promotion agency, Proexport Colombia (now ProColombia),
and recommend the creation of a system of corporate sustainability indicators so that the agency will be able to
identify investors that build sustainability into their operations. Suggested criteria include: (i) respect for cultural
and historical heritage; (ii) respect for biodiversity; (iii) responsible investment policies in developing countries;
and (iv) responsible environmental and social management policies. The document also outlines desired criteria
for Proexport Colombia to take into account in relation to the nature of investor companies. These should be:
(i) enterprises with cutting-edge green technologies; (ii) enterprises that promote clean production and sustainable
consumption; (iii) enterprises that encourage sustainable production linkages; and (iv) enterprises in possession of
environmental and social certifications.
The agency should also evaluate whether foreign direct investment projects abide by minimum environmental
sustainability criteria, which include: (i) full compliance with environmental legislation; (ii) the exclusion of unsustainable
business development from national parks, nature reserves, uplands and wetlands; and (iii) transparency in the
environmental and social impact assessments carried out in respect of investments (MCIT, 2012, pages 29 and 30).
The above guidelines are proposed as part of a vision of the FDI initiatives that the country wants to attract in
the context of its sustainable development, and are not binding on foreign firms wishing to launch operations in
Colombia. The document stresses that Colombia does not apply any selection process in relation to inward foreign
direct investment (FDI), and foreign investment does not require prior authorization save in sectors such as financial
services, mining and hydrocarbons, in which prior authorization is required for both national and international
investments (MCIT, 2012, page 5).
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(d) Costa Rica: ban on mining activity

Costa Rica provides a clear example of inconsistency between domestic environmental sustainability policies and
the FDI policy applied by the investment promotion agency. The Government is strongly committed to environmental
issues, has set a target of 100% power generation from renewable sources, and aims for Costa Rica to be a carbon
neutral economy by 2021. The country has also established a moratorium on open-pit mining and oil exploration and
production, with the result that investment has ground to a halt in these sectors even as FDI in mining is booming
in the rest of Central America.
On the other hand, the countrys investment promotion agency, which claims to be actively seeking green
investments, does not yet have any policy document establishing guidelines in this regard. Neither were any green
sectors mentioned among the industries that the agency does most to promote (information and communications
technology services, high-tech manufacturing and light manufacturing).

(e) Mexico: a climate change law that promotes renewable energies

As in Chile, Mexicos investment promotion agency, ProMxico, focuses its sustainability efforts on promoting
renewable energies. Mexico has taken various steps to encourage these investments in order to diversify its energy
mix. In 2012, the General Law on Climate Change entered into force with the primary goal of cutting greenhouse
gas emissions by 50% by 2050, compared with 2000 levels. In 2013, the Mexican Congress approved a tax on
carbon emissions caused by fossil fuel use, which along with a national emissions registry will form part of a
future carbon market.
More specific legislation largely falls under two laws: (i) the Law for the Development of Renewable Energies
and Energy Transition Financing (LAERFTE), and (ii) the General Law on Climate Change (LGCC) of 2012. Both
laws set targets: the first relating to proportion of electricity generated from fossil fuels, which will be limited to
65% by 2024, 60% by 2035 and 50% by 2050, while the second sets out the percentage that will be generated
from clean sources, which should stand at 35% in 2024. These targets will guide policies for the promotion of
renewable energies, so that the requirements established under these laws can be met in good time.
To achieve the above goals, the Government is offering several incentives to domestic and foreign investors.
According to ProMxico and the Secretariat of Energy (SENER, 2013), these include the following:
Auctions for small-scale producers under a fixed-price system that ensures long-term revenue.
An energy bank, to enable producers to accumulate excess energy under a self-supply scheme, to be used
in the future or sold to the Federal Electricity Commission.
A preferential rate for energy transmission. A service charge for renewable energy transmission or efficient
cogeneration of 0.14 pesos per kWh, instead of the rate of 0.30 to 0.40 pesos per kWh that is charged for
traditionally sourced energy.
Accelerated depreciation of fixed assets.
Exemption from paying general import or export taxes on anti-pollution equipment and parts, as well as on
machinery, equipment, instruments, materials and other items for technological research or development
related to renewable energy sources and clean technologies.

