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Wednesday, June 20 2018 @ 08:53 PM EDT

Panama Gets Most Foreign Direct Investment in Latin America (as % of GDP)

Money MattersLatin Business Chronicle - The planned nationalization of Banco de Venezuela, owned by Spain's Banco Santander, is only the latest move by Venezuelan strongman Hugo Chavez to undermine foreign investor confidence in his country. Venezuela is already the country in Latin America with the lowest FDI per GDP ratio, according to a Latin Business Chronicle analysis of FDI data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and GDP data from the International Monetary Fund (IMF). (See chart) MORE NATIONALIZATIONS The take-over of Banco de Venezuela will likely be followed by more nationalizations, experts predict. "Further nationalizations and other populist measures are likely to be implemented in the run up to the regional elections in November," Credit Suisse analyst Alonso Cervera said in an analysis Friday. (more)

Editor's Comment: These guys at the Latin Business Chronicle are always out front with macroeconomic regional issues - nobody does it better. And this report was written as a "look how bad Venezuela sucks" article, but of course my concern is with Panama's top ranking for Foreign Direct Investment (FDI) as a percentage of GDP. It's hard to overstate the importance of FDI to small economies and little countries. FDI is when outside companies decide invest billions of dollars in just about anything. It all adds up and for a small economy it's like getting a Christmas present. In 2007 Panama saw a whopping $1.8 billion dollars in "new money" pouring in over the borders from outside investors, representing an (also whopping) 9.1% of the country's GDP. In short - "holy shit!" Tops in all of Latin America. So again, I see absolutely nothing indicating any kind of an economic slowdown in the ongoing Panamanian miracle at this point. This report is just more of the same - the good news keeps coming. Oh, and by the way, if you guys at the Latin Business Chronicle are hiring... (grin)

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The planned bank purchase, which follows the nationalization of telecom company CANTV and electricity company EDC last year, will lead to more pressure on the financial system and less efficiency, warns UK-based consultancy Global Insight.

"The nationalization of the BV would add more pressure on the financial system, which already faces a series of impositions designed by Chavez to aid his model, such as the aforementioned loan allocation procedure," it said in an analysis Friday. "Constant threats from the administration have discouraged foreign and domestic investors, resulting in falling capital adequacy ratios and capital levels. In general, such intervention has had considerable adverse implications for efficiency, innovation, and reform in the Venezuelan banking sector. Although a broader takeover of the sector may not be on the cards, this recent development will not bode well for banks, as competition between state and private banks is severely limited."


With Venezuela’s economy struggling and the state starved of resources, a nationalized bank would use deposits from the public to fund the heavy expenditure burden imposed by Chavez’s economic model. Global Insight says.

The action by Chavez shows just how unpredictable he is. His announcement to buy Banco de Venezuela came on Thursday, less than a week after he had met Spanish Prime Minister Juan Luis Zapatero in Madrid what had supposed to be a visit to improve Venezuela-Spanish relations. And it also violates the message Venezuelans sent when they voted against his plans to make Venezuela more socialist or not in a national referendum in December.

The nationalization will likely deter foreign investors even more. Last year, Venezuela's FDI of $646 million represented a mere 0.3 percent of its 2007 GDP of $236.4 billion. No other country in Latin America had a lower FDI-GDP ratio. Ecuador, another country with an investor-hostile president, came in second, with 0.5 percent.

The low figure for Venezuela is surprising in light of its significant oil sector, which for years has attracted billion of dollars in foreign investment. However, new regulations and forced renegotiations of existing contracts have deterred many foreign investors. While last year's FDI represented an improvement from 2006, when the country saw a net outflow of FDI of $590 million, it's hardly a feat for a country like Venezuela, which boasted an annual FDI average of $3.4 billion during the 1998-2002 period , according to ECLAC.


While Venezuela ranked at the bottom of our FDI-GDP comparison, Panama ranked at the top, followed by Chile. Interestingly enough, Panama and Chile are ranked at the top of the Latin Business Index from Latin Business Chronicle, while Venezuela is ranked at the bottom. The index looks at five key categories and 27 subcategories to measure the recent, current and future business environment in a country.

Although Brazil and Mexico dominate foreign direct investment in Latin America, measured as a percent of their economies, they are both laggards - ranking below the average for the region. The total FDI of $105.9 billion to the region last year represented 3.1 percent of its 2007 GDP of $3.4 trillion.

Foreign direct investment in Panama last year reached $1.8 billion, which was actually a decline of 29 percent from 2006. However, even the new figure produced favorable results. It represents 9.1 percent of Panama's GDP of $19.7 billion. FDI in Chile reached $14.5 billion last year, nearly double the rate of 2006. That represented 8.9 percent of Chile's GDP last year of $163.8 billion.


