Foreign Direct

Investment in the
region.

1
 INDEX

INTRODUCTION ................................................................................................................................... 3
OBJECTIVES.......................................................................................................................................... 4
General Objective............................................................................................................................ 4
Specific Objective ............................................................................................................................ 4
Part 1 (Presentation and document)................................................................................................... 5
1. Look for the latest figure and year for each country available. .............................................. 5
2. In your opinion, are the FDI changes of the region for each country impacting ESA direct or
indirect? Explain. ............................................................................................................................. 5
3. Investigate the latest companies established in the country you are providing your analysis
from. Are there any tendencies observed? .................................................................................... 6
Part 2 (Presentation and document)................................................................................................... 7
1. What are the short, medium and long term effects of the debt situation in El Salvador and
the region? Explain. ......................................................................................................................... 7
2. What is attributed to the increase in debt in the country you studied? Explain. ................... 8
3. Does the debt situation impact in some way the level of (i) local and (ii) Foreign Direct
Investment in ESA?.......................................................................................................................... 8
Discussion questions in class assignment part 3 (Part of written document) .................................... 8
1. Can economies change through time? Why? Why not? ......................................................... 8
2. What factors influence most of the changes in the economy? .............................................. 9
3. Can you identify any recent changes in our region? ............................................................. 10
4. Are the countries in the Latin America in economic transition? Investigate and explain. ... 10
Conclusion. ........................................................................................................................................ 12
Biography .......................................................................................................................................... 13

2
INTRODUCTION

In Latin America the Foreign Direct Investment income decreased between 2014 and 2015
reaching their lowest level since 2010, a greater share of global growth of FDI was
achieved by a trend of mergers and acquisitions in developed countries, there is a big gap
between the income of FDI in developed countries and the percentage of FDI that receive
the developing countries which increase their income from FDI by 5.3% while developed
countries have increased 90%, developing countries in Asia have increased their FDI more
than Latin America. This kind of changes in the global economy impacts our country that is
not able to provide quality jobs for its population, according to the resident coordinator of
UNDP in El Salvador, Robert Valent, the country has less than 300,000 taxpayers to the
fiscal framework which represents only 30% of the population in working age that have a
formal job the rest would be 70% of the population in working age that is in the informal
sector in the country; is common that the poverty of a family make their children leave
studies to generate an income, in terms of university education only 1 of 10 young gains
access to this type of higher education, in general in our country we have seen an increase
in support for the most vulnerable sectors, but we have not been able to invest more than
3% of GDP in education, while the rest of countries in Latin America invest more, this
causes our population fails to change its economic model based on raw materials and
manufacturing models, this will be a challenge for future generations who must see the
study, technology and innovation as tools to bring progress to our country.

3
OBJECTIVES

General Objective

Identify changes in Foreign Direct Investment in the Central American region and analyze
the debt situation in our country.

Specific Objective

1. Analyze changes in FDI to El Salvador.

2. Describe the effects of debt in our country.
3. Determine what factors influence changes in the economy.

4
 Part 1 (Presentation and document)
1. Look for the latest figure and year for each country available.

2. In your opinion, are the FDI changes of the region for each country impacting
ESA direct or indirect? Explain.

Income of FDI for each sector

As we can see in the chart on the left our country is
2015
El Salvador
Amount in
Percentage
impacted direct for the changes in FDI, for example if
millions $
Recursos Naturales 1 0.23% countries like China have a higher demand of raw
Manufacturas 263 61.45%
Servicios 140 32.71%
materials, FDI will increase faster in areas like natural
Otros (Maquilas) 24 5.61% resources and manufacturing sector, in the case of El
428 100.00%
Salvador the manufacturing sector is the one that had the
Guatemala
Recursos Naturales 140 11.58% highest percentage in 2015 which is 61.45%.
Manufacturas 189 15.63%
Servicios
Otros (Maquilas)
749
131
61.95%
10.84%
However the countries of the region and El Salvador have
1209 100.00% to follow the advice from CEPAL, the commission called for
Nicaragua
Recursos Naturales 39 4.67% the region to work on attracting quality investment and
Manufacturas 158 18.90%
Servicios 545 65.19%
diversify its production structure, reducing dependency on
Otros (Maquilas) 94 11.24% raw materials. We have to learn from countries like Costa
836 100.00%
Honduras Rica which FDI has gradually shifted from manufacturing to
Recursos Naturales 65 5.40%
Manufacturas 395 32.81% services since 2000. During this period of structural
Servicios 744 61.79%
Otros (Maquilas) 0 0.00%
change, the countrys service sector created most jobs and
1204 100.00% produced the highest wages of all sectors operating in the
Costa Rica
Recursos Naturales 442 15.51% countrys free economic zones where average wages are
Manufacturas 799 28.04%
Servicios 1609 56.46% substantially higher in comparison with the rest of the
Otros (Maquilas) 0 0.00%
2850 100.00%
country.

