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2017 Foreign Direct Investment in Latin America and the Caribbean

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2017 Foreign Direct Investment in Latin America and the Caribbean

2

Executive summary

Economic Commission for Latin America and the Caribbean (ECLAC)

Alicia Bárcena

Executive Secretary

Antonio Prado

Deputy Executive Secretary

Mario Cimoli

Chief, Division of Production, Productivity and Management

Ricardo Pérez

Chief, Publications and Web Services Division

The 2017 version of Foreign Direct Investment in Latin America and the Caribbean is the most recent edition of an annual series published by the Unit on Investment and Corporate Strategies of the Division of Production, Productivity and Management of the Economic Commission for Latin America and the Caribbean (ECLAC). This year’s edition was prepared by Álvaro Calderón, Wilson Peres, Cecilia Plottier and Mathilde Closset, under the coordination of Giovanni Stumpo. The databases were prepared by Leandro Cabello. Comments and suggestions were received from Mario Cimoli, Martín Abeles, Juan Carlos Ramírez, Olga Lucía Acosta, Tania García-Millán, Georgina Núñez, Claudia de Camino, Nicolo Gligo and Olaf de Groot. Thanks are due to the government authorities and executives of companies consulted, for their inputs for the preparation of this document. Any comments or suggestions concerning the contents of this document should be addressed to Giovanni Stumpo ([email protected]) and Álvaro Calderón ([email protected]). The boundaries and names shown on the maps included in this publication do not imply official acceptance or endorsement by the United Nations.

United Nations publication ISBN: 978-92-1-121962-3 (print) ISBN: 978-92-1-058599-6 (pdf) ISBN: 978-92-1-358065-3 (ePub) Sales No.: E.17.II.G.4 LC/PUB.2017/18-P Distr.: General Copyright © United Nations, 2017 All rights reserved Printed at United Nations, Santiago S.17-00815

Explanatory notes - Three dots (…) indicate that data are missing, are not available or are not separately reported. - A dash (-) indicates that the amount is nil or negligible. - A full stop (.) is used to indicate decimals. - The word “dollars” refers to United States dollars unless otherwise specified. - A slash (/) between years (e.g., 2013/2014) indicates a 12-month period falling between the two years. - Individual figures and percentages in tables may not always add up to the corresponding total due to rounding.

This publication should be cited as: Economic Commission for Latin America and the Caribbean (ECLAC), Foreign Direct Investment in Latin America and the Caribbean, 2017 (LC/PUB.2017/18-P), Santiago, 2017. Applications for authorization to reproduce this work in whole or in part should be sent to the Economic Commission for Latin America and the Caribbean (ECLAC), Publications and Web Services Division, [email protected] Member States and their governmental institutions may reproduce this work without prior authorization, but are requested to mention the source and to inform ECLAC of such reproduction.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Contents

CONTENTS

Executive summary.................................................................................................................................................... 9 Chapter I Foreign direct investment in Latin America and the Caribbean....................................................................... 21 A. 2016: a turning point in globalization.............................................................................................................. 23 B. Global FDI flows are returning to advanced economies................................................................................. 25 1. The United States and European Union are the main receiving countries.............................................. 27 2. China’s growing influence is consolidating the globalization triad......................................................... 29 C. The region’s complex scenario........................................................................................................................ 33 1. FDI fell by 7.8% in Latin America and the Caribbean in 2016................................................................. 33 2. Rising star: non-conventional energy ...................................................................................................... 36 3. Lack of diversification among countries of origin.................................................................................... 40 4. FDI remains the most stable component of capital inflows..................................................................... 43 5. Decreasing FDI profitability is damaging investment prospects.............................................................. 45 D. A weak year for trans-Latin firms.................................................................................................................... 48 E. It is essential to rethink strategies to attract FDI............................................................................................ 52 F. Country analysis: instances of FDI growth are few and far between............................................................. 54 1. Investment in Brazil remains resilient despite the recession.................................................................. 56 2. The rest of South America has yet to recover.......................................................................................... 59 3. Mexico: end of the growth run? .............................................................................................................. 64 4. Central America: Panama performs well ................................................................................................. 66 5. The Dominican Republic still leads in the Caribbean............................................................................... 70 Bibliography............................................................................................................................................................ 76 Annex I.A1.............................................................................................................................................................. 78 Chapter II Disruptive change in a leading sector: relocation, business models and technological revolution in the global automotive industry........................................................................................................................... 87 A. An industry in constant change ...................................................................................................................... 89 B. The new geography: the rise of East Asia....................................................................................................... 89 1. Redefining the global oligopoly: a new triad of regions.......................................................................... 90 2. Stability among the dominant enterprise group ...................................................................................... 94 3. International trade continues to be intrafirm and intraregional............................................................ 100 C. Newcomers are challenging the traditional players..................................................................................... 103 1. Competition among the top manufacturers............................................................................................ 103 2. The increasing power of suppliers......................................................................................................... 108 D. Production models based on advanced technologies................................................................................... 110 1. The new production platforms................................................................................................................ 110 2. Investments in innovation....................................................................................................................... 111 E. Disruptive changes on the short-term horizon.............................................................................................. 117 1. The digitization of the industry............................................................................................................... 119 2. Mobility, connectivity and new patterns of consumption...................................................................... 129 3. A regulatory context for sustainability................................................................................................... 131 F. An industry between technological upheaval and the redefinition of global leadership............................. 136 Bibliography.......................................................................................................................................................... 138 Anexo II.A1........................................................................................................................................................... 146

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Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter III The automotive industry in Mexico: a success story under pressure........................................................... 153 Introduction: building a success story.................................................................................................................. 155 A. The growing importance of Mexico’s motor vehicle industry....................................................................... 155 B. A new business model: high-end vehicles for the global market................................................................. 165 C. Strengthening the network of suppliers........................................................................................................ 172 D. Mexico reaches record levels of production, exports and domestic sales, but faces capacity-building limitations......................................................................................................................... 173 E. Caught between the technological revolution and policy changes in the United States............................. 181 1. The technological revolution and competitiveness: robotics................................................................. 181 2. Changes in United States policy: executive orders and renegotiation of the North American Free Trade Agreement (NAFTA)........................................................................ 183 Bibliography.......................................................................................................................................................... 186 ECLAC recent publications.................................................................................................................................... 191 Tables Table I.1 Table I.2 Table I.3 Table I.4 Table I.5 Table I.6 Table I.7 Table I.8 Table I.9 Table I.A1.1 Table I.A1.2 Table I.A1.3 Table I.A1.4 Table I.A1.5 Table I.A1.6 Table II.1

Table II.2 Table II.3 Table II.A1.1 Table II.A1.2 Table II.A1.3

Global FDI inflows, variation rate and distribution by region, 2007-2016...................................... 26 Value of net cross-border mergers and acquisitions and share by region or economy of the seller, 2010-2016............................................................................................... 28 Value of net cross-border mergers and acquisitions and share by region or economy of the purchaser, 2010-2016........................................................................................ 28 Latin America and the Caribbean: FDI inflows by recipient country and by subregion, 2005-2016 ......................................................................................................... 35 Latin America and the Caribbean: 20 largest cross-border mergers and acquisitions, 2016..................................................................................................................... 41 Latin America and the Caribbean: 10 largest divestments, 2016................................................... 43 Latin America and the Caribbean (selected countries): outward FDI flows, 2005-2016........................................................................................................................................ 48 Latin America and the Caribbean: largest cross-border acquisitions by trans-Latin firms, 2016................................................................................................................ 50 Latin America and the Caribbean: companies with highest announced amount of foreign investment, 2014-2016................................................................................................... 51 Latin America and the Caribbean: inward foreign direct investment by country, 2002-2016..................................................................................................................... 78 Latin America and the Caribbean: inward foreign direct investment by destination sector, 2007-2016.................................................................................................... 79 Latin America and the Caribbean: inward foreign direct investment by country of origin, 2007-2016....................................................................................................... 81 Latin America and the Caribbean: inward foreign direct investment by component, 2007-2016............................................................................................................... 83 Latin America and the Caribbean: inward foreign direct investment stock by country, 2001-2016..................................................................................................................... 85 Latin America and the Caribbean: outward foreign direct investment flows by country, 2001-2016..................................................................................................................... 86 Main relations between the largest vehicle manufacturers, ownership shares, technological alliances, partnerships to share productive infrastructure, and joint ventures, 2017................................................................................................................ 104 Evolution of autonomous driving................................................................................................... 122 Announcements of autonomous vehicle launches, by level of automation, 2014-2021.............. 123 Vehicle production, selected countries and regions, 2000-2016.................................................. 146 Vehicle sales, selected countries and regions, 2005-2016........................................................... 147 Twenty largest vehicle manufacturers: production, sales, market value and employment, 2010-2015......................................................................................................... 148

Foreign Direct Investment in Latin America and the Caribbean

Table II.A1.4 Table II.A1.5 Table II.A1.6 Table II.A1.7 Table II.A1.8 Table II.A1.9 Table III.1 Table III.2 Table III.3 Table III.4 Table III.5 Table III.6 Figures Figure I.1 Figure I.2 Figure I.3 Figure I.4 Figure I.5 Figure I.6 Figure I.7 Figure I.8 Figure I.9 Figure I.10 Figure I.11 Figure I.12 Figure I.13 Figure I.14 Figure I.15 Figure I.16 Figure I.17 Figure I.18 Figure I.19 Figure I.20 Figure I.21 Figure I.22 Figure I.23

• 2017

Twenty largest suppliers to the automobile industry: sales, market value and employment, 2010-2015......................................................................................................... 148 Exports of automobile products, by geographical origin, 2000-2016............................................ 149 Imports of automobile products, by geographical destination, 2000-2016.................................. 149 Vehicle manufacturers: main mergers and acquisitions, 2000-2017............................................ 150 Suppliers to the automobile industry: main mergers and acquisitions, 2000-2017..................... 151 Largest vehicle manufacturers: main subsidiaries and brands and type of vehicles produced, 2017............................................................................................................ 152 Mexico: light vehicle assembly plants and estimated annual vehicle production, 2016 and 2022............................................................................................................................... 168 Investment announcements by light vehicle manufacturers in Mexico, 2003-2016.................... 170 Investment announcements by automotive industry suppliers in Mexico, 2003-2016................. 172 North America: production plants for autoparts manufacture of major global suppliers, by country, 2017............................................................................................................................. 173 Mexico: production, exports, domestic sales and imports of light vehicles, by manufacturer, 2000-2016.......................................................................................................... 176 United States: executive orders, January-June 2017................................................................... 184

Africa, Latin America and the Caribbean, China, the United States and Europe: share of FDI flows and selected indicators of strategic assets...................................................... 24 Global FDI flows by groups of economies, and proportion corresponding to Latin America and the Caribbean, 1990-2016........................................................................................................ 25 Ten leading host economies of FDI, 2014-2016.............................................................................. 27 Greenfield investment projects announced, by country or region of host country, 2005-2016...... 29 China: FDI flows, 2000-2016............................................................................................................ 29 United States and China: share of global FDI inflows and outflows, 2006-2016........................... 30 Relative weight of acquisitions by China in the United States and by the United States in China, 2010-2016......................................................................................................................... 32 Latin America and the Caribbean: FDI inflows, 1990-2016............................................................. 34 Latin America and the Caribbean: FDI inflows by component, 2000-2016..................................... 36 Latin America (selected subregions and countries): distribution of FDI by sector, 2010-2016........................................................................................................................................ 37 Latin America and the Caribbean: distribution of announced FDI projects by sector, 2005-2016........................................................................................................................................ 38 Latin America and the Caribbean: value of announced FDI projects in renewable energy by country, 2005-2016..................................................................................................................... 39 Latin America and the Caribbean (selected subregions and countries): origin of FDI, 2016.......... 40 Latin America and the Caribbean: cross-border capital inflows, 2005-2016.................................. 44 Latin America and the Caribbean: balance-of-payments current account by component, 2010-2016........................................................................................................................................ 44 Latin America and the Caribbean (selected countries): balance between FDI inflows and FDI income outflows, average for the period 2010-2016......................................................... 45 Latin America and the Caribbean:a stock and average profitability of FDI, 2000-2016................. 46 Latin America and the Caribbean (selected countries): average profitability of FDI, 2010-2016........................................................................................................................................ 46 Latin America and the Caribbean: return on assets, average and by sector.................................. 47 Latin America and the Caribbean: outward FDI flows, 2005-2016................................................. 48 Latin America (selected countries): stock of FDI abroad, 2005-2016.............................................. 49 Latin America and the Caribbean: foreign investment announcements by companies from the region, 2005-2016............................................................................................................. 51 Latin America and the Caribbean: FDI flows, 2016......................................................................... 56

Contents

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Contents

Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.24 Figure II.1 Figure II.2 Figure II.3 Figure II.4 Figure II.5 Figure II.6 Figure II.7 Figure II.8 Figure II.9 Figure II.10 Figure II.11 Figure II.12 Figure II.13 Figure II.14 Figure II.15 Figure II.16 Figure II.17 Figure II.18 Figure II.19 Figure II.20 Figure II.21 Figure II.22 Figure II.23 Figure II.24 Figure II.25 Figure II.26 Figure III.1 Figure III.2 Figure III.3 Figure III.4 Figure III.5 Figure III.6 Figure III.7 Figure III.8 Figure III.9 Figure III.10

