FOREIGN direct investments (FDI) into Jamaica climbed by 75 per cent in 2012, when compared to the year before.

But the US$381 million that flowed into Jamaica remained well below the annual average over the previous decade, which stood closer to US$700 million, according to a new report by the UN.

“Both mining and tourism, which once accounted for much of FDI, have been receiving a fraction of the sums they used to,” said Economic Commission for Latin America and the Caribbean (ECLAC), a regionally based UN body. “Mining has been affected by lower aluminium prices worldwide, which reduced demand for bauxite, while the tourist sector is still absorbing the new capacity created by some large investments in 2003-2009.”

In the past two years, telecommunications have been the largest recipient, as Digicel and Columbus Communications, which operates as Flow, took away large chunks of the market from Cable and Wireless, which trades as LIME.

The role of FDI in the region rose significantly in the 1990s, when many state-owned assets were privatised and many sectors, which until then had received little FDI, were opened up and deregulated. It held steady in the 2000s, before starting to trend upwards since 2010.

In particular, in the larger countries of the Caribbean, such as Trinidad and Tobago and Jamaica, the total FDI stock is as high as 80 per cent of the economy.

Job creation is also a significant feature of FDI in the Caribbean, especially where tourism-related activities are the target of the investments.

ECLAC estimates that for each US$1 million of investment six jobs are generated in countries such as Bahamas, Barbados, Belize, Haiti, Jamaica and Saint Lucia.

“Call centres are major job creators in Jamaica and Saint Lucia,” said the report.

On the other hand, higher levels of FDI stock, and the consequent rise in FDI income can have an adverse effect on a country’s balance of payments.

Income from foreign direct investment can be reinvested in the economy where it was generated (usually in the same subsidiary), but it also can be repatriated to the parent company to be invested in other countries, distributed as dividends or retained as cash in the business.

“In Latin America and the Caribbean as a whole, transnational corporations repatriate a slightly higher proportion of their profits (55 per cent) than they reinvest (45 per cent),” wrote ECLAC economists. “The high rate of reinvestment in Mexico (64 per cent) is attributable mainly to the predominance of companies from the United States among its foreign investors.

“The tax treatment of profits in the United States discourages companies from repatriating profits, which is why they keep an extraordinarily high proportion of their foreign subsidiaries’ profits offshore.”

On the other, repatriation rates are generally higher in Caribbean economies than in Latin America, with the highest rates seen in Barbados, Belize and Suriname.

“Jamaica and Trinidad and Tobago post average repatriation rates for the region, at 58 per cent and 54 per cent, respectively,” said the report.

Last year, FDI flowing into the subregion hit a new record high of US$173.4 billion, which was 6.7 per cent higher than in 2011.

International FDI flows decline by 13 per cent to levels close to those seen in 2009.

“Macroeconomic uncertainty in the United States and the European Union lay behind this fresh drop in global investment, which was sharpest in flows to developed countries (22.5 per cent),” said ECLAC. “The developing countries as a whole also saw a decline in inward FDI, although the drop was much more modest (three per cent).”

The United States and the countries of the European Union continue to be the largest investors in Latin America, but investments made by firms from Latin American countries increased substantially in 2012, to 14 per cent of all FDI entering the region in the past year.

Transnational corporations from the United States increased their share of FDI flowing into the region, while Spanish firms, which had ranked third in this respect in 2011, reduced their share mainly due to divestments.

— Camilo Thame