(f) Peru: improving water treatment and relaxing environmental controls on mining
In Peru, the activities of the Private Investment Promotion Agency (ProInversin) are coordinated with the
National Environmental Action Plan (PLANAA) Peru 2011-2012 of the Ministry of Environment. The document Gua
de Negocios e Inversiones en el Per 2014-2015 includes a comprehensive chapter on environmental sustainability.
ProInversin aims to attract and deliver investment in accordance with environmental objectives in six priority areas:
water, air, biodiversity, forests and climate change, solid waste and mining and energy.
Some notable investment promotion activities have focused on water treatment, especially the construction of
the Taboada and La Chira wastewater treatment plants in 2009 and 2010, respectively.
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In August 2009, Proinversin awarded Spains Grupo ACS a 25-year concession to design, build, operate and
maintain the Taboada wastewater treatment plant. The facility became operational in 2013 and now treats 72% of
wastewater from the cities of Lima and Callao. Previously only 16% of Limas wastewater was treated.
With the aim of raising this figure to 100%, on 18 November 2010 ProInversin awarded a design-build-operate
contract for the La Chira treatment plant to a consortium comprised of Spains Acciona and Perus Graa y Montero.
Construction commenced in June 2013 and is expected to last for 24 months. The initial operating contract is for
25 years, with the option to extend the concession to 60 years. Upon entering service, this second plant is expected
to improve sanitary conditions in the neighbouring residential districts while helping to reduce greenhouse gas
emissions and energy consumption (Guzmn, 2013).
Peru is also striving to attract investment in the petrochemical industry, through incentives and tax benefits for
the development of petrochemical complexes in the south of the country. These initiatives underscore the importance
of finding the right balance between development and production on the one hand, and the environment on the
other. For example, article 9 of Law No. 29163, promoting the development of the petrochemical industry, sets forth
that the basic and intermediate petrochemical industry shall use new equipment and components that comply with
international standards on safety, the environment and resource-use efficiency.19
In the mining sector the main destination for FDI in Peru notable legislation includes Law No. 3627 of July
2014, which is essentially designed to boost private investment in the country, specifically in hydrocarbon and mineral
extraction, by cutting red tape and awarding tax benefits. The Law was approved in a context of falling mineral prices
and deteriorating investment prospects, and has been strongly criticized by ecological groups for relaxing environmental
regulations and curtailing the powers of the Ministry of Environment and its attached institutions, the Agency for
Environmental Assessment and Enforcement (OEFA) and the National Service of Protected Natural Areas (SERNANP).
In particular, the Law stipulates that the environmental fines applied by OEFA will be halved for a period of
three years, during which time the Agency will prioritize the prevention and modification of environmentally harmful
behaviours over the application of penalties. Moreover, article 19 states that the proceeds of fines will be paid directly
to the Treasury rather than to the enforcement agency, in order to avoid the perverse incentive that can arise in the
imposition of monetary penalties.
The Law also simplifies the protocols and reduces the period for environmental impact assessments, stipulating
that where the organization responsible for approving the environmental impact study requires binding or non-binding
opinions from other public-sector bodies, these must be issued within 45 days. Should the required opinion not be
issued in time, the official at fault will be fined and the body responsible for approving the environmental impact study
should allow the approval process to continue without taking the requested opinion into consideration (article 20).
Article 22 deprives SERNANP of the power to decide on processes of land-use planning and ecological economic
zoning in Peru, which must henceforth be approved by Supreme Decree. The article also sets forth that land use
may not be designated or excluded under ecological economic zoning or territorial planning, a provision that leaves
open the possibility of mining or drilling in ecologically protected areas.
Lastly, article 23 revokes the Ministry of Environments authority to change maximum permissible pollution
and emission limits and environmental quality standards. Again, the approval of changes to these guidelines will be
subject to the issuance of a Supreme Decree.

(g) Uruguay: environmental indicators for regulating incentives

Uruguay offers an interesting case study, since it is the only country in the region that uses an environmental
indicator to award tax benefits to corporations. Decree No. 455/007 of 26 November 2007 states that foreign
investments must be in keeping with the countrys strategic objectives, including that of cleaner production, in order
to be eligible for the tax benefits laid out under Law No. 16906 on investment promotion and protection.
Furthermore, Decree No. 002/012 of 2 February 2012 sets out a new methodology for the evaluation of FDI
projects based on specific criteria. One of these is investment in cleaner production, defined by United Nations

