Latin Americas Decade - FDI Trends and Perspecives

Latin Americas Decade?
FDI trends and perspectives

April 2012
Latin Americas Decade? FDI trends and perspectives
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Table of contents
Page
Introduction
Economic overview of Latin America
What is the panorama of FDI in Latin America?
Investment climate in Latin America
Source and destination markets
10
Who is investing where?
12
Latin America as an FDI source market
13
Capitalising on the rise of Latin America
15
OCO Global Ltd, April 2012
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Introduction
Over the last decade, most Latin Americans
celebrated the 200th anniversaries of their
independence from Spain. After two centuries plagued by economic crises, military
dictatorships, fiscal populism and economic
stagnation, the region is now emerging as
an haven of economic growth in the midst
of global uncertainty. In a
historic about-turn, the Head of the
International Monetary Fund (IMF),
Christine Lagarde, visited the region last
year to gather support to contain the effects
of the euro-debt crisis, while praising the
political and economic stability the region
has reached in the present decade1. Other
global thought leaders, such as Luis Alberto
Moreno, Head of the Inter-American
Development Bank (IDB), have been
popularising the idea that we are living now
in the Decade of Latin America2.
As each day passes, this idea of a Latin
American decade is garnering more attention from investors, analysts and businessmen alike. In 2010, The Economist ran a
special report called Nobodys backyard
drawing attention to the economic and political transformation the region is undergoing,
currently materialised in economic growth
and increasing inflows of FDI3. In fact, according to the Economic Commission for
Latin America and the Caribbean (ECLAC),
the region grew by 4.3% in 2011, resulting
in a 3.2% increase in the regions per capita
GDP. Additionally, FDI to Latin America
rose by an estimated 3.5% in 2011 to USD
216 billion. And, even in the midst of
unfavourable international conditions, the
ECLAC is now forecasting regional
economic growth of 3.7% for 20124.
The region has an exciting decade ahead.
Brazil, Latin Americas leading economy,
already surpassed the United Kingdom as
the worlds sixth-largest economy in 2011,

and the regions economic giant is expected
to overtake all European economies when it
surpasses Germany in 20205. As many
people turn their attention to this years
Olympic Games in London, many business
leaders and investors will also be looking
further ahead to the opportunities offered by
the 2014 FIFA World Cup and 2016
Olympic Games in Rio de Janeiro. While
both events will take place in Brazil, the FDI
opportunities and investor interest these
games will evoke are certain to extend to
other markets in the region, which are also
increasingly top of mind among investors.
"We are targeting architecture,

construction and engineering firms
already working in Brazil which are
looking forward to the Olympic
Games and the FIFA World Cup
Juan Balparda,
Head of Investment Uruguay XXI
In this paper, we examine the opportunities
arising from the emergence of Latin
America in the international economy. This
comprises an economic and political
outlook of the region, placing special
emphasis on the divergent economic
realities of this complex and diverse region.
We then provide an in-depth analysis of the
FDI flows and statistics to reveal the main
trends and opportunities from the
investment perspective. Finally, we will
provide an analysis of the different
countries with regards to their business
climate and attractiveness for doing
business. Based on all these approaches,
we intend to come up with the general
implications that might guide strategies for
doing business and tapping into
opportunities in Latin America.
1. Bloomberg: IMFs Largarde seeks Latin America help in historic about-turn, 28/11/2011
2. Inter-American Development Bank: IDB calls on Latin America and the Caribbean to cut poverty to 10% of
population by 2025, 27/5/2011
3. Economist: Nobodys Back Yard, 9/9/2010
4. Economic Commission for Latin America: Preliminary overview of the Economies of Latin America and the
Caribbean, December 2011
5. BBC: Brazilian economy overtakes UKs, says CEBR, 26/12/2011
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Economic overview of Latin America

In 2011, the debates over fiscal
consolidation in the United States, the debt
crisis in the Euro-zone countries, and even
the contraction that followed the earthquake
in Japan, all helped to create an
environment of economic uncertainty
throughout the developed world. However,
the developing economies as a whole
expanded at a 6.1% rate in 2011, with
China, in particular, presenting a robust
growth of 9.1%, albeit slightly slower than in
the previous year. The performance of the
emerging Asian economies counteracted
the negative trends from the developed
world, and thus, the global economy
reached a positive growth of 2.8%.
In this context, Latin America and the
Caribbean followed the trend of other
emerging economies, presenting an
economic growth rate of 4.3% in 2011,
which expanded the per capita GDP by
3.2%. Although this is a slower pace when
compared to figures of 2010, it is overall
positive when compared to the performance
of the developed economies. It is important
to note that such economic growth was
uneven across the region, with South

