As China Fails, Economic Inflow Dries Up Sharply in Latin America

Foreign direct investment in Latin America dived 21 percent in the first half of 2015, the Economic Commission for Latin America and the Caribbean (ECLAC) reported, the latest indication of declining economic growth in the region.

Among the factors that explain the decline of FDI in the region are the fall of investments in mining and hydrocarbons due to the reduction of international prices, China’s deceleration and the region’s negative economic growth (which ECLAC estimates as -0.3% for 2015), in particular Brazil.

Interestingly, Central America is the only sub-region where FDI increased. El Salvador, Honduras and Panama have seen a slight surge in foreign investment.

The fall of domestic demand and the negative growth perspectives determined FDI in Brazil.  Mexico is the second biggest recipient of FDI, although in the first six months of the year the country received 8% less foreign direct investment compared with the first semester of 2014.

Of the $13,750 million received in the first half of 2015, 41.1% was oriented towards the manufacturing sector, 19.1% to telecommunications and 14.4% to financial services.

In Chile, FDI inflows decreased 10%. “The drop was concentrated especially in the mining sector, a situation that is likely to continue for the rest of the year,” said the UN commission.

During this period, Argentina received $5,302 million. Nevertheless, this is explained by the accounting of the Spanish firm Repsol’s divestment of oil company YPF in the first semester of 2014. Excluding this change of property, FDI would have dropped by 11.5%.

FDI inflows also decreased in Bolivia (-3%), Colombia (-22%), Costa Rica (-2%), Ecuador (-15%), Guatemala (-26%), Nicaragua (-4%), Peru (-11 %), Dominican Republic (-21%) and Uruguay (-25%), confirming a disturbing regional panorama.

Outgoing foreign investment also declined 7% during the first half of 2015. But outward direct investments grew noticeably in Chile, Mexico, Peru and Guatemala.

“Nevertheless, in this case there is a greater heterogeneity in the behavior of investments by companies known as “translatinas” and the drop in the entire region is explained essentially by Brazil, where those investments fell 40% between January and August of 2015,” stated the ECLAC.