global trends and foreign direct investment in latin … · 2017-04-04 · global trends and...
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Global trends and Foreign Direct Investment in Latin America
Alicia Bárcena Executive Secretary
International Investment Forum Chile 2017
Santiago, 4 April 2017
International Investment Forum Chile 2017 Alicia Bárcena
Long-term megatrends • Geopolitical changes and new global roles for China, Europe and the
United States
• The fourth industrial revolution: convergence of robotics, ICTs, biotechnology, genetics, neurology and nanotechnology
• The future of work
• Climate change
• Growing inequality
• The demographic transition and migration
International Investment Forum Chile 2017 Alicia Bárcena
Globalization questioned Tensions Repercussions
Low dynamism of the global economy
High unemployment (Europe)
Wage stagnation
Growing migratory flows
Increasing inequality
Intense competition from Asian manufactures
Disruptive impacts of the digital revolution
Weak growth
Rise of nationalisms
Opposition to new trade agreements
Resistance to immigration
Anti globalization movements
Middle-class crisis /perception of losers who are resentful of globalization’s winners
Greater exposure to financial volatility and indebtedness
International Investment Forum Chile 2017 Alicia Bárcena
The tensions of globalization have large implications for emerging economies
Risks
• Continued imbalances and adjustments
• More protectionism
• Less offshoring
• Migratory tensions
• Growing digital gaps
Repercussions
• Weak growth
• Greater exposure to financial volatility and indebtedness
• Worsened social indicators
• A fragmented trading system combined with more protectionism and growing uncertainty about mega-agreements
International Investment Forum Chile 2017 Alicia Bárcena
Complex global economic context
Global growth is weak. In 2016 the world economy expanded 2.2% and the expected rate for 2017 is 2.7%
Emerging economies are growing modestly. India with the strongest growth in 2017 (7.7%); China’s will remain at 6.5%.
The outlook for the developed economies remains moderate. In 2016 United States and the eurozone grew by 1.6% and the expected rate for 2017 is 1.9% for the US and 1,7% for Europe
LAC region contracted -1.1% in 2016 with uneven performance among subregions: Central America and Mexico (3.6% and 2%), South America and the Caribbean contracted (-2.4% and -2.7%). A shift in cycle is expected in the region in 2017, with growth of 1.3%.
Global trade continues to slowdown. World GDP is growing faster than world trade, in a reversal of an historic trend. WTO expects trade to pick up in 2017.
International Investment Forum Chile 2017 Alicia Bárcena
Global output and trade have picked up in 2017 but have not returned to pre-crisis levels
VARIATION IN THE VOLUME OF GLOBAL MERCHANDISE EXPORTS AND GDP, 1952-2016a (Percentages)
Source: ECLAC, on the basis of World Trade Organization (WTO) and International Monetary Fund (IMF). a The figures for 2016 are projections.
-15
-10
-5
0
5
10
15
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
20
16
Exports GDP Average export growth
8.6 7.8
5.4 3.9 6.5
5.3 2.5 2.2
International Investment Forum Chile 2017 Alicia Bárcena
Foreign direct investment (FDI) flows have stalled amid growing uncertainty
Potential economic policy shifts in the United States, the world’s largest investor and recipient of FDI, are creating uncertainty among investors. Moves towards the reshoring of advanced manufacturing and towards stronger protectionism could affect FDI flows, although the outlook is still uncertain.
The effects of the withdrawal of the United Kingdom, another leading FDI host country, from the European Union have still to materialize.
Electoral processes in Europe, reforms towards greater control of capital outflows in China and sluggish global demand are all adding to the uncertainty and inducing caution in transnational investors.
