by Editor Latam | Mar 18, 2023 | FDI Latin America
The issue is not exclusive to Mexico, but after the Covid-19 pandemic, the word “nearshoring” began to monopolize the pages of trade industry and business publications. In forums, summits, or different events where the economy was discussed, the main conversation was the reconfiguration of supply chains globally and how these companies saw nearshoring in Mexico as a manufacturing platform to export to the largest market in the world: the United States.
Three years after the “boom” of the nearshoring concept, the benefits for the Mexican economy are tangible, and the future looks promising, according to experts; however, much work must be done.
The latest Nearshoring Tracker report by Credit Suisse shows the arrival of foreign investments related to the phenomenon of nearshoring Mexico. For example, it informed that during 2022, 102 investment announcements were made that committed investments valuing 18.1 billion dollars.
Benefits for 2023 of nearshoring in Mexico
To understand what visible benefits nearshoring will bring to Mexico this year, it was necessary to consult experts in the field, such as Dr. Luz María de la Mora, former Undersecretary of Foreign Trade of the Ministry of Economy. She was a key player in approaching industrialists to make manufacturing investments in Mexico.
For 2023, the expert sees greater flows of Foreign Direct Investment (FDI) and the development of clusters of industries participating in supply chains, such as automotive, auto parts, and electric batteries. In addition to this, she sees the consolidation and strengthening of the country’s capacity through more nearshoring in Mexico.
“The strengthening of regional supply chains, the creation of quality and well-paid jobs in companies that participate in these supply chains, will also be elements that we will see in Mexico,” said de la Mora.
For his part, Jorge Molina Larrondo, a foreign trade consultant, points out that the benefits depend on the type of foreign investment that is attracted and, to a large extent, on the legal certainty that the Mexican government offers to foreign capital. In any case, and even with little legal certainty, in addition to industries such as automotive, aerospace, medical device, and general manufacturing, he foresees the arrival of investment in things like consumer products and food and food processing plants. In addition, he anticipates that many projects that do not entail large investments will benefit from nearshoring in Mexico. He also sees the transfer of state-of-the-art technology and the creation of many long-term jobs.
Some tangible benefits are already beginning to be seen, such as the growth in the capacity of industrial parks. These facilities are increasing to expand nearshoring in Mexico for companies already established in the country and house new companies seeking to enter Mexico for the first time. This translates into the generation of sources of formal employment, maintains Samantha Atayde Arellano, partner at the firm RRH Consultores.
She argues that if Mexico knows how to take advantage of the context in which it finds itself, the position it occupies as a commercial partner of the United States, and its network of treaties, nearshoring in Mexico is presented as another tool to attract new investment or reinvestments in the country.
The appeal of nearshoring in Mexico in 2023
In her experience as a former Undersecretary of Foreign Trade, Luz Maria de la Mora believes that the sector that will benefit the most will be the automotive sector since it is transitioning towards manufacturing electric vehicles. It has announced important investments in recent months, such as the case of the General Motors complex in Ramos Arizpe. This facility will become its fifth plant in the country and will produce electric vehicles.
He also sees growing interest in producing electric batteries and their components and a significant investment opportunity in the semiconductor and electronic component sector to complement new investments in semiconductor manufacturing (“fabs”) in the United States.
“In the US, at least three large fabs are being built —TSMC and Intel, in Arizona, and Samsung, in Texas— which can have multiplier effects for Mexico’s participation in some segments of the industry’s supply chain,” he says.
In the same way, Atayde Arellano is confident that the automotive sector will top the list of the most benefited sectors since it is a strategic sector for the economies of the United States – Mexico – Canada (USMCA) region. It is followed by sectors such as aerospace, electrical and electronic, pharmaceutical and medical device, transportation, storage, and agro-industrial industries, as well as industries that use nearshoring in Mexico to focus on the development of software and other technologies.
Adriana García, coordinator of economic analysis at the Mexican think tank Cómo Vamos, comments that the immediate opportunity for nearshoring in Mexico in 2023 lies in 50 import categories that it shares with China. As a result, she feels that Mexico can occupy a greater proportion of the market share. These categories are in electronics, machinery, furniture, and auto parts manufacturing.