America and Central America presenting
expansions of 4.6% and 4.1% respectively,
while the Caribbean grew a significantly
slower rate of 0.7%. Likewise, there are
significant differences when statistics are
disaggregated at country level. Panama,
Argentina, Ecuador, Peru and Chile were
the fastest growing economies with
economic growth rates above 6%, while
Brazil, the regional economic giant,
achieved a moderate 2.9% following
monetary and fiscal policy measures to
avoid the overheating of the economy.
In contrast to the US and Europe,

which are struggling with financial
woes and a frustrated middle class,
Latin Americas middle class in
many cases continues to grow
strongly
Woods Staton,
CEO, McDonalds, Argentina
Figure 1: GDP Growth (%) Latin America and Caribbean 2004-2012
Source: ECLAC
6. ECLAC: The region in the decade of the emerging economies, August 2011
7. ECLAC: Preliminary overview of the Economies of Latin America and the Caribbean, December 2011
In 2012, it is expected that the region will

grow by 3.7%, with South America growing
slightly faster (3.9%). The growth will be led
by the commodity-exporting countries such
as Peru, Ecuador, Argentina, Colombia and
Chile. Panama will again be the fastest
growing economy albeit with a significantly
slower rate of 6.5%, while Brazil will recover
impetus showing an increase in the
economic growth rate which is expected to
be around 3.5%. In general, most
economists agree that Latin America is
today in a better position to face the global
financial crisis because it has more fiscal
space to implement countercyclical
measures. In fact, the debt ratio was
brought down by around 28% of the GDP
which is the lowest in the regions recent
economic history. However, Latin America
will not be immune to the uncertain climate
of the global economy, and some negative
effects are expected from the sluggish
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environment in the developed economies

particularly in Europe and the slight
decline in the growth of emerging
economies, following the cooling of the
internal demand in China and India. This
will probably drive down the demand of
food products and have an impact on the
commodity prices, thus undermining the
terms of the trade of the region.
"We had a very good year [] the

region was very profitable for us []
Theres growth in most markets in
Latin America because the economies are doing well."
Roger Crook,
CEO DHL Express International
Americas
Figure 2: GDP Growth Forecast, Latin America, 2012
Source: ECLAC
8. ECLAC: The region in the decade of the emerging economies, Op. Cit.
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What is the panorama of FDI in Latin America?

According to UNCTAD, global foreign direct
investments (FDI) inflows rose by 17% in
2011, to USD 1.5 trillion, surpassing the pre
-crisis average for the first time since 2008.
In this group, the 2011 increase in FDI
flows was largely driven by Latin America
and the Caribbean with an increase in 35%,
when compared to the 2010, reaching the
record figure of USD 216 billion, slightly
higher than FDI inflows to the United
States. The growth pace of the region is
also faster than other world regions when
compared to the 22.8% growth in Europe,
the 11.4% growth in South East Asia, and
the 30.6% growth of transition economies.9
It is important to note that UNCTAD

includes the data of some offshore financial
centres in the Caribbean, such as the
Cayman Islands and the British Virgin
Islands in their account, and this might
distort the overall FDI statistics of the
region. Following the methodology of the
World Bank, the region presented the
greatest increases in both inward and
outward FDI flows among world regions in
2010, reaching USD 112 billion, a 40%
increase on 2009. The World Bank estimate
of 145.5 million USD for 2011 represents a
significantly higher amount than the precrisis average and the historic record of
2008.10
Figure 3: FDI Inflows (selected world regions) in USD billions
Source: UNCTAD
According to the ECLAC, the bulk of the

FDI goes to the South American sub-region
which received US$85.1 billion - more than
70% of the regional inflows. These inflows
were largely driven by Brazil which accounted $48.4 billion, followed by Chile with 15
USD billion and Peru with $7.3 billion. For
2011, recent UNCTAD figures showed a
continuous positive trend for South American FDI recipients. FDI in Brazil rose 35.3%
to reach $65.5 billion, whereas the FDI to

Chile increased 17.6%, slightly lower than
the inflows to Mexico. Colombia
experienced an impressive jump of 113% in
2011, reaching $14.4 billion, and
surpassing Peru on its way to closing the
gap with the leading recipients.11
9. UNCTAD: Global Investment Trends Monitor January 24 2012

10. World Bank: Global economic prospects 2012
11. ECLAC: Foreign Direct Investment in Latin America and the Caribbean 2010
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Figure 5: Main recipients of FDI in

Latin America 2010-11 (USD billion)
Figure 4: Geographic distribution

of FDI 2010
Country
Brazil
2010
48.4
2011
65.5
Growth
35.3%
Mexico
19.6
17.9
- 8.8%
Chile
15.1
17.6
16.4%
Colombia
6.8
14.4
113.4%
Peru
7.3
7.9
7.4%
Argentina
7.0
6.3
-10%
Source: UNCTAD
Source: ECLAC
There are some trends to highlight with

regards to the panorama of inward FDI in
terms of inflows. As a whole, the region has
benefited from the economic scenario
presented in the previous section. The
robust growth of emerging economies in
Asia increased the prices of natural
resources and food products, which are the
bulk of the export basket of the region, but
also increased demand for manufacturing
and services. Resource-seeking FDI, driven
by these higher commodity prices,
prompted large investments to the
sub-region, particularly in mining and hydro-
carbon rich countries such as Colombia,