19 The same provision is included under article 6 of Law No. 29690 promoting the ethane-based petrochemical industry.
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Environment Programme (UNEP) as the continuous application of an integrated preventive environmental strategy
to processes and products so as to reduce the risks to humans and the environment (UNDP, 1999). Under the
evaluation methodology, investors are assigned one point for every 5% of the total investment that is allocated to
cleaner production.
Depending on the nature of the proposed investment project, companies may also opt for a sectoral indicator.
For example, in the agricultural sector, one of these indicators is investment in climate change adaptation and/or
mitigation. Again, the methodology gives one point (up to a maximum of 10 points) for every 5% of the total investment
that is allocated to climate change mitigation.
In 2014, the Private Sector Support Unit (UnASeP) prepared a case study to assess compliance with these targets
by the companies that applied for tax benefits under Law No. 16906 on investment promotion and protection.20
As regards the cleaner production indicator, of the 56 companies that took this option, only 51 were included
in the case study, owing to availability of information. Compliance with the indicator was high, since on average
the companies were revealed to have implemented 89% of pledged investment in cleaner production. Notable
investments were made in professional, scientific and technical activities; financial activities; manufacturing and the
supply of electricity, gas, steam and air conditioning.
Since the issuance of Decree No. 002/012 in 2012, investment in cleaner production and in climate change
adaptation and mitigation has rocketed. Data from UnASeP (2014b) show that investment in cleaner production
rose from an annual average of US$ 154 million between 2009 and 2012 to an annual average of US$ 1.129 billion
in 2013 and 2014 (see figure III.8). Much of this increase was brought about by the entry of wind power companies
into the market. As for the sectoral indicator on climate change adaptation and mitigation, also introduced under
Decree 002/012, investment rose from US$ 3million between January and August 2013 to US$ 74.2 million in the
same period in 2014.

Figure III.8
Uruguay: investment in cleaner production, 2008-2014
(Thousands of dollars)
1 800 000

1 591 836
1 600 000

1 400 000

1 200 000

1 000 000

800 000
666 511
600 000

400 000
271 723
214 519
200 000
52 506 76 272 57 237
0
2008 2009 2010 2011 2012 2013 2014

Source: Private Sector Support Unit (UnASeP), Inversin recomendada e indicadores asociados, Ministry of Economic Affairs and Finance, 2014 [online]
http://www.mef.gub.uy/unasep/documentos/201408_Inversion_recomendada _e_indicadores_asociados.pdf.

3. Spaces for integrating sustainability into investment

promotion policy
Investment promotion agencies in Latin America and the Caribbean have acquired a greater awareness of the importance
of environmental sustainability and are carrying out more and more activities in this area, though these efforts are still
on a modest scale. Moreover, their room for manoeuvre is limited in terms of providing incentives or improving the

20 The analysis looked at a total of 2,346 projects submitted to the Law No. 16906 Application Commission (COMAP) of the Ministry of
Economic Affairs and Finance (MEF), between January 2008 and 31 December 2013.
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investment climate in certain sectors, so that in practice their work is reduced to supporting environmental policy
decisions with some specific programmes to attract FDI with positive environmental impacts. The only country in the
region that has consistently applied environmental criteria in allocating incentives is Uruguay, and its experience is still
too recent to gauge its success.
In most cases, the main investment initiative designed to improve economic sustainability is the promotion of
investment in power generation from renewable sources. Chile and Mexico are the main examples of this approach,
which has achieved some success in many countries, largely because it has been coupled with energy policies that
favour renewable sources. The challenge is to identify new sectors and segments that can contribute to environmental
sustainability and which are capable of attracting FDI. Other infrastructure sectors, such as transport, may provide
opportunities in future.
All of the regions countries have environmental policies, which have generally been gaining ground in recent
years, but their relationship with investment policies is still uncertain and varies significantly among the cases examined.
Environmental targets are usually combined with other policy objectives to create specific initiatives. In Brazil, the most
noteworthy environmental actions are combined with efforts to build industrial capacity, for example in the manufacture of
renewable energy components. Peru has strived to attract infrastructure investments, including environmental investments,
while Costa Rica has prioritized the protection of natural spaces, leading to a near-total ban on mining activity. In many
countries, the incentives granted to renewable energies tend to stem from an interest in reducing energy dependency,
rather than enhancing sustainability.
Beyond national policies, international agreements with a bearing on FDI from bilateral investment treaties to
trade pacts such as the North American Free Trade Agreement (NAFTA) may narrow the space in which governments
are able to implement environmental policies. On several occasions, transnational corporations directly affected by
environmental policy decisions have appealed against them on the grounds of clauses contained in international
agreements. It is therefore important that the language used in these agreements leaves sufficient space for the adaptation
of environmental legislation (UNCTAD, 2010b).

