Global trends and Foreign Direct Investment in Latin America Executive Secretary Santiago, 4 April 2017
Long-term megatrends Geopolitical changes and new global roles for China, Europe and the United States The fourth industrial revolution: convergence of robotics, ICTs, biotechnology, genetics, neurology and nanotechnology The future of work Climate change Growing inequality The demographic transition and migration
Globalization questioned Tensions Low dynamism of the global economy High unemployment (Europe) Wage stagnation Growing migratory flows Increasing inequality Intense competition from Asian manufactures Disruptive impacts of the digital revolution Repercussions Weak growth Rise of nationalisms Opposition to new trade agreements Resistance to immigration Anti globalization movements Middle-class crisis /perception of losers who are resentful of globalization s winners Greater exposure to financial volatility and indebtedness
The tensions of globalization have large implications for emerging economies Risks Continued imbalances and adjustments More protectionism Less offshoring Migratory tensions Growing digital gaps Repercussions Weak growth Greater exposure to financial volatility and indebtedness Worsened social indicators A fragmented trading system combined with more protectionism and growing uncertainty about mega-agreements
Complex global economic context Global growth is weak. In 2016 the world economy expanded 2.2% and the expected rate for 2017 is 2.7% Emerging economies are growing modestly. India with the strongest growth in 2017 (7.7%); China s will remain at 6.5%. The outlook for the developed economies remains moderate. In 2016 United States and the eurozone grew by 1.6% and the expected rate for 2017 is 1.9% for the US and 1,7% for Europe LAC region contracted -1.1% in 2016 with uneven performance among subregions: Central America and Mexico (3.6% and 2%), South America and the Caribbean contracted (-2.4% and - 2.7%). A shift in cycle is expected in the region in 2017, with growth of 1.3%. Global trade continues to slowdown. World GDP is growing faster than world trade, in a reversal of an historic trend. WTO expects trade to pick up in 2017.
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Global output and trade have picked up in 2017 but have not returned to pre-crisis levels 15 VARIATION IN THE VOLUME OF GLOBAL MERCHANDISE EXPORTS AND GDP, 1952-2016 a (Percentages) 10 5 7.8 8.6 5.4 3.9 6.5 5.3 2.5 2.2 0-5 -10-15 Exports GDP Average export growth Source: ECLAC, on the basis of World Trade Organization (WTO) and International Monetary Fund (IMF). a The figures for 2016 are projections.
Foreign direct investment (FDI) flows have stalled amid growing uncertainty Potential economic policy shifts in the United States, the world s largest investor and recipient of FDI, are creating uncertainty among investors. Moves towards the reshoring of advanced manufacturing and towards stronger protectionism could affect FDI flows, although the outlook is still uncertain. The effects of the withdrawal of the United Kingdom, another leading FDI host country, from the European Union have still to materialize. Electoral processes in Europe, reforms towards greater control of capital outflows in China and sluggish global demand are all adding to the uncertainty and inducing caution in transnational investors.
In 2016 global FDI dropped between 10% and 15% Investments are falling in both developed and developing economies; the region maintains its share of 10% of global flows GLOBAL FDI FLOWS BY GROUPS OF ECONOMIES, AND PROPORTION CORRESPONDING TO LATIN AMERICA AND THE CARIBBEAN, 1990-2016 (e) (Billions of dollars and percentages) 2,000 20% 18% 1,600 1,200 800 400-16% 14% 12% 10% 8% 6% 4% 2% 0% Transition economies Developed economies Developing economies Share of Latin America and the Caribbean (right scale) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), Global Investment Trends Monitor, No. 22, Geneva, January 2016; and World Investment Report, 2015 (UNCTAD/WIR/2015), Geneva, 2015.
Mega mergers and acquisitions have slowed, but high liquidity and opportunity-seeking has continued to drive cross-border transactions 2.00 1.80 1.60 1.40 1.20 GLOBAL CROSS-BORDER MERGERS AND ACQUISITIONS, 2006 2016 (Billions of dollars) 40% 38% 36% 34% 32% 1.00 0.80 0.60 0.40 0.20 1.1 1.8 1.1 0.6 0.9 0.9 0.9 0.7 1.1 1.5 1.4 30% 28% 26% 24% 22% 0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20% Value of cross-border mergers and acquisitions Cross-border mergers and acquisitions as a percentage of all mergers and acquisitions (right scale) Source: Economic Commission for Latin America and the Caribbean (ECLAC, on the basis of JP Morgan, 2017 M&A Global Outlook.