Brazil: announced FDI projects by sector, 2013-2016..................................................................... 58 Global vehicle production, by vehicle type, 2000-2016................................................................... 90 Vehicle production, by selected countries and regions, 1950-2016............................................... 91 Main vehicle-producing countries, 2000-2016................................................................................ 92 Vehicle manufacturers: announced cross-border investments, by selected countries and regions, 2003-2016................................................................................................................... 93 Leading vehicle manufacturing firms, 2000-2015........................................................................... 95 Geographical distribution of production by the main vehicle manufacturers, by selected regions and countries, 2000-2015................................................................................ 97 World’s 100 largest suppliers of components to vehicle manufacturers, by number of firms, sales and enterprise origin, 2000-2015.......................................................... 98 Sales by the main global suppliers to the automotive industry, by region, 2005-2015.................. 99 Cross-border investments announced by automotive industry suppliers, by selected countries and regions, 2003-2016................................................................................ 99 Main automotive product exporting countries, by geographical destination, 2000-2015............ 101 Main automotive product importing countries, by geographical origin, 2000-2015..................... 101 Main automotive product exporting countries, by type of product, 2000-2015............................ 102 Main automotive product importing countries, by type of product, 2000-2015........................... 102 Average production per vehicle construction platform, by firm, 2014-2022................................. 111 Investment in research and development (R&D) by the automotive industry, 2005-2015........... 112 Investment in research and development and R&D intensity of the leading vehicle suppliers and manufacturers, 2005-2015......................................................................... 113 Automotive industry: investment in research and development (R&D), domestic and imported, by country, 2007-2015............................................................................................ 114 Vehicle manufacturers and suppliers: share of value added, by module, 2002-2025.................. 115 Global automotive industry: revenue and profits, 2015 and 2030................................................ 118 Global production of connected automobiles, by mode of connection, 2015-2020...................... 120 Additional revenue for the global connected vehicles market, by type of feature and segment, 2015-2022............................................................................................................... 121 Revenues of the global market for advanced driver assistance systems in light vehicles, by component, 2015-2025.................................................................................. 122 Selected countries: national subsidies to purchase an electric vehicle, by type, 2016............... 133 Trend in the global stock of electric vehicles, by selected region and country, 2012-2016......... 134 European Union, North America and China: share of propulsion systems in vehicle sales, 2014-2030........................................................................................................... 135 Electric vehicles: sales by manufacturer, type and model, 2016.................................................. 136 North America: vehicle production by country, 1990-2016........................................................... 156 Mexico: production, exports, total domestic sales and vehicle imports, 1988-2006................... 157 Specialization of production by selected regions and countries, by type of vehicle, 2000-2016.................................................................................................................... 158 United States and Mexico: average hourly wage for workers and unsupervised employees in the automotive industry, 2007-2017....................................................................... 159 North America: cross-border investments in the automotive industry, 2003-2016...................... 160 Mexico: cross-border investments announced by automakers and suppliers, by country of origin, 2003-2016..................................................................................................... 160 North America: vehicle production, by company and country of manufacture, 2000-2015.......... 161 North America: General Motors, Ford and Fiat-Chrysler vehicle production, by country and type of vehicle, 2000-2014..................................................................................................... 162 North America: exports and imports of automotive products, by geographical destination, 1995-2016.................................................................................................................. 162 North America: exports and imports of automotive products, and trade balance, 1990-2016...................................................................................................................................... 163

Foreign Direct Investment in Latin America and the Caribbean

Figure III.11 Figure III.12 Figure III.13 Figure III.14 Figure III.15 Figure III.16

• 2017

North America: exports and imports of automotive products, by type, 1995-2016...................... 165 Mexico: foreign direct investment (FDI) in the automotive industry, by subsector, 1999-2016................................................................................................................ 167 Mexico: production and exports of light vehicles, by manufacturer, 2010-2016.......................... 174 Mexico: characteristics of the domestic motor vehicle market, 2008-2016................................. 175 Mexico: exports and imports of automotive products, by type of good, 1995-2016.................... 178 Mexico: exports and imports of automotive products, by geographical origin and destination, 1995-2016........................................................................................................... 178

Boxes Box I.1 Box II.1 Box II.2 Box III.1

United States: the new Administration and foreign direct investment ......................................... 53 Crisis of the United States automotive industry............................................................................. 93 China: the rapid rise of the global automotive industry leader ...................................................... 96 Generic robot cost versus average manufacturing labour costs................................................... 182

Diagrams Diagram II.1 Diagram II.2

Disruptive trends facing the automotive industry......................................................................... 118 Automotive industry: evolution of technology incorporation ....................................................... 120

Maps Map I.1 Map I.2 Map I.3 Map III.1

Latin America and the Caribbean (selected subregions and countries): foreign direct investment inflows, 2015 and 2016................................................................................................ 55 Central America (selected countries): foreign direct investment inflows, 2015 and 2016............. 66 The Caribbean (selected countries and groupings): foreign direct investment inflows, 2015 and 2016................................................................................................................... 71 Mexico: research and development centres for the automobile industry, 2017.......................... 179

Contents

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Executive summary

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Executive summary

EXECUTIVE SUMMARY

This publication sets out and analyses the main foreign direct investment (FDI) trends in the countries of Latin America and the Caribbean. The 2017 edition shows that the region is at a difficult juncture. FDI inflows declined by 7.8% in 2016, to US$ 167.180 billion, representing a cumulative fall of 16.9% since the peak in 2011.1 The fall in commodity prices continues to affect investments in natural resources, sluggish economic growth in several countries has slowed the flow of market-seeking capital, and the global backdrop of technological sophistication and expansion of the digital economy has concentrated transnational investments in developed economies.

A. Foreign direct investment in Latin America and the Caribbean The perception of globalization and its economic and social effects reached a turning point in 2016. Political events, such as the referendum in the United Kingdom which resulted in the vote to leave the European Union (Brexit) and the presidential election in the United States, reflected trends that had developed over time in global production and trade. Developed economies have been more interested in repatriating production, which together with the rapid technological transition and greater competitive pressure, has redirected businesses towards more technology-intensive markets. In 2016, global FDI inflows amounted to US$ 1.7 trillion, higher than any of the annual figures between 2008 and 2014, but 2% lower than in 2015. Developed economies regained the lead, receiving 59% of FDI flows, with their inflows climbing by 5%. Developing economies received 37% of the total and their FDI inflows fell by 14%. All the developing subregions received less investment, with Asia seeing decreases of 15% and Africa, 3%. Cross-border mergers and acquisitions played a large role, especially in developed economies, driven by greater international liquidity and industry strategies that led to major operations. Meanwhile, China was the second biggest provider of global FDI, after the United States, as its foreign investments increased steadily, particularly acquisitions in the European Union and the United States. China’s “Go Global” strategy, launched more than a decade ago, has consolidated its role as a global player that is integrating into the workings of increasingly sophisticated sectors, by actively engaging with new technological trends of the fourth industrial revolution. In this scenario, the Latin American and Caribbean region is losing ground as a recipient of FDI, with inflows decreasing for the second year in a row to levels similar to those seen six years ago (see figure 1). In spite of this, FDI flows stood at 3.6% of gross domestic product (GDP), while the global average was 2.5%, revealing the importance of transnational corporations in the region’s economies.

1

The variations were calculated on the basis of data that exclude the Bolivarian Republic of Venezuela and Trinidad and Tobago as no information is available for those countries for 2016.

FDI inflows declined by 7.8% in 2016, to US$ 167.180 billion.

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Economic Commission for Latin America and the Caribbean (ECLAC)

Figure 1 Latin America and the Caribbean: foreign direct investment inflows, 1990-2016 (Billions of dollars and percentages of GDP)

Investment falls in natural-resource-related sectors Economic growth falters 250

10 2011

9

206 935

2015

200

8

183 144 2010

168 421

150

-7.8%

7

167 180

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1999

4.7%

5

100

4

3.6%

3 2009

50

2

2.5%

1 0 1990

1994

1998

2002

2006

2010

2014

2018

0

FDI inflows as a percentage of GDP (right scale) FDI inflows Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures as of 15 June 2017. Note: FDI figures do not include flows to the main financial centres of the Caribbean. FDI figures indicate FDI inflows, minus disinvestments (repatriation of capital) by foreign investors. These figures differ from those used in the 2017 editions of the Economic Survey of Latin America and the Caribbean) and the Preliminary Overview of the Economies of Latin America and the Caribbean, because they show the net balance of foreign investment, that is, direct investment in the reporting economy (FDI) minus outward FDI. The figure for 2016 does not include the Bolivarian Republic of Venezuela or Trinidad and Tobago as no information was available for those countries, which were therefore excluded from the calculation of the variations. Since 2010, figures for Brazil include reinvested earnings from FDI; as a result, these figures are not directly comparable with those from before that date. This is represented by the break in the lines.

The situation among countries and subregions has been heterogeneous, but few economies saw higher levels of FDI. Despite the recession, Brazil remained the main recipient of FDI (47% of the total) and investments increased by 5.7%, albeit not as a result of new capital inflows, but owing to an increase in loans between transnational corporations. Mexico failed to maintain the growth of previous years with FDI falling by 7.9%. Nevertheless FDI in Mexico remained at historically high levels and the country was the second largest host country (19%). Inflows into Colombia rose by 15.9%, making it the economy with the third highest inflows (8% of the total). This was the result of a major acquisition in the energy sector and higher investment in services, although inflows still did not reach the levels seen at the peak of the commodity price boom. With the exception of Paraguay, FDI inflows to other South American countries decreased. Chile was the region’s fourth largest destination country despite inflows falling by 40.3% In Central America, 44% of inflows to the subregion went to Panama, which saw its fourth consecutive year of growth (up 15.9%), while Costa Rica received 27%, up by just 1.1%. In the Caribbean, the Dominican Republic received 49% of inflows to the subregion, up 9.2%. Jamaica was in second place, with 16% of the total and a fall of 14.5%. The members of the Organisation of Eastern Caribbean States (OECS) received 5.8% less than in 2015, and accounted for 11% of inflows to the subregion.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Executive summary

After the end of the commodity price boom, investment in extractive industries slowed and this sector’s share of FDI has been falling since 2010, down to 13% of the total in 2016. By contrast, the share of manufactures and services increased to 40% and 47%, respectively. The new investments announced were concentrated in renewable energies, telecommunications and the automotive industry, with the region receiving 17%, 21% and 20%, respectively, of overall investment. Meanwhile, for a second year in a row, the renewable energy sector attracted the most investment, receiving 18% of the total announced for the region, with a third of those investments going each to Chile and Mexico. There has been no diversification in terms of investor countries. Of total inflows, 73% came from either the United States (20%) or the European Union (53%). Of those from the European Union, 12% came from the Netherlands and 8% from Luxembourg, which both offer tax advantages, meaning that they are used as a base by transnational corporations from third countries so that the ultimate origin of funds from these two countries is not immediately clear. Spain accounted for 8% of outflows, Canada and the United Kingdom, 5% each, Germany, Italy and France, 4%, and Japan, 3%. According to official statistics, China, which has ramped up its FDI outflows significantly, accounted for just 1.1% of inflows to the region. This figure underestimates the amount of Chinese capital in the countries of Latin America and the Caribbean; in fact, when the value of mergers and acquisitions in 2016 is taken into account, China was the fourth largest investor in the region, after the United States, the European Union and Canada. Given the major operations that China has undertaken in the first half of 2017, its share is expected to increase next year. Declining returns on assets could worsen the investment outlook for the region. The FDI stock expanded by 12.8% in 2016 to reach a new all-time high, while average returns —calculated as the ratio between FDI earnings and capital stock— declined again and reached a 15-year low, at 4.2%. Around 55% of this income was repatriated to home countries, meaning that there was a relative increase in reinvested earnings compared with the repatriated earnings. Average FDI profitability fell in all the countries except Panama, and the falls were steepest in the mining countries. As well as being a year of lower investment in general, 2016 was also a weak year for the trans-Latins, with FDI outflows from the Latin American and Caribbean countries down by 47% to US$ 25.567 billion. Unlike in 2015, when the heaviest fall was posted in Brazil, in 2016 outward investment was down almost across the board, with the exception of Argentina and Colombia. Firms from Mexico, Colombia and Chile engaged in the most cross-border mergers and acquisitions, especially in construction and construction materials. Lastly, in 2016 global FDI flows stagnated, although they remained at high levels. Developed countries resumed the leading role that they had lost in previous years. In contrast, a number of developing countries and regions that had benefited from the price boom in natural resources saw their FDI inflows drop. In this scenario, foreign investments that help to narrow the region’s production and social gaps are increasingly important. FDI can be a key factor in technology transfer and the adoption of new management systems and business models that increase competitiveness and productivity. However, the positive effects of FDI are not automatic. The results in terms of integrating technology, promoting research and development and creating good-quality jobs have, in most cases, fallen short of expectations. It is therefore important to review and improve Latin American and Caribbean countries’ strategies for attracting FDI, so that they focus more on modernizing the economy and diversifying production.

It is important to review and improve Latin American and Caribbean countries’ strategies for attracting FDI, so that they focus more on modernizing the economy and diversifying production.

