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UNCTAD forecasts that FDI inflows in Latin America and the Caribbean could decline by 10 percent in 2016, falling to $140–160 billion

UNCTAD forecasts that FDI inflows in Latin America and the Caribbean could decline by 10 per cent in 2016, falling to $140–160 billion. Macroeconomic conditions will remain challenging, with the region projected to slip further into recession in 2016. Weak domestic demand led by softening private consumption, coupled with the potential for further currency depreciation, will weigh on investment in domestic manufacturing as well as in the services sector. A further decline in the prices of the region’s principal export commodities will likely serve to delay investment projects in the extractive industry as well as crimp reinvested earnings.

The value of announced greenfield projects dropped 17 per cent from 2014, to $73 billion, led by an 86 per cent decline in the extractive sector in 2015. This largely accords with the capital expenditure plans of the region’s major State-owned oil companies – Petrobras (Brazil), Ecopetrol (Colombia) and Pemex (Mexico) – which also foresee a sharp reduction in their investment outlays in the medium term. Lower project announcement values were also registered in the services sector, due principally to a significant pullback in transportation and communications as well as in retail and wholesale trade.

Preliminary data for the first quarter of 2016 suggest that greenfield investments will continue to be weak, with the number of projects falling 19 per cent and their value sliding 18 per cent, compared with the same period in the previous year. M&A activity in the first part of 2016 was also well below the quarterly average in previous years. These trends notwithstanding, a number of factors point to an uptick in FDI inflows. For example, national currency depreciation may motivate the acquisition of assets in the region. Cross-border M&As in the first quarter of 2016 were up sharply (80 per cent), thanks to higher net sales in Brazil, Chile and Colombia, though the comparison is somewhat skewed by what was an extremely weak first quarter in 2015.

Photo: Latin America and the Caribbean (Public Domain from Pixabay.com)
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