By Youri Kemp
Caribbean News Now associate editor
NEW YORK, USA — Foreign direct investment (FDI) in the Caribbean rose by 20 percent in 2017, but down 4 percent across the Latin America and Caribbean region – the third consecutive year to see a drop, according to the Economic Commission for Latin America and the Caribbean (ECLAC) 2018 annual report on foreign direct investment (FDI), released this month.
The Caribbean’s FDI growth goes against the worldwide drop in FDI by nearly 23 percent, the report also states. Over half of this US$5.8 billion of FDI inflows into the Caribbean in 2017 went to the Dominican Republic.
The Dominican Republic has been the recipient of record levels of investment in recent years owing to the interest of investors in tourism, manufacturing, export services, the electricity sector and mining. Moreover, economic growth has boosted consumption and attracted investment to all the services sectors of the economy. In 2017, inward FDI stood at US$3.57 billion, 48.3 percent up on levels the previous year and the highest figure on record.
Caribbean countries in general have seen a considerable increase in investment in the tourism sector, and in Guyana and Jamaica investment has risen in natural resources as well.
In Central America, FDI rose for the eighth consecutive year, with a notable jump in Panama, where it reached US$6.066 billion. The rise in consumption generated an increase in investments in services, new projects were carried out in renewable energies and the competitiveness of export manufacturing also led to higher inflows the report also added.
The ECLAC report also stated that on the basis of investment flows, there were no major changes in the countries of origin of FDI in 2017. The United States was once again the largest investor to the Latin America and Caribbean (LAC), accounting for 28.1 percent of identifiable funds while European countries together represented 37.3 percent of the total.
Within Europe, the largest investment flows came from the Netherlands, who have Caribbean constituent states in that of Bonaire, St Eustatius, and Saba, Aruba, Curacao and St Maarten (which shares the island with France), has 13.0 percent of the European total; Germany with 5.9 percent; Spain with 5.7 percent; and France 4.6, that has constituent states of in the Caribbean of Guadeloupe, Martinique, St Martin (which shares the island with the Netherlands) and St Barthélemy.
In terms of intraregional investment, Mexico accounted for the largest share 3.0 percent, followed by Chile 1.3 percent.
An earlier report by the Inter-American Development Bank estimated that there is a potential US$11.3 billion in trade value that can be maximised if the Latin America and Caribbean (LAC) region were to form more cohesive trade partnerships that can lead them on the road to a full-scale free trade agreement (FTA) for the LAC.
Of this, opening markets that can protect partners, decrease cross-border risks and open up new investments into new territory can reap significant benefits for the region and intra-regional cohesion.
China’s growth in the region has been significant, and is a significant portion of Caribbean FDI growth over the last year the ECLAC report also noted. Measured by mergers and acquisitions transactions completed in 2017, China was the largest investor in the region. Although the country occupied the sixth position measured by number of transactions (15 for the year), the size of these investments – totaling US$18 billion – accounted for 42 percent of the total.
The ECLAC report also warned that, in order to meet the Sustainable Development Goals, greater investments will be needed to increase productivity, reduce poverty and broaden basic services, and some of these will need to come from FDI. This has already occurred in some sectors – for example, telecommunications connectivity has been achieved in many countries thanks to investments by foreign companies – but many others have yet to make major progress.
The Sustainable Development Goals will also demand different types of investments to create a more sustainable production structure, transforming many of the most polluting activities and reducing the weight of others. The shift towards renewable sources of electrical power generation is just one example of how FDI can assist in this transformation process.
Efforts are also needed to make economies more equitable, and this will require closing productive gaps, for example, through policies aimed at promoting linkages between small and medium-sized enterprises with the most productive transnational companies. This means that FDI attraction policies need to be integrated into sustainable development plans in the region, affording particular importance to building local capacities, both for attracting FDI and for tapping its advantages.