D. Conclusions
Adapting the regions economies to counter environmental degradation, which has many dimensions in Latin America
and the Caribbean, is a complex task. Transnational corporations are key actors in these economies and unquestionably
must participate in this effort. Unfortunately, it is impossible to estimate the environmental impact of these companies
activities, although some conclusions may be drawn from the experience of recent years.
The first is that the environmental impact of FDI is heavily contingent on each countrys production structure. Those
countries that receive greater FDI flows in more polluting sectors must expect a more severe environmental impact, and
will face difficulties in mitigating said impact through the application of tighter regulations and standards.
Public regulations remain crucial and cannot be substituted for voluntary initiatives on the part of industry. Such
initiatives have taken large strides in recent years, and many are driven by transnational corporations that have introduced
practices to the region that they originally applied in other countries. The real impact of these combined initiatives cannot
be measured, but they may generate better results in segments where private incentives are aligned with public ones (for
example, improvements in energy efficiency).
Besides reducing FDI in polluting sectors and mitigating impacts through regulations, countries in the region should
also seek to attract extra investment in projects that contribute to achieving the sustainable development goals. Such
investment has huge potential, but opportunities must be translated into sustainable business models for enterprises and
countries alike. In previous decades, sizeable investments in water and sanitation yielded negative outcomes, leading to
the abandonment of projects after serious social conflicts. Conversely, some of the regions countries have managed to
design a policy framework that attracts FDI to the renewable energy sector.
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Governments in the region should pursue synergies between these initiatives and public policy goals, while favouring
channels for the imitation and learning of best practices. In this regard, sectoral agreements (such as the one signed by the
sugarcane industry in the State of So Paulo) are an example of how to transfer a good business practice to an entire sector.
Reducing the environmental impact of productive sectors in Latin America and the Caribbean will also require the
introduction of new technologies most of which originate in developed countries in a process that is fundamentally
driven by transnational corporations. As with other types of technology, technology transfer through FDI is uncertain,
difficult to measure, and constrained by the underdevelopment of production linkages with transnational corporations.
Governments should also identify key sectors and segments for introducing cleaner modes of production, and seek to
attract FDI accordingly. The priority is to ensure consistency between FDI promotion policies and other policies that affect
the environment, such as those on energy, transport, urban planning and agriculture.
In these and other areas, FDI must be regarded as an instrument for local capacity-building. It is ultimately local firms
that will realize much of the transition towards a green economy, and they should have the incentives and capacities
needed to achieve that end.

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haven hypothesis, Environmental & Resource Economics, vol. 43, No. 2.
WSA (World Steel Association) (2014), Steels Contribution to a Low Carbon Future. Worldsteel position paper [online]
http://www.worldsteel.org/dms/internetDocumentList/bookshop/Steel-s-contribution-to-a-Low-Carbon-Future-2014/
document/Steel_s%20contribution%20to%20a%20Low%20Carbon%20Future%202014.pdf.
Zarsky, Lyuba and Kevin Gallagher (2009), FDI spillovers and sustainable industrial development: evidence from U.S.
firms in Mexicos Silicon Valley, Foreign Investment and Sustainable Development: Lessons from the Americas,
Washington, D.C., Working Group on Development and Environment in the Americas.

Chapter III

133
 Publicaciones recientes de la CEPAL
ECLAC recent publications
www.cepal.org/publicaciones

Informes peridicos / Annual reports

Tambin disponibles para aos anteriores / Issues for previous years also available
Estudio Econmico de Amrica Latina y el Caribe 2014, 222 p.
Economic Survey of Latin America and the Caribbean 2014, 214 p.
La Inversin Extranjera Directa en Amrica Latina y el Caribe 2013, 160 p.
Foreign Direct Investment in Latin America and the Caribbean 2013, 152 p.
Anuario Estadstico de Amrica Latina y el Caribe 2013 / Statistical Yearbook for Latin America and the Caribbean 2014, 238 p.
Balance Preliminar de las Economas de Amrica Latina y el Caribe 2014, 92 p.
Preliminary Overview of the Economies of Latin America and the Caribbean 2014, 92 p.
Panorama Social de Amrica Latina 2014, 296 p.
Social Panorama of Latin America 2013, 284 p.
Panorama de la Insercin Internacional de Amrica Latina y el Caribe 2014, 148 p.
Latin America and the Caribbean in the World Economy 2014, 140 p.

