Finance 1
The Lowdown on Foreign Investment in Latin America
America hit a record low last year as Latin American economies saw a downturn for the first time in five years. Foreign investment in the mineral-rich region dropped by 19% reported the UN Economic Commission for Latin America and the Caribbean. This is the lowest figures since 2010.
This is being attributed to the sagging investment in sectors like mining, fossil fuels, etc. and the slowing down of the economy in general, particularly in Brazil. While mining nations like Chile and Peru fell prey to the slowdown, investments in Mexico saw an upsurge specifically in the auto and telecom sectors. On the plus side, these are more likely to prove to be beneficial to the broader economy in terms of technology, education, and indirect job creation.
Brazil has been worst hit, suffering a meltdown for the first time in decades. Its economy has shrunken by 3.8% since last year. News does not seem too good for Chile either, with experts forecasting that the country’s foreign investments would go further downward by 8% by next year.
Due to the sluggish global economy, the entire region is projected to go down by 0.6% this year. While the entire world was speculating of Chinese interest in the Latin American region, real figures are far smaller than the Netherlands (20 percent), the United States (17 percent), and Spain (10 percent). Asian FDI equals a mere 6 percent even with Chinese firms bagging three of the top 20 deals in 2014.
While Latin American countries could definitely do with the finance for transport infrastructure, telecommunications, and electricity, they have to bank on FDI in the face of low regional savings. The substantial foreign owned capital stock has gone up to over $100 billion today. Multinationals usually send home roughly half of these profits, and the rest is put into the local economy. This has become a huge financial burden for countries like Chile, Colombia, and Peru, among others, and possibly devalued their currencies, particularly if the investments don’t put back much in terms of productivity and economic growth.