“This could be taken advantage of and translate into more investment and quality jobs for Mexico in the short term. A second opportunity will be to explore industries where we don’t have knowledge of and experience with, which would imply a larger investment,” she asserted
Mexico’s task
Carlos Véjar, International Trade and Arbitration lawyer at the Holland & Knight consultancy, assures that Mexico’s task to benefit from nearshoring is to get involved in a coordinated manner with the private sector to promote investment attraction through greater political and economic certainty for the export sector. This is in addition to facilitating the increase of new spaces to build industrial parks or expand existing ones to create spaces for more nearshoring in Mexico.
“Among the challenges that Mexico faces is to improve the supply and costs of renewable energy and water supply; solve the difficulties of the supply chain that arise, improve times in obtaining programs for exports (IMMEX), and provide greater security in the production regions and commercial routes,” says Véjar.
Along the same lines, Molina Larrondo believes the Mexican government wants to attract capital-intensive production. Doing so implies implementing state-of-the-art technology and creating many jobs in the long term (that is, producing products in the early stages of their life cycle). The Mexican government must change its discourse of constantly attacking the private sector. It must also enforce its intellectual property protection regime and reduce piracy.
“Everything depends on the current government and its attitude concerning nearshoring in Mexico. The United States is promoting the investment of its companies in countries that it considers “friendly” and “trustworthy,” which has been called “friend-shoring.” “For this reason, the attitude of the Mexican government is key to attracting new companies to the country,” he says.
On the other hand, the expert emphasizes that legal certainty must be generated by respecting what the country’s trade treaties and agreements and the laws that govern the country indicate. He also notes that the current government of Mexico must adopt a more positive attitude toward the private sector.
He stated the importance of “Enforcing and respecting the laws for the protection of intellectual property, reducing the cost of creating new jobs, and improving security.”
Regarding investment issues, the list of pending subjects that Mexico has is long, explains De la Mora, among which is investing in infrastructure and logistics, particularly in ports, highways, railways, airports, telecommunications, and 5G. In addition, investing in clean energy generation will also be important, as companies need to meet new requirements and emission reduction goals in addition to their growing energy capacity needs.
We can add the investment in human resource development since more engineers and technicians specialized in advanced manufacturing will be needed. Also important is water availability for industrial use and human consumption. Most notably, it is of primary importance to guarantee the rule of law that gives certainty to investments resulting from nearshoring in Mexico.
Adriana García sums it up best: Legal certainty is needed for Mexico to take advantage of the benefits of nearshoring in terms of greater investment and generation of quality jobs. This is especially true in the energy sector since the country must provide sufficient and necessary energy required by the country’s growing industrial base.
For information on starting a nearshore manufacturing facility in Mexico, contact LATAM FDI.
by Editor Latam | Mar 18, 2023 | FDI Latin America
The Paraguayan maquiladora industry, also known as the Export Processing Zone (EPZ) industry, has been a significant part of Paraguay’s economy since the 1980s. As a result, Paraguay’s government and private sector have worked together to create a favorable business environment for multinational companies to establish maquiladoras.
Paraguayan maquiladora industry manufacturers initially focused on import substitution
The history of the maquiladora industry in Paraguay dates back to the early 1980s when the government passed a law creating a special economic zone (SEZ) in Ciudad del Este, Paraguay’s second-largest city. The law was designed to attract foreign investment and create jobs in the area. Initially, companies in the SEZ focused on import substitution, producing goods that would otherwise have been imported. However, as the industry grew, it shifted towards export-oriented production, with most maquiladoras producing goods for the Brazilian market.
The Paraguayan maquiladora industry has brought significant benefits to the country. It has created jobs, particularly for women, who comprise a substantial proportion of the industry’s workforce. The industry has also brought in foreign investment and helped diversify Paraguay’s economy, which was traditionally almost totally reliant on agriculture. Additionally, the industry has boosted Paraguay’s exports, which have increased by over 500% since 1990, making it one of the fastest-growing economies in South America.