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Economic Commission for Latin America and the Caribbean (ECLAC)

B. Disruptive change in a leading sector: relocation, business models and technological revolution in the global automotive industry Over previous decades, manufacturing became markedly global, with many operations moved from advanced economies to developing economies to cut costs. This paradigm has been called into question recently, however, by both firms and governments, and manufacturing has gained increasing importance as a source of productive linkages, scientific and technological capabilities and innovation in domestic economies. The automotive industry is in the throes of a far-reaching transformation and is becoming a catalyst and driver of major technological and productive changes. Although vehicle manufacturers have been leading this process for many decades, suppliers of parts, components and accessories have recently become increasingly important in the production chain, powering technological development. In stylized terms, the industry is concentrated in three macroregions: North America, the European Union and Asia. A small group of countries maintain strong hegemony in terms of production, vehicle manufacturing, supply and technological development: the United States, Germany, Japan, Republic of Korea and China. The first three of these have dominated the industry for decades, but China has been growing rapidly and has now become the world’s largest vehicle producer (see figure 2). In this context, fierce competition, consumer pressure and rapid technological progress have favoured the consolidation of manufacturers and suppliers, the emergence of new alliances between firms in the production chain and with enterprises from other industries, and the need to deploy flexible production models that offer customers a wide range of alternatives. In the production sphere, new platforms are appearing that combine large-scale manufacturing with increasing flexibility. Over the coming years, the main manufacturers will concentrate much of their global production in a small number of new modular platforms, increasingly focused on areas of specialization and passing increasing areas of responsibility to their suppliers. In fact, manufacturers are caught in a crowding-out dynamic whereby they constantly require more and better highly innovative and technological features to remain competitive. This dynamic is forcing firms to increase funding for research, development and innovation. In fact, 5 of the 20 firms that invest the most in R&D worldwide are in the automotive sector. While manufacturers invest an average of around 5% of their sales in R&D, suppliers of parts, accessories and components have an R&D intensity of close to 10%. Supplier firms thus try to satisfy the manufacturers’ demanding requirements in order to hold on to the contracts signed between them. The industry now faces new, potentially disruptive challenges that could greatly alter its structure in the near future.

Despite the good results achieved by the industry since the 2008 financial crisis, it now faces new, potentially disruptive challenges that could greatly alter the structure of the sector in the near future. There are at least three major trends that will determine its dynamic in the coming years: convergence with the digital economy, changes in the concept of mobility and in consumption patterns, and regulatory requirements in the fields of safety, the environment and energy efficiency.

Foreign Direct Investment in Latin America and the Caribbean

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Executive summary

Figure 2 Vehicle production, selected regions and countries, 1950-2016 (Percentages)

China is the world’s largest producer, with 24%, and other Asian countries increase their production capacity, along with other developing countries and emerging economies.

2016

11

11 14

2010

18

20

45% of production is located in developing Asian countries, and China is the world’s largest vehicle manufacturer, with 30% of the total.

30

21

24

1980

26 29

Japan and Germany emerge as strong new players and begin to challenge United States leadership.

31

The United States dominates the market unchallenged, with 79% of global vehicle manufacturing.

79

1950

North America European Union China Other Asian countries

South America Russian Fed. and Turkey Japan and Rep. of Korea Others

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA). 

Faced with these changes, the broader industry market is also set to change significantly. Between 2015 and 2030, while the share of vehicle sales can be expected to fall from 50% to 28%, shared mobility services will grow from 0% to 20%. Traditional suppliers will see their market share decline from 10% to 3%, while suppliers of new technologies, electronics and software will grow theirs from 1% to 10% (see figure 3). The industry is experiencing a colossal disruption in which electronics, digitization and software are the key elements. A vehicle today has about 60 microprocessors, four times more than a decade ago. In 2005, electronics and software accounted for about 20% of the total cost of a vehicle; today this figure reaches 35% and is expected to be over 50% by 2030, and as much as 75% in the case of electric vehicles. The incorporation of digital technologies in vehicles allows for rapid progress in connectivity and autonomous driving. About 75% of the new vehicles sold in 2020 are expected to be connected. The rapid spread of these features will help lower their cost and incorporate them into most vehicles, regardless of the sale price. While many of these features are currently limited to high-end models, which use them as a differentiating factor, they will quickly become generalized and extended to mass-market vehicles. Thus, the incorporation of new technologies will not necessarily translate into higher prices.

The incorporation of digital technologies in vehicles allows for rapid progress in connectivity and autonomous driving.

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Executive summary

Figure 3 Global automotive industry: revenues and profits, 2015 and 2030 (Percentages)

3%

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4 11

36%

Suppliers’ revenue sources will shift from engines, interiors and chassis, to electronics, software, cloud services and batteries, making new technology and software suppliers more important, particularly with the growth of electric vehicles. Moreover, revenues associated with shared mobility and strictly digital services, such as on-board entertainment and location-based information providers, should increase rapidly.

16 10 10

49

44

2015

2030

Revenues

41

29

2015

Profits

Traditional vehicle manufacturers and suppliers will see their share of total revenues decline.

2030

Shared mobility

Digital services

Suppliers of new technologies and software

Traditional hardware suppliers

Insurance

Financing

Parts and accessories market

Vehicle sales

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of PwC, Connected Car Report 2016: Opportunities, Risk, and Turmoil on the Road to Autonomous Vehicles, 28 September 2016 [online] http://www.strategyand.pwc.com/media/file/Connected-car-report-2016.pdf.

Alongside connectivity, autonomous driving is also spreading rapidly (see diagram 1). Major manufacturers are announcing new models with a high degree of automation by 2020. Although German and Japanese firms are at the forefront in this area, United States manufacturers also aim to gain a major stake. These advances are attracting digital platforms that have not previously shown interest in the automotive industry. Examples include Apple, Google, Uber, Intel and Samsung, which are becoming involved in different areas, from vehicle manufacture to the development of components and services linked to connectivity and autonomous driving. These advances, coupled with other macro trends, such as overpopulation, congestion in large cities and pollution, are changing consumption patterns and the regulatory requirements facing the industry. Firstly, manufacturers see consumer loyalty weakening, as people begin to doubt the urgency of purchasing a vehicle or even the need. Against this backdrop, many firms are expanding the frontiers of the industry and entering new shared mobility and private transport services. Secondly, technological progress (mainly in batteries) and public policies that seek to mitigate the effects of climate change are driving the development of electromobility. Some countries, led by China, Norway and the United States, have introduced incentives that help overcome consumer fears about electric vehicles: low autonomy, high prices, and sparse recharging infrastructure.

Foreign Direct Investment in Latin America and the Caribbean

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Executive summary

Diagram 1 Automotive industry: technology embedding

Mechanization:

Electrification:

Digitization:

Connectivity:

Autonomization:

Mechanical devices replace manual actions

Technological improvement of car parts Electric windows Power door locks

Introduction of embedded digital components Radio data system technology Parking cameras Working parts sensors

Interconnection of digital components

Incorporation of smart hardware and software

Embedded in-car connectivity

Autonomous driving

Monitoring real-time car operating data

Automatic self-diagnosis systems

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Statista, Digital Market Outlook. Connected Car Market Report, New York, March 2017.

In short, the automotive industry is experiencing the greatest revolution in its history: its frontiers are expanding and new products and business models are emerging. The convergence between traditional manufacturing and software is shifting the structure of the production chain and the leaderships within it. Although great expectations surround the new forms of mobility and the role of the automotive industry in it, many questions remain to be answered in this regard.

C. The automotive industry in Mexico: a success story under pressure Although North America remains one of the three main hubs of the global industry, it has lost ground over the past few decades. Among the member countries of the North American Free Trade Agreement (NAFTA), however, Mexico has gained in stature: by virtue of intensive investment, it has become one of the leading suppliers to the United States, the world’s second largest motor vehicle market (see figure 4). The Mexican automotive industry now contributes over 3% of the country’s GDP and 18% of its manufacturing output. It runs a yearly trade surplus of US$ 52 billion, represents over US$ 51.2 billion in cumulative FDI inflows between 1999 and 2016 (11% of the total) and employs 900,000 workers directly. Today, 80% of Mexico’s motor vehicle production is exported and 86% of these exports go to Canada and the United States. Mexico has thus become the world’s seventh largest supplier and the fourth largest exporter. This process has gathered pace over the past few years, especially since the international financial crisis, and in the process Mexico has gone from being a low-cost platform for mass-market vehicle assembly to an integrated production chain that is more diversified in terms of products and technological sophistication. This is leading Mexico to develop a denser and higher-tech productive fabric, which should strengthen its position in an industry that is under heavy pressure from the new —and potentially highly destabilizing— trends.

17

18

Economic Commission for Latin America and the Caribbean (ECLAC)

Executive summary

Figure 4 North America: vehicle production by country, 1990-2016 (Units and percentages)

Since 2008, Mexico’s production has consistently exceeded Canada’s

Adoption of NAFTA a in 1994

The international financial crisis hit the United States automotive industry hard

12.2 million 9.8 million

3.6 million 1.9 million

2.4 million

821 000 1990

1992

1994

1996

1998

2000

Mexico

2002

2004

2006

Canada

2008

2010

2012

2014

United States

6.5

13.0

With market opening in 1985, the adoption of NATFA a in 1994 and sector development policies, Mexico’s automotive industry tripled its share in North American production between 1990 and 2016.

67.1

Meanwhile, the share of the United States automotive industry dropped from 78% to 67%.

19.8

15.5

77.9

1990

2016

1992

1994

1996

1998 Mexico

2000

2002

2004

Canada

2006

2008

2010

2012

2014

2016

United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).  a North American Free Trade Agreement.

The outlooks for Mexico’s motor vehicle industry will depend on at least two independent sets of factors. On the one hand is the transformation driven by the technology revolution under way in the global automotive industry, changes in the concept of mobility and consumptions patterns, and regulatory pressure in the fields of safety, the environment and energy efficiency. On the other hand is the uncertainty triggered by the announcements of the new Administration in the United States. Despite its recent sound performance, the Mexican industry is not immune to global developments in the sector. First of all, although Mexico has been able to attract many of the global carmakers and a large number of first- and second-tier suppliers, it still lags behind in terms of third- and fourth-tier companies. This points to the weakness of the

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Executive summary

local production structure, especially in relation to small and medium-sized high-tech, knowledge-intensive companies. This not only represents a lost opportunity to build local value added into automotive products; it also limits the spillover of indirect production and technology benefits to the rest of the local economy. A second, related factor is the creation and optimization of local capabilities in human resources, science, technology, innovation and enterprise development. Mexico has made notable progress on these fronts, but not enough given the fast pace of the industry and of capacity-building in these areas in other parts of the world, especially China. A denser industrial fabric and more solid local capacities would lessen the risks to the Mexican automotive industry from the changes beginning to occur in the sector. In addition, given the rapid pace of technological change in the motor vehicle industry, the advantages of Mexico’s wage gap with respect to the United States and Canada (which is a major source of competitiveness for the country) will dissipate rapidly. Advances and falling costs in robotics could threaten jobs in the industry in the medium term, at least for some of the best paid workers (see figure 5). Figure 5 United States and Mexico: average hourly wage for workers and unsupervised employees in the automotive industry, 2007-2017 (Dollars per hour)

35 30 25 20 15 10 5 0 2007

2008

2009

Vehicle manufacturers in the United States

2010

2011

2012

Suppliers in the United States

2013

2014

Vehicle manufacturers in Mexico

2015

2016

2017

Suppliers in Mexico

24.2

2.4 Mexico

United States

Manufacturing in Mexico rather than the United States generates labour savings of between US$ 600 and US$ 700 per vehicle.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from United States Department of Labor, Bureau of Labor Statistics, and National Institute of Statistics and Geography (INEGI) of Mexico. 

Lastly, recent policy changes by the new Administration in the United States have been focused in particular on the foreign trade and industrial policy fronts. The economic platform of the new President’s election campaign was presented as an alternative to the globalization agenda and included, among other items, the withdrawal of the United

19

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Executive summary

Economic Commission for Latin America and the Caribbean (ECLAC)

States from the Trans-Pacific Partnership (TPP) and from NAFTA, tariffs of 45% on imports from Mexico, the reduction of the trade deficit and the reform of corporate tax legislation to stimulate the repatriation of companies, jobs and capital. These proposals were grouped under the collective slogan and policy of “American First”, which is aimed at repositioning the United States as the main hub of global manufacturing, especially in the automotive industry. The effects of the new trade and industrial policy discourse began to be felt immediately after the elections. In the first 10 weeks that elapsed between the elections and his taking office, the President-elect concentrated heavily on the automotive industry and concluded a number of agreements with United States manufacturers in the sector to withdraw planned investments in Mexico or commit to reshoring plants and jobs to the United States. On the basis of these initial actions, once the new Administration took office in January 2017, the President signed executive orders on a broad range of issues, in order to create institutions, streamline regulatory process and authorizations and strengthen mechanisms for boosting manufacturing in the United States. The Administration also began to review environmental regulations affecting the motor vehicle industry, including Corporate Average Fuel Economy (CAFE) Standards, which the outgoing Administration had recently strengthened as part of efforts to combat climate change and drive the development of hybrid and electric vehicles. After this first raft of reforms and deregulation, the Administration shifted its attention to NAFTA. Although it was initially thought that the United States would withdraw from the agreement, on 18 May 2017 the Administration asked Congress to approve the initiation of talks with Mexico and Canada after a 90-day period, with a view to updating NAFTA. The idea is apparently to modernize the agreement’s provisions on intellectual property rights, regulatory practice, public enterprises, e-commerce, services, customs procedures, sanitary and phytosanitary measures, employment, the environment and small and medium-sized enterprises. Both Mexico and Canada have given their support for updating NAFTA, which was adopted 23 years ago, and have indicated a desire to preserve the regional automotive production chains. Although the United States has afforded emphasis thus far to regulatory issues, the negotiations on tariffs and rules of origin will be crucial in reaching a new agreement. In this framework, any major changes to the existing trade preferences could significantly upset production and supplier chains in North America. Although it is too soon to gauge the effect of these new policies —many of which have yet to be implemented— and the scope of the NAFTA negotiations is not fully clear, the alteration of automotive production chains would be highly damaging to jobs and competitiveness. In such a scenario, China could see its dominant role reinforced as a producer of parts, components and specialized machinery, given the sheer size and low costs of its motor vehicle industry. Mexico’s automotive industry is strongly positioned at this juncture of pressures from the technological revolution combined with the shifting focus of trade and industrial policies in the United States. However, this will not shield it from significant challenges to its stature as one of the largest global producers and exporters. Beyond the trade negotiations currently under way, Mexico will have to base its responses on new sectoral and technology policy efforts, framed by the current reality of the global automotive industry.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Foreign direct investment in Latin America and the Caribbean A. 2016: a turning point in globalization B. Global FDI flows are returning to advanced economies C. The region’s complex scenario D. A weak year for trans-Latin firms E. It is essential to rethink strategies to attract FDI F. Country analysis: instances of FDI growth are few and far between Bibliography Annex I.A1