Chile and Peru.
The sub-region has also benefited from a
surge in local market-seeking FDI which
was attracted by the rising local demand
triggered by higher employment, economic
growth and currency appreciation, and in
general, due to the expansion of the middle
class, particularly in Brazil (but also in
Chile, Colombia and Argentina). According
to the ECLAC, around 43% of the FDI in the
region is focused on natural resources,
which reflects once more the raw-material
orientation of South America.12
Figure 6: Destinations and types of FDI

Destination Macro-Sector
Sub-Region
South America
Services
30%
Manufacturing
27%
Natural
Resources
43%
Prevalent type of FDI
Local/Regional
Market-seeking FDI.
Resource-seeking FDI.
Mexico / Central
America
41%
54%
5%
Efficiency-seeking FDI.
Source: OCO Global, based on statistics from the ECLAC
12. Ibid.
The experience of Mexico and Central

America is however different due to its
greater commercial integration and links
with North America. FDI going to these
markets intends to capture not only the
internal markets, but also use these
countries as low-cost export platforms to
tap into opportunities in the United States
and Canada, due to location and wage
advantages. For instance, the sluggish
demand in the United States explains partly
the decline in the FDI going into Mexico in
2011. Although manufacturing plays an
important role in the FDI attracted to the
sub-region, most Central American nations
are shifting rapidly to services-oriented
economies. Some of the advantages that
positioned the region as a textile and
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garment export platform are now becoming

targeted assets for investors in business
and professional services, especially those
provided by call centres and business
processing outsourcing (BPO) companies.
Latin America is very important for

Samsung because it is an area that
is growing fast [] Countries where
GDP grows faster [means] people
have more money to spend
Teobaldo Palacios
VP Latin America,
Samsung Electronics
Investment climate in Latin America

The global slowdown will affect the
countries in different ways, depending on
their participation in global value chains and
export destinations markets. Investors
should take care to understand how
different countries are integrated into global
economy and how flexible their trade
structure is to re-direct exports if demand
declines in a given market. In general
terms, the integration of Latin America into
the international economy has been
irregular, and hence, diverse degrees of
international openness and pro-business
orientation can be found throughout the
region. In fact, Latin America is less
integrated than other world regions with
less than 20% of its exports being
intra-regional, significantly lower trade
figures, when compared to the Asia Pacific
region where it accounts for 45% of the
total trade.13 One of the reasons behind this
lack of intra-regional trade is the natural
resource orientation of Latin American
exports whose main markets are found
outside the region. Nonetheless, the lack of
convergence of Latin American economic
blocs and the divergent degrees of

openness also play a key role. Currently
the integration landscape is dominated by
three customs unions: the Mercosur, the
Andean Community and the Central
American Common Market, with four
countries of the region (Mexico, Chile,
Panama and the Dominican Republic) not
belonging to any of these customs unions.
13. ECLAC: The region in the decade of the emerging economies

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Figure 7: Selected Business Climate Indices
Compiled by OCO Global
Chile is the most open economy of the

region, having in force sixteen Free Trade
Agreements, which allow investors and
domestic companies access the markets of
most countries in the Americas, Europe
(both the European Union and the
European Free Trade Association), and
increasingly the Asia-Pacific region.14 For
this reason, Chile has the most balanced
trade basket in terms of destinations with
China and Japan as the main destination of
its exports (29.4%), followed very closely
by Europe (21%). From a political point of
view, Chile has a very consistent pro-
business with the best business

environment of the region, ranking first on
the World Economic Forums Global
Competitiveness Index, the World Banks
Doing Business 2012 and the Heritage
Foundations Economic Freedom Indexes.
The economic policies of Chile will remain
stable in the coming decades, having been
implemented by the successive socialist
governments of the Concertacion, and
recently ratified by the conservative
government of President Sebastian Piera,
who is also a prominent businessman.
Figure 8: Average Geographic Distribution of Exports, 2007-2011 (% of Exports)
Argentina
Brazil
Uruguay
Paraguay
Chile
Colombia
Peru
Ecuador
Bolivia
Mexico
Panama
Costa Rica
El Salvador
Honduras
Nicaragua
Guatemala
Dominican Rep.
United States
6.9
12.5
6.1
1.8
11.6
39.1
18.1
39.1
8.2
80.8
16.1
37.2
48.5
45.2
34.3
40.4
60.1
Europe
17.8
23.2
17.7
8.4
21.0
13.7
17.3
13.1
8.2
5.3
3.4
17.4
5.8
19.7
11.5
5.6
12.8
China and Japan