Libros y documentos institucionales / Institutional books and documents

El desafo de la sostenibilidad ambiental en Amrica Latina y el Caribe: textos seleccionados de la CEPAL 2012-2014, 2015, 148 p.
Panorama Fiscal de Amrica Latina y el Caribe 2015: Dilemas y espacios de polticas, 2015, 130 p.
La economa del cambio climtico en Amrica Latina y el Caribe: paradojas y desafos del desarrollo sostenible, 2014, 98 p
The economics of climate change in Latin America and the Caribbean: Paradoxes and challenges. Overview for 2014, 2014, 76 p.
Los pueblos indgenas en Amrica Latina: avances en el ltimo decenio y retos pendientes para la garanta de sus derechos, 2014, 410 p.
Pactos para la igualdad: hacia un futuro sostenible, 2014, 340 p.
Covenants for Equality: Towards a sustainable future, 2014, 330 p.
Integracin regional: hacia una estrategia de cadenas de valor inclusivas, 2014, 226 p.
Regional Integration: Towards an inclusive value chain strategy, 2014, 218 p.
Integrao regional: por uma estratgia de cadeias de valor inclusivas, 2014, 226 p.
Reflexiones sobre el desarrollo en Amrica Latina y el Caribe. Conferencias magistrales 2013-2014, 2014, 100 p.
Prospectiva y desarrollo: el clima de la igualdad en Amrica Latina y el Caribe a 2020, 2013, 72 p.
Comercio internacional y desarrollo inclusivo: construyendo sinergias, 2013, 210 p.
International trade and inclusive development: Building synergies, 2013, 200 p.
Cambio estructural para la igualdad: una visin integrada del desarrollo, 2012, 330 p.
Structural Change for Equality: an integrated approach to development, 2012, 308 p.
La hora de la igualdad: brechas por cerrar, caminos por abrir, 2010, 290 p.
Time for Equality: closing gaps, opening trails, 2010, 270 p.
A Hora da Igualdade: Brechas por fechar, caminhos por abrir, 2010, 268 p.
Libros de la CEPAL / ECLAC books
132 Neoestructuralismo y corrientes heterodoxas en Amrica Latina y el Caribe a inicios del siglo XXI, Alicia Brcena, Antonio Prado (eds.),
2014, 452 p.
131 El nuevo paradigma productivo y tecnlogico: la necesidad de polticas para la autonoma econmica de las mujeres, Luca Scuro,
Nstor Bercovich (eds.), 2014, 188 p.
130 Polticas pblicas para la igualdad de gnero: un aporte a la autonoma de las mujeres, Mara Cristina Benavente, Alejandra Valds, 2014, 134 p.
129 Prospectiva y poltica pblica para el cambio estructural en Amrica Latina y el Caribe, Javier Medina Vsquez, Steven Becerra y Paola Castao,
2014, 338 p.
128 Inestabilidad y desigualdad: la vulnerabilidad del crecimiento en Amrica Latina y el Caribe, Juan Alberto Fuentes Knight (ed.), 2014, 304 p.
127 Global value chains and world trade: Prospects and challenges for Latin America, Ren A. Hernndez, Jorge Mario Martnez-Piva
and Nanno Mulder (eds.), 2014, 282 p.
126 Planificacin, prospectiva y gestin pblica: reflexiones para la agenda del desarrollo, Jorge Mttar, Daniel E. Perrotti (eds.), 2014, 250 p.

Copublicaciones / Co-publications
Decentralization and Reform in Latin America: Improving Intergovernmental Relations, Giorgio Brosio and Juan Pablo Jimnez (eds.),
ECLAC / Edward Elgar Publishing, United Kingdom, 2012, 450 p.
Sentido de pertenencia en sociedades fragmentadas: Amrica Latina desde una perspectiva global, Martn Hopenhayn y Ana Sojo (comps.),
CEPAL / Siglo Veintiuno, Argentina, 2011, 350 p.
Las clases medias en Amrica Latina: retrospectiva y nuevas tendencias, Rolando Franco, Martn Hopenhayn y Arturo Len (eds.),
CEPAL / SigloXXI, Mxico, 2010, 412 p.