5
 3. Investigate the latest companies established in the country you are providing
your analysis from. Are there any tendencies observed?

According to the investigation from CEPAL in 2015, FDI in El Salvador rose 38% to $ 429 million,
most of the new investments received by El Salvador are the result of small-scale projects. The
largest acquisition was the purchase of CYBSA Group packaging company, by the Irish company
Smurfit Kappa, for 100 million dollars to expand its presence in Central America.

In the same investigation from CEPAL in October 2014, Citibank announced its intention to sell its
assets in Costa Rica, El Salvador, Guatemala, Nicaragua and Panama and Peru. The assets were
valued at 1,500 million, Citibank's assets were sold separately: the Atlantis Honduran group
acquired the assets in El Salvador.

The US Insurance Company American International Group, Inc. (AIG) sold all its operations in El
Salvador, Guatemala, Honduras and Panama. The sale of the assets of Citibank and AIG mainly
Central American institutions contribute to greater enterprise integration in the subregion.

Among other companies that contributed to FDI in 2015 are the following, according to Banco
Central de Reserva de El Salvador:

1. Hanes Brands Inc, invested $ 20 million in renewable energy plant.

2. Kimberly-Clark, invested $ 10 million in production equipment and $ 34.7 million in
construction of two projects of energy for its plant in San Juan Opico, La Libertad.
3. Banco Agricola, invested $ 55 million in Building Operations Center.
4. The Donut Place, invested $ 0.2 million Boutique opening in Antiguo Cuscatlan.
5. Opening of Starbucks Coffee with an investment of 3 branches in 2015 and 2 in 2016.
6. MoMo. Mobile Money, Invested $ 3 million in Call Center Installation and software and
development center.
7. Hotel Corporation Latam 36.7 million. Construction of Hotel Hyatt in Centro Comercial Las
Cascadas.
8. Bayer invested $ 1.7 million upgrading the infrastructure software production plant in
Ilopango.
9. Pollo Campero, invested $ 0.5 million in remodeling 2 branches in San Miguel.
10. Millicom International Cellular, S.A. under its brand TIGO, invested $ 0.2 in services
infrastructure for TIGO Money, and another $ 200 million on installation of terrestrial
network fiber optic connection Guatemala-Colombia.
11. Calidad Inmobiliaria, invested $ 30 million in the construction of office building.

6
 The trend we can identify is that most of the new investments received by El Salvador are the
result of small-scale projects, it was mentioned by CEPAL, and most of those investments
belong to the services sector and manufacturing, our country need to develop human capital
more skillful to be able to generate a higher value to companies and be more attractive to
foreign investors in different industries.

Part 2 (Presentation and document)

GDP vs. Debt- Central America part 2

Answer the following questions:

1. What are the short, medium and long term effects of the debt situation in El
Salvador and the region? Explain.
The short debt situation will be considered from now to 1 year. A big problem a country
can have when it refers to short debt is that it can cause inflation, in the case of El
Salvador theres no national currency which means the effect can be bigger. It can also
affect that investors reject to come to the country affecting in the economy growth.
The medium debt situation will be considered to 3 years. If the debt continues increasing
financing will be expensive because the interest rates of loans will increase causing more
debt in the future. This also will affect the migration because with inflation and a bad
economy people will start look moving to another country for better opportunities.
The long debt situation will be considered to 10 years. If at this point in a long term of a
debt situation it can cause political uncertainty and more unemployment which can lead
to a bankruptcy in the country because it would be hard to another country to give loans
to the same.

7
 2. What is attributed to the increase in debt in the country you studied? Explain.
In the case of El Salvador the increase in debt is caused in a huge amount to the
government spending, which consists of monetary obligations involving all forms,
instruments, securities and documents in a single operation commit capital repayment,
interest payments, commissions and / or other specific charges relating to the transaction
in the case. A bad management of the government funds it also causes the increase of
debt. Another cause is the sale of treasury bills which increase the current spending in
short terms.