Volume of exports grew in February
Exports from the Paraguayan maquiladora industry reached USD 87 million in February 2023, which reflected a 34% growth compared to the same period in 2022. It is a record figure compared to the same month in previous years.
The aforementioned is based on the latest report from the Ministry of Industry and Commerce (MIC), which highlighted the increase in the sector by the National Council of Maquiladora Export Industries (CNIME).
In the first two months of the year, exports totaled USD 160 million, 14% more than the USD 140 million in 2022.
The most exported product in the months analyzed corresponded to auto parts with 25%. The second item with the highest volume of exports was related to aluminum and its related manufactured articles with 20%.
Also, another class of products of importance in total export numbers was clothing and textiles with 18%. Finally, exports of food products and plastics were 13% and 6%, respectively. These items represent 82% of the total goods exported by the Paraguayan maquiladora industry in February 2023.
When considering the main export destinations for Paraguay’s exports so far in 2023, Brazil stands out as the most important customer, with a participation of 63%. It is followed by Argentina, the United States, Chile, and Uruguay, followed with 15%, 7%, 5%, and 4%, respectively. Concerning Mercosur, 81% of the shipments were concentrated in that trading bloc.
Maquiladora industry imports and trade balance
The purchases of inputs for industrial transformation under the maquila regime (imports) in Paraguay totaled USD 99 million between January and February. This was 5% more than the same period of the previous year.
For its part, the sum of the trade balance (exports minus imports) for January and February totaled USD 62 million, 35% more than the USD 46 million registered in the total for the first two months of 2022.
Regarding the estimates for 2023, in a conservative scenario, exports are expected to increase by 9% to reach some USD 1.12 billion by the end of this year.
Paraguay is a member of Mercosur
Paraguay is a Southern Common Market (Mercosur) member, a regional trade bloc composed of Argentina, Brazil, Paraguay, and Uruguay. Paraguay joined Mercosur in 1991. The grouping is an important platform for trade and economic integration among member countries. Mercosur has a combined GDP of over $2 trillion and a population of around 300 million people. This makes it one of the largest trading blocs in the world. Mercosur aims to promote free trade and economic cooperation among member countries, and it has signed several trade agreements with nations outside the bloc, including the European Union and China.
There are several benefits that the members of Mercosur enjoy. These include:
Access to a large market: Mercosur is one of the largest trading blocs in the world, with a combined population of over 300 million people and a GDP of over $2 trillion. Being a member of Mercosur gives countries access to a large and growing market for their goods and services.
Tariff reductions: Mercosur member countries have agreed to reduce and eliminate tariffs on goods traded within the bloc. This promotes trade and economic integration among member countries, leading to lower costs for consumers and businesses and increased competitiveness.
Common external tariffs: Mercosur member countries have a common external tariff (CET) on goods imported from outside the bloc. This helps to protect domestic industries and promote trade among member countries.
Political cooperation: Mercosur member countries cooperate on a range of political issues, including human rights, democracy, and regional security. This can promote stability and cooperation in the region.
Investment promotion: Mercosur member countries work together to promote investment and economic development in the region. This can lead to increased foreign investment and economic growth.
Overall, members of Mercosur, such as Paraguay, have access to a large market, tariff reductions, a common external tariff regime, political cooperation, and investment promotion. These benefits promote economic growth and development in member countries and strengthen regional cooperation and stability.
by Editor Latam | Mar 17, 2023 | FDI Latin America, Podcast
Silvia Cochón
Promotion and Investment Manager
Free Zone Council of the Dominican Republic
s.cochon@cnzfe.gob.do
LATAM FDI: Hello. Welcome to another episode of the LATAM FDI podcast. Joining us today is Silvia Cochón. Silvia is the lead for the promotion department in the National Council of the Dominican Republic for Free zones. Today we will discuss manufacturing in the Dominican Republic with her. Hello Sylvia, welcome to the podcast. Can you introduce yourself and tell us a little bit about your organization, please?