FDI in El Salvador exploded last year - going from $219 million in 2006 to $1.5 billion last year. As a result, El Salvador now has Latin America's third-highest FDI per GDP. Its FDI represents 7.4 percent of the country's GDP of $20.4 billion. Costa Rica - another Central American nation - also did well. Its FDI represents 7.3 percent of its GDP of $26.2 billion. FDI to Costa Rica reached $1.9 billion last year, a 29 percent increase.

Honduras and Nicaragua came in fifth an sixth place on the FDI-GDP ranking, thanks to percentages of 6.5 and 5.3, respectively. It should be noted, however, that both countries have small economies. Honduras ranks as the fourth- and second-smallest economies in Latin America, respectively.

Also Colombia and Peru - two countries with investor-friendly governments - did well. Colombia's FDI as a percent of its GDP of $171.6 billion represents 5.2 percent. FDI in Colombia grew by 40 percent last year to $9.0 billion. FDI in Peru represented 4.9 percent of its GDP of $109.1 billion last year. FDI reached $1.9 billion last year, a 54 percent increase from 2006.

The Dominican Republic also did well. It boosted foreign direct investment last year by 16 percent to $1.7 billion. That represents 4.7 percent of its 2007 GDP of $36.4 billion. Meanwhile, Uruguay also managed to boast an FDI rate that was higher than the average despite a FDI decline of 37 percent last year to $879 million. (The decline was mainly due to an exceptionally high investment in 2006 - by Finland-based Botnia.) Uruguay's FDI represented 3.9 percent of its 2007 GDP of $23.0 billion.


Although Brazil garnered Latin America's highest FDI last year - $34.6 billion - it also has the region's largest economy. So measured as a percent of its 2007 GDP of $1.3 trillion, FDI only accounted for 2.6 percent. The same applies to Mexico. Its FDI of $23.2 billion last year also represented 2.6 percent of its 2007 GDP of $893.4 billion. The low ranking on our FDI-GDP comparison comes despite impressive FDI growth last year. Brazil's FDI increased by 84 percent, while that of Mexico grew by 21 percent.

A similar trend is seen with Argentina, Latin America's third-largest economy, and Guatemala, Central America's largest economy. FDI in Argentina only accounted for 2.2 percent of its GDP last year. FDI reached a total of $5.7 billion last year, an increase of 14 percent from 2006. That compares to its GDP of $260.0 billion. In Guatemala, FDI only accounted for 1.5 percent of its GDP of $33.7 billion last year despite growing by 51 percent to $182 million.

Bolivia's FDI-GDP ratio is also only 1.5 percent. Its FDI of $164 million last year (a decline of 41 percent) compares to its 2007 GDP of $13.2 billion.

Only three countries had an FDI-GDP ratio that was lower than one percent - Paraguay, Ecuador and Venezuela. Paraguay's FDI of $142 million last year represented 0.9 percent of its 2007 GDP of $10.9 billion, while Ecuador's FDI of $179 million last year was the equivalent of 0.5 percent of its 2007 GDP of $44.2 billion.

Like Chavez, Ecuador's president Rafael Correa is attempting to create 21st century socialism in his country. So far, he seems to be doing well, mimicking Chavez' success in scaring off foreign investors.


2007 figures in millions of US dollars. © Copyright Latin Business Chronicle

  • Rank Country FDI GDP %
  • 1 Panama $1,825 $19,740 9.1%
  • 2 Chile $14,457 $163,792 8.9%
  • 3 El Salvador $1,526 $20,373 7.4%
  • 4 Costa Rica $1,889 $26,238 7.3%
  • 5 Honduras $816 $12,279 6.5%
  • 6 Nicaragua $335 $5,723 5.3%
  • 7 Colombia $9,028 $171,607 5.2%
  • 8 Peru $5,343 $109,069 4.9%
  • 9 Dom. Rep. $1,698 $36,396 4.7%
  • 10 Uruguay $879 $22,951 3.9%
  • 11 Brazil $34,585 $1,313,590 2.6%
  • 12 Mexico $23,230 $893,365 2.6%
  • 13 Argentina $5,720 $259,999 2.2%
  • 14 Bolivia $164 $13,192 1.5%
  • 15 Guatemala $536 $33,694 1.5%
  • 16 Paraguay $1,526 $10,870 0.9%
  • 17 Ecuador $179 $44,184 0.5%
  • 18 Venezuela $646 $236,390 0.3%
  • Tot/av LatAm/Caribb. $105,925 $3,449,900 3.1%
  • Sources: ECLAC (FDI), IMF (GDP), Latin Business Chronicle. © Copyright Latin Business Chronicle
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