International Investment Forum Chile 2017 Alicia Bárcena
In 2016 global FDI dropped between 10% and 15% Investments are falling in both developed and developing economies; the region maintains
its share of 10% of global flows GLOBAL FDI FLOWS BY GROUPS OF ECONOMIES, AND PROPORTION CORRESPONDING TO LATIN AMERICA AND THE CARIBBEAN, 1990-2016(e)
(Billions of dollars and percentages)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), Global Investment Trends Monitor, No. 22, Geneva, January 2016; and World Investment Report, 2015 (UNCTAD/WIR/2015), Geneva, 2015.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
400
800
1,200
1,600
2,000
Transition economies
Developed economies
Developing economies
Share of Latin America and the Caribbean (right scale)
International Investment Forum Chile 2017 Alicia Bárcena
Mega mergers and acquisitions have slowed, but high liquidity and opportunity-seeking has continued to drive cross-border transactions
Source: Economic Commission for Latin America and the Caribbean (ECLAC, on the basis of JP Morgan, 2017 M&A Global Outlook.
GLOBAL CROSS-BORDER MERGERS AND ACQUISITIONS, 2006 – 2016 (Billions of dollars)
1.1
1.8
1.1
0.6 0.9 0.9 0.9 0.7
1.1
1.5 1.4
20%
22%
24%
26%
28%
30%
32%
34%
36%
38%
40%
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Value of cross-border mergers and acquisitions Cross-border mergers and acquisitions as a percentage of all mergers and acquisitions (right scale)
International Investment Forum Chile 2017 Alicia Bárcena
The region’s weaknesses The region is falling behind • Growing less than more dynamic world regions
• Slowdown in trade
• Little investment in physical assets, human capital or R&D
• Persistent external vulnerability
Persistent structural disequilibria • Undiversified production structure
• Innovation effort and performance lagging behind
• Poverty reduction has stalled and income + wealth concentration are on the rise
• Vulnerability to climate change
International Investment Forum Chile 2017 Alicia Bárcena
A slight recovery in regional growth is projected for 2017
-4.70.30.40.5
0.80.90.91.01.01.0
1.21.31.31.3
1.91.92.0
2.22.22.32.32.3
2.62.7
2.93.23.33.4
3.73.73.83.83.83.94.0
4.75.3
5.96.2
-6 -4 -2 0 2 4 6 8
Venezuela (Bol. Rep. of)Ecuador
BrazilTrinidad and Tobago
SurinameCuba
SOUTH AMERICAUruguay
Bahamas Haiti
JamaicaTHE CARIBBEANLATIN AMERICA
LATIN AMERICA AND THE CARIBBEANBarbados
MexicoChile
Saint Vincent and the GrenadinesEl SalvadorSaint LuciaArgentina
CENTRAL AMERICA AND MEXICOGrenada
ColombiaAntigua and Barbuda
DominicaGuatemala
HondurasCENTRAL AMERICA
BelizeParaguay
GuyanaBolivia (Plur. State of)
Costa RicaPeru
NicaraguaSaint Kitts and Nevis
PanamaDominican Rep.
Source: ECLAC, on the basis of official figures. a Projections.
LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2017a
(Percentages)
International Investment Forum Chile 2017 Alicia Bárcena
In 2016 the region’s exports fell 5% completing four years of contraction, with intraregional trade falling the most
LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION OF EXPORTS, 2000-2016
(Percentages)
-5
-30
-20
-10
0
10
20
30
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Volume Price Value
LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN THE VALUE OF GOODS EXPORTS TO THE REGION AND TO THE REST OF THE WORLD, 2007-2016a
(Percentages)
Source: ECLAC, on the basis of official data from the countries. a The figures for 2016 are projections.
-20
-10
-14 -4
-30
-20
-10
0
10
20
30
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Intra-regional exports Exports to the rest of the world
International Investment Forum Chile 2017 Alicia Bárcena
Persistent low productivity LATIN AMERICA AND THE CARIBBEAN AND THE EUROPEAN UNION: RELATIVE PRODUCTIVITY WITH RESPECT TO THE UNITED STATES, 1991-2014
(Percentages)
Source: ECLAC, “The European Union and Latin America and the Caribbean in the new economic and social context”, 2015.
