Published by Economist Intelligence Unt

Event

Foreign direct investment (FDI) in Venezuela declined by 54% year on year in nominal terms in the first half of 2014, according to the UN Economic Commission for Latin America and the Caribbean (ECLAC).

Analysis

Foreign direct investment fell to US$1.8bn in the first half of 2014, a decrease of 54% from the same period of 2013, according to a mid-year update of ECLAC's Foreign Direct Investment in Latin America and the Caribbean report, which is published each May. Many industries in Venezuela are suffering from a lack of foreign investment, and there is a major problem of capital flight, despite currency controls enacted more than a decade ago.

However, FDI figures are easily skewed. Mexico, for example, saw foreign direct investment drop by 101% year on year in the first half of 2014. However, this was due in large part to the purchase of the Modelo brewery in 2013 by a Belgian multinational, AB InBev, for US$13.3bn, which lifted its 2013 numbers. A similar effect explains Venezuela's figure. The country saw inward FDI of US$7bn in 2013, according to ECLAC, roughly the sum of the previous two years combined (full-year IMF data, on which we base our forecasts, are not yet available for 2013). This was the result of several large, one-off transactions. The drop in FDI in the first half of this year, therefore, is more of a regression to the mean.

Foreign direct investment dropped by 23% across Latin America in January-June, reaching a total of US$85.5bn. The UN expects global FDI flows to grow by around 10% this year. The region has seen fewer major corporate acquisitions, and less money is being invested in mining, a major regional industry, owing mainly to weaker metals prices.

Impact on the forecast

The latest data are in line with our estimate that foreign direct investment in Venezuela has declined sharply in 2014, to half of its 2013 level.