Capital Flows and FDI in Latin America and the Caribbean

During 2016, the amount spent on Foreign Direct Investment (FDI) on a global scale was US$1.7 trillion, which represents a 2% decrease from the global total in 2015. Meanwhile, during 2016, developed nations were the largest recipient of FDI, receiving 59% of all flows. On the other hand, developing nations and emerging markets decreased their share of global FDI, receiving only 37% of international flows. Overall, the United States continues to be the largest source of FDI internationally, with China following closely behind.

Capital Flows and FDI in Latin America and the Caribbean

In the specific case of Latin America, on a yearly basis, the Economic Community of Latin America and the Caribbean (CELAC) along with the United Nations publish a joint report of Foreign Direct Investment (FDI) in the region. According to the most recent report, Latin America and the Caribbean (LAC) received a total of US$167.2 billion dollars in FDI during 2016. This amount represents a decrease of 7.8% when compared to 2015 and a decrease of 16.9% when compared to the recent FDI peak year that was 2011. This restrained tendency for 2016 can be partly explained by the prevailing low oil and fossil fuel prices that year as well as the political instability in some countries.

Within Latin America, Brazil remains the main recipient of FDI, receiving 47% of the regional total during 2016. Simultaneously, though still the second largest recipient of FDI in Latin America, Mexico decreased its share of regional FDI to 19% during 2016. Similarly, Colombia increased its FDI inflows by 15.9% during 2016 and positioned itself as the region’s third largest recipient with 8.0% of the total. Within the sub-region of Central America, Panama and Costa Rica were the largest recipients of FDI during 2016.

In terms of the origins of this Foreign Direct Investment, it comes mainly from developed regions; namely the United States, representing 20% of Latin America’s FDI inflows, and the European Union, representing 53%. Interestingly, with the EU, the country with the most FDI into the LAC region is the Netherlands, accounting for 12% of all capital investment. In the case of China, its official FDI into the region during 2016 was approximately 1.1%. However, as has been previously discussed, China uses offshore structures to funnel its FDI into the region, which make it hard to trace Chinese capital. Nevertheless, given the large activity of Chinese private and State-Owned Enterprises in the region, it is estimated that Beijing represents the fourth source of FDI in LAC after the United States, the European Union, and Canada.

On the other hand, LAC economies were the source of US$2.6 billion worth of FDI that was spent worldwide, originating mainly from Colombia, Mexico, and Chile. Lastly, in terms of FDI returns, it is calculated that 55% of yields or gains were repatriated to the country of origin, while the rest was reinvested or kept in the region.

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