The region s weaknesses The region is falling behind Growing less than more dynamic world regions Slowdown in trade Little investment in physical assets, human capital or R&D Persistent external vulnerability Persistent structural disequilibria Undiversified production structure Innovation effort and performance lagging behind Poverty reduction has stalled and income + wealth concentration are on the rise Vulnerability to climate change
A slight recovery in regional growth is projected for 2017 LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2017 a (Percentages) Dominican Rep. Panama Saint Kitts and Nevis Nicaragua Peru Costa Rica Bolivia (Plur. State of) Guyana Paraguay Belize CENTRAL AMERICA Honduras Guatemala Dominica Antigua and Barbuda Colombia Grenada CENTRAL AMERICA AND MEXICO Argentina Saint Lucia El Salvador Saint Vincent and the Grenadines Chile Mexico Barbados LATIN AMERICA AND THE CARIBBEAN LATIN AMERICA THE CARIBBEAN Jamaica Haiti Bahamas Uruguay SOUTH AMERICA Cuba Suriname Trinidad and Tobago Brazil Ecuador Venezuela (Bol. Rep. of) -4.7 0.3 0.4 0.50.8 1.3 1.9 1.9 2.02.2 1.0 1.2 1.3 1.3 0.9 0.9 1.0 1.0 2.3 2.6 2.72.93.2 2.2 2.3 2.3 3.3 3.43.7 4.7 5.3 3.9 4.0 3.8 3.8 3.8 3.7-6 -4-2 0 2 4 6 8 5.9 6.2 Source: ECLAC, on the basis of official figures. a Projections.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 In 2016 the region s exports fell 5% completing four years of contraction, with intraregional trade falling the most LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION OF EXPORTS, 2000-2016 (Percentages) 30 40 LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN THE VALUE OF GOODS EXPORTS TO THE REGION AND TO THE REST OF THE WORLD, 2007-2016 a (Percentages) 20 30 10 20 0 10 0-10 -20-30 -5-10 -20-30 -14-4 -10-20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Volume Price Value Intra-regional exports Exports to the rest of the world Source: ECLAC, on the basis of official data from the countries. a The figures for 2016 are projections.
Persistent low productivity LATIN AMERICA AND THE CARIBBEAN AND THE EUROPEAN UNION: RELATIVE PRODUCTIVITY WITH RESPECT TO THE UNITED STATES, 1991-2014 (Percentages) Source: ECLAC, The European Union and Latin America and the Caribbean in the new economic and social context, 2015.
Little innovation and technological progress SHARE IN GLOBAL PATENT APPLICATIONS, RESIDENTS AND NON-RESIDENTS (Percentages) Source: ECLAC, on the basis of statistical information from the World Intellectual Property Organization (WIPO).
The challenge of investment ANNUAL VARIATION OF GROSS FIXED CAPITAL, 2008.T1-2016.T3 a (Weighted averages, in the basis of constant dollars of 2010) Source: ECLAC, on the basis of official figures.
FDI has not regained the growth seen during the commodity price boom FDI dropped by 9% in 2015 and around 8% in 2016 250,000 Latin America and the Caribbean: FDI received, 1990-2016 (e) (Billions of dollars and percentages of GDP) 10 200,000 150,000 100,000 50,000 2015 179 100 2015 3.7% 9 8 7 6 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 FDI inflows FDI inflows as percentage of GDP (Right scale) 0 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures at 17 March 2017.
As a bloc, the European Union is the principal investor in Latin America and the Caribbean EUROPEAN UNION: DISTRIBUTION OF OUTWARD INVESTMENTS ANNOUNCED, BY DESTINATION COUNTRY OR REGION, 2010-2015 (Percentages) LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF INVESTMENT INFLOWS ANNOUNCED, BY COUNTRY OR REGION OF ORIGIN, 2010-2015 (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), The European Union and Latin America and the Caribbean vis-à-vis the 2030 Agenda for Sustainable Development THE ENVIRONMENTAL BIG PUSH, LC/L.4243, October 2016.