Coediciones / Co-editions
Perspectivas econmicas de Amrica Latina 2015: educacin, competencias e innovacin para el desarrollo, CEPAL/OCDE, 2014, 200 p.
Latin American Economic Outlook 2015: Education, skills and innovation for development, ECLAC,/CAF/OECD, 2014, 188 p.
Regional Perspectives on Sustainable Development: Advancing Integration of its Three Dimensions through Regional Action,
ECLAC-ECE-ESCAP-ESCWA, 2014, 114 p.
Perspectivas de la agricultura y del desarrollo rural en las Amricas: una mirada hacia Amrica Latina y el Caribe 2014, CEPAL / FAO / IICA, 2013, 220 p.

Cuadernos de la CEPAL
101 Redistribuir el cuidado: el desafo de las polticas, Coral Caldern Magaa (coord.), 2013, 460 p.
101 Redistributing care: the policy challenge, Coral Caldern Magaa (coord.), 2013, 420 p.
100 Construyendo autonoma: compromiso e indicadores de gnero, Karina Batthyni Dighiero, 2012, 338 p.
99 Si no se cuenta, no cuenta, Diane Almras y Coral Caldern Magaa (coords.), 2012, 394 p.

Documentos de proyecto / Project documents

La economa del cambio climtico en el Per, 2014, 152 p.
La economa del cambio climtico en la Argentina: primera aproximacin, 2014, 240 p.
La economa del cambio climtico en el Ecuador 2012, 2012, 206 p.

Cuadernos estadsticos de la CEPAL

42 Resultados del Programa de Comparacin Internacional (PCI) de 2011 para Amrica Latina y el Caribe. Solo disponible en CD, 2015.
41 Los cuadros de oferta y utilizacin, las matrices de insumo-producto y las matrices de empleo. Solo disponible en CD, 2013.

Series de la CEPAL / ECLAC Series

Asuntos de Gnero / Comercio Internacional / Desarrollo Productivo / Desarrollo Territorial / Estudios Estadsticos / Estudios y Perspectivas
(Bogot, Brasilia, Buenos Aires, Mxico, Montevideo) / Studies and Perspectives (The Caribbean, Washington) / Financiamiento del Desarrollo/
Gestin Pblica / Informes y Estudios Especiales / Macroeconoma del Desarrollo / Manuales / Medio Ambiente y Desarrollo / Poblacin y Desarrollo/
Poltica Fiscal / Polticas Sociales / Recursos Naturales e Infraestructura / Reformas Econmicas / Seminarios y Conferencias.
Revista CEPAL / CEPAL Review
La Revista se inici en 1976, con el propsito de contribuir al examen de los problemas del desarrollo socioeconmico de la regin. La Revista CEPAL
se publica en espaol e ingls tres veces por ao.
CEPAL Review first appeared in 1976, its aim being to make a contribution to the study of the economic and social development problems of the region.
CEPAL Review is published in Spanish and English versions three times a year.

Observatorio demogrfico / Demographic Observatory

Edicin bilinge (espaol e ingls) que proporciona informacin estadstica actualizada, referente a estimaciones y proyecciones de poblacin
de los pases de Amrica Latina y el Caribe. Desde 2013 el Observatorio aparece una vez al ao.
Bilingual publication (Spanish and English) proving up-to-date estimates and projections of the populations of the Latin American and Caribbean
countries. Since 2013, the Observatory appears once a year.

Notas de poblacin
Revista especializada que publica artculos e informes acerca de las investigaciones ms recientes sobre la dinmica demogrfica en la regin.
Tambin incluye informacin sobre actividades cientficas y profesionales en el campo de poblacin.
La revista se publica desde 1973 y aparece dos veces al ao, en junio y diciembre.
Specialized journal which publishes articles and reports on recent studies of demographic dynamics in the region. Also includes information on
scientific and professional activities in the field of population.
Published since 1973, the journal appears twice a year in June and December.

Las publicaciones de la CEPAL estn disponibles en:

ECLAC Publications are available in:
www.cepal.org/publicaciones

Tambin se pueden adquirir a travs de:

They can also be ordered through:
www.un.org/publications

United Nations Publications

PO Box 960
Herndon, VA 20172
USA

Tel. (1-888)254-4286
Fax (1-800)338-4550
Contacto / Contact: [email protected]
Pedidos / Orders: [email protected]
ECONOMIC COMMISSION FOR LATIN AMERICA AND THE CARIBBEAN (ECLAC)
COMISIN ECONMICA PARA AMRICA LATINA Y EL CARIBE (CEPAL)