Global trends and Foreign Direct Investment in Latin America Alicia - PowerPoint PPT Presentation

Global trends and Foreign Direct Investment in Latin America Alicia Bárcena Executive Secretary International Investment Forum Chile 2017 Santiago, 4 April 2017

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  Weak growth  Rise of nationalisms  High unemployment (Europe)  Opposition to new trade agreements  Wage stagnation  Resistance to immigration  Growing migratory flows  Anti globalization movements  Increasing inequality  Middle-class crisis /perception of losers  Intense competition from Asian who are resentful of globalization’s winners manufactures  Greater exposure to financial volatility and  Disruptive impacts of the digital revolution indebtedness International Investment Forum Chile 2017 Alicia Bárcena

The tensions of globalization have large implications for emerging economies Risks Repercussions • Continued imbalances and • Weak growth adjustments • Greater exposure to financial • More protectionism volatility and indebtedness • Less offshoring • Worsened social indicators • Migratory tensions • A fragmented trading system combined with more protectionism • Growing digital gaps 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, 1952-2016 a (Percentages) 15 10 8.6 7.8 6.5 5.4 5.3 3.9 5 2.5 2.2 0 -5 -10 -15 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Exports GDP Average export growth Source: ECLAC, on the basis of World Trade Organization (WTO) and International Monetary Fund (IMF). a The figures for 2016 are projections. 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) 2,000 20% 18% 1,600 16% Transition economies 14% 1,200 12% Developed economies 10% 800 8% Developing economies 6% 400 4% Share of Latin America and the 2% Caribbean (right scale) - 0% 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. 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 GLOBAL CROSS-BORDER MERGERS AND ACQUISITIONS, 2006 – 2016 (Billions of dollars) 2.00 40% 1.80 38% 1.60 36% 1.40 34% 1.20 32% 1.00 30% 1.8 0.80 28% 1.5 1.4 0.60 26% 1.1 1.1 1.1 0.9 0.9 0.9 0.40 24% 0.7 0.6 0.20 22% 0.00 20% 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) Source: Economic Commission for Latin America and the Caribbean (ECLAC, on the basis of JP Morgan, 2017 M&A Global Outlook. 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 LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2017 a ( Percentages ) Dominican Rep. 6.2 Panama 5.9 Saint Kitts and Nevis 5.3 Nicaragua 4.7 Peru 4.0 Costa Rica 3.9 Bolivia (Plur. State of) 3.8 Guyana 3.8 Paraguay 3.8 Belize 3.7 CENTRAL AMERICA 3.7 Honduras 3.4 Guatemala 3.3 Dominica 3.2 Antigua and Barbuda 2.9 Colombia 2.7 Grenada 2.6 CENTRAL AMERICA AND MEXICO 2.3 Argentina 2.3 Saint Lucia 2.3 El Salvador 2.2 Saint Vincent and the Grenadines 2.2 Chile 2.0 Mexico 1.9 Barbados 1.9 LATIN AMERICA AND THE CARIBBEAN 1.3 LATIN AMERICA 1.3 THE CARIBBEAN 1.3 Jamaica 1.2 Haiti 1.0 Bahamas 1.0 Uruguay 1.0 SOUTH AMERICA 0.9 Cuba 0.9 Suriname 0.8 Trinidad and T obago 0.5 Brazil 0.4 Ecuador 0.3 Venezuela (Bol. Rep. of) -4.7 -6 -4 -2 0 2 4 6 8 Source : ECLAC, on the basis of official figures. a Projections. 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 LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN THE VALUE OF (Percentages) GOODS EXPORTS TO THE REGION AND TO THE REST OF THE WORLD, 2007-2016 a (Percentages) 30 40 30 20 20 10 10 0 0 -4 -10 -5 -14 -10 -10 -20 -20 -20 -30 -30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Intra-regional exports Exports to the rest of the world Volume Price Value Source : ECLAC, on the basis of official data from the countries. a The figures for 2016 are projections. 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

Little innovation and technological progress 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). 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

FDI has not regained the growth seen during the commodity price boom FDI dropped by 9% in 2015 and around 8% in 2016 Latin America and the Caribbean: FDI received, 1990-2016 (e) (Billions of dollars and percentages of GDP) 10 250,000 9 2015 179 100 8 200,000 7 6 150,000 5 4 100,000 3 2015 2 50,000 3.7% 1 0 0 1990 1995 2000 2005 2010 2015 FDI inflows FDI inflows as percentage of GDP (Right scale) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures at 17 March 2017. International Investment Forum Chile 2017 Alicia Bárcena