International Investment Forum Chile 2017 Alicia Bárcena
SHARE IN GLOBAL PATENT APPLICATIONS, RESIDENTS AND NON-RESIDENTS (Percentages)
Source: ECLAC, on the basis of statistical information from the World Intellectual Property Organization (WIPO).
Little innovation and technological progress
International Investment Forum Chile 2017 Alicia Bárcena
The challenge of investment
ANNUAL VARIATION OF GROSS FIXED CAPITAL , 2008.T1-2016.T3 a
(Weighted averages, in the basis of constant dollars of 2010)
Source: ECLAC, on the basis of official figures.
International Investment Forum Chile 2017 Alicia Bárcena
0
1
2
3
4
5
6
7
8
9
10
0
50,000
100,000
150,000
200,000
250,000
1990 1995 2000 2005 2010 2015
FDI inflows FDI inflows as percentage of GDP (Right scale)
FDI has not regained the growth seen during the commodity price boom FDI dropped by 9% in 2015 and around 8% in 2016
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures at 17 March 2017.
Latin America and the Caribbean: FDI received, 1990-2016(e)
(Billions of dollars and percentages of GDP)
2015
3.7%
2015 179 100
International Investment Forum Chile 2017 Alicia Bárcena
As a bloc, the European Union is the principal investor in Latin America and the Caribbean
EUROPEAN UNION: DISTRIBUTION OF OUTWARD INVESTMENTS ANNOUNCED, BY DESTINATION COUNTRY OR REGION, 2010-2015
(Percentages)
LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF INVESTMENT INFLOWS ANNOUNCED, BY COUNTRY OR REGION OF ORIGIN, 2010-2015
(Percentages)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), The European Union and Latin America and the Caribbean vis-à-vis the 2030 Agenda for Sustainable Development THE ENVIRONMENTAL BIG PUSH, LC/L.4243 , October 2016.
International Investment Forum Chile 2017 Alicia Bárcena
European companies have become key players in increasing FDI that could boost Agenda 2030 by supporting infrastructure creation, the digital economy
and the production of clean energy LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF ANNOUNCED FDI PROJECTS BY SECTOR, 2005-2015
(Percentages)
LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF FDI PROJECTS ANNOUNCED BY EUROPEAN UNION FIRMS, BY AMOUNT, 2005-2015
(Percentages)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), The European Union and Latin America and the Caribbean vis-à-vis the 2030 Agenda for Sustainable Development THE ENVIRONMENTAL BIG PUSH, LC/L.4243 , October 2016.
International Investment Forum Chile 2017 Alicia Bárcena
Transnationals’ view of the relative advantages of the region is reflected in the sectoral composition of FDI
FDI RECEIVED, 2010-2015
(Percentages of cumulative total)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures at 17 March 2017.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Brazil Mexico Colombia Chile Central America and Dominican Rep.
Natural resources Manufactures Services
International Investment Forum Chile 2017 Alicia Bárcena
Development of infrastructure services, mainly in the electricity sector, attracted capital in the form of mergers and acquisitions in 2016
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.
LATIN AMERICA AND THE CARIBBEAN: CROSS-BORDER MERGERS AND ACQUISITIONS BY SECTOR, 2016
(Millions of dollars)
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
International Investment Forum Chile 2017 Alicia Bárcena
Renewable energies, automobiles and telecommunications are increasingly attracting investment projects
The sectoral composition of projects shifted over the past decade
LATIN AMERICA AND THE CARIBBEAN: DISTRIBUTION OF ANNOUNCED FDI PROJECTS BY SECTOR, 2005-2016 (Percentages)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets. Note: This analysis excludes the 2013 announcement of the Nicaragua Canal, for a value of US$ 40 billion.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Mining (extraction and processing)
Coal, oil and natural gas
Telecommunications
Automobiles and parts
Renewable energy
International Investment Forum Chile 2017 Alicia Bárcena
The automobile industry is a paradigmatic case in the evolution towards advanced manufacturing
Investment announcements in the region in the past five years totaled US$ 62 billion, mainly in Mexico (67%) and Brazil (22%).
