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ECLAC’s 2015 Report places increased emphasis on the importance of FDI for the Caribbean Region

On Wednesday June 27th, at the launch of the ECLAC publication of FDI in Latin America and the Caribbean 2015, Mr. Michael Milligan, Economic Affairs Officer for the Economic Commission for Latin America and the Caribbean (ECLAC) explained to a CAIC representative, amongst representatives of organizations in the private and public sector, that flows of Foreign Direct Investment (FDI) towards Latin America and the Caribbean declined 16% in 2014 to total $158.803 billion dollars. This result reverses the growth trend seen during the last decade – with the exception of declines in 2006 and 2009 – since a further reduction is forecast for this year.

In 2014, FDI inflows were affected by the region’s economic deceleration and lower prices for its raw material exports.

Worldwide, FDI fell 7% in 2014 versus the previous year, although inflows to developing countries rose 5%, mainly due to Asia’s performance. The participation of Latin America and the Caribbean in these global flows reached 13%, the document indicates.

The document explains that Caribbean countries offer numerous incentives to companies to attract FDI, including exemptions on income tax and customs duties. The report recommends that these benefits’ usefulness be reviewed as part of a coordinated promotion policy.

For the first time, the flagship report dedicates an entire chapter to FDI in the Caribbean, thus placing increased emphasis on the importance of FDI for the region.

The Caribbean receives higher amounts of foreign direct investment (FDI) when compared to other developing economies.

According to the report, the flows of Foreign Direct Investment (FDI) into the Caribbean sub-region shrank 4.7 % in 2014 to total $6.027 billion dollars.

This nearly 5% decline in FDI directed towards Caribbean countries is less severe than the 16% drop registered in Latin America and the Caribbean as a whole, where flows fell to $158.803 billion dollars in 2014 from $189.951 billion dollars in 2013. Nevertheless, since 2008 FDI inflows into the Caribbean have fallen 37%.

Table II, at the end of this article, shows the trend of FDI inflows into each of the Caribbean islands from 2008 to 2014.

In this latest edition, the report analyzes in-depth the FDI received by the Caribbean, where these flows are much more significant than in the rest of the region as a proportion of Gross Domestic Product (GDP). On average, these flows represent 4% of the subregion’s GDP, and more than 10% in some of its economies, while in the rest of Latin America that percentage is fewer than 3%. This dependence, combined with the concentration in terms of the receiving sectors (tourism and increasingly natural resources) and the countries of origin (mainly Canada and the United States), means that Caribbean countries are highly vulnerable to variations in FDI flows, the document stresses.

ECLAC’s report analyzes the situation of 16 Member States in the Caribbean. Tourism is the sector that receives the most FDI in countries such as Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia and Saint Vincent and the Grenadines, while in other nations natural resources predominate (Guyana, Suriname and Trinidad and Tobago). In Haiti and Jamaica FDI is principally aimed at the transportation and telecommunications sector.

Barbados jumped from $5 million dollars in 2013 to $275 million dollars in 2014 and Guyana rose 19% (to $255 million dollars in 2014 from $214 million dollars in 2013), while Antigua and Barbuda received $167 million dollars (up 66% from 2013), Belize $141 million dollars (48% more), Saint Vincent and the Grenadines $139 million dollars (down 13%), and Saint Kitts and Nevis $120 million dollars (down 13%).

Countries that had inflows of below $100 million dollars in 2014 include Haiti ($99 million dollars, down 47% from 2013), Saint Lucia ($75 million dollars, down 21% from 2013), Grenada ($40 million dollars, 64% less than the previous year), Dominica ($36 million dollars, equivalent to a 36% increase), and Suriname ($4 million dollars, down 97%).

Meanwhile, Cuba updated in 2014 its legislation regarding foreign investment with the objective of improving the country’s allure in this area and giving greater protection to investors. Currently the biggest investments in that country are co-financed by the State, although improving diplomatic relations with the United States are being watched closely, along with other factors.

Another aspect taken into consideration in the report is the fact that, on average, the repatriation of profits derived from Foreign Direct Investment is equivalent to more than three-quarters of the FDI inflows into the Caribbean, especially in countries such as Barbados, Suriname and Trinidad and Tobago.

Finally in its report, ECLAC encourages countries to advance towards a coordinated policy of FDI promotion, based on the concept that attracting bigger flows is less important than their impact on productive diversification and their convergence with long-term national development plans centered on equality of rights and environmental sustainability.

In reflecting on the launch of the ECLAC’s report, CAIC counted the experience a success as it took advantage of the opportunity to network through linkages that place the CAIC as the recognized voice of the Caribbean Private Sector, acting on behalf of its members for the sustainable development of their businesses.

Download ECLAC Foreign Direct Investment for Latin America and the Caribbean 2015

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