ECLAC report examines Caribbean FDI trends
The United Nations Economic Commission for Latin America and the Caribbean has released a report, Foreign direct investment in the Caribbean: Trends, determinants and policies, examining the region’s post-2008 FDI trends.
The Caribbean receives some of the highest levels of FDI in the world, with many of the region’s economies achieving FDI-to-GDP ratios above 10 percent in 2012.
Neither Latin America with its ratio of 3 percent nor other developing regions are accomplishing that.
The report examines investment activity across various sectors, including investments in natural resources, market-seeking activities, export-oriented activities, manufacturing, tourism and BPO (business process outsourcing).
According to the report, the region’s economies are based primarily on the production of goods (mostly natural resources) and services.
However, Caribbean-based extractive industries, along with the region’s ability to attract market-seeking investment, particularly in banking, utilities and telecommunications, have contributed to its increasing FDI inflows.
Banking is one of the most active sectors in the Caribbean, with several large international players active in the pan-Caribbean market.
Telecommunications services in most Caribbean countries have become world class due to high investments by transnational corporations. This has allowed the development of business processing outsourcing (BPO) sector in many economies. Trinidad and Tobago in particular has been recognised recently for its strengths as a low cost BPO location.
The report asserts that “the rise in FDI inflows in 2011 and 2012 can be credited exclusively to the rise in Trinidad and Tobago. FDI in that country jumped from 549 million dollars in 2010 to 1.8 billion in 2011…”
While forty-five percent of Trinidad’s GDP is in gas and oil production, the country is positioning itself as a center for services in the oil and gas industry worldwide.
The Caribbean region’s strong advantages in tourism and other export-oriented businesses have also continued to attract many foreign direct investors, “to make use of the highly educated and English-speaking population that is close to the United States,” says ECLAC.
Investor surveys mentioned in the report list the Caribbean’s proximity to the United States, natural resources, “natural beauty” as a factor in tourism and English-speaking labour force as strong incentives for investment. Transnational companies based in Canada, the United States, Japan, China, India and more have all brought significant investment to the area.
The economies of Trinidad and Tobago, Belize, Guyana and Suriname are recognised for abundant natural resources in land, minerals or hydrocarbons. Those resources have positioned these countries to benefit from rising commodities prices and to attract more investors to the natural resources sector.
Other Caribbean region strengths touched on in the ECLAC report are the average years of education of the Caribbean population over 15, at 9.48 years exceeding Latin America’s average at 8.21 years (Barro and Lee 2012).
The Caribbean also outranks the rest of Latin America consistently in quality of governance doing better on such indices as freedom to do business, stability of the political environment and consistency in regulations.