US STILL DOMINATES FOREIGN INVESTMENT
IN LATIN AMERICA

The United States continues to be the principal foreign direct investor in Latin America, though Europe has been closing the gap in the last two years. The region is also receiving a growing proportion of worldwide US foreign direct investment (FDI), especially of that going to developing countries. Within Latin America, most such investment is now sent directly to the final recipient countries, diminishing the role of Caribbean financial centres and intermediaries.

US FDI FLOWS TO DEVELOPING COUNTRIES, 1984-1997
(millions of dollars)

Source: ECLAC, Unit on Investment and Corporate Strategies, based on information from the Bureau of Economic Analysis of the US Department of Commerce. a/ Excluding Caribbean financial centres

This shift in US FDI flows to Latin America in the 1990s is increasingly evident in the stock of US investment in the region. Between 1990 and 1997, the percentage of total stock of US FDI accounted for by Caribbean financial centers declined from 50 to 42 percent of the total for Latin America. Of the rest, US investment increased primarily in Chile (from 3 to 5%), Argentina (from 4 to 6%), Mexico (from 14 to 15%), Brazil (from 20 to 21%) and Venezuela (from 2 to 3%).

However, the fact that over forty percent of this stock remains formally ascribed to these financial centers introduces very significant distortions into the statistical information, making it necessary to complement official information with other sources, especially where operational aspects of the principal companies are concerned.

ECLAC’s 1998 Report on Foreign Investment in Latin America and the Caribbean includes a chapter dealing with this problem. Four main focal points of US FDI in Latin America are identified:

• In the manufacturing sector, where many US firms in the automotive, electronic equipment and apparel industries have attempted to meet competition from Asia by establishing efficiency-seeking affiliates in Mexico and the Caribbean Basin. These affiliates establish regional systems of integrated production by taking advantage of low wages and tax-free operations in export processing zones, as well as preferential access to the US market.

• Also in the manufacturing sector, where some firms in the food, beverage and tobacco industries, and in the chemical and automotive industries in countries offering large markets (such as Argentina and Brazil within MERCOSUR), have opted to modernize their operations in order to defend their existing markets shares against imports.

• In many service sectors, where US newcomers in the retail trade, telecommunications, electricity generation and distribution, and, to a smaller degree, financial services, are investing in the region’s larger countries in order to gain access to the market. The purchase of existing assets by way of mergers and acquisitions of local private firms, and the purchase of state assets and concessions, have been important means of entry.

• In copper mining and petroleum extraction, many US companies have been expanding their presence in order to acquire secure sources of natural resources. The privatization of state assets and the granting of concessions in areas previously not open to FDI has played an important role here.

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