3. Does the debt situation impact in some way the level of (i) local and (ii) Foreign
Direct Investment in ESA?
Yes, it impacts in a huge way because if future investors comes here with huge intentions
of bring in to the country their companies. In the chart we can see how El Salvador has the
highest debt in the whole region, for investors this is a way to determine if it is a good idea
to invest in the country and, according to the chart, El Salvador is not the best for this
option. Other way it affects its because of taxes; government needs to pay those debts
meaning they need money and one way to get it is by asking companies for increased
taxes which can cause them not to come to the country and in other cases make the ones
who are already here leave.

Discussion questions in class assignment part 3 (Part of written document)

1. Can economies change through time? Why? Why not?

The economy change through time because different situation in 1964, the world economy was
enjoying its best 10-year growth performance since World War II. The massive postwar
reconstruction effort of the preceding decade led to vibrant growth in Europe and Asia. The U.S.
economy, which accounted for almost one-third of world output during the 1960s, was
experiencing its longest expansion to date. In the same year, Bob Dylans timeless song captured
the rapidly changing nature of the times. Although Dylan probably did not have global production
in mind, the world economy witnessed some truly unimaginable changes during the ensuing half
century. Some low-income countries with chronic development problems started growing much
faster and eventually became major contributors to global growth. The world economic order
went through a tectonic transformation, accompanied by, and in part caused by, groundbreaking
advances in science and technology and the rise of globalization.

Thanks to many technological developments over the past half century, today we have instant
access to a vast array of information sources and are able to share new knowledge with the rest of
the world in seconds. Rapid progress in communication and transportation technologies has
facilitated major innovation in many other fields, radically changed how we work, raised
productivity, and led to stronger international trade and financial links. The introduction of the
Internet to the public in 1991 started a new era in communication. The tremendous increase in
Internet access has brought people, businesses, and countries closer, while mobile communication
has become cheaper and more accessible.

8
 2. What factors influence most of the changes in the economy?

Interest Rates

Interest rates can impact the growth of an industry in several ways. In large-ticket industries such
as vehicle manufacturers or cruise companies, an increase in interest rates can prevent customers
from borrowing to finance the purchase of these types of products and services. High interest
rates also deter companies from investing in new capital and expansion. On the other hand, falling
interest rates can stimulate industries to grow, which can lead to innovation and higher
employment levels.

Currency Strength

The value of the U.S. dollar compared to other foreign currencies such as the yuan, yen and the
pound is important even for companies that do not import or export goods. Consumers have a
choice to purchase goods or services originating in the United States or in other countries. If the
U.S. dollar strengthens, companies in the industry that purchase inputs from other countries are
able to be more competitive in pricing. In industries that are heavily reliant on foreign raw
materials and processing, such as the clothing industry, the entire sector can be lifted or
depressed with a strengthening or weakening of the dollar.

Government Intervention

Many industries are regulated by the government in one form or another. Government agencies
such as the Environmental Protection Agency, the Food & Drug Administration or the U.S.
Department of Agriculture maintain standards that all operators in an industry must follow for the
safety of consumers, employees, or natural resources. Some industries are more heavily regulated
than others and new laws and rules can shake up an entire industry and depress growth. For
example, new child toy safety laws implemented under the Consumer Product Safety
Improvement Act in 2009 threatened to wipe out many small toy producers as the requirements
to test and certify the toys were cost-prohibitive to all but large toy manufacturers. Proposed
changes to the Act may help alleviate the burden on small manufacturers and resellers.

Environmental Impact

Economic growth in an industry can be impacted not only by the environmental effect the
products or services have but also by consumers' perceptions of that impact. For example, the
market for fur apparel declined drastically over the course of a few years in the 1990s when
consumers perceived that raising and killing small animals for their fur was both inhumane and a
poor use of land. Although the industry is once again picking up with international demand, the
number of fur farmers in the country has substantially declined. If the public views an industry's
products or services as being harmful or unsafe, most companies within the sector can experience
a marked decline in sales quickly.

9
 3. Can you identify any recent changes in our region?