I

CHAPTER Chapter I

21

Foreign Direct Investment in Latin America and the Caribbean

• 2017

A. 2016: a turning point in globalization

I

Chapter I

The 12 months since the publication of Foreign Direct Investment in Latin America and the Caribbean 2016 represent a turning point in the perception of globalization and its economic and social effects. Political events, such as the referendum in the United Kingdom which resulted in the vote to leave the European Union (Brexit) and the presidential election in the United States, reflect trends that developed over time in global production and trade. The difficulties of large middle-income sectors in developed countries resulted from years of slow growth, high unemployment —particularly among young people—, wage stagnation or deterioration and pressure from migratory flows of a magnitude not seen since the end of the 1940s. These events were accompanied by widespread acknowledgment that the technological revolution has picked up pace and is now universal. Only a few years ago, terms such as robotics and artificial intelligence were associated with a distant reality, whereas they are now included in all forums and discussions on economic growth, employment and equality. The World Economic Forum’s dissemination of the concept of the fourth industrial revolution has resulted in the technological dimension being incorporated into political concerns, or at least the political discourse. The combination of these political and economic factors has increased the pressure to relocate production to developed countries and set off a trend towards economic nationalism, which was unthinkable less than two years ago. China’s productive, technological and geopolitical progress —as well as its consolidated position as the world’s second-largest economy— has strengthened resistance to globalization, which was already reflected in weaker growth in global production chains, owing partly to increasing interest in the advantages deriving from the close proximity of production, research, development and innovation activities to one another. At the same time, although the growing weight of global digital platforms in goods and services production and consumption reduces barriers to entry to third markets and increases competition, national economies reflect various levels of openness in terms of production, trade and investment. Against the backdrop of a rapid technological transition and greater interest in keeping production at home, growing competitive pressure is redirecting businesses towards more technology-intensive markets. Greater competition and pressure to innovate stimulate foreign investment in quality assets (patents and highly-skilled human resources) which are more abundant in the triad comprising the United States and the advanced regions of Western Europe and East Asia where products and production processes are manufactured and where standards are set and later disseminated. As shown in figure I.1, this triad combines manufacturing, technological research and development, and training of highly-skilled human resources in the world’s 500 leading universities.

Against the backdrop of a rapid technological transition and greater interest in keeping production at home, growing competitive pressure is redirecting businesses towards more technologyintensive markets.

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Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

Figure I.1 Africa, Latin America and the Caribbean, China,a the United States and Europe: share of FDI flows and selected indicators of strategic assets (Percentages) A. FDI inflows and outflows, 2012-2016 average

29

17

15 32

21

15 4 2

12 3

FDI inflows FDI outflows

B. Capacity and strategic assets

21 27 18

18

41

24 29

28 1

4 6

2 2

1

9

Percentage of global gross domestic spending on research and development (current dollars, PPP,b 2010-2014 average) Global gross manufacturing value-added (2014-2015 average) Percentage of universities in Shanghai Jiao Tong University’s Top 500 ranking

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva; United Nations Statistics Division; UNESCO Institute for Statistics (UIS) and Shanghai Jiao Tong University, Academic Ranking of World Universities (ARWU), 2015. a Data cover China and Hong Kong Special Administrative Region of China. b Purchasing power parity.

The economic recovery in the United States and the European Union, which is based more on monetary and supply policies than on demand policy, has reinforced these trends. The increase in explicit or inexplicit support mechanisms for advanced manufacturing and the spread of the fourth industrial revolution are reflected in programmes such as Germany’s Industrie 4.0, China’s Made in China 2025, and in the modernization and automation of the United States defence industry. Although there are still good reasons to invest abroad, the relative weight of these investments is decreasing. The pursuit of natural resources continues to follow the boom-bust cycles of the past in response to global demand and the long-term nature of the investments. Investments that seek to take advantage of domestic markets continue to focus on the largest or most dynamic countries, while those seeking efficiency through export platforms have been hit the hardest by the new trends.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

These conditions have slowed the momentum of foreign direct investment in Latin America and the Caribbean. Multiple editions of this report have highlighted the failure of transnational companies with subsidiaries in the region to prioritize the search for quality assets. Instead they have focused on domestic markets (in large and mediumsized countries), on the extraction or exploitation of natural resources (in countries specialized in agriculture, mining and tourism), or on building platforms for exports to the United States (in Mexico, Central America and the Caribbean). FDI strategies for the domestic market face slow growth in the region, after three years of stagnant or declining per capita GDP, down 3.6% between 2013 and 2016. Investment in natural resources softened following the end of the commodity price boom and, after overcoming the effects of the global crisis in 2009, the development of new export platforms looks highly uncertain environment in the light of the renegotiation of the North American Free Trade Agreement (NAFTA), the cancelation of the Trans-Pacific Partnership (TPP) and the possible shift from multilateral trade negotiations to a more bilateral stance driven by the United States. Against this backdrop, FDI inflows into the region continue to fall, down 16.9% since the peak level seen in 2011.

B. Global FDI flows are returning to advanced economies Global FDI flows amounted to US$ 1.7 trillion in 2016, higher than any of the annual performances between 2008 and 2014. Nonetheless, this figure reflects a 2% drop compared with 2015, owing mainly to the fact that inflows into developing countries fell by 14%, returning to 2010 levels. Meanwhile, inflows into developed countries climbed by 5% and those into transition economies by 81% after two years of sharp declines (see figure I.2) Figure I.2 Global FDI flows by groups of economies, and proportion corresponding to Latin America and the Caribbean, 1990-2016 (Billions of dollars and percentages) 2 000

20 18

1 600

16 14

1 200

12 10

800

8 6

400

4

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

0

1990

2 0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva.

Transition economies Developed economies Developing economies Percentage corresponding to Latin America and the Caribbean (right scale)

25

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Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

The percentage share of the different groups of economies varied considerably between 2014 and 2016. Developed economies regained their position as the largest FDI recipients, accounting for 59% of the global total (higher than the levels seen in 2008 and 2009), while FDI flows into developing countries fell from 53% in 2014 to 37% in 2016 (see table I.1). Table I.1 Global FDI inflows, variation rate and distribution by region, 2007-2016

Region Global total

Investment flows (billions of dollars)

Variation rate (percentages)

2007- 2012 2013 2014 2015 2016 2011a 1 515 1 593 1 443 1 324 1 774 1 746

2012

2013

Distribution by region (percentages of global total)

2014

2015

20072011a -2 100

2016

2012

2013

2014

2015

2016

0

-9

-8

34

100

100

100

100

100

Developed economies

846

857

684

563

984

1032

4

-20

-18

75

5

56

54

47

43

55

59

European Union

464

492

337

257

484

566

13

-31

-24

89

17

31

31

23

19

27

32

United States

219

199

201

172

348

391

-13

1

-15

103

12

14

12

14

13

20

22

82

65

84

57

38

68

-19

30

-33

-34

81

5

4

6

4

2

4

Developing economiesb Latin America and the Caribbeanc Africa

587

671

675

704

752

646

-2

1

4

7

-14

39

42

47

53

42

37

151

201

196

199

183

167

-3

-3

2

-8

-8

10

13

14

15

10

10

65

78

75

71

61

59

17

-4

-4

-14

-3

4

5

5

5

3

3

Developing Asia

379

401

421

460

524

443

-6

5

9

14

-15

25

25

29

35

30

25

Transition economies

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures for Latin America and the Caribbean and United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva. a Simple average. b Not equal to the total for the subregions as the figure for Latin America and the Caribbean is not taken from UNCTAD (2017). c Calculation of the variation in 2016 excludes the Bolivarian Republic of Venezuela and Trinidad and Tobago because data for those countries are unavailable for 2016.

The percentage share of the different groups of economies varied considerably between 2014 and 2016. Developed economies regained their position as the largest FDI recipients, accounting for 59% of the global total.

FDI flows into North America climbed by 9%, including a record-high increase of 12% in the United States, while flows into European Union countries jumped by 17%, thanks to the United Kingdom, which saw investment surge from US$ 33 billion in 2015 to US$ 254 billion in 2016.1 Although there are currently no signs of Brexit having a negative impact on FDI flows, just two acquisitions accounted for 67% of inflows, reflecting sectoral growth and transnational companies’ consolidation strategies: the Belgian-based Anheuser-Busch Inbev SA/NV acquired the brewer SABMiller PLC for US$ 101.5 billion and Royal Dutch Shell bought the oil and gas company, BG Group PLC, for US$ 69.4 billion. Among developing countries, FDI declined in Africa (3%) owing to weak mineral prices, and in Asia (15%) where flows towards China were relatively stable (down 1%) and investment in Hong Kong Special Administrative Region (SAR) of China fell sharply (18%). Average inflows dropped by 7.8% in Latin America, albeit with stark differences among countries and subregions, as will be seen below. With respect to transition economies, flows to the Russian Federation increased considerably, to almost US$ 38 billion. While this figure was much lower than the peak reached in 2008 (US$ 118 billion), it was also much higher than the level seen in 2015, reflecting an increase 217.7% following the privatization of State-owned oil and gas companies. These sectors also played a key role in the increase in FDI towards Kazakhstan.

1

FDI flows into Europe were down by 6% in 2016, despite large mergers and acquisitions totalling US$ 337 billion, the highest level seen since 2007 in the European Union. If the United Kingdom is excluded, FDI inflows plunged 31% in 2016.

Foreign Direct Investment in Latin America and the Caribbean

1.

• 2017

The United States and European Union are the main receiving countries

In 2016, the main recipients of FDI were the United States, the United Kingdom and China and Hong Kong SAR. This, together with the considerable weight of mergers and acquisitions in investment flows, is line with the aforementioned search for high-quality strategic assets, and consolidates the triad of regions as the top FDI recipients (see figure I.3). With regard to FDI trends, flows to Hong Kong SAR declined, while those towards Australia and the Russian Federation increased.2 Figure I.3 Ten leading host economies of FDI, 2014-2016 (Billions of dollars) United States United Kingdom China Hong Kong SAR Netherlands Brazil Singapore Australia 2016

India

2015

Russian Fed.

2014 0

50

100

150

200

250

300

350

400

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva and official figures.

Cross-border mergers and acquisitions accounted for a large share of investment in 2016 and rose by 18% compared with the previous year, to a net total of US$ 869 billion (49.7% of FDI inflows). This confirmed the upward trend in these transactions, driven by high global liquidity. At the same time, the relative weakness of the euro against the dollar led to more mergers and acquisitions in the European Union (up 36.7% in 2016), underpinned by sectoral growth that facilitated large deals. In the past, such transactions have tended to be carried out in the developed economies, and this trend regained momentum in 2016, with 91% of all transactions taking place in developed economies in 2016 up from 75% in 2010 (see table I.2).3

2

3

In Australia, the largest investments targeted the services sector: information management, insurance and credit services. The value of net mergers and acquisitions increased by 24.2% in developed countries, while it fell by 17.8% in developing economies. In the European Union and United States, their value grew by 36.7% and 18.7%, respectively, but fell by 19.7% in Asia. In Latin America, transaction values were up by 62.2%, although this was still below the levels reached in 2010 and 2014, and accounted for less than 2% of the global total in 2016.

Chapter I

27

28

Chapter I

Table I.2 Value of net cross-border mergers and acquisitions and share by region or economy of the seller, 2010-2016 (Billions of dollars and percentages)

Economic Commission for Latin America and the Caribbean (ECLAC)

Amount

Share

Variation

2010

2015

2016

2010

2015

2016

2016

World

347 094

735 126

868 647

100

100

100

18

Developed economies

259 926

640 762

794 317

75

87

91

24

Transition economies

118 187

265 256

362 593

34

36

42

37

84 344

303 981

360 797

24

41

42

19

7 114

3 065

20 088

2

0

2

555

Transition economies

4 095

10 000

5 014

1

1

1

-50

Transition economies Latin America and the Caribbean Africa

83 072

84 364

69 315

24

11

8

-18

29 013

10 952

17 762

8

1

2

62

7 493

21 259

9 689

2

3

1

-54

Developing Asia

37 723

49 919

41 861

11

7

5

-16

China and Hong Kong SAR

19 443

13 626

12 436

6

2

1

-9

United States Japan

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva.

