FDI Flows Freely into LatAm Markets, Triggering Consumer Demand

As much as $145 billion in foreign direct investment (FDI) has gushed into Latin America over the last year and the economies in the region are fast bouncing back from the pain of the 2008 global financial crisis, says a report from Economist Intelligence Unit.

“Latin America has come quite a long way, not only since the economic and political instabilities of the 1980s but also since the deregulation of the 1990s,” notes the report titled ‘Latin America as an FDI Hotspot’.

Given the report’s findings, countries in the region have recorded an average GDP growth of 4 percent over the last five years, with FDI reserves standing today at $750 billion.This demonstrateshow far those markets have come in the last 15 years.

According to the report, economies in the region have stabilized in the past five years, showing little impact from the global financial crisis caused by the bursting of the housing bubble in the United States.

More than anything else, the reports says, Latin American economic growth and stability has turned the region into an attractive destination for foreign direct investment (FDI).

“Many of the opportunities in the region are to be found in natural resources, infrastructure and manufacturing. Interestingly, however, Latin America’s economy is also becoming more and more consumer driven,” said David Humphreys, author of the report.

“The big players in the region’s emerging markets—Brazil and Mexico—represent 60 percent of the region’s GDP. Both these countries are looking at relatively stable growth rates over the next five years. Colombia also offers high growth rates having experienced a great deal of growth—particularly in foreign direct investment, which last year reached $7 billion, up 90% from the previous year.”

As far as FDI is concerned, Brazil is ahead of Mexico. Chinese companies have invested a huge sum of money in Brazil’s energy, metals and mining industry. But what is attracting FDI in Mexico is its manufacturing sector.

 Bottlenecks

The report has also highlighted bottlenecks hindering the flow of FDI. It is still challenging to open a business in the region because of the “constantly changing regulations and tax rates,” the report notes.

The Economist has found the need for Brazil and Mexico to reform the markets to further ease the flow of FDI.

Lack of infrastructure has remained a matter of concern, with most countries only investing about 2 percent of their GDP on infrastructure.