Silvia Cochón: Hello and thank you for inviting me. My name is Silvia Cochón. As you said, I have been heading the promotion department at the National Free Zones Council of the Dominican Republic for the last 15 years. This has been a long time, but it has been a very good time. So the National Free Zone Council is a government institution composed of members of the public and private sectors to promote manufacturing in the Dominican Republic in our free zones. We promote and develop the free zone companies and industrial parks that operate in our country.
LATAM FDI: I’d like to ask you a few questions today. The first has to do with a trend that has been increasing in popularity over the last few years due to things like disruptions in global supply chains. Nearshoring has become a trend. More specifically, we’re seeing companies moving from places that are in the Far East, closer to home, and closer to their customers. Has nearshoring affected manufacturing in the Dominican Republic? Has there been an influx in companies as a result of this trend?
Silvia Cochón: It has been good, the trend, as the saying goes, is that the only constant right now is change. The world is living in a time of many challenges. Especially since the Covid-19 pandemic, many companies have had to reinvent themselves and find new ways of doing things. And for us, for many countries, the pandemic has revealed trends that have impacted our manufacturing companies. Our free zone regime is made up mostly of multinational companies that are manufacturing in the Dominican Republic that produce goods and services for international markets. For an important time, they went through a difficult period in the supply chain issues as well as many other countries in the world. In recent years we have witnessed increased investment of those companies in automation and new technologies. Companies have seen the need to reduce their risk in the supply chain and expand the supply of resources to improve flexibility. This has resulted in growth in the operations of many of the companies that are manufacturing in the Dominican Republic, both in the development of previously imported components and in the manufacture of new product lines. Since Covid, we have seen companies expanding, especially in sectors like medical devices and electronics, expanding their operations, bringing more processes home in house to their plants.
We have also seen a growth in the interest of companies to bring their operations closer to the US market, as you mentioned. Additionally, we have been approached not only by companies located in China but also like by Japan, Korea, and Turkey. This includes India and Sri Lanka. These are countries that our country has not been close to in terms of commercial relations.
LATAM FDI: We see a greater interest among global manufacturers in manufacturing and the Dominican Republic. What specific benefits does the DR offer to global companies?
Silvia Cochón: The Dominican Republic has become it is a regional hub right now for the manufacture of goods and services, including logistic solutions. One of the most powerful tools that the country has used to attract those investments in manufacturing in the Dominican Republic has been its free zone regime. It’s a regime that we started in 1969. So for over 53 years, we have been attracting foreign companies to operate in our country. The regime allows companies that allocate most of their production to international markets to enjoy special tax and customs incentives, including 100% exemption from most local taxes, such as income tax, value-added tax on goods and services, and import taxes on machinery and raw materials. Everything that the company imports for its production operations or services are free of taxes. In addition to those economic incentives, the country has been very safe, very stable in terms of political stability, and has one of the most solid investment climates in the region. We have been among the countries that have grown the most economically in the last five or six years. Also, we have preferential access to markets through the free trade agreements that we have signed with our main trading partners, including the United States and the European Union.
Of course, in terms of our geographical location, we are very close to the east coast of the United States. The quality of the transport infrastructure and maritime and air connectivity, and perhaps, most importantly, the availability of human resources have made us one of the most attractive countries for the manufacturers of goods in the region. Many companies are currently exploring the option of manufacturing in the Dominican Republic.
LATAM FDI: We had a few moments to chat before we started today, and one of the things that I found surprising that you mentioned during that time was the number of industrial parks and free zones that foreign direct investors have to choose from if they wish to begin manufacturing in the Dominican Republic. Could you tell us a little bit about the variety of places where companies can set up their operations?
Silvia Cochón: As of today, we have 84 industrial parks operating in 28 of the 32 provinces on the island. So, throughout the island, you find industrial parks. In those facilities we have 784 companies operating. Those companies can be foreign companies, they just have to register here, or the companies can form a Dominican company or register as an offshore entity. So you have three ways to operate.