1. Latin America is experiencing its first region-wide economic downturn since 2009

The IMFs revised World Economic Outlook projected in October that the regions economy would
contract by 0.3% in 2015. This updated the IMFs previous prediction of 0.5% growth.

2. Brazil is contending with a sharp recession

The bleak picture is partly due to a steep recession in Brazil projected to be a contraction of 3%
by the IMF and slumping commodity prices.

Other factors include a strengthening US dollar relative to national currencies and weak domestic
demand.

3. Venezuela is dealing with inflation close to 100%

Venezuelas economy, which the IMF expects to have shrunk by 10% in 2015, is currently
experiencing inflation which has soared close to 100%.

As well as recession in Brazil, Mexico has been experiencing slower than expected growth.

Argentina was expected to see some growth but has its own battles with high inflation and falling
GDP.

4. Economic problems are bringing political change

Many Latin American governments have seen revenues drop and social instability rise. A wave of
discontent has put the left-of-centre governments that have dominated South Americas political
landscape for more than a decade on the defensive.

A mix of scandal, voter fatigue and economic difficulty have created an apparent widespread
desire for change.

4. Are the countries in the Latin America in economic transition? Investigate and
explain.

Latin American economic growth is set to recover during the second half of 2015 and gain further
speed in 2016, though with notable differences across countries. The rebound reflects
developments in the United States and Europe, where recoveries are expected to strengthen.
More dynamic world trade flows, together with more competitive effective exchange rates, will
boost exports and support activity. In countries where business and consumer confidence will
improve, aggregate domestic demand will also contribute to the uplift.

10
Most Latin American economies have been resilient in the face of recent external shocks, in
particular highly-volatile currencies and sharply lower prices of exported commodities. This has
been especially the case in countries with sound macroeconomic policy fundamentals. Countries
with strong budgetary positions required less fiscal consolidation despite the loss of tax revenue
linked to commodity exports. As well, where price expectations were anchored and monetary
policy was credible, central banks could tolerate the temporary increase of inflation following
currency realignments. These successes demonstrate the importance of continued commitment to
sound macroeconomic policies.

Further structural reforms in Latin America would make an important contribution to medium-
term economic prospects and strengthen the social progress achieved during the past decade.
Broad-based reforms should focus on four priorities: increasing productivity, reducing inequality,
strengthening institutions and improving sustainability. Continued commitment to such policy
priorities would not only contribute to further economic growth, but would also bolster resilience
in the face of shocks and reduce the risks of sharp slowdowns that may result from extraordinary
developments in the global economy.

Latin American will benefit from a world economy that is starting to move at a faster pace

After two years of slowing down, economic growth in Latin America as a whole is expected to
accelerate in the course of 2015 and gain further speed in 2016. This pick-up in activity will be
driven by stronger external demand as global growth is projected to strengthen in the course of
2015 and 2016. The recovery in advanced economies will be driven by improvements in consumer
and investor confidence, as well as by supportive monetary conditions, a slower pace of fiscal
consolidation, and lower energy prices. These developments have different implications across
Latin American economies, but with a positive effect overall.

11
Conclusion.

In conclusion the foreign direct investment its very important on the region, as we can see it
affects completely in the region, and its something really necessary for the economy growth in a
country, with no foreign direct investment it would be difficult to counter a national debt and
other factors.

Foreign direct investment (FDI) has proved to be resilient during financial crises. FDI can take
several other forms:

-FDI allows the transfer of technologyparticularly in the form of new varieties of capital inputs
that cannot be achieved through financial investments or trade in goods and services. FDI can also
promote competition in the domestic input market.

-Recipients of FDI often gain employee training in the course of operating the new businesses,
which contributes to human capital development in the host country.

-Profits generated by FDI contribute to corporate tax revenues in the host country.

FDI is necessary for the development of a country, El Salvador is not an exception and even though
there are problems with debts and other factors is necessary to make more attractive the contry
to get more FDI.

12
Biography

Education, structural change and inclusive growth in Latin America. Economic Commission
for Latin America and the Caribbean (ECLAC).

La Inversin Extranjera Directa en Amrica Latina y el Caribe 2016. Unidad de Inversiones y

Estrategias Empresariales de la Divisin de Desarrollo Productivo y Empresarial de la
Comisin Econmica para Amrica Latina y el Caribe (CEPAL).

Informe de la Situacin Econmica de El Salvador. Banco Central de Reserva de El

Salvador. Diciembre 2015

13