The industry is in a phase of disruptive change, with traditional manufacturing capacities coinciding with electronics and digital capacities.
Electric vehicles and the growing digital content of vehicles prompted many digital economy corporations (Intel, Google) to invest in production chain automation (and explore autonomous vehicles).
The vehicle production process is advancing towards automation. It is the industry with the largest robot density per worker (1,200 per 10,000 workers) and accounted for 38% of all robot sales in 2015.
Changes in demand can also affect production dynamics.
The region, and Mexico in particular, is well placed on the existing technology frontier. However, local R&D capacities and suppliers need to be built up to maintain that position under a new paradigm.
International Investment Forum Chile 2017 Alicia Bárcena
Possible scenarios of the new hemispheric context for the production sphere
• Geopolitical adjustment in international trade and FDI flows
• Review of free trade agreements
• Fiscal stimulus and increased infrastructure spending:
– Impact on prices of metals
– Fiscal expansion, higher interest rates, a stronger dollar
• More carbon-intensive production, less support for renewable energies
– Increases in hydrocarbon production
• A drive to reshore industry and technology to the United States:
– Lower corporate taxes and incentives for repatriating profits and investment
– Trade and investment with China and Mexico
– Import taxes
International Investment Forum Chile 2017 Alicia Bárcena
• To contribute to productive diversification and innovation
• To develop new industries with less environmental impact
• To generate direct and indirect jobs
• To articulate investments with industrial and social policies to close structural gaps
• Convergence between business strategies and the sustainable development objectives of Agenda 2030
What do we expect from FDI?
International Investment Forum Chile 2017 Alicia Bárcena
FDI has the potential to contribute to the achievement of the Sustainable Development Goals in the region
Investment projects in renewable energies have grown steadily in the region (US$ 62.4 billion announced over the past five years).
Solar energy represents just over 50% of all investment announced, followed by wind energy.
Chile has the largest number of announcements, followed by Mexico and Brazil, and some smaller economies seeking to upgrade their energy mixes, such as Panama and Uruguay.
Telecommunications have been one of the most important channels for FDI (US$ 60 billion in2012-2016).
Mobile telephony leads the announcements (45% of the total).
Fixed telephony has lost share (from 50% in 2005 to 24% in 2016), while data storage and processing emerged in 2008 and account for 23% of the total announced in 2016.
International Investment Forum Chile 2017 Alicia Bárcena
However, in an uncertain global context, the countries must make greater efforts to attract quality FDI to drive development
Quality FDI
FDI with impact on innovation capital
FDI aligned with national development plans
FDI that builds capacities in the host country
International Investment Forum Chile 2017 Alicia Bárcena
The region needs to catch up into the digital revolution to be competitive
The world is moving from an internet based on consumption to an internet based on consumption + production
The digitalization of economies transforms economic flows by reducing transaction, production and distribution costs.
Digital economies lead to innovation, development and participation in value chains, larger consumer bases, and expansion of all economic sectors
In order to address structural weaknesses, create digital economies, and move towards a single digital market, the region must: Link industrial policies for structural change with digital development
Train human capital for a new digital era
Develop regulatory frameworks for a digital economy
International Investment Forum Chile 2017 Alicia Bárcena
Opportunities for the region in the new global context
• Given the current uncertainty, moving forward with regional integration is more necessary than ever • Promote convergence between the different regional integration mechanisms
• Move towards a single digital market
• Implement a regional infrastructure program
• Develop regional value chains
• Speed up implementation of the trade facilitation agenda
• At the national level, productive diversification requires industrial and trade policies consistent with the technological revolution and with a big environmental push