LATAM FDI: In the country beyond the tax exemptions that you mentioned in the free zone and beyond the special customs treatments that companies enjoy when they’re manufacturing in the Dominican Republic. What other reasons are the principal reasons that executives in manufacturing have given to you as their motivation for relocating or expanding in your country?
Silvia Cochón: If I have to choose, maybe five. I will say that proximity to the US market is number one. We have very close connectivity. We are very well connected both by air and by sea, and not only to the US but to the entire world. The legal framework and the incentives provided by our free zone law is also important. Additionally, there is the availability of labor, human resources, and of course, the competitive cost structure that we offer to companies manufacturing in the Dominican Republic.
LATAM FDI: In addition to proximity to the US and a wide offering of industrial parks, can you tell me what benefits specifically are enjoyed by the Dominican Republic as a result of their being a part of the DR-CAFTA agreement?
Silvia Cochón: The benefits, yes. We used to have a free trade agreement, a one-way agreement with the US. In the past through the Caribbean Basin Initiative. But now with the DR-CAFTA, which is bilateral with the US and Central American nations, we can also import from the on a duty-free basis. Well, but if you are in the free zone, everything that goes into the free zone is tax-free for operations. We have very clear rules and norms to enter free of duty to the US. That’s one of the main reasons that companies, foreign companies, in the last years have come to establish manufacturing in the Dominican Republic. They’ve come with the purpose to enter free into the US. Market. So, the DR-CAFTA the basis for that.
LATAM FDI: And to say what the DR-CAFTA means. It’s the Dominican Republic-Central American Free Trade Agreement. This is something I’m curious about. Has that agreement had any effect on the trade between the Dominican Republic and the countries in Central America? Is there any activity that has been increased as a result of that agreement?
Silvia Cochón: Yes, but not as much as there could be. We should be having more integration.
LATAM FDI: So, it’s a secondary benefit, obviously.
Silvia Cochón: We have some companies, especially companies that are located in both regions, like in the Dominican Republic, and maybe they have another operation in one of the countries in Central America, you see a lot of goods coming back and forth. With Central America, we have other free trade agreements besides the DR-CAFTA. So sometimes companies use other agreements. Now it depends.
LATAM FDI: In the case of your office, if I hypothetically have a company and I’m looking to begin manufacturing in the Dominican Republic, as an industrialist, what kind of services can your office provide to help me to bring my project to fruition?
Silvia Cochón: We work as a one-stop shop since the beginning. We assist foreign investors. Either we find them and go after them, or they come to us. We help them in the analysis process when they are establishing their operation and later when they’re operating. We help them all through the process. Since they are looking for information, until they apply and start their operation, we’re going to be next to them to provide them assistance in their efforts to begin manufacturing in the DR.
LATAM FDI: I think that in a short period of time today, we’ve covered a lot of information. The people that listen to our podcasts inevitably have further questions that are a little bit more detailed than the ones that perhaps you and I have had the opportunity to go over. If somebody wants to get in contact with you with further questions. How would they do that? Do you have a website?
Silvia Cochón: Yes, you can go to www.drfreezones.com, it’s a web page. We are also under DR Free Zones on LinkedIn and Instagram. Or you can contact us directly by email or WhatsApp.
LATAM FDI: Okay. In the transcript part, we’ll include your email address. And just out of curiosity, do you have a LinkedIn profile? We at LATAM FDI will also be happy to direct potential customers to you, as well.
Silvia Cochón: Yes, I do.
Okay. We’ll put a link to both of those pages on the transcript portion of our website for this podcast. I want to thank you today for joining me and I want to wish you all the luck in the world with regard to helping the Dominican Republic to further its economic development through manufacturing there.
Silvia Cochón: My pleasure and hope to see you soon. Thank you.
by Editor Latam | Mar 16, 2023 | FDI Latin America
Manaus Free Trade Zone Revenue in 2022 was R$ 174 billion, generating 700 thousand direct and indirect jobs
The Manaus Free Trade Zone (MFTZ) in Brazil is a special economic zone that was established in 1967 to promote economic development in the Amazon region. The FTZM offers tax incentives and other benefits to businesses that operate within its boundaries.