9.4
14.0
4.1
2.8
29.4
4.1
19.4
2.4
8.1
1.6
1.7
7.7
0.5
2.0
1.2
1.9
3.8
Latin America
40.9
21.1
39.7
67.2
18.7
30.4
18.1
37.5
62.0
6.4
69.3
24.9
42.0
26.9
40.4
41.9
4.8
Source: ECLAC
14. Details on Free Trade Agreements and Customs Unions can be checked at the Foreign Commerce Information
System from the American States Organisation (OAS) http://www.sice.oas.org/agreements_e.asp
Politics should not be a matter of great

concern for investors in Mexico, the second
most open economy in the region with
twelve Free Trade Agreements in force,
and with one of the best business
environments in the region. After several
governments from the Revolutionary
Institutional Party (PRI), the last two
governments from the conservative
National Alliance party (PAN) have pursued
the bulk of the same economic policies the
PRI started a decade ago, and it is unlikely
that in the coming presidential elections,
either PRI or PAN candidates will propose
to change the path the country is following.
However, unlike Chile, Mexico might be
more vulnerable to external shocks
because it concentrates the bulk of its
exports in one market: the United States.
As a full member of the North American
Free Trade Agreement (NAFTA), the
performance of Mexico will hence rely
heavily on the performance of the American
economy, destination of more than 80% of
its exports
As a whole, the MERCOSUR countries
(Brazil, Argentina, Paraguay and Uruguay)
are among the less integrated to the
international economy with few free trade
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agreements in force. The members of the

trade bloc concentrate their exports at an
intra-regional level. The exports to the
United States could be as low as in the
case of Paraguay which represents less
than 2% of the total exports. The sub-region
could be moderately exposed to a drop in
demand from the European Union, which is
on average the second destination of their
exports, but since the export basket is
comprised mostly by commodities, it is
expected that the region could re-direct
their exports to the emerging Asian
economies which are becoming
increasingly important trading partners.
Although most investors and analysts agree
that MERCOSUR countries lag behind in
terms of ease of doing business and
openness, Uruguay stands out in the group
due to its performance on competitiveness
and business investments rankings. In the
last decade, Uruguay has been very
successful in capitalising the market
opportunities that arise from the regional
market, reaching a FDI-to-GDP ratio of
5.9%, second only to Chile (7.4%) in South
America.
The political and economic outlook of the

Andean Community presents the contrasting scenario between Colombia and
Peru, on one side, and Bolivia, Ecuador
and Venezuela, on the other. The first two
countries have championed internationalisation and free trade, while the other countries pursue an inward-looking economic
model. Peru, in particular, has followed the
Chilean experience and currently has (10)
free trade agreements in force, which include the Asian markets of China, Japan
and South Korea. Like Chile, Peru has
been also enthusiastic in cultivating a special relation with the growing Asia Pacific
region, which is now the main destination of
its exports. The recent election of Ollanta
Humala last year created fears that Peru
would lose its pro-investment orientation,
but after several months in office, the government has been credited by the local media for balancing its social agenda with a
strong pro-business orientation, considering
that it still has the overall third best business environment, based on the most credited investment climate rankings. With a diverse, young and growing population, Colombia is counted as one of the CIVETS
nations, the new generation of BRICS.
However, when compared to Peru, the
trade of Colombia is less diversified and it
currently is concentrated in the United
States and its neighbours in Latin America.
The government of Juan Manuel Santos
has manifested the interest of Colombia in
diversifying its exports, particularly opening
up linkages with the Asia Pacific region, following the experiences of Peru and Chile.15
The geographic location of Colombia
makes it an interesting emerging market
with a double opportunity of being a gateway to avoid trade barriers to the markets
of South America, and a strategic platform
for tapping opportunities in the US and
Canada, due to the recent approval of the
FTAs with these two countries.
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Two trends will be shaping the economic

integration landscape in the region over the
coming decade. Pivotal for the influence of
Brazil in South America will be the implementation of the economic measures included in the Declaration of Cuzco16, which
foresees the creation of a common market
between the MERCOSUR, the Andean
Community and Chile, on the framework of
the Union of South American Nations
(UNASUR). The other initiative, mostly
championed by Colombia and Chile is the
recent establishment of the so-called
Alliance of the Pacific, which integrates
the economies of Colombia, Peru, Chile
and Mexico, all of them located in the Latin
American Pacific rim. These countries not
only share a high degree of openness and
competitiveness, but have also taken concrete measures to increase their commercial and economic linkages. For instance,
they recently launched the MILA (the Spanish acronym for Integrated Latin American
Market), a single stock market that integrates the former stock markets of Lima,
Bogota and Santiago. Likewise, the investment and export promotion agencies of
Mexico, Colombia, Peru and Chile have also agreed to share international offices
worldwide to channel investors to the region
and increase the exports to the markets of
Asia and Africa17.
15. Wold Politics Review: http://www.worldpoliticsreview.com/articles/8383/colombias-santos-moves-to-diversifyforeign-policy

16. Declaration of Cuzco (Peru) http://www.comunidadandina.org/ingles/documentos/documents/cusco8-12-04.htm
17. MercoPress
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FDI Projects to Latin America: source and destination markets

