Latin America and the Caribbean receive less greenfield investment as economies slow

With Latin America’s economic performance dragged down by the woes of Brazil, its largest economy, and the neighbouring Caribbean countries dangerously reliant on recession-prone sectors, the combined region is suffering a related decline in foreign direct investment that is only compounding its problems.

To make matters worse, the region’s biggest source of FDI seems to be looking elsewhere for opportunities.

Data from fDi Markets, a Financial Times service that tracks cross-border greenfield investment, show yearly declines in FDI from the US into Latin America and the Caribbean between 2013 and 2015. The US remains the top investor into the region, accounting for almost 30 per cent of total capital expenditure.

US investment in the region has fallen each year since 2013 in terms of both project numbers and capex, as the first table shows.

US investment into Latin America and the Caribbean
Year Projects Capex $m* Average capex $m Jobs created* Average jobs Companies investing
Jan-July 2016 215 10,403.7 48.4 42,954 199 174
2015 369 21,067.8 57.1 85,293 231 279
2014 397 23,266.9 58.6 73,990 186 292
2013 460 29,602.9 64.4 93,194 202 331
Total 1,441 84,341.3 58.5 295,431 205 910
 Source: fDi Markets *includes estimates

Mexico and Brazil dominate US investment into the region, with a combined two-thirds share of the total. Yet US investment into the duo fell nearly 8 per cent between 2013 and 2015.

On a positive note, jobs created by US investment recovered during 2015, rising 15 per cent from 2014. The average number of jobs created per project rose to 231, its highest since 2009.

This is explained by several high headcount projects in recent years. FDI in customer contact centres, a traditionally job-intensive activity, increased its job creation count to 8,740 in 2015, up more than a fifth on 2014. Mega investments included the creation of 1,900 jobs by Xerox in Jamaica and of 1,500 jobs in Costa Rica by business process outsourcing firm Concentrix.

Since fDi Markets began collecting data in 2003, the software and IT services sector has attracted the biggest share of US greenfield investment in the region in terms of project numbers (13 per cent of projects).

But it fell to third place in 2015, overtaken by the textiles and business services sectors. The coal, oil and natural gas sector topped the capital investment ranking in 2015 despite its low project count, representing $4.1bn of US capex.

Data for 2016 so far suggest the overall downward trend is set to continue, with US businesses investing more in other countries. In January to July 2016, fDi Markets has recorded 215 projects from the US to Latin America, a 9 per cent decrease on the same period in 2015. Capex and job creation have seen decreases of 31 per cent and 23 per cent respectively compared with a year earlier.

In contrast, US greenfield capex into India rose 168 per cent between 2014 and 2015. For the January to July period, 27 more projects from the US to India have been registered in 2016 than in 2015.

The decline in US investment in Latin America and the Caribbean is mirrored by a fall in investment by other countries in the region.

Global investment into Latin America and the Caribbean
Year Projects Capex $m* Average capex Jobs created* Average jobs Companies investing
Jan-July 2016 664 33,999.8 51.2 129,361 194 537
2015 1,267 74,273.9 58.6 275,199 217 971
2014 1,354 92,850.9 68.6 250,970 185 1,018
2013 1,744 164,028.3 94.1 334,601 191 1,250
Total 5,029 365,152.9 72.6 990,131 196 3,159
 Source: fDi Markets *includes estimates

Overall, global greenfield investment in the region fell 55 per cent in terms of capex and 27 per cent in project numbers from 2013 to 2015. Only African investors put more capital into the region in 2015.

Mexico, Brazil and Colombia, the top three destinations, all recorded fewer projects and capital investment in 2015, with the number in Brazil falling a third from 2013.

Chile was a rare bright spot, with capex up 68 per cent over the period.

Economic growth in the region all but ground to a halt in 2014 and contracted 0.1 per cent in 2015 according to the IMF. With growth likely to contract for the second consecutive year in 2016, the run of low investment looks set to continue. But a turnround could be on the cards for 2017, when the IMF expects the region to bounce back to 1.5 per cent economic growth.

James Whitten is a research analyst at fDi Intelligence, an FT data service.

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