With regard to the origin of mergers and acquisitions, that is, the country where the transnational company acquiring the assets is based, developed countries accounted for 20% more of these transactions in 2016, with 45% more originating in the European Union and 39% fewer in the United States (see table I.3). Developing economies also saw an increase (14%), mainly as a result of Chinese companies’ acquisitions: up 80% in 2016 compared with 2015, to a record high of US$ 92.221 billion. If Chinese companies’ acquisitions are excluded, mergers and acquisitions originating in developing countries fell for the second year in a row (28% in 2016 and 31% in 2015). This pattern is linked to the new role of Chinese firms as international investors, which began developing in 2000 with the Go Global strategy, introduced in the President’s report to the National People’s Congress (ECLAC, 2011), and which will affect not just FDI in the coming years, but also the global economic growth. Table I.3 Value of net cross-border mergers and acquisitions and share by region or economy of the purchaser, 2010-2016 (Billions of dollars and percentages)

Amount

Share

Variation

2010

2015

2016

2010

2015

2016

2016

World

347 094

735 126

868 647

100

100

100

18

Developed economies

224 759

587 455

707 528

65

80

81

20

European Union

23 108

270 224

391 042

7

37

45

45

United States

85 104

127 879

77 949

25

17

9

-39

Japan

31 271

50 623

80 646

9

7

9

59

Transition economies

5 378

4 501

-0.809

2

1

0

-118

100 378

131 153

149 857

29

18

17

14

16 725

4 953

0.686

5

1

0

-86

3 792

3 533

6 061

1

0

1

72

Developing Asia

79 865

122 609

143 235

23

17

16

17

China

29 828

51 117

92 221

9

7

11

80

Hong Kong SAR

13 318

19 598

0.089

4

3

0

-100

Developing economies Latin America and the Caribbean Africa

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva.

Foreign Direct Investment in Latin America and the Caribbean

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Chapter I

The number of greenfield investment projects, which fell sharply after the global financial crisis, increased for the second year in a row in 2016 (7%) (see figure I.4). Unlike mergers and acquisitions, developing economies were the top host countries for new projects (62% of the total in 2016). This improvement, together with expectations of stronger economic growth in several regions, points to a modest recovery in global FDI in 2017 (UNCTAD, 2017) 1 400

30

1 200

25

1 000

20

Figure I.4 Greenfield investment projects announced, by country or region of host country, 2005-2016 (Billions of dollars and percentages)

800 15 600 10

400 United States

5

200 0

0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

China European Union Global total (right scale)

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

2.

China’s growing influence is consolidating the globalization triad

China’s investments abroad set a new record of US$ 183.1 billion in 2016, an increase of 43.5% over the previous year. And, for the first time, FDI outflows exceeded inflows (see figure I.5). Figure I.5 China: FDI flows, 2000-2016 (Billions of dollars)

200 180 160 140 120 100 80 60 40

FDI inflows

20

FDI outflows

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva.

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Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

FDI inflows into China have increased considerably over the past decade, representing almost 10% of global flows in 2014. However, the country’s share of the global total has declined in the past two years, while the relative and absolute importance of Chinese transnational companies’ investments abroad continues to grow. In 2006, they accounted for barely 1.3% of global FDI flows, compared with 16.5% for the United States (the largest investor), yet in 2016 they accounted for 12.6%, placing China second behind the United States (20.6%) (see figure I.6). Figure I.6 United States and China: share of global FDI inflows and outflows, 2006-2016 (Percentages) 30 25 20 15 10

United States: FDI inflows United States: FDI outflows

5

China: FDI inflows 0

China: FDI outflows 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva.

By 2016, China’s share of global FDI flows had risen to 12.6%, making it the world’s second largest investor after the United States.

China is thus strengthening its position in the global economy as a major market for commodities and manufactured goods from developed and developing countries, and as a global player which, through its transnational companies, is successfully integrating into increasingly sophisticated sectors and actively participating in the new technology trends of the fourth industrial revolution. While China’s domestic market remains highly attractive for both developing and developed economies, for several years now the initiatives taken by the country’s major companies have been changing the global geography of production in many sectors. ECLAC has conducted an analysis of some mining products whose global value chains have been significantly altered by Chinese companies’ strategies. Over the past 15 years, these firms have stepped up mineral extraction and increased demand for minerals on the global market, driving the boom in metal prices. At the same time they have invested in metal refining and smelting, and moved up the mining and metallurgy value chain. These companies have thus taken on a central role in iron, steel and aluminium manufacture, overtaking countries such as Germany, Japan, the Russian Federation and the United States, and providing serious competition for the Latin American industry (ECLAC, 2016a). Although this is part of China’s industrialization project, there are signs that much more sophisticated products could start to follow a similar path.

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• 2017

It is inevitable that the weight of many Chinese firms in the global economy will continue to increase, given their size. According to The Economist (2017), the increase in FDI from China and in the mergers and acquisitions carried out by Chinese firms is not merely part of an industrialization strategy. In fact, mergers and acquisitions by Chinese transnational corporations target a wide variety of sectors, from football clubs to hotel chains, making it difficult to detect the industrial logic behind many of these deals. The increasing size of many Chinese firms, the availability of cheap loans from State-owned banks and the difficulty of maintaining high profits solely in the domestic market explain in large part the growth in investment flows from China. However, the most recent mergers and acquisitions by Chinese transnational corporations present a more complex picture. Although China’s investment in the United States and Europe has been growing since 2011, it shot up by 130% in 2016, from US$ 41 billion in 2015 to US$ 94 billion, accounting for some 51% of total FDI outflows from that country.4 The total amount would have been even higher if antitrust authorities in the United States and the European Union had not blocked the acquisition of Syngenta,5 a Swiss agrochemical and seed company, by ChemChina, in 2016. The deal, worth US$ 44 billion, was later approved in June 2017. Most of the flows from China to these two regions took the form of mergers and acquisitions, an important tool that allows purchasing companies to acquire knowledge, technological capacity, brands, a client base and market access quickly, sparing them the otherwise lengthy and difficult process they would have to undertake to develop their own. Chinese firms’ interest in the United States has grown in the past five years. Figure I.7 shows the relative weight of the United States as a host country for mergers and acquisitions by Chinese companies, and vice versa. Between 2010 and 2016, the share of United States companies in the total acquisitions by Chinese firms rose from 5.4% to 28.6%. At the same time, Chinese corporations accounted for just 4.9% of United States companies’ acquisitions. Chinese firms made major acquisitions in the hardware, consumer electronics, real estate and entertainment sectors in the United States in 2016. In hardware, Apex Technology bought the printer company Lexmark International for US$ 3.6 billion and, in consumer electronics, Haier acquired the household appliance company GE Appliances (one of the largest United States brands in history) for US$ 5.6 billion. Major deals were also closed in the hotel sector: Anbang Insurance Group (a Chinese financial services firm) acquired the luxury hotel chain Strategic Hotels &  Resorts for US$  5.5 billion; HNA Group, a multi-sector conglomerate (aviation, real estate, tourism, logistics and financial services) acquired Carlson Hotels Inc for an estimated US$ 2 billion; and China Life Insurance Company Limited bought a stake in Starwood Capital Group for US$ 2 billion. Meanwhile in the entertainment sector, Wanda Group, owner of the world’s largest cinema chain (including Wanda Cinemas and Hoyts Group) acquired Legendary Entertainment, a film production company, for US$  3.5 billion (Baker McKenzie, 2017).

4 5

Before 2008, both regions received less than US$ 1 billion in investment from China (Baker McKenzie, 2017). Syngenta is one of the world leaders in this market and, in 2015, had rejected an acquisition bid from Monsanto.

Chapter I

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Figure I.7 Relative weight of acquisitions by China in the United States and by the United States in China, 2010-2016 (Percentages) 30 25 20 15 10

Share of the United States in total Chinese transactions

5 0

Share of China in the total of United States transactions 2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.

Chinese investments in Europe focused on information and communications technologies (ICTs), and totalled US$ 13.7 billion, followed by transport, energy and infrastructure, totalling US$  12.2 billion, and industrial equipment, amounting to US$ 6.2 billion (Baker McKenzie, 2017). Some of the largest deals include the purchases of Supercell, a Finnish company specializing in mobile game development, by Tencent Holdings Limited —which offers Internet and mobile phone services ranging from e-commerce to interactive entertainment— for US$ 7.8 billion; Skyscanner, a travel website and search engine, by Ctrip, the largest Chinese travel company, for US$ 1.7 billion; and Global Switch, a British company specializing in operating and developing large scale data centres, by a consortium of Chinese investors. In the industrial equipment sector, the Chinese transnational Midea Group, which manufactures electrical appliances, acquired KUKA AG, one of the world’s leading manufacturers of industrial robots and factory automation systems for US$ 4.7 billion, while ChemChina acquired KraussMaffei, which manufactures industrial equipment and automated production systems, for US$ 1 billion. Both acquisition targets were high-tech German firms. Various Chinese transnational companies have also invested in the air transport and energy sectors: HNA Group bought Avolon, an Irish aircraft leasing company, for US$ 2.5 billion, and Swissport International, for US$ 2.8 billion; and Beijing Enterprise acquired EEW Energy, a German company that produces energy from waste, for US$ 1.6 billion. Several of these deals, particularly in the United States, reflect the diversity of targeted sectors and the finance background of acquiring firms. A large number of investments do not aim to upgrade technology or to build capacity in strategic sectors for industrial development. Instead, they focus on maintaining high profitability, facilitated by high global liquidity and easy access to public credit.

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This growing trend looks set to continue, although probably not to the extent seen over the past two years, owing to tighter controls by the Chinese monetary authorities because of the negative impact of FDI outflows on the balance of payments and pressure on the national currency (Hanemann and Huotari, 2017) and to concerns about the high debt levels of some Chinese transnational firms. Although the Chinese authorities have not tweaked regulations on investments abroad, which have been loosened considerably in recent years, administrative checks have increased since 2016. This change may curb transactions that do not follow the industrial development logic, particularly those carried out by investment funds. At the same time, efforts to acquire strategic industrial assets that would allow China to integrate into the new global industrial and technological landscape have raised concerns in Europe and the United States (Hanemann and Huotari, 2017). One example of this is the decision by the German and United States Governments in 2016 to block the acquisition of Aixtron (a German semiconductor equipment maker with assets in the United States) by Grand Chip, a Chinese investment company, citing national security risks, as the components produced could be used in the military electronics industry. The new United States administration has clearly expressed its concern about the lack of restrictions on foreign investment in strategic sectors and technologies, particularly the semiconductor industry, where the United States is the world leader and China is the largest consumer and competitor (Skadden, 2017). In short, while some factors are curbing FDI outflows from China, others are driving the continued international expansion of its major companies. The size of many Chinese firms, the country’s level of technological progress and industrial development, and the need to promote and strengthen its economic development are factors that will increasingly have an impact on many global sectors and on the global economy as a whole.

C. The region’s complex scenario 1.

FDI fell by 7.8% in Latin America and the Caribbean in 2016

FDI flows into Latin America and the Caribbean declined by 7.8% to US$ 167.180 billion in 2016. This was just below the level seen in 2010 and 16.9% lower than the peak reached in 2011 (see figure I.8). This outcome derived from weaker investment in natural resources, particularly metal mining, and slow economic growth in the region. The largest economies are the most attractive targets for transnational companies. In 2016, Brazil was still the biggest recipient of FDI in the region (47% of the total), followed by Mexico (19%), Colombia (8%) and Chile (7%) (see table I.4). Performances were mixed from one country to the next and FDI fluctuated considerably year-on-year, as large transactions in a given year can cause flows to vary dramatically in the short-term, without this setting a trend.

Efforts to acquire strategic industrial assets that would allow China to integrate into the new global industrial and technological landscape have raised concerns in Europe and the United States.

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Figure I.8 Latin America and the Caribbean: FDI inflows, 1990-2016 (Billions of dollars and percentages of GDP)

Investment falls in natural-resource-related sectors Economic growth falters 250

10 2011

9

206 935

2015

200

8

183 144 2010

168 421

150

-7.8%

7

167 180

6

1999

4.7%

5

100

4

3.6%

3 2009

50

2

2.5%

1 0 1990

1994

1998

2002

2006

2010

2014

2018

0

FDI inflows as a percentage of GDP (right scale) FDI inflows Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: FDI figures do not include flows to the main financial centres of the Caribbean. FDI figures indicate FDI inflows, minus disinvestments (repatriation of capital) by foreign investors. These figures differ from those used in the 2017 editions of the Economic Survey of Latin America and the Caribbean and the Preliminary Overview of the Economies of Latin America and the Caribbean, because they show the net balance of foreign investment, that is, direct investment in the reporting economy (FDI) minus outward FDI. The figure for 2016 does not include the Bolivarian Republic of Venezuela or Trinidad and Tobago as no information was available for those countries, which were therefore excluded from the calculation of the variations. Since 2010, figures for Brazil include reinvested earnings from FDI; as a result, these figures are not directly comparable with those from before 2010. This is represented by the break in the lines.

At the subregional level, FDI in South America fell by 9.3%, while flows into Central America and the Caribbean rose by 4.9% and 3.3%, respectively. Within South America, Colombia posted the biggest increase in inflows (15.9%) and investment in Brazil climbed 5.7%. The largest declines in FDI were seen in Argentina (64.0%), Ecuador (43.7%) and Chile (40.3%). Investment in Mexico dropped by 7.9%, although it remained high compared with the levels seen in the past decade. Central America received a larger share of FDI, jumping from 3.7% of the total in 2010 to 7.2% in 2016. In this subregion, investment in Panama was at an all-time high, up 15.9% to US$ 5.209 billion. In the Caribbean, inflows to the Dominican Republic grew by 9.2%, totalling US$ 2.407 billion.