Figure 9: Inward FDI Projects Latin America & Caribbean 2003-11
Source: fDi Markets
FDI projects are an interesting measure for

informing the strategies of Investment
Promotion Agencies of the region.
According to the FDI Markets data monitor,
Latin America and the Caribbean attracted
1,364 projects in 2011 which accounted for
around 9% of all projects globally. Although
the region still lags behind Asia Pacific,
North America and Western Europe in
terms of number of projects; it witnessed a
fast growth of 18,4% in 2011. In terms of
jobs, the region saw a 34% growth in job
creation, the fastest of any world region,
whereas in terms of capital expenditures
the region presented a growth of 10%
compared to 2010. It is important to note
that although Latin America lags behind in

terms of project numbers, it was the
second region globally both in terms of
capital expenditure and jobs in 2011, with
shares of 19% and 18% respectively. This
means that the FDI projects attracted to the
region in the last couple of years are
generally more capital- and labourintensive than those attracted to other
world regions.
Figure 10: Inward FDI Projects Latin America & Caribbean 2003-11
Source: fDi Markets
10
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Most of these FDI projects to Latin America

came from Western Europe which accounted for 40% of the share, followed closely by
North America with 34%, and then by the
increasingly important Asia Pacific region
with 13%. Although Europe is the main
source of FDI for the region, the main investor by far is the United States with a
30% share of the FDI projects, followed
then by Spain with 11%. Investment Promotion Agencies targeting investors in the
United States should note that the bulk of
investors come from California, New York,
Texas and Florida. In the rest of the world,
all sources of FDI presented an increase
last year, especially Japan and the United
Kingdom. The latter increased its projects
in more than 50%, surpassing Germany as

the second source of FDI from Western Europe. According to the ECLAC, China has
become the third source of investment behind the United States and Europe in Latin
America, reaching 15 billion USD in 2010.
The countrys primary sectoral focus is on
hydrocarbons and natural resources, which
explains why its share of overall FDI projects lags behind other source markets.
Figure 10: Main source countries

FDI projects 2011
Figure 11: Main destination countries

FDI projects 2011
Source: fDi Markets
Most of the companies investing in Latin

America are looking to avoid certain trade
barriers and tap into opportunities from domestic or regional markets. It is natural that
Brazil is thus the main destination in terms
of projects with a share of 36% in 2011, followed by Mexico, Argentina and Colombia.
These four countries are also the biggest
domestic markets of the region and accounted for approximately 75% of the projects tracked in 2011. In sub-national
terms, the city of Sao Paulo was the pre-
ferred destination with 9% of the FDI projects, followed by Rio de Janeiro with 3.2%
of the regional share. The capitals of Argentina, Mexico, Colombia and Chile were
the preferred destinations in their respective countries due to their significant share
in the national GDPs, but it is important to
note that secondary medium-sized cities
such as Guadalajara and Monterrey in
Mexico and Curitiba in Brazil are increasingly catching the attention of investors.
11
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Who is investing where?

When crossing historic FDI data from 2003
to 2011 in terms of source and destination
countries, some trends are uncovered.
American and Canadian companies usually
prefer Mexico as their main destination,
accounting for 34% and 35% of the
projects respectively. These companies
draw on Mexico as a low-cost export
platform in the context of the NAFTA
agreement. Western European FDI prefers
Brazil as their main destination, particularly
when it comes from Portugal (88%), the
United Kingdom (41%), France (40%), Italy
(51%) or Netherlands (53%), in order to
avoid trade barriers and reach the domestic
market of this country. The only European
exceptions are the Spanish companies
which usually prefer Mexico (28%) and other Spanish speaking countries in the
Americas, due to cultural and linguistic particularities. Asia-Pacific FDI concentrates
heavily in Brazil with it attracting 50% of the
Chinese FDI, 43% of the Indian FDI, 49%
of the Korean FDI and 39% of Japanese
FDI. For all Asian countries, Mexico is the
second destination, but other markets,
such as Colombia, Argentina and Chile are
becoming top of mind among investors as
well.
In 2011, most of the projects were focused
on services with Software and IT Services
leading the trend, followed by Business
Services, which represented almost a third
of the projects. This is partly explained by
the positioning of the region as an offshoring and near-shoring platform to serve
the markets of Europe and the United

States, due to wage, location and human
capital advantages. The strategies of
American, Spanish and Indian companies
have created a new scenario with leading
multinationals such as IBM, Microsoft, Tata
Consultancy Services, Accenture, Oracle,
HP and Intel shaping the trend. More interesting is the rise of projects in Metals and
Industrial Machinery which is partly a result
of the growing regional demand due to the
mining and infrastructure boom in the region, particularly in South America. A negative trend is seen in Hotels and Tourism as
a response to the sluggish demand of tourism due the global slowdown, which has
particularly affected the countries of the
Caribbean.18
When reviewing historic data from 2003 to
2011, interesting trends are found in terms
of sectors and sources of FDI. The two
leading sources of FDI to the region, Spain
and the United States have historically
been sources of FDI in the Business Services, IT Services and Communications
sectors, with Spain being also important in
Financial Services. Other Western European countries have also been sources of IT
services, with increasingly leading roles in
Financial Services (United Kingdom, Switzerland), Tourism (France), Metals (United
Kingdom, Sweden, Italy), Industrial Machinery (Italy, Sweden), and Chemicals
(Netherlands).
18. ECLAC: Foreign Direct Investment in Latin America and the Caribbean 2010
12
Germany is the second investor in most

