By Ken Parks
BUENOS AIRES--Foreign direct investment to Latin America and the
Caribbean could post its first drop in five years during 2014 as
investors change the sectors where they put their money, according
to a United Nations official.
Foreign investment in the region is expected to grow at best 1%
this year, with the risk of a 9% contraction, said Alicia Barcena,
executive secretary of the U.N.'s Economic Commission for Latin
America and the Caribbean.
"There is a new scenario. There are lower commodities prices,
but at the same time projects are being announced in other sectors.
In Chile, for example, there are interesting renewable energy
projects," Mrs. Barcena said in a webcast Thursday.
Governments need to do a better job of making sure that foreign
investment leads to the diversification of host country economies
by developing skilled labor and local supply chains, Mrs. Barcena
said.
Foreign investment in Latin America and the Caribbean hit a
record in 2013, rising 5% on the year to almost $185 billion as
higher flows to Mexico offset broad declines in other major
economies, the commission, known as Eclac, said in a report.
Latin America's biggest economy, Brazil, saw foreign investment
slip 2% to $64 billion last year. Investment in Mexico, the No. 2
economy in the region, more than doubled to $38.3 billion thanks to
Anheuser-Busch InBev's $13.2 billion acquisition of brewer Grupo
Modelo.
Investment flows to Chile dropped 29% to $20.3 billion.
Investments in Colombia rose 8% to $16.8 billion, led by the oil
and mining sectors.
Argentina was a notable laggard, ranking No. 6 behind Peru as a
recipient of foreign investment, even though it boasts the third
largest economy in the region.
Years of heavy government spending financed by money printing
has underpinned one of the highest rates of inflation in the world.
The government hasn't published annualized inflation data this
year, but many private sector forecasts put inflation well above
30%.
President Cristina Kirchner's government has relied on capital
controls to keep investors from pulling money out of the country.
Even so, a run on the central bank's foreign currency reserves
forced Mrs. Kirchner to devalue in January and restrict imports.
Doubts remain if Argentina's reserves, now at $28.5 billion, are
sufficient to stabilize the currency.
Argentina's foreign direct investment fell 25% to $9.1 billion
in 2013. Of that amount, fresh capital contributions totaled just
$2.7 billion, a 24% drop from 2012.
Argentina was one of the few Latin American countries that
increased its investment in other countries. Direct investment
flows originating from Argentina rose 16% to $1.22 billion, putting
Argentina in fifth place as a source of foreign investment.
However, total external direct investment flows from Latin
America and the Caribbean tumbled to $31.6 billion, from $47.2
billion in 2012. These investment flows tend to be driven by large
acquisitions and investment projects by a small number of Latin
American companies, Eclac said.
Write to Ken Parks at ken.parks@wsj.com