On Tuesday, February 7, 2023, the Brazilian Chamber of Deputies celebrated the 56th anniversary of the establishment of the Manaus Free Trade Zone (MFTZ). It was established by Decree-Law 288/67. The event was presided over by Deputy Sidney Leite (PSD-AM).
In a message read by Sidney Leite, the mayor, deputy Arthur Lira (PP-AL) attested that the Manaus Free Trade Zone is successful. “In 2022, total revenue reached BRL 174 billion. This figure represents a record and growth of almost 7% over 2021; exports amounted to BRL 3 billion, up 29%,” he said.
“No social program is better for the Brazilian family than employment, and investment in the MFTZ was responsible for maintaining an average of 110,000 jobs last year, which could represent around 700,000 direct jobs and indirect”, continued the message from the president of the Chamber.
Sidney Leite, in turn, said he supports tax reform in the country, citing that the MFTZ represents the highest revenue collection in the country’s North Region. He also points out that the maintenance of tax incentives contributes to reducing regional inequalities and environmental sustainability.
“The Manaus Free Trade Zone led to the creation of some of the cleanest industry on the planet and has taken measures to preserve the largest rainforest in the world,” said Sidney Leite. The Industrial Pole of Manaus, according to the Superintendency of the Free Trade Zone of Manaus (Suframa), is home to more than 500 companies that can be considered to be “cutting edge.”
Industries represented in the MFTZ include:
What industries are in the Manaus Free Trade Zone?
- Electronics and Technology: The MFTZ is known for its electronics and technology industry, which includes the production of consumer electronics, such as smartphones, tablets, and televisions. Major companies like Samsung, LG, and Panasonic have factories in the FTZM.
- Automotive: The automotive industry is also present in the MFTZ, with major manufacturers like Honda, Yamaha, and Harley-Davidson operating factories there.
- Pharmaceuticals: The Manaus Free Trade Zone has a growing pharmaceutical industry, with companies like Pfizer, GlaxoSmithKline, and Novartis establishing operations there.
- Chemicals: The MFTZ has a significant chemical industry, which includes the production of petrochemicals, plastics, and other chemical products.
- Food Processing: The MFTZ has a growing food processing industry, with companies like Coca-Cola, Nestle, and PepsiCo establishing factories in the zone to produce a variety of food and beverage products
Tax reform
For Deputy Reginaldo Lopes (PT-MG), chairman of the Chamber’s working group that is working on tax reform, it will be necessary to seek consensus to approve the proposal. “We need more modern mechanisms to support regional development,” said Lopes, suggesting a new dialogue on the FTZM.
Other deputies and entities working on this issue include Captain Alberto Neto (PL-AM), Fausto Santos Jr. (União-AM), Saullo Vianna (União-AM), Silas Câmara (Republicanos-AM), Coronel Chrisóstomo (PL-RO) and Damião Feliciano (União-PB); senator Plínio Valério (PSDB-AM); business leaders; and Amazon authorities.
History
The Manaus Free Trade Zone emerged with the objective of stimulating the economic and social development of the Amazon region, in addition to seeking environmental preservation and border protection. The area covered by the FTZM comprises the states of Acre, Amazonas, Rondônia, and Roraima and the cities of Macapá and Santana in Amapá.
With an original term of up to 1997, the Free Zone, which covers the agricultural, commercial, and industrial sectors, was extended on several occasions by the National Congress. In 2014, Constitutional Amendment 83 extended its validity until 2073, maintaining incentives for companies until the end of 2050.
Products that are manufactured in the MFTZ have tax benefits. Among them are the reduction of up to 88% in Import Tax on industrial inputs and 75% in Income Tax. Companies also enjoy an exemption from the Tax on Industrialized Products (IPI).