Latin American countries and it is an important source of FDI in Automotive OEM,
Automotive components and Chemicals.
FDI from the Asia Pacific region focuses on
manufacturing projects in Metals (Japan,
China, Korea), Industrial Machinery
(China), Automotive Components (Japan),
Automotive OEM (Japan, China, Korea)
and Electronics (Japan, Korea). Around
50% of Indian companies concentrate their
investments in IT and Business Services,
with Pharmaceuticals being the second key
sector for Indian companies in the region.
Finally, it is important to note that around
58% of Canadian projects and 56% of
Australian projects are found in the Metals
sectors, making these two countries a great
source for that particular sector.
A similar analysis can be done crossing the
historic data in terms of sectors and destinations of FDI to define any sector-specific
trends. The data shows that most of the
projects in Metals, Business Services, Soft-
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ware & IT Services, Communications and

Financial Services have a more or less
even distribution among countries of the
region with Brazil and Mexico always as
their main destination. In other sectors the
bulk of the FDI is concentrated in one of
the biggest markets of the region such as
the case of Industrial Machinery (45% in
Brazil), Automotive Components (49% in
Mexico), Chemicals (45% in Brazil), Automotive OEM (39% in Brazil), Electronic
Components (55% in Mexico), Plastics
(44% in Mexico) or Consumer Electronics
(35% in Mexico). Although other countries
have a small share in comparison to Mexico and Brazil, it is important to note upward
trends in Metals (Chile, Peru), Minerals
(Colombia, Peru, Chile, Argentina), Food
Products (Argentina, Chile), Chemicals
(Argentina, Colombia, Chile), Automotive
(Argentina), Renewable Energies (Chile,
Peru), and Pharmaceuticals (Colombia, Argentina).
Latin America as an FDI source market

Following a global trend of consolidation of
new multinational companies from emerging markets, Latin America and the Caribbean reached a record of 43, 1 billion USD
in outward FDI, according to the Economic
Commission for Latin America and the Caribbean (ECLAC). It means that the share of
Latin American outward investments in FDI
flows originating from the emerging world
nearly tripled from 6% in 2000 to 17% in
2010.
ECLAC figures for 2010 registered that

around 47% of the mergers and acquisitions and that 59% of the Greenfield investments happened within the region.19
One of the reasons behind the rise in the

Latin American outward FDI has to do with
the emergence of the so called Trans Latins or Trans-Latin American corporations
whose main investments are usually directed to neighbouring countries. The
Allan Toledo
International Business President
Banco do Brasil
In five years, we want to have 20

branches in the United States []
we will invest close to 25 million
USD to do so
19. Ibid.
13
www.ocoinsight.com
Figure 12: FDI Outflows, Share in Latin American FDI outflows

and FDI-to-GDP Ratios, 2010
Country
FDI Outflow (Million)
Share Lat Am
GDP Ratio
Mexico
12,694
29%
1.2%
Brazil
11,500
27%
0.6%
Chile
8,744
20%
4.6%
Colombia
6,744
16%
2.3%
Source: ECLAC
Mexico, Brazil, Chile and Colombia

accounted for 92% of the outward FDI from
the region, while in per capita terms Chile
and Colombia have the highest
FDI-to-GDP ratios with 4.6% and 2.3%,
respectively, showing the internationalization of these two countries. Mexico was the
leading source of FDI from the region with
around 12,6 billion USD, largely driven by
acquisitions such as those of Bimbo
(acquired Sara Lee Group in US) and
Televisa (acquired shares in Univision), or
investments by America Mvil in
telecommunications. Brazil was the second
source with around 11.5 billion USD,
largely driven by companies from natural
resources, such as Vale do Rio or Gerdau.
Finally, the third source of FDI in the region
was Chile, reaching 8.7 billion USD,
focusing mostly on financial services and
the retail sector, driven by investments of
Cencosud and Fallabella.
In terms of projects, FDI Markets tracked
230 outward FDI projects from the region.
The preferred destination was Latin
America (57%), followed by North America
(18%) and Western Europe (8%). In terms
of countries, the United States is the main
destination with a 17% share in 2010,
followed by other Latin American countries
such as Argentina (9%) and Colombia
(9%). China is also becoming a destination
for Latin American countries with a share of