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Table I.4 Latin America and the Caribbean: FDI inflows by recipient country and by subregion, 2005-2016 (Millions of dollars and percentage variation) Subregion and Country South Americab Argentina Bolivia (Plur. State of)

Absolute variation Relative variation 2016-2015 2016-2015 (millions of dollars) (percentages)

2005-2009a

2010

2011

2012

2013

2014

2015

2016

68 400

135 957

168 689

170 153

134 545

150 895

131 724

118 219

-12 122

-9.3

6 204

11 333

10 840

15 324

9 822

5 065

11 759

4 229

-7 530

-64.0

259

643

859

1 060

1 750

657

555

410

-145

-26.1

Brazil

32 331

88 452

101 158

86 607

69 181

96 895

74 694

78 929

4 235

5.7

Chile

12 268

16 153

24 374

30 562

21 092

24 011

20 469

12 225

-8 243

-40.3

8 894

6 430

14 648

15 039

16 209

16 163

11 732

13 593

1 860

15.9

465

166

644

568

727

772

1 322

744

-578

-43.7

Colombia Ecuador

137

462

581

697

252

382

260

274

13

5.1

Peru

Paraguay

4 978

8 455

7 341

11 788

9 800

4 441

8 272

6 863

-1 409

-17.0

Uruguay Venezuela (Bol. Rep. of)c Mexico

1 461

2 289

2 504

2 536

3 032

2 188

1 279

953

-326

-25.5

1 403

1 574

5 740

5 973

2 680

320

1 383

...  -7.9

26 276

21 035

23 792

17 101

46 597

29 296

34 878

32 113

-2 766

Central America

5 815

6 309

9 061

9 230

10 495

11 655

11 412

11 971

559

4.9

Costa Rica

1 584

1 907

2 733

2 696

3 205

3 195

3 145

3 180

35

1.1

El Salvador

662

-226

218

484

176

311

399

374

-25

-6.2

Guatemala

640

806

1 026

1 245

1 295

1 389

1 221

1 181

-40

-3.3

Honduras

742

969

1 014

1 059

1 060

1 417

1 204

1 139

-64

-5.3

Nicaragua

394

490

936

768

816

884

950

888

-62

-6.5

Panama

1 792

2 363

3 132

2 980

3 943

4 459

4 494

5 209

715

15.9

The Caribbeanb

6 598

5 121

5 393

4 635

3 880

6 843

5 129

4 878

155

3.3

237

101

68

138

101

155

154

146

-8

-5.2

1 265

1 097

1 409

1 034

1 133

1 599

408

522

113

27.8

Barbados

416

446

458

548

56

559

69

228

159

228.5

Belize

131

97

95

189

95

153

65

33

-32

-49.7

45

43

35

59

25

35

36

33

-2

-6.9

1 782

2 024

2 277

3 142

1 991

2 209

2 205

2 407

202

9.2

Grenada

117

64

45

34

114

38

61

63

3

4.6

Guyana

135

198

247

294

214

255

122

58

-64

-52.3

69

178

119

156

161

99

106

105

-1

-0.7

Jamaica

882

228

218

413

545

582

925

790

-135

-14.5

Saint Kitts and Nevis

136

119

112

110

139

120

78

69

-9

-11.7

Saint Lucia Saint Vincent and the Grenadines Suriname

183

127

100

78

95

93

95

97

2

2.2

108

97

86

115

160

110

121

104

-17

-14.0

-57

-20.4

-14 175

-7.8

Antigua and Barbuda Bahamas

Dominica Dominican Republic

Haiti

Trinidad and Tobago Totalb

-141

-248

70

174

188

164

279

222

1 232

549

55

-1 849

-1 134

672

406

...

107 088

168 421

206 935

201 118

195 518

198 687

183 144

167 180

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: Information based on the Balance of Payments and International Investment Position Manual Sixth Edition (BPM6) of the International Monetary Fund (IMF, 2009), except for Argentina, the Bahamas, Barbados, Belize, Ecuador, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Paraguay, Peru, the Plurinational State of Bolivia, Suriname and Uruguay. a Simple averages. Due to methodological changes, data prior to 2010 are not directly comparable with data for 2010 and after. b The total and regional subtotal variations were calculated on the basis of annual data for all the countries except the Bolivarian Republic of Venezuela and Trinidad and Tobago. c Data for the first three quarters of 2015.

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With respect to FDI components, capital contributions posted the largest decline (10%), followed by reinvested earnings (6%). This suggests a defensive wait-and-see stance by transnational companies operating in the region in the light of less attractive prices for natural resources and the contraction of several countries’ domestic markets. At the same time, these patterns could be the result of the collapse in asset profitability, which was strongest during the boom in prices for metals and other commodities. Reinvested earnings decreased for the second year in a row, to US$ 40.807 billion in 2016, equivalent to just 59.2% of the level seen in 2011, when the region’s FDI inflows were at an all-time high (see figure I.9). Figure I.9 Latin America and the Caribbean: FDI inflows by component, 2000-2016 (Billions of dollars) 200 180 160 140 120 100 80 60 40 20 0

2000

2001

2002

2003

2004

2005

Reinvested profits

2006

2007

2008

2009

2010

2011

Intercompany loans

2012

2013

2014

2015

2016

Equity investments

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: Data before and after 2010 and as of that year onward are not directly comparable, because they refer to a different selection of countries. In both cases, the data exclude Bolivarian Republic of Venezuela, Suriname and Trinidad and Tobago; before 2010, they also exclude Brazil.

2.

Rising star: non-conventional energy

With the boom in commodity prices now over, capital flows to natural resource extraction in Latin America and the Caribbean have slowed. This is reflected in the sectoral make-up of FDI inflows. The natural resources sector’s share of FDI declined from 2010 onwards and fell from 18% of the total in 2010-2015 to 13% in 2016,6 while the weight of manufacturing and services rose to 40% and 47%, respectively, of the total. The sectoral structural changes were greater in countries where extractive industries have traditionally attracted foreign capital. In Colombia for example, FDI in natural resources plunged from 48% of the total in 2010-2015 to 17% in 2016 (see figure I.10). The share of natural resources in FDI in Brazil peaked at 31% in 2010 and subsequently declined sharply to 16% in 2016. In Mexico, natural resources accounted for just 5% of FDI in 2016, while manufacturing saw its share increase to 61%. The long-term growth 6

Not all countries in the region publish FDI statistics disaggregated by sector.

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in FDI in manufacturing, mainly in Brazil and Mexico, is linked to the development of the automobile industry and technological disruption in the sector (which is analysed in chapters II and III of this document). Meanwhile, in Colombia and in Central America and the Dominican Republic, services now account for the lion’s share of FDI, standing at 69% and 65%, respectively.

Brazil 1

Mexico 0,4

16

9

16 37

46

47 36

54

38 2016

2010-2015

48

2 12 14

2016 Services

Manufactures

4 8 23

27

59

69

2010-2015

2016

Central America and Dominican Republic 17

14

61

2010-2015

Colombia

38

5 34

65 2010-2015

Natural resources

2016 Other sectors

Source: Economic Commission for Latin America and the Caribbean, on the basis of official figures and estimates as of 15 June 2017. a Figures for Central America do not include Costa Rica or Panama, because data for 2016 are not available.

The services category covers a range of economic activities and the weight of FDI in each subsector varies from one country to another and from one year to the next, as transactions often require large investments in infrastructure or electricity, for example. In spite of this, four areas stand out as the largest recipients: financial services; trade; electricity, gas and water services; and telecommunications. Given the limitations in coverage and detail of national FDI statistics disaggregated by economic activity, the present analysis is supplemented with information compiled by the Financial Times publication, fDi Markets, (see figure I.11).7 The sectoral make-up of announced investment projects changed following the end of the commodity boom, when the number of projects announced in extractive industries began falling steadily and was offset by the increase in investments announced in other sectors, mainly renewable energy, telecommunications and the automobile industry, in which the region received 17%, 21% and 20% of world overall investment, respectively.

7

This base includes the figures announced for greenfield investments, which are not strictly comparable with FDI inflow statistics, as they refer to investment plans which may materialize over a long period of time, including several years after the announcement, and for which the final amount invested may differ from what had been previously announced. Meanwhile, FDI statistics correspond to foreign exchange inflows used to finance transnational companies’ activities over a period of one year in a recipient economy. Announced project information reveals the medium- and long-term strategies of transnational firms broken down by sector.

Figure I.10 Latin America (selected subregions and countries):a distribution of FDI by sector, 2010-2016 (Percentages)

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Figure I.11 Latin America and the Caribbean: distribution of announced FDI projects by sector, 2005-2016 (Percentages) 100 90 80 70 60 Mining (extraction and processing)

50 40 30

Coal, oil and natural gas

20

Automobiles and parts

10

Telecommunications

0 2005

Renewable energy 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets. Note: This analysis excludes the 2013 announcement of the Nicaragua Canal, for a value of US$ 40 billion.

The data presented in the figure I.11 reveal the following general trends:

Renewable energy project announcements have increased steadily over the past decade and this sector attracted the most greenfield investment in 2016.



Announced greenfield investments in the extractive industry dropped from an average of 38% of the total for the period 2005-2010, to 14% in 2016. In both 2015 and 2016, the amounts announced were the lowest of the last 10 years, which is consistent with the strategy of focusing on key assets and halting new investments by transnational companies in that sector.



Renewable energy project announcements have increased steadily over the past decade. This sector attracted the most greenfield investment in 2016, with its share of the total climbing from an average of 6% for 2005-2010 to 18% in 2016, making it the fastest-growing sector in that period.



The telecommunications sector accounted for 14% of the announced total in 2016, making it the second-largest recipient of investments announced in the region. Infrastructure development, the speed of technological change and strong competition forced operators, mainly transnational companies, to invest in order to remain competitive.



Global digital platforms have also invested in the region, mainly in data centres that provide cloud services and related activities. The 16 projects announced would require an investment in the order of US$ 2.7 billion (4% of the total).

When the amounts of investment projects announced for the region over the last three years are broken down, the automotive industry is clearly the most geographically concentrated, with 76% of the total in Mexico, 11% in Brazil and 9% in Argentina. That sector also accounts for the majority of announcements concerning Mexico (31% of the total). Meanwhile, in telecommunications, 59% of the projects’ value was concentrated in Brazil and Mexico; yet it was the main sector in several countries of the region, in particular Colombia and Argentina (accounting for 19% and 16% of announced investments for the country, respectively).

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The production of renewable energy has taken off in the region in the last two years. Through tenders and auctions conducted in many countries, this sector has become firmly established in the energy matrix: for example, in Honduras, 9.8% of the electricity supply comes from solar photovoltaic energy and in Uruguay, 22.8% of the electricity consumed in 2016 came from wind power (REN21, 2017). Many of these developments are the result of investment by transnational corporations, led by Spanish firms including Abengoa, Iberdrola and Acciona; the Italian company, Enel; Ireland’s Mainstream Renewable Power; France’s Engie; and firms from the United States and Canada. Among the region’s companies, two Brazilian firms announced projects in recent years: Eletrobras, with projects in Panama, Peru and Uruguay; and Latin America Power, with projects in Chile, Panama and Peru. In 2016, two Chinese firms, Jinko Solar and Envision Energy, entered the Mexican market. Of the countries of the region, Chile was the recipient of the most announced investments in renewable energy, with 33% of the total value announced for the sector in 2016, followed by Mexico, where energy market reforms and the consequent renewable energy tenders led to the country receiving 32% of the total amount announced (see figure I.12). Figure I.12 Latin America and the Caribbean: value of announced FDI projects in renewable energy by country, 2005-2016 (Billions of dollars and percentages of the total)

14 12 10

15

8

21

6

32

19 4 2 0

26 9 21

34

33

Average for 2005-2009

Average for 2010-2015

2016

Other countries Uruguay Panama Peru Brazil Mexico Chile

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

It should be remembered that investment in renewable energy worldwide decreased in 2016 owing to lower generation costs —average per-megawatt (MW) costs for solar photovoltaic and wind power fell by more than 10%— which meant that less investment was needed to increase supply, and to the investment slowdown in key markets such as China and Japan. Investment in renewable energy is expected to continue, though perhaps at a slower clip, particularly in smaller markets such as Uruguay, whose wind power market is close to saturation point, or Chile, where the low prices offered at solar energy auctions could make it difficult to secure funding (Frankfurt School-UNEP Collaborating Centre for Climate and Sustainable Energy Finance, 2017).

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3.

Lack of diversification among countries of origin

As in 2015, the United States was the leading investor in the region in 2016 (accounting for 20% of the total); nonetheless, as a block, Europe led the field in investment in Latin America and the Caribbean with 53% of the total, with the Netherlands accounting for the largest share of FDI flows (12%).8 The profile of investors differs within the region. European investors are more prevalent in South American countries, while in Mexico, Central America and the Caribbean, investment comes predominantly from United States firms. In 2016, European investors accounted for 71% of total investment in Brazil, a similar percentage to that seen in Ecuador, while in Central America and the Dominican Republic only 12% of investment came from Europe. Mexico had the highest flow of investment from the United States (39%) (see figure I.13). Figure I.13 Latin America and the Caribbean (selected subregions and countries): origin of FDI, 2016 (Percentages) 100 90

9

12

15

7 32

80 32

70 60 50

71

35 69

6 6 5

40

10 16

10 0

Unidentified, others 26

30 20

12

3 1 5 12 Brazil

39

Canada

13

Mexico

Europe Japan

18 16

11

Colombia

Ecuador

20

Latin America and the Caribbean United States

Central America and the Dominican Rep.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017.

With respect to cross-border mergers and acquisitions of companies located in the region, the United States and the European Union together accounted for half of the total value of transactions concluded in 2016 (29% and 24%, respectively), while Canada and China accounted for 15% and 12%, respectively. In terms of the number of transactions, the United States continued to lead the way (23% of the total), followed by Canada (15%), Spain (10%) and the United Kingdom (8%). Among the 20 largest transactions were energy sector acquisitions by firms from the United States, European countries, China and Canada (see table I.5).