European companies have become key players in increasing FDI that could boost Agenda 2030 by supporting infrastructure creation, the digital economy and the production of clean energy LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF ANNOUNCED FDI PROJECTS BY SECTOR, 2005-2015 (Percentages) LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF FDI PROJECTS ANNOUNCED BY EUROPEAN UNION FIRMS, BY AMOUNT, 2005-2015 (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), The European Union and Latin America and the Caribbean vis-à-vis the 2030 Agenda for Sustainable Development THE ENVIRONMENTAL BIG PUSH, LC/L.4243, October 2016.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Transnationals view of the relative advantages of the region is reflected in the sectoral composition of FDI FDI RECEIVED, 2010-2015 (Percentages of cumulative total) 0% Brazil Mexico Colombia Chile Central America and Dominican Rep. Natural resources Manufactures Services Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures at 17 March 2017.
Development of infrastructure services, mainly in the electricity sector, 10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 attracted capital in the form of mergers and acquisitions in 2016 LATIN AMERICA AND THE CARIBBEAN: CROSS-BORDER MERGERS AND ACQUISITIONS BY SECTOR, 2016 (Millions of dollars) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.
Renewable energies, automobiles and telecommunications are 100% 90% increasingly attracting investment projects The sectoral composition of projects shifted over the past decade LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF ANNOUNCED FDI PROJECTS BY SECTOR, 2005-2016 (Percentages) 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mining (extraction and processing) Coal, oil and natural gas Telecommunications Automobiles and parts Renewable energy Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fdi Markets. Note: This analysis excludes the 2013 announcement of the Nicaragua Canal, for a value of US$ 40 billion.
The automobile industry is a paradigmatic case in the evolution towards advanced manufacturing Investment announcements in the region in the past five years totaled US$ 62 billion, mainly in Mexico (67%) and Brazil (22%). The industry is in a phase of disruptive change, with traditional manufacturing capacities coinciding with electronics and digital capacities. Electric vehicles and the growing digital content of vehicles prompted many digital economy corporations (Intel, Google) to invest in production chain automation (and explore autonomous vehicles). The vehicle production process is advancing towards automation. It is the industry with the largest robot density per worker (1,200 per 10,000 workers) and accounted for 38% of all robot sales in 2015. Changes in demand can also affect production dynamics. The region, and Mexico in particular, is well placed on the existing technology frontier. However, local R&D capacities and suppliers need to be built up to maintain that position under a new paradigm.
Possible scenarios of the new hemispheric context for the production sphere Geopolitical adjustment in international trade and FDI flows Review of free trade agreements Fiscal stimulus and increased infrastructure spending: Impact on prices of metals Fiscal expansion, higher interest rates, a stronger dollar More carbon-intensive production, less support for renewable energies Increases in hydrocarbon production A drive to reshore industry and technology to the United States: Lower corporate taxes and incentives for repatriating profits and investment Trade and investment with China and Mexico Import taxes
What do we expect from FDI? To contribute to productive diversification and innovation To develop new industries with less environmental impact To generate direct and indirect jobs To articulate investments with industrial and social policies to close structural gaps Convergence between business strategies and the sustainable development objectives of Agenda 2030
FDI has the potential to contribute to the achievement of the Sustainable Development Goals in the region Investment projects in renewable energies have grown steadily in the region (US$ 62.4 billion announced over the past five years). Solar energy represents just over 50% of all investment announced, followed by wind energy. Chile has the largest number of announcements, followed by Mexico and Brazil, and some smaller economies seeking to upgrade their energy mixes, such as Panama and Uruguay. Telecommunications have been one of the most important channels for FDI (US$ 60 billion in2012-2016). Mobile telephony leads the announcements (45% of the total). Fixed telephony has lost share (from 50% in 2005 to 24% in 2016), while data storage and processing emerged in 2008 and account for 23% of the total announced in 2016.
However, in an uncertain global context, the countries must make greater efforts to attract quality FDI to drive development Quality FDI FDI with impact on innovation capital FDI aligned with national development plans FDI that builds capacities in the host country
The region needs to catch up into the digital revolution to be competitive The world is moving from an internet based on consumption to an internet based on consumption + production The digitalization of economies transforms economic flows by reducing transaction, production and distribution costs. Digital economies lead to innovation, development and participation in value chains, larger consumer bases, and expansion of all economic sectors In order to address structural weaknesses, create digital economies, and move towards a single digital market, the region must: Link industrial policies for structural change with digital development Train human capital for a new digital era Develop regulatory frameworks for a digital economy
Opportunities for the region in the new global context Given the current uncertainty, moving forward with regional integration is more necessary than ever Promote convergence between the different regional integration mechanisms Move towards a single digital market Implement a regional infrastructure program Develop regional value chains Speed up implementation of the trade facilitation agenda At the national level, productive diversification requires industrial and trade policies consistent with the technological revolution and with a big environmental push