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Latin America Investment News on Viva Tropical

What Does a Country Do When Direct Foreign Investments Flee?

Article Summary:

Labor productivity has not improved in 15 years in El Salvador and problems are mounting in the innovation and technology sectors as well. More worrisome however, is the catastrophic outflow of direct foreign investment, which dropped by 60% and was the highest in Central America in 2012.

Photo Credit: CA

Original Article Text From El Mundo via Google Translate:

In the first six months of the year, the country received $ 174 million less in foreign direct investment, according to a report by ECLAC.

Flows of foreign direct investment (FDI) in the country reported a 60% drop in the first half of 2012, reported yesterday by the Economic Commission for Latin America and the Caribbean (ECLAC).

The body of the United Nations, based on official figures, states that in the first six months of this year, El Salvador received $ 116 million in FDI, an amount that is $ 174 million (60%) lower than the first half of 2011, when $ 290 million was earned.

Although the figure represents a significant improvement on 2010 data, because in the first half of the year just got $ 25 million, is a throwback to the performance reported in 2011, when FDI in the first six months increased more than 1,000% .

According to statistics of the Central Reserve Bank (BCR), the manufacturing sector is showing the biggest drop in FDI flows accumulated.

In the first six months of the year, that category earned $ 49.6 million, compared with $ 187.8 million reported in the same period of 2011, this implies a reduction of 73.6%.

Another sector that showed a significant contraction was trading. BCR data reveal that in the first half of 2011, FDI in that sector totaled $ 58.7 million. However, in the same period this year, barely reached $ 10.2 million.

The sectors of electricity and construction reported slight growth in the first case and $ 300,000 in the second, $ 500,000.

Taking the figures by country of origin, also noticeable reductions. The investment from Panama totaled $ 75.5 million in 2011, compared to $ 6.3 million in 2012 (-91.6%). Of Mexico grew from $ 52.6 million in the first half of 2011, to $ 14.2 million in 2012 (-73%).

The investment comes from the United States did increase because of the $ 13.9 million recorded in the first half of 2011, rose to $ 67.1 billion this year (382.7%).

In Central America
In the region, Panama and Costa Rica are the countries with higher FDI flows have attracted in the first six months of the year.

ECLAC figures indicate that Panama totaled $ 1.421 million, 0.3% more than in the first half of 2011. Costa Rica reported $ 1.018 million, but is 5% lower than the same period of 2011.

FDI grew 47% in Guatemala, which totaled $ 771 million, $ 524 million versus the prior period.

Honduras reported a slight decrease of 4%, as foreign investment fell to $ 468 million, when in the first half of 2011 had been $ 486 million.

In Nicaragua was reduced by 20%, because of the $ 545 million reported in the first half of last year rose to $ 436 million in 2012.

“In El Salvador and Nicaragua inflows fell 60% and 20%, respectively, relative to the first half of 2011, when revenues were both exceptionally high,” ECLAC said in a statement.

$ 67.1 Million. The balance of the investment from the United States, increased in the first half of this year, $ 67.1 million, according to the BCR.

$ 49.6 Million. Foreign investment in the manufacturing and received during the first half of the year totaled $ 49.6 million.

$ 25 Million. In the first half of 2010, the country received only $ 25 billion in foreign direct investment, according to ECLAC.

Labour productivity has not improved in 15 years
Since 1997, the value added per worker or labor productivity in El Salvador has not improved substantially, according to the director of CLACDS, Lawrence Pratt. According to him, the main causes of this stagnation are betting on the failure to job training or investment in new technologies in the workplace, which also reduces the competitiveness of the local workforce.

“The character of El Salvador has not changed, what has changed are the conditions under which the Salvadoran worker works,” he said.

The behavior of this indicator becomes worrisome, according INCAE, because the results of the latest Competitiveness Report World Economic Forum, in which the country was ranked 101 of 144 countries participating.

“Seven out of ten workers are not trained high school and 70% of the country’s economy is informal. How are we going to be competitive in this way? “Said analyst Sandra de Barraza.

The CLACDS director added that because of the lack of betting, the country is less competitive than five years ago, according to all indicators. When it is, it reduces the chance that workers aspire to better wages.

“The most direct way to lift people out of poverty is to give higher wages and how an open economy that manages to pay higher wages is that with increased productivity,” said Pratt.

In that regard, he said that must be wagered three fundamental axes that can improve the current state of the indicators of the report in which the country fell more sharply. “The investment should be prioritized in the institutional, education and innovation,” he said.

101 The country is ranked 101 in the latest Global Competitiveness Report.

15 The labor productivity of Salvadorans has not improved since 1997, ie 15 years.

Analyze report data
• The Salvadoran Foundation for Economic and Social Development (Fusades) INCAE presented with analysis of the results of the Competitiveness Report this year, the World Economic Forum.

This time, El Salvador only managed a slight increase in 13 of the 11 indicators contained therein. Analysts agreed that must be wagered to improve the country’s institutions and focus on education.

Similarly, were asked to invest in innovation and technology and generate efficient markets. These were the indicators that the country was lower-rated this year.

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