Over the last year, Latin America has seen a significant dip in investor confidence, with the flow of foreign direct investment (FDI) falling 19% to US$135 billion in 2016, according to the A.T. Kearney’s FDI Confidence Index 2017.
Representing the region in the report are Brazil and Mexico, both of which experienced different years, with Brazil dropping four rankings to 16th, and Mexico rising one spot to 17th.
Another Nearshore country, Canada, is also on the report, again experiencing a drop of FDI inflows from $43 billion in 2015 to $29 billion in 2016. Even so, Canada has retained its top five position in the Index for the fifth consecutive year.
Bullish Approach to Canada
Although it fell from third to fifth place this year, with relatively small margins, investors are still keenly interested in FDI into Canada, and it is the economy about which investors are second most-bullish of all the 25 countries on the Index.
One factor that probably continued to help keep Canada in the top five is immigration, according to Erik Peterson, Partner & Managing Director, Global Business Policy Council, A.T. Kearney. “Given the uncertainty about immigration policies in the United States, some firms and students are looking toward Canada as a possible substitute to working in the United States, or going there for higher education,” he said. “In addition, the Canadian government is seeking to promote FDI in various ways.”
Canada recently negotiated the Comprehensive Economic and Trade Agreement (CETA) with the EU; launched a CAD$218 million FDI Hub, which is expected to be operational later in 2017. The government also unveiled a CAD$60 billion infrastructure stimulus plan in November 2016, and Prime Minister Justin Trudeau recently announced plans to increase the threshold for government review of foreign takeovers to CAD$1 billion in 2017, two years earlier than anticipated.
It is proactive steps like these that make Canada an interesting choice for foreign investors.
Trade & Technology
With Trump’s political storm still raging, you may think his no-holds-barred approach to NAFTA had an effect on Canada’s confidence ranking, but it shouldn’t hold the country back from continued trade if the agreement is dissolved.
“Canada’s drop in the latest Index may have had something to do with the pending NAFTA renegotiation, but we do not think that was a primary driver of Canada’s ranking,” said Peterson. “Unlike Mexico, Canada has a bilateral free trade agreement with the United States that was in place before NAFTA. In the event of a NAFTA dissolution, the US-Canadian trade relationship would likely revert to that agreement, under which trade in all goods would remain duty-free.”
In the future, Peterson believes the Canadian government could take additional steps to attract FDI beyond what has already been done. “The future is in technology and innovation, and focusing on attracting FDI in those areas,” he said. “Continuing to ensure consistent infrastructure investments are made over time is key to the long-term success of the Canadian economy and FDI attractiveness.”
If Mexico and Brazil — rather all Nearshore countries — can take this advice on board and follow Canada’s lead in its approach to FDI attraction, investor confidence will be boosted on a regional scale.