Central America: Foreign Direct Investment Up 10%

Partly explained by the regimes created to encourage investment in different sectors, countries in the region went from receiving $11 billion in 2016, to $12.1 billion last year.

Friday, September 28, 2018

According to a study by the Center for Economic Integration Studies, in 2017 inflows of Foreign Direct Investment (FDI) in the region reached a record figure of $12.083 billion, registering an increase of 9.8% compared to 2016. When analyzing the period from 2010 to 2017, it can be seen that the inflow of FDI has increased considerably, showing a growth rate of 7.9%.

This has led to Central America's share of total FDI received by Latin America and the Caribbean (LAC) to increase over time; in 2010 this share amounted to 3.9% of the total received by LAC, but in 2017 this percentage of participation had risen to 7.8% of the total. The Commission for Latin America and the Caribbean (ECLAC, 2018) estimates that this increase will follow the trend noted so far, in contrast to the downward trend seen in the rest of the LAC region in terms of attracting FDI, with an annual change in 2017 of -6.7%.

In 2017, Panama captured 47.5% of the total foreign investment income that came into the region, corresponding to 5.319 million dollars, followed by Costa Rica with 2.742 million dollars, that is to say, 20% of the regional total. Below this group are the amounts received by El Salvador (3.2% of the total), Nicaragua (8.2%), Honduras (10.4%) and Guatemala (10.8%). 

The report explains that FDI deepened in Central America after the privatization of public companies in the nineties, which were mainly oriented towards the services sector, such as financial intermediation, telephony, electricity and drinking water. In this way, the first wave of FDI in the region was concentrated in the acquisition of public companies focused on this provision of services. 

The document goes on to say that in terms of the origin of investment flows into the Central American region, this is characterized by high concentration in a few countries which in turn share important links with Central America in the commercial dimension. In 2016, investment from the United States prevailed, registering a total of 10,984.4 million dollars, representing 27.3% of the total received by Central America, followed by the European Union contributing 17.2% of the total, and thirdly, is the region itself contributing to 12.3% of total FDI income.

See full report: "Five trends of Foreign Direct Investment (FDI) in Central America". (In Spanish)

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More on this topic

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August 2019

Panama and Honduras were the only two Central American countries to report increases in foreign direct investment in 2018 over the previous year, with year-on-year changes of 36% and 3%, respectively.

The growth of investments directed to Panama, which concentrated 51% of the sub-regional total, explained the increase that was reached in 2018 in Central America (9.4%), since except Panama and Honduras, the Central American countries received less Foreign Direct Investment (FDI) than in 2017, explains the report "Foreign Direct Investment in Latin America and the Caribbean 2019", produced by the Economic Commission for Latin America and the Caribbean (ECLAC).

Honduras: Foreign Direct Investment Up 6%

August 2018

In the first half of the year, foreign direct investment flows received by the country totaled $620 million, 5.8% more than in the same period in 2017.

The main source of financing of Foreign Direct Investment (FDI) was reinvested earnings. By origin of investment, it was observed that most came from North America, with 37.6% of the total, followed by Europe with 20.3%.  

Foreign Investment Figures in Central America

August 2017

In 2016 44% of foreign direct investment in the region was concentrated in Panama, and a fourth consecutive year of increases was recorded, with 16%, while Costa Rica received 27% and increased by only 1.1%.

From chapter I of the report "Flows of FDI in Latin America and the Caribbean", by the ECLAC:

FDI down in Central America and Caribbean

September 2009

The manufacturing sector as a whole saw a decline in FDI due to a sharp drop in flows to Central America and the Caribbean.

In Central America and the Caribbean (other than financial centres), the decline in FDI inflows was largely due to a 20% fall in flows to Mexico, which mainly resulted from a halving of inflows to the manufacturing sector (CNIE, 2009).

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