Foreign direct Investment in Latin America and the Caribbean 2009

Briefing paper

In 2009, the global economy experienced the fallout from the worst economic crisis since the Great Depression of the 1930s. Given the decline in output and in international trade in the world's largest economies, sharply lower foreign direct investment (FDI) flows were to be expected, as was the subsequent toll on the installation of new production capacity and on the technological modernization of existing plant and equipment. In evaluating the consequences of these processes on inward and outward investment in the countries of Latin America and the Caribbean, this report focuses on three areas: a regional overview of FDI in 2009 and case studies of the automobile and iron and steel industries. These two industries are chosen for their strong linkages with each other and the rest of the economy, their great sensitivity to the business cycle and the strong presence of transnational and trans-Latin companies. In both cases, the analysis brings together considerations on national and business strategies being implemented in the largest economies of the region. Owing to the unique characteristics of each sector, the study on the automobile industry looks at strategies at the national level, while the analysis of the iron and steel sector focuses on corporate strategies.

In each of the three areas of the report, it was found that the crisis -despite the cushion provided by the economic boom that lasted more than five years in much of the region- has had an adverse impact and that public policy has played a key role in mitigating the most damaging consequences of the economic slowdown, particularly in activities that are highly sensitive to the variables that drive investment (the iron and steel industry) or disposable income (the automobile industry). Both short-term countercyclical policies
and long-term industrial-policy strategies influenced the performance of these industries, leading each of them to follow different paths of productive specialization and global market integration.
The international crisis led to a sharp reduction in FDI in every region of the world. According to preliminary estimates, in 2009 global FDI declined for the second consecutive year, falling to US$ 1.04 trillion, or 39% below the figure for the preceding year. Whereas in 2008 FDI contracted only in developed countries, in 2009 the global crisis eroded investment flows to the developing world as well.
Latin America and the Caribbean was no exception. FDI flows into the region fell to US$ 76.68 billion, down 42% from the record high posted in 2008.