According to a report on subsidies released in July 2020 by the extinct Ministry of Economy, between 2003 and 2019, the Manaus Free Trade Zone had, per year, tax benefits equivalent to about 0.37% of the Brazilian Gross Domestic Product (GDP ) or BRL 23.3 billion, on average, in 2019 values.
by Editor Latam | Mar 12, 2023 | FDI Latin America
The presidents of Ecuador and Chile, Guillermo Lasso and Gabriel Boric, face contrasting economic conditions.
Differing states of affairs
In the final phase of the first round’s Chilean electoral process and during the second round, most of the Chilean media affirmed that a victory registered by socialist Gabriel Boric would dramatically reduce foreign direct economic investment in the country. In addition, many believed that foreign capital would flee the country due to fear of the advent of a leftist government in the country.
In Ecuador, the opposite happened. Throughout the campaign of candidate Guillermo Lasso, the media spread the message that his victory would open sources of foreign capital and investment in Ecuador and that foreign direct investment (FDI) in the country would grow at a noteworthy pace. As a consequence of these assumptions, it was supposed that the unemployment rate in Ecuador would decrease significantly and that the economy would grow briskly.
However, economic data has demonstrated a different outcome. Foreign direct investment did not flee from Chile when Boric was elected, nor did FDI flow generously to Ecuador towards the government of Guillermo Lasso. On the contrary, recent Central Bank of Chile reports show that foreign investment has grown steadily throughout the past year. On the other hand, the Lasso government and local media, such as El Mercurio, have been forced to acknowledge that foreign direct investment in Ecuador has decreased significantly in recent times.
Foreign investment in Ecuador
In a recent edition, El Mercurio of Ecuador newspaper noted, “Foreign investment has fallen to the lowest level in the last twelve years.” This is because there has been a noticeable drop in investment in the mining and transportation sectors. According to the Central Bank of Ecuador, foreign direct investment (FDI) reached 51.3 million dollars in the third quarter of 2022, compared to the same period of the previous year. This figure represents a year-over-year contraction of 67 percent. Furthermore, it is the lowest level recorded since the fourth quarter of 2010, when FDI had a negative balance of 30.9 million dollars.
Prominent analyst Jaime Carrera commented that the Ecuadorian economy would have difficulty taking off for the foreseeable future. This statement coincides with the forecasts made by the International Monetary Fund, IMF, which states that “the Ecuadorian economy will be one of the least growing in Latin America this year.”
Keep in mind that the Economic Commission for Latin America and the Caribbean (ECLAC) considers that, for Latin America to create new jobs and appreciably reduce poverty consistently, these countries must grow at least 5 percent annually for the next 20 years. This point agrees with an assessment made by the International Monetary Fund (IMF) and the Ecuadorian analyst Carrera.
According to the Central Bank, foreign investment in Ecuador fell in five of nine critical economic activities in the country. Within these, the mining sector is the one that registered the most significant contraction; financing fell by 39.2 million dollars in the third quarter of 2022.
Foreign investment in Ecuador in the manufacturing, transportation, communications, and construction sectors also declined. On the other hand, foreign direct investment grew in finance and insurance, agriculture, commerce, and the gas and water services sector in 2022.
Foreign investment in Chile
Contrary to what many had predicted by traditional Chilean media, a collapse in the pace of Foreign Direct Investment in Chile has thus far yet to occur due to Gabriel Boric’s ascension to the Chilean presidency.
The Central Bank of Chile, through a recently published bulletin, reported that the FDI received by the country between January and December of last year (2022) reached 17.1 billion dollars. This represents an increase of 12 percent compared to the year 2021, which means the best FDI performance in the last 15 years.
It also represents 36 percent more than the average of the last five years and 23 percent higher than the average between 2003 and 2022. However, it is essential to note that the reinvestment of profits reached a total of 6.1 billion dollars, and “instruments of debt accumulated an amount of 2.9 billion dollars, an amount lower than the record for the month of October 2022, ”according to the Central Bank.
The Minister of Economy, Nicolás Grau, noted the statistics and asserted, “The figures published by the Central Bank show that the Chilean economy is resilient.”
For information about the investment climate for foreign direct investment in major Latin American economies, contact LATAM FDI.