8

The weight of the Netherlands in the statistics bears little relationship to the presence of Dutch firms in the region, because many transnational corporations establish their subsidiaries in the Netherlands, attracted by its tax advantages, and the flows are registered as originating from that country (ECLAC, 2016a).

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Table I.5 Latin America and the Caribbean: 20 largest cross-border mergers and acquisitions, 2016 Firm/ country of origin

Assets acquired/ country of assets

Brookfield Renewable Partners Canada

ISAGEN S.A., E.S.P. (99.6%) Colombia

Statoil ASA Norway

Cuenca de Santos exploration block (66%) Brazil

Teva Pharmaceutical Industries Ltd. Representaciones e Investigaciones Médicas S.A. Israel Mexico

Sector

Oil and gas Pharmaceuticals

Freeport-McMoRan-Gulf of Mexico Mexico

Vinci SA France

Línea Amarilla concession Peru

China Molybdenum Co. Ltd. China

Anglo American-niobium and phosphates Brazil

I Squared Capital Advisors US LLC United States

Duke Energy Latin America Argentina, Chile, Ecuador, El Salvador, Guatemala and Peru

China Three Gorges Corporation China

Duke Energy International Brazil Brazil

FleetCor Technologies Inc. United States

Serviços e Tecnologia de Pagamentos S.A. Brazil

Coca-Cola Femsa S.A.B. de C.V. Mexico

Vonpar S.A. Brazil

Abertis Infraestructuras S.A. Spain

Autopista Central concession (remaining 50%) Chile

Coty Inc. United States

Hypermarcas, beauty and personal care section Brazil

Infraestructura Energética Nova, subsidiara de Sempra Energy United States

Ventika I and II wind farms Mexico

Fintech Telecom LLC United States/Mexico

Telecom Argentina S.A. (46.31%) Argentina

Enel S.p.A. Italy

CELG Distribuição S.A. (94.8%) Brazil

Prudential Financial Inc. United States

Administradora de Fondos de Pensiones Habitat S.A. (40.23%) Chile

Finance

Grupo de Inversiones Suramericana S.A. Colombia

RSA Insurance Group Latin America Argentina, Brazil, Chile, Colombia, Mexico and Uruguay

Finance

Oil and gas Services

3 528

Colombia

2 500

Brazil

2 300

Mexico

2 000

United States

1 661

Brazil

1 500

United Kingdom

1 200

United States

1 200

United States

1 089

Brazil

1 029

Brazil

1 028

Canada

Mining

Energy

Energy Services Beverages Services Manufacturing and retail

985

Brazil

852

United States

849

Argentina

647

Brazil

625

Chile

619

United Kingdom

494

Brazil

480

Brazil

450

Brazil

Energy Telecommunications

Energy

Two wind farms from Casa dos Ventos Cubico Sustainable Investments Ltd. Energias Renováveis (total 392 MW) United Kingdom Brazil

Energy

Produquímica Indústria e Comercio S.A. Compass Minerals International Inc. (remaining 65%) United States Brazil

Chemicals

Azul S.A. (23.7%) Brazil

Country of seller

Energy

Anadarko Petroleum Corp. United States

Hainan Airlines Co. Ltd. China

Amount (millions of dollars)

Transport

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg figures.

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United States firms concluded a number of large transactions in 2016, including the acquisition of Freeport-McMoRan oil assets in the Gulf of Mexico by Anadarko Petroleum Corp. for US$ 2 billion and the purchase of Duke Energy’s Latin American portfolio by I Squared Capital Advisors for US$ 1.2 billion. United States and European firms were also eager to acquire road concessions or toll road operations, as evidenced by the acquisition of the Línea Amarilla highway in Peru by French group Vinci S.A. for US$ 1.66 billion, the purchase of Serviços e Tecnologia de Pagamentos S.A., Brazil’s largest electronic toll payments firm, by United States group FleetCor Technologies Inc for US$ 1.089 billion, and Spanish company Abertis’ buyout of the concession of Chile’s Autopista Central for US$ 1.028 billion. The largest transaction of the year was made by the Canadian firm Brookfield Renewable Partners, which purchased Colombian hydroelectric company ISAGEN for US$ 3.5 million, including the Colombian Government’s 57.6% interest in that company. Canada was on par with the United States in terms of the number of transactions; however, as these primarily involved small mining deals, Canada had only one of the 20 largest transactions. Conversely, Chinese firms carried out 3 of the largest 20 transactions, with the highest value purchases concentrated in the energy and mining sectors in Brazil. China Molybdenum Co. acquired the niobium and phosphates businesses of the British company, Anglo American, for US$ 1.5 billion and China Three Gorges Corporation bought the hydropower plants of the American firm Duke Energy Corp for US$ 1.2 billion. The US$ 450 million acquisition by Hainan Airlines Co. Ltd. of a 23.7% stake in Brazilian airline, Azul S.A., signalled a novel diversification of China’s investment profile. China has thus cemented its role as a leading investor in Latin America and the Caribbean in recent years, and while it is only just beginning to participate in sectors other than extractive industries, the aforementioned transactions could point to a widening of the sectoral profile of Chinese capital in the region, as has been the case in Europe and the United States in the last two years (see section B of this chapter). Two of the 20 largest transactions of 2016 were carried out by trans-Latin firms; both the Mexican Coca-Cola franchise and the Colombian company Sura extended their reach in the regional market (see section D). The sale of the Mexico-based pharmaceutical company, Representaciones e Investigaciones Médicas S.A., to the Israeli multinational Teva Pharmaceutical Industries was the second largest transaction of the year. However, a legal battle ensued between buyer and seller, leading to the shutdown of the manufacturing plant.9 Unlike in previous years, there were few major telecoms transactions, with only one among the 20 largest. One of the largest divestment operations of 2016 occurred in the financial sector. The British bank, HSBC Holdings, sold all of its Brazilian operations to Banco Bradesco S.A. for US$ 5.186 billion, in line with its strategy of retreating from emerging markets (see table I.6). The divestment strategy undertaken by Petrobras was reflected in the sale of assets in Brazil and abroad. In particular, a 67.19% stake of Petrobras Argentina S.A. was sold to Argentine company Pampa Energía S.A. for US$ 892 million. While the energy sector has received major investments from transnational corporations, local firms have also been making acquisitions. For example, the Brazilian company CPFL Energia purchased Distribuidora Gaúcha de Energia S.A. from United States-based AES Corporation for US$ 464 million, and the Argentine group Desarrolladora Energética S.A. expanded its presence in the province of Buenos Aires by acquiring control of the concessions granted to Empresa Distribuidora de Energía Norte S.A. and Empresa Distribuidora de Energía Sur S.A. 9

At the time of writing, it was not known whether the dispute had been resolved, although there were suggestions in April 2017 that the company might resume operations within a few months (see Reuters, 2017).

Foreign Direct Investment in Latin America and the Caribbean

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Table I.6 Latin America and the Caribbean: 10 largest divestments, 2016

Selling firm/ country of seller

Assets sold/ buyer

HSBC Holdings PLC United Kingdom

HSBC Bank Brazil S.A.-Banco Multiplo, HSBC Serviços e Participações Ltda. Banco Bradesco S.A.

Petroleo Brasileiro S.A. Brazil

Petrobras Argentina S.A. (67.19%) Pampa Energia S.A.

AES Corp. United States

AES Sul Distribuidora Gaucha de Energia S.A. CPFL Energia S.A.

Institutional investors United States, Venezuela (Bolivarian Repepublic of)

Empresa Distribuidora de Energia Norte S.A., Empresa Distribuidora de Energia Sur S.A. Desarrolladora Energetica S.A.

Lyondell Basell Industries Netherlands

Petroken Petroquimica Ensenada S.A. Grupo Inversor Petroquimica

EDP-Energias de Portugal S.A. Portugal

Pantanal Energetica Ltda. Cachoeira Escura Energetica S.A.

Sears Holdings Corp. United States

Sears Operadora Mexico S.A. de C.V. (remaining 14%) Grupo Sanborns S.A.B. de C.V.

KLS Ltd. Republic of Korea

Marcobre S.A.C. (remaining 30%) Minsur S.A.

Host Hotels & Resorts Inc. United States

Hotel Sheraton Santiago and San Cristóbal Tower Larrain Vial S.A.

International Meal Co. Alimentaçao S.A. Brazil

Inversionistas en Restaurantes de Carnes y Cortes Taco Holding SAPI de CV (subsidiary of Nexxus Capital)

Sector

Finance

Oil and gas

Amount (millions of dollars)

5 186

Argentina

464

Brazil

220

Argentina

184

Argentina

124

Brazil

106

Mexico

Energy

Manufacturing

Energy

Retail

85

Peru

76

Chile

61

Mexico

Mining

Restaurants

Brazil

892

Energy

Hotels

Country of buyer

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.

4. FDI remains the most stable component of capital inflows The effects of FDI on external accounts can be assessed based on several factors. First, foreign investment continues to be the largest and most stable financial account component. In 2016, despite a 7.8% decline, FDI accounted for 71% of foreign capital inflows. The other two components were worth less and were more volatile: portfolio investment increased by 4.5%, but remained much lower than levels attained between 2010 and 2014, while other investment inflows collapsed (see figure I.14).

In 2016, despite a 7.8% decline, FDI accounted for 71% of foreign capital inflows.

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Figure I.14 Latin America and the Caribbean: cross-border capital inflows, 2005-2016 (Billions of dollars) 450 400 350 300 250 200 150

Other investment inflows

100

Portfolio investment inflows

50

Foreign direct investment inflows

0 -50

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: FDI data prior to 2010 are not directly comparable with those for 2010 and later. This is represented by a white line on the graph.

Secondly, it is important to consider the effect of FDI income on the balance-ofpayments current account, which has declined steadily since 2006 reaching a negative value equivalent to -3.3% of GDP in 2015, largely as a result of the deteriorating goods balance. In 2016, however, the deficit narrowed, reaching the equivalent of -1.9% of GDP, thanks to the sharp fall in the goods balance deficit caused by the economic downturn, which led to a contraction in imports that outweighed the drop in exports. The services balance deficit also narrowed, though to a lesser extent, and current transfers increased (see figure I.15). Figure I.15 Latin America and the Caribbean: balance-of-payments current account by component, 2010-2016 (Percentages of GDP) 3 2

1.0

1.2

1.0

1

1.4

1.3

1.1

1.0 0 -1.0

-1.2

-1 -2.0

-2 -3

-3.1

-1.3

-2.3 -2.7

-2.8 -2.5

-4 -5

-1.3 -1.1

-2.0

-3.0

-0.9

-1.3

-

-1.9

-3.1 -3.3

-2.6

-2.5

2011

2012

2013

2014

2015

Goods balance Services balance Income balance

-2.5 2010

Current transfers balance

Current account balance 2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Economic Survey of Latin America and the Caribbean, 2017, briefing paper, Santiago.

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The income balance is the component with the largest deficit and the one that produces the greatest net outflows of funds abroad. Within this item, the biggest component is the repatriation of FDI profits by transnational firms to their parent companies and, despite the drop in FDI income in 2016, the income balance deficit is still equivalent to -2.5% of GDP. When FDI inflows and income outflows derived from FDI stock in each country are combined, their impact on the balance of payments becomes clear. While the impact of FDI is generally positive, the picture is more complex when considering the different countries of the region. From 2010 to 2016, FDI had a positive impact on the balance of payments in Brazil, Chile, Colombia, Costa Rica, Mexico, Nicaragua, Panama and Uruguay, while net balances were close to zero in Argentina, the Dominican Republic, Ecuador, Guatemala and Honduras. By contrast, the income generated by FDI stock exceeded new capital inflows in Paraguay, Peru and the Plurinational State of Bolivia (see figure I.16). As FDI inflows stagnate or drop, the resultant increase in capital stock and income (even with lower profitability) could weigh even more heavily on the balance of payments. Figure I.16 Latin America and the Caribbean (selected countries): balance between FDI inflows and FDI income outflows, average for the period 2010-2016 (Percentages of GDP)

7 6 5 4 3 2 1 0

Paraguay

Bolivia (Plur. State of)

Peru

Guatemala

Honduras

Ecuador

Argentina

Dominican Rep.

Colombia

Mexico

Panama

Uruguay

Brazil

Chile

Costa Rica

-2

Nicaragua

-1

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017.

5. Decreasing FDI profitability is damaging investment prospects Despite a 12.8% rise in FDI stock in 2016 to a record high, the average profitability of foreign capital stock10 fell again, reaching its lowest level of the last 15 years (4.2%) (see figure I.17). Around 55% of this income was repatriated to the countries of origin, meaning that there was a relative increase in reinvested earnings compared with the repatriated earnings, which were as high as 70% in 2013. Average FDI profitability differs depending on each country’s specialization. In 2016, economies that invested heavily in mining and hydrocarbons saw a much steeper decline, as was the case in Colombia, Peru, the Plurinational State of Bolivia, and, to a lesser extent, Chile. Nevertheless, profitability fell in all of the countries under consideration in 2016, with the exception of Panama (see figure I.18). 10

Calculated as the ratio of FDI income to capital stock, based on balance-of-payment data.

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Figure I.17 Latin America and the Caribbean:a stock and average profitability of FDI, 2000-2016 (Trillions of dollars and percentages) 2.5

12

2.0

9

1.5 6 1.0

0.5

0

3

FDI income as a percentage of FDI stock (right scale)

0

FDI stock

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: Average profitability is measured as FDI income divided by FDI stock. a Does not include data for the Bolivarian Republic of Venezuela, Jamaica, Trinidad and Tobago or the member countries of the Organisation of Eastern Caribbean States (OECS).