6% of the projects. As in the ECLAC
figures, the main source of FDI were Brazil
(35%), Mexico (18%) and Chile (16%) in
2010, partly due to the internationalisation
processes of these countries. When
crossing historic statistics of FDI sources
and destination, interesting trends are
found. Brazilian firms have an important
share in overall Latin American FDI into the
United States (36%)20, China (61%) and
Mexico (35%). Mexican firms are important
in Brazil (33%) and Panama (19%),
whereas Chilean firms are key investors in
Argentina (23%), Colombia (31%) and Peru
(29%).
[We] understand that large LatinAmerican companies, the

multilatinas, are rolling out ambitious strategies of globalisation.
These powerhouse players need
consistency across their global operations, in their home bases and all
over the world. That is exactly what
our investments allow us to deliver
to them.
Jeff Kelly
CEO, BT Global Services
20. % of Total FDI Projects that comes from that specific Latin American country
14
www.ocoinsight.com
Capitalising on the rise of Latin America

We can argue in conclusion that Latin
America has an exciting decade ahead. Investors and Economic Development Organisations could tap into many opportunities arising from the emerging markets of
the region. But, in order to capitalise on
these opportunities, it is worth to bear in
mind key points mentioned throughout this
paper, which might inform the strategies to
attract investment into Latin America, or to
invest in the region.
Key learnings for Latin American
Economic Development Organisations
(EDOs):
A targeted, market-driven approach is
crucial:
EDOs from the region must have a marketdriven approach and build value
propositions based on the supply-side
opportunities over the coming decades.
For instance, countries such as Chile or
Peru should target Engineering Services or
IT Services companies that serve the
booming mining sectors. Company
targeting should take into account these
supply-side opportunities arising from the
growth in infrastructure, housing and
agriculture sectors, and also highlight the
rising local private demand.
Know geographical sources of FDI and
focus efforts accordingly:
Most of the FDI into Latin America comes
from Western Europe (mainly from
Germany and Spain) and followed by North
America (United States) and Asia Pacific
(China). EDOs attracting investments for
the region should target the US states of
Florida, New York, California and Florida.
Those targeting activities in Europe should
focus on the United Kingdom, France,
Germany and Spain, depending on sectorspecific strengths. Asia Pacific is
becoming an increasingly important source
of projects, particularly from emerging
multinationals in China, India, Japan and
South Korea.
Understand the main drivers behind

regions investments:
Trends show that American and Canadian
investors prefer Mexico as their principal
FDI destination to use it as a platform to
export to North America. EDOs from
Central American and Andean countries,
with strong commercial linkages to the
United States and similar wage and
location advantages can catch further
opportunities arising from these markets.
Western European FDI prefers Brazil as
their main destination triggered by local
demand and the interest of avoiding trade
barriers. This could be an opportunity for
other countries linked to Brazil, such as
Uruguay, which could become low-cost and
business-friendly platforms to target the
Brazilian market. In the case of Asia
Pacific, most FDI is mainly concentrated in
Brazil, which means that EDOs from Latin
America should increase their presence in
the region to attract a greater share of
projects.
Beyond economic management in

the country, Colombias key factors
have been an export diversification
policy and tax legislation focused on
ensuring legal security, which has
generated investor confidence.
Proexport Colombia
15
Know where to focus your sectoral

targeting:
Most of the FDI attracted to the region is
concentrated on IT Services, Business
Services and Financial Services due to the
positioning of the region as platforms for
offshoring and near-shoring. Metals and
Industrial Machinery sectors have jumped
in the recent years due to the infrastructure
and mining booms in South America. Latin
American EDOs targeting projects on
Services should focus their activities in the
United States, United Kingdom, India and
Spain. Those targeting manufacturing
activities should focus on Germany, Japan,
China and South Korea. In the Metals
sector, Australia and Canada are becoming
an interesting source of projects, while
India is increasingly being important for
pharmaceuticals.
With the aim of diversifying our FDI

inflows beyond the mining sector,
[Chiles] Foreign Investment Committee has set up a comprehensive
portfolio of public and private projects. This will allow us to promote
concrete business opportunities in
infrastructure such as airports, maritime works, renewable energies and
electric transmission, among others.
Matias Mori,
Vice President, Foreign Investment
Committee of Chile
Latin America as a growing FDI source
for the Americas:
Latin America is becoming a source of FDI
with a new record on outward investments
in 2011. Colombia, Brazil, Chile and
Mexico are the main sources of FDI due to
the internationalisation of their firms.
Most of the outward FDI is concentrated in
Latin America, followed by North America.
www.ocoinsight.com
The emergence of Trans Latin corporations

creates an opportunity for American EDOs
attracting FDI in the context of economic
slowdown in Europe, and they should
consider strengthening their activities in the
main source countries of the region.
Key learnings for investors:
Understand the drivers of growth and
consequent investment opportunities:
Investors must be aware that the rise of
Latin America is explained by a
combination of external and internal
factors. Externally, the rise of commodity
prices has created positive gains of terms
of trade for South American countries,
whose export basket is composed mainly
of food products, hydrocarbons and
minerals. The high commodity prices,
particularly in mineral and food products,
create huge opportunities for investors in
the mineral-energetic and agro-industrial
value chains. For instance, Engineering
Services or IT Services companies serving
the mining industries might find many
opportunities in the booming mining sector
of South America. Likewise, Agro-Chemical
producers could take advantage of the
booming agricultural sectors.
Meanwhile, internally, the rise of local
demand has to do with a boost on
investment as a consequence of cheaper
imports and a boost in private consumption
due to the expansion of the middle class in
several countries. From the investment
side, many investors from Industrial
Machinery and Equipment sectors could
find opportunities as a result of the drive of
modernisation of Latin American
companies. Likewise, consumptionoriented sector such as Food & Beverages
or FMCG (Fast Moving Consumer Goods)
producers could take advantage of an
increasing demand from the booming
middle class in countries such as Brazil or
Argentina.
16
FDI in Renewable Energy: a promising year ahead
Understand sub-regional differences:

