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Foreign Direct Investment: Balance and Trends

December 21, 2012
  • FDI in Latin America. Latin America was the region in the world where FDI inputs grew the most, with a total share of 10% in FDI global inputs.  

  • FDI in Colombia. During this last year, FDI in Colombia showed the highest growth in Latin America (92%), from US$6,746 million in 2010, to US$13,297 in 2011. 

  • FDI in Bogota. Bogota is the main destination for Foreign Direct Investment in Colombia.  

  • FDI in Cundinamarca. FDI inflows in Cundinamarca have grown by 45% on average since 2006. 

  • What can be expected in terms of FDI? There is a geographical de-localization trend in terms of productive activities and investments. 

By: Adriana Suarez, Executive Director of Invest in Bogota

 
The evolution of Foreign Direct Investment (FDI) varies in accordance with the global economic uncertainties, and the deceleration of certain emerging economies, mainly Europe. Although a low and volatile growth is expected in the medium term in industrialized countries, FDI will continue to be the driver of global economy and trade in emerging countries. 
 
Even in this context, the investment dynamics in the world experienced a recovery of 16% in Foreign Direct Investment flows during 2011, thus exceeding the 1.6 trillion dollar mark.  Furthermore, the results from the first half of 2012 showed an 8% drop in investment flows compared to the same period in 2011. Expectations for 2013 and 2014 are conservatively optimistic: 1.8 trillion dollars in 2013 and 1.9 trillion for 2014, associated to most recent forecasts from the WMF, which foresee a slowing down of the growth during a good part of the second half of 2012, both in advanced as well as in emerging economies. 
 
The crisis has led to changes in Foreign Direct Investment flows, which have moved from traditional destinations to new emerging regions such as Asia and Latin America. Thus, during 2011 developing economies were the recipients of 50% of global FDI flows. 

 
FDI in Latin America
 

Between 2010 and 2011, FDI in Latin America and the Caribbean grew by 28%, from US$141,100 million to US$153,000 million. Latin America was the region in the world where FDI inputs grew the most, with a total share of 10% in FDI global inputs.  
 
In this context, Colombia again was the fourth favored destination for FDI in the region, a place that had been lost to Peru in 2010. It is possible that, with the Free Trade Agreement, Colombia will be potentially the number three destination in Latin America, above Argentina.  Colombia, with FDI inflows in excess of 13,200 million dollars, accounted for 8.7% of all investment flowing into Latin America[1]. 
 
With regards to FDI forecasts in Latin America, the region will continue to be an attractive location for multinationals and, if the crisis in Europe continues to deepen, the greater cost and lower availability of financing resources would affect investment by multinational companies, mainly those in Europe. 


FDI in Colombia

 
Colombia is one of the countries in the region with the lowest exposure to the European crisis on account of the amount of its exports, its composition and the foreign investment it receives from that region. During this last year, FDI in Colombia showed the highest growth in Latin America (92%), from US$6,746 million in 2010, to US$13,297 in 2011. After the drop experienced in 2009 and 2010, FDI during 2011 exceeded historic levels for the past decade. 
 
During 2011 countries from which FDI into Colombia originated, were as follows: Holland (16.5%), Spain (15%), Chile (13.3%), the United States (10.4%), England (8%), Brazil (4.2%), Canada (3.5%) and Argentina (2.2%). Even with the effects from the global economic crisis, figures offer a glimpse allowing to forecast that as of the end of 2012, foreign direct investment flows into the country will surpass the US$15 billion mark. 
 
As of June 2012, FDI flowing into Colombia totaled US$7,798 million, 18% higher than investment flows recorded during the same period for the previous year. Sectors associated to the exploration and exploitation of natural resources, such as hydrocarbons and coal continue to concentrate the largest percentage of FDI: during 2011, they accounted for close to 57% of the whole. If the mining-energy sector is not included in the computations, FDI inflows into the country focused mainly on: trade, restaurants and hotels (39%); transportation, storage and communications (28%); manufacturing (10%) and construction (7%). 
 
 

FDI in Bogota


Bogota is the main destination for Foreign Direct Investment in Colombia. During 2011, the capital city focused 70% of all FDI inflows recorded in the country (not counting portfolio investments, hydrocarbons and mining). If Cundinamarca is included into these figures, it is clearly evident that Bogota and its greater region hold a share of about three fourths of investments registered in Colombia during 2011. Registered investment inflows during that period grew by 74% compared to 2010, from US$ 1,623 million to US$ 2,828 million. Thus, Bogota continues to consolidate itself as the main destination for foreign investment in Colombia, not including portfolio or oil-related resources. 
 
By economic sector, during 2011 the offshore services sector held a share of close to 39%, thus consolidating its position as the main recipient of foreign direct investment into Bogota, followed by the trade and hotels sector (24.4%), financial (17.8%), industry (9.3%) and construction (3.1%). After services, the most dynamic sectors were industry (with an 88% variation), as well as trade and hotels (68%).
 
The countries which sourced most of Bogota's FDI inflows during 2011 were Spain (16%), Chile (15%), the United States (7%), Brazil (7%), Argentina (4%) and Holland (3%). 
 
A drop in registered investment inflows into Bogota was experienced during the first quarter of 2012, compared to the same period of 2011; there was a 13% reduction, equivalent to approximately 111 million dollars. 
 
The number of multinational companies based in Bogota is reflective of the city's importance as the main destination for FDI in the country. According to the most recent figures from the Bogota Chamber of Commerce's Public Trade Registry, the city is home to more than 1,360 branch offices for foreign companies, and over 3,086 companies with some level of foreign capital participation with its financial structure. 

 
FDI in Cundinamarca

 
FDI inflows in Cundinamarca have grown by 45% on average since 2006. During 2011, they accounted to close to 3% of the total national figures, totaling US$134 million, approximately, 126% higher than in 2010. During 2011, FDI into Cundinamarca focused mainly in the industrial sector (64%), mining (20%) and trade and hotels (13%). The following countries sourced the most investment inflows into Cundinamarca during 2011: France (35%), United States (8%) and Chile (6%). 
 
Inflows during the first half of 2012, compared to the same period of the previous year, evidenced a drop of 91% in the investment flows into the department. 


What can be expected in terms of FDI?
 

A trend towards geographical de-localization has become evident in terms of productive activities and investments, on account of situations such as: complementing factors, lower costs, input availability or more dynamic and regional markets. 
 
It is necessary to make the most out of the strategic opportunities that result from the growth perspectives and a favorable regional environment.  It is important to pay special attention to investment projects involving mergers and acquisitions because, even though forecasts are not the best, they have been gaining rapid growth and, potentially, in the future they will offset the slow dynamics of Greenfield projects. 
 
 
[1] South America and Mexico