Figure I.18 Latin America and the Caribbean (selected countries): average profitability of FDI, 2010-2016 (Percentages) 18 16 14 12 10 8 6 4

Nicaragua

Ecuador

Colombia

Mexico

Uruguay

Brazil

Chile

Bolivia (Plur. State of)

Costa Rica

Dominican Rep.

Peru

2016 Honduras

0 Argentina

2010-2015 Guatemala

2 Panama

46

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. Note: Average profitability is calculated as the ratio between FDI income and FDI stock.

At the company level, available data for the 500 largest companies in the region, both domestic and foreign-owned, show that the return on assets has been falling since 2010,11 when it was 7.4% (5.9% excluding natural resources). Since then it has continued to drop, reaching 0.9% (1.9% excluding natural resources) in 2015.

11

Unlike average FDI profitability, the return on assets is calculated on the basis of data from the 500 largest companies in Latin America as ranked by América Economía, based on the ratio of profits to the published value of assets for a given year.

• 2017

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Although the decline in average return on assets has primarily been the result of the plummeting prices of mining products, almost all sectors of the economy have experienced a downturn (see figure I.19). A comparison of the average for the period 2011-2014 with 2015 shows that the mining and oil and gas sectors were dealt the heaviest blow, and that the telecommunications sector also saw a significant decline. Figure I.19 Latin America and the Caribbean: return on assets, average and by sector (Percentages) A. Average return on assets, 2005-2015 12

11

10 7.4

8 8 6

5.9

4 2 0

1.9 0.9 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Average excluding oil and gas and mining sectors

Average

B. Return on assets by sector, 2010-2015 11

11 9

8 6

6

6

4

6 4

2

4 3

3 1

1 -0.2

-6 Mining

Oil and gas Telecommunications Beverages and alcohol

Retail

Electric power

Multisector

Food

Total

2010-2014 Commission for Latin America 2015 and the Caribbean (ECLAC), on the basis of data from América Economía. Source: Economic Note: The data show results for the 500 biggest firms, by annual turnover, in Latin America and the Caribbean, excluding those firms that do not publish specific data on their subsidiaries abroad. The data cover cross-border and national firms, but not State-owned firms. The sectors included in figure B are the eight sectors with the highest turnover, according to América Economía (2015). The average sectoral return on assets is calculated as the ratio between profits and assets.

Sectors geared more towards the domestic market (for example beverages) or that have natural advantages strengthened by innovation processes (such as food and agribusiness) have seen relatively stable rates of return, at least in the case of the large companies. The pattern is similar in service activities such as retail or electric power, which, despite a slight fall, continue to maintain above-average rates of return. While lower returns for transnational firms and levels of repatriation of profits might be considered positive for the balance of payments, the trend is worrying because it has a negative effect on these companies’ investment prospects and, consequently, those of major production sectors.

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D. A weak year for trans-Latin firms In 2016, outward FDI flows from Latin American and Caribbean countries tumbled by 47% to US$ 25.567 billion. In 2015, Brazil had posted the sharpest fall in investment outflows, while those from the other countries had grown; in 2016, outward FDI flows from those other countries were also strongly affected and investment values returned to levels seen in the mid-2000s (see figure I.20).12 Figure I.20 Latin America and the Caribbean: outward FDI flows, 2005-2016 (Billions of dollars)

70 60 50 40 30 Total flows from Latin America and the Caribbean

20 10

Flows from Latin America and the Caribbean excluding Brazil

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017.

Three countries are the main sources of external capital flows: Brazil, Chile and Mexico, accounting for 82% of FDI originating in the region, on average, between 2010 and 2016. However, FDI outflows from the three countries dropped significantly in 2016 and their combined share of the total fell to 73%. Brazil invested most abroad (31%), followed by Chile (28%), with Mexico in fourth place, with 14% of the total. This relative drop in Mexico’s ranking was due to the sharp drop in investments originating in Mexico and the jump in investments from Colombia, which moved into third place with 18% of total of FDI outflows in 2016 (see table I.7). Table I.7 Latin America and the Caribbean (selected countries): outward FDI flows, 2005-2016 (Millions of dollars and percentage variation)   Argentina Brazilb Chile Colombia Mexico Venezuela (Bolivarian Republic of)c Latin America and the Caribbeand

2005-2009a

2010

2011

2012

2013

2014

2015

2016

1 471 14 067 5 117 2 786 7 097

965 26 763 9 461 5 483 8 910

1 488 16 067 20 252 8 420 11 856

1 055 5 208 20 556 -606 18 908

890 14 942 9 888 7 652 11 609

1 921 26 040 12 800 3 899 8 530

875 13 518 16 742 4 218 12 301

1 787 7 815 7 125 4 516 3 657

1 227

2 492

-370

4 294

752

1 024

-1 112

...

33 036

55 279

59 532

51 091

46 824

55 756

47 818

22 567

Absolute variation Relative variation 2016-2015 2016-2015 (millions of dollars) (percentages) 911 104 -5 703 -42 -9 617 -57 299 7 -8 644 -70

-22 251

-47

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017. a Simple averages. b The 2005-2009 figure for Brazil does not include reinvestment of profits, and is therefore not directly comparable to the figures from 2010 onward. c Data for the first three quarters of 2015. d For the region overall, the variation between 2016 and 2015 was calculated excluding the Bolivarian Republic of Venezuela. 12

The expansion operations of trans-Latin firms into third markets, new projects or already established subsidiaries may not be recorded in the FDI outflows of the country if external financing mechanisms are used.

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In 2016, Brazil had the largest stock of outward FDI in the region, followed by Mexico (see figure I.21). Both countries’ stock showed strong growth until 2013, and did not increase significantly thereafter. Over the period 2005-2016, Brazil quadrupled its stock while that of Mexico tripled. Chilean and Colombian FDI stock abroad continued to grow, with fivefold and sixfold increases, respectively. In contrast, the FDI stock of the Bolivarian Republic of Venezuela stalled in 2012 at levels that were three times higher than in 2005, and there are no data for 2016. Figure I.21 Latin America (selected countries): stock of FDI abroad, 2005-2016 (Billions of dollars) 350 300 250 200 150 Brazil

100

Mexico Chile

50

Colombia Venezuela (Bol. Rep. of)

0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and estimates as of 15 June 2017.

An analysis of complementary variables, such as mergers and acquisitions or project announcements, gives a more detailed picture of the evolution of FDI flows originating in the region. The difficulties faced by the main Brazilian transnational companies in 2016 explains why there are no companies from that country among the main mergers and acquisitions of 2016, when in previous years they were the main investors abroad. Mexican companies made large acquisitions abroad, as did firms in Chile and Colombia (see table I.8). The Mexican group Carso carried out the largest transaction of the year, acquiring an additional 25.66% of the share capital of the Spanish construction company, Fomento de Construcciones y Contratas S.A., for US$ 6.919 billion to become the majority shareholder. The other billion-dollar transaction was the acquisition of Brazilian beverage bottling and distribution company Vonpar S.A. by Mexican bottler Coca-Cola FEMSA. Meanwhile, three other Mexican companies and one Colombian company acquired operations in the construction materials sector in the United States, a market which could see significant growth in the coming years, if the infrastructure investments proposed by the new administration come to fruition. According to the FDI announcements compiled in fDi Markets, companies from the region had high prospects for growth until 2013, but average annual values fell after 2014, particularly in Brazil, Colombia and Mexico (see figure I.22). Following the slump, Brazilian companies have announced a higher number of FDI project announcements in the last three years, albeit for smaller amounts than in the past. For the region as a whole, 21% of the value of all announced projects over the last three years was concentrated in telecommunications, on the back of transactions

According to the FDI announcements compiled in fDi Markets, companies from the region had high prospects for growth until 2013, but average annual values fell after 2014.

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conducted by Mexico’s América Móvil and Jamaica’s Digicel, which accounted for 83% and 15%, respectively, of the total announced in the sector for the period 2014-2016. In addition, most of the announcements (14% of the total) concerned the food and tobacco sector, and 83% of the projects announced for that sector were led by companies from Brazil, Chile and Mexico. The retail and construction materials sectors also stood out, accounting for 8% and 7% of the total, respectively. The leaders in the retail sector were the Chilean companies Cencosud and Falabella, while in the construction materials sector, more than half of the total value of investments announced came from Mexico, primarily driven by CEMEX.

Table I.8 Latin America and the Caribbean: largest cross-border acquisitions by trans-Latin firms, 2016 Firm/ country of origin

Assets acquired/ country of assets

Inmobiliaria Carso S.A. de C.V. Mexico

Fomento de Construcciones y Contratas S.A. 25.66%, to total 51.3%) Spain

Coca-Cola FEMSA S.A. B. de C.V. Mexico

Vonpar S.A. Brazil

Vitro S.A.B. de C.V. Mexico

PPG industries (flat glass section) United States and Canada

Cementos Argos S.A. Colombia

Heidelberg Cement Group plant and assets in the United States United States

Grupo de Inversiones Suramericana S.A. Colombia

RSA Insurance Group (in Latin America) Argentina, Brazil, Chile, Colombia, Mexico and Uruguay

Empresas COPEC S.A. Chile

MAPCO Express Inc. chain United States

Elementia S.A.B. de C.V. Mexico

Giant Cement Holding Inc. (55%) United States

Grupo Cementos de Chihuahua S.A.B. de C.V. Mexico

CEMEX S.A.B. de C.V. cement plants in the United States United States

Empresas COPEC S.A. Chile

Solgas Peru

Grupo Industrial Saltillo S.A.B. de C.V. Mexico

Infun Group S.A. Spain and China

Sector

Construction

Beverages

Construction materials

Construction materials

Finance

Country of seller

6 919

Spain

1 029

Brazil

750

United States

660

Germany

619

United Kingdom

535

United States

525

Spain

306

United States

302

Spain

296

Spain

Retail

Construction materials

Construction materials

Oil and gas

Automotive

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

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Figure I.22 Latin America and the Caribbean: foreign investment announcements by companies from the region, 2005-2016 (Billions of dollars) 7 6 5 4 3 2 1 0

Mexico

Brazil

Venezuela (Bol. Rep. of)

Chile

Annual average 2005-2009

Jamaica

Colombia

Annual average 2010-2013

Argentina 2014

2015

Peru

Others

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

Between 2014 and 2016, 10 companies accounted for 48% of the total value of investments announced for the region, most of which was destined for countries in Latin American and the Caribbean (see table I.9). Chile and Mexico had the most companies in this group, while Brazil had only two. Table I.9 Latin America and the Caribbean: companies with highest announced amount of foreign investment, 2014-2016 Firm America Móvil

Percentage of total value announced for the region, 2014-2016 17

Country of origin

Sector

Main destination of projects (percentage of total value of the company)

Mexico

Telecommunications

Brazil (43), Argentina (11), Dominican Republic (11)

CEMEX

5

Mexico

Construction materials

Philippines (53), Dominican Republic (22)

Cencosud

4

Chile

Food and tobacco

Brazil (59), Colombia (22)

Natura

4

Brazil

Beauty products

Argentina (51), Mexico (12), France (12)

GMR Empreendimentos e Participações

3

Brazil

Renewable energies

Chile (100)

LATAM Airlines

3

Chile

Transport

Brazil (98)

Petróleos de Venezuela (PDVSA)

3

Venezuela (Bolivarian Republic of)

Oil and gas

Germany (52), Bolivia (Plurinational State of) (24), United States (16)

Digicel

3

Jamaica

Telecommunications

Trinidad and Tobago (63), El Salvador (27)

Falabella

3

Chile

Retail

Colombia (64), Peru (18)

Grupo Posadas

2

Mexico

Hotels and tourism

United States (100)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

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E. It is essential to rethink strategies to attract FDI In 2016, global FDI flows stagnated, although they remained at high levels. Developed countries resumed the leading role that they had lost in previous years. In contrast, a number of developing countries and regions that had benefited from the price boom in natural resources saw their FDI inflows drop. One new development is China’s increasing importance as a foreign investor. Chinese transnational companies have played a large role in increasing FDI flows to developing economies. Today, FDI outflows from China have diversified. Given the country’s level of industrial development, controlling natural resources (in particular mineral resources) is less important than incorporating technology. Meanwhile, the rapidly shifting international technological frontier following the fourth industrial revolution means that any country that seeks stable and sustainable economic development must act quickly and boldly to incorporate new technologies into production processes. The consolidation of the globalization triad (developed economies of the United States, Western Europe and East Asia) has had an impact on inflows into Latin America and the Caribbean. In nominal terms, the total value of FDI flows into the region in 2016 was similar to the level seen in 2010, while several countries saw sizeable decreases. The region’s poor macroeconomic results over the last three years have undermined investments that sought to take advantage of growing domestic markets or to co-finance public infrastructure projects. The economic recovery in European countries and the United States, together with the resurgence of protectionist forces in the latter, created an external climate that was less conducive to FDI inflows to the region for export platforms (see box I.1). From a structural point of view, the production pattern of the region —especially of the South American countries— with heavy reliance on natural resources makes it difficult to boost FDI inflows. ECLAC expects economic activity in the region to pick up slightly (1.1%) in 2017, which is unlikely to lead to greater FDI for domestic markets and infrastructure development. Moreover, the declining return on investments in some key sectors, such as telecommunications, may make them less appealing to foreign investors.

Taking all of this into account