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Mexico Leads Latin America in Attracting Foreign Investment

United Nations foreign investment in Mexico tied to U.S. economy

By Eric Green | Washington File Staff Writer | 13 April 2006

Washington -- Mexico received the most foreign direct investment (FDI) in 2005 among countries in the Latin America and Caribbean region, reports the United Nations.

In a new report released April 12, the U.N. Economic Commission for Latin America and the Caribbean (ECLAC) said Mexico received in 2005 about $17 billion in FDI, with a "noteworthy concentration" of such FDI in the manufacturing sector, focusing mainly on maquila assembly plants, a sector associated with the U.S. economy. Many maquila plants are located on the Mexican side of the border with the United States, in which U.S. investors often employ state-of-the-art technology to produce such commodities as auto parts, television sets, and garments.

FDI occurs when a company from one country invests some of its assets in a foreign country. (See related article.)

ECLAC said in its report, Foreign Investment in Latin America and the Caribbean, 2005, that after Mexico, the other countries receiving the most FDI in the region for the year were Brazil, Chile, Argentina and Colombia.

For 2005, total FDI flowing into Latin America and the Caribbean reached over $61.6 billion, similar to the figure for 2004. The United States is the primary foreign investor in the region, accounting for almost 40 percent of FDI, said ECLAC.

A program run by the U.S. Department of Agriculture (USDA) is one example of how the U.S. government seeks to promote foreign investment in Latin America and around the world. In 2005, the USDA provided $10 million for 71 U.S. agricultural trade projects in Mexico, Brazil, Venezuela, Central America and elsewhere under what is called the "Emerging Markets Program." The program supports the promotion and distribution of U.S. agricultural products, trade missions, research on new markets, and activities that encourage free-trade policies. (See related article.)

The ECLAC report said that even though FDI flows held steady for the 2005, the Latin America and Caribbean region's overall share of world investment flows declined because total world flows increased 29 percent in 2005 as compared to the 2004 level.

This development means that Latin America and the Caribbean "have not yet fulfilled their potential for attracting FDI," according to the report. ECLAC said that the region "faces the challenge of increasing the quantity and improving the quality of these capital inflows."

The commission also said recoveries in FDI posted in 2005 by Argentina and Colombia are "worth noting" because rising exports and economic growth have "significantly improved the outlook for investment in Argentina." In the Andean region, Colombia receives the most FDI, with 67 percent going to natural resource operations. The Colombian government's efforts have focused on the hydrocarbon sector, to ensure that investment boosts known reserves and the country's energy autonomy, ECLAC said.

Chile maintained the same amount of FDI inflows as in 2004, according to the report. The agency said the country offers "stable conditions for foreign investors, with most of the inflows going to reinvestment." Mining, transportation, communications and electric power are the main destinations for FDI in Chile and the country is "well-positioned" as a destination for investment in "new services," such as call centers, which are centralized offices of a company involved in telemarketing.

In the Caribbean Basin, composed of Central American and Caribbean countries, ECLAC reported that FDI levels remain at all-time highs for that region. Most FDI in the region goes to manufacturing, due to fiscal incentives and low labor costs favoring assembly plants, which have meant that these countries have become "export platforms" to the United States, said ECLAC.

More information about the ECLAC report is available on the agency's Web site.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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