Although the rising of the local demand
triggered the attraction of market-seeking
FDI across the region, investors must be
aware of the differences between the
opportunities to invest in South and Central
America. Most of the FDI going to South
America is raw-material seeking, driven by
high commodity prices and the endowment
of natural resources of the sub-region. FDI
going to Central America and Mexico is
largely attracted by the wage and location
advantages to tap into the opportunities in
North America. Investors from Electronics,
Automotive and Aerospace sectors
targeting the US market, might take
advantage to the commercial linkages this
sub-region has with that market. Likewise,
BPO and IT services companies could take
advantage of wage differentials in Central
America to near-shore from the sub-region.
Investors approaching the region should
also have a good understanding of the
often complex and different economic
www.ocoinsight.com
realities and investment climates within the

region. Mexico and Central America might
be dependent on the situation of the US
economy, whereas some countries such as
Chile, Brazil and Peru might be more
resilient due to strong links with booming
Asian economies. Likewise, investors
should examine the degrees of openness
and investment climates before expanding
to the region in order to make the right
decisions to face the current slowdown.
Emerging Latin American corporates
create significant investment
opportunities:
Latin America is becoming a source of FDI
with a new record for outward investments
in 2011. The emergence of Trans-Latin
corporations creates an opportunity for
investors that might be interested in
supplying products or services to this new
generation of multinationals. It also creates
further opportunities for mergers,
acquisitions, joint-ventures and
partnerships with local regions.
17
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organisations and international investors through timely
intelligence, topical publications as well as online and face-to-face
training from world-leading economic development advisors.
In the past decade, OCO has earned its reputation as one of the
worlds leading authorities on foreign investment, having worked
with some 300 economic development organisations and more
than 100 private clients on location decisions. We have
actively supported agencies in defining their strategy, delivered
training, business intelligence and investor targeting services.
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Latin Americas Decade?

FDI trends and perspectives

Latin Americas Decade? FDI trends and perspectives

Economic overview of Latin America

What is the panorama of FDI in Latin America?

Investment climate in Latin America

Source and destination markets

Who is investing where?

Latin America as an FDI source market

Capitalising on the rise of Latin America

OCO Global Ltd, April 2012

Latin Americas Decade? FDI trends and perspectives

the worlds sixth-largest economy in 2011,

"We are targeting architecture,

Latin Americas Decade? FDI trends and perspectives

Economic overview of Latin America

uneven across the region, with South

In contrast to the US and Europe,

Figure 1: GDP Growth (%) Latin America and Caribbean 2004-2012

Latin Americas Decade? FDI trends and perspectives

In 2012, it is expected that the region will

environment in the developed economies

"We had a very good year [] the

Figure 2: GDP Growth Forecast, Latin America, 2012

OCO Global Ltd, April 2012

Latin Americas Decade? FDI trends and perspectives

What is the panorama of FDI in Latin America?

It is important to note that UNCTAD

Figure 3: FDI Inflows (selected world regions) in USD billions

According to the ECLAC, the bulk of the

to reach $65.5 billion, whereas the FDI to

9. UNCTAD: Global Investment Trends Monitor January 24 2012

Latin Americas Decade? FDI trends and perspectives

Figure 5: Main recipients of FDI in

Figure 4: Geographic distribution

There are some trends to highlight with

carbon rich countries such as Colombia,

Figure 6: Destinations and types of FDI

Prevalent type of FDI

Source: OCO Global, based on statistics from the ECLAC

Latin Americas Decade? FDI trends and perspectives

The experience of Mexico and Central

garment export platform are now becoming

Latin America is very important for

Investment climate in Latin America

blocs and the divergent degrees of

13. ECLAC: The region in the decade of the emerging economies

Latin Americas Decade? FDI trends and perspectives

Figure 7: Selected Business Climate Indices

Compiled by OCO Global

Chile is the most open economy of the

business with the best business

Figure 8: Average Geographic Distribution of Exports, 2007-2011 (% of Exports)

China and Japan

Latin Americas Decade? FDI trends and perspectives

Politics should not be a matter of great

OCO Global Ltd, April 2012

agreements in force. The members of the

Latin Americas Decade? FDI trends and perspectives

The political and economic outlook of the

Two trends will be shaping the economic

15. Wold Politics Review: http://www.worldpoliticsreview.com/articles/8383/colombias-santos-moves-to-diversifyforeign-policy

Latin Americas Decade? FDI trends and perspectives