Foreign Investment In Latin America Not Helping: UN

by Diego Cevallos

(IPS) MEXICO CITY -- Foreign direct investment in Latin America and the Caribbean grew by 44 percent in 2004, following four consecutive years of decline, according to a report released Thursday by a United Nations group.

But many observers say this growth will merely serve to boost the profits earned by transnational corporations in a region still mired in poverty and inequity.

The rise in foreign direct investment (FDI) in Latin America and the Caribbean, to a total of $68 billion in 2004, was the second largest of any region in the developing world. It was just barely outstripped by Asia and Oceania, according to the World Investment Report 2005, launched simultaneously in Geneva, New Delhi, New York and Mexico City by the United Nations Conference on Trade and Development (UNCTAD).

The increased investment is good news for transnational corporations, which have reaped a corresponding increase in profits, but not necessarily for the 224 million people living in poverty and the 96 million who suffer extreme poverty in Latin America and the Caribbean. They are unlikely to benefit in any way from the money flowing into the region.

That is because foreign direct investment in itself does not promote social development, Tagi Sagafi-nejad, a professor of International Business at Texas A&M International University and a member of the panel that launched the UNCTAD report in Mexico City, told IPS.

Cristina Casanueva, a researcher at the Ibero-American University in Mexico and another member of the panel, commented that "foreign investment doesn't care about poverty or whether or not there is democracy in any given country."

In Latin America and the Caribbean, Brazil and Mexico were the largest recipients of FDI in 2004, accounting for 52 percent of the regional total. These are the two largest and most populous countries in the region, but they are also the ones with the highest degree of social inequality.

The redistributive effect of foreign investment depends directly on the strategies and regulations of each individual country, noted Casanueva. Nevertheless, she maintained, foreign investment, "which it is no longer possible to do without," serves to create employment and generate resources.

Latin America, the region with the widest gap between the rich and the poor, is also a relatively attractive destination for foreign investment, as well as a burgeoning source of investment in other regions.

Among the Latin American companies that have invested in other parts of the world are the Cemex cement corporation and the America Movil wireless communications provider of Mexico and the Brazilian state-owned oil consortium Petrobras, which now figure among the developing world's largest corporations, according to UNCTAD.

Mexican and Brazilian companies invested a total of $11 billion outside their national borders in 2004.

"There are lots of millionaires here and we take in a lot of foreign money, but this has done nothing so far to curb poverty, which is a paradox," Mexican financial consultant Francisco Rivas told IPS.

According to a 2003 study from the World Bank titled "Inequality in Latin America and the Caribbean: Breaking With History?" the richest one-tenth of the region's population earns 48 percent of total income, while the poorest tenth earns only 1.6 percent.

"Inequality in Latin America is extensive: the country in the region with the least income inequality is still more unequal than any Organization for Economic Cooperation and Development (OECD) or East European country," the study states.

"Latin American inequality is also pervasive, characterizing every aspect of life, including access to education, health and public services; access to land and other assets; the functioning of credit and formal labor markets; and attainment of political voice and influence," it adds.

For its part, the Economic Commission for Latin America and the Caribbean (ECLAC) says that the growth in foreign investment is "welcome news" for the region, but notes that "it does not mean that the Latin American and Caribbean countries have solved their problems with regard to the limited benefits they receive from the presence of transnational corporations (TNCs) within their borders."

"Foreign Investment in Latin America and the Caribbean 2004," a report released by the regional UN agency in March, notes that "existing FDI inflows are not of the quality that is required," which means that the region's countries need to improve the policies and institutions that deal with foreign investment in order to more fully benefit from the presence of transnational corporations.

According to UNCTAD, the greatest increases in FDI in 2004 were registered in Argentina, Brazil, Chile, Colombia, Mexico and Peru, while there were decreases in Bolivia, Ecuador and Venezuela.

The growth in FDI in the region is related to a combination of local and worldwide factors, such as global economic growth, the heightened demand for commodities and the adoption of favorable policies by some governments, says UNCTAD.

Around the world, foreign investment totaled $648 billion in 2004, 2 percent higher than in 2003.

Further growth in investment is expected in Latin America and the Caribbean in 2005, which will mark a break from the period of stagnation experienced from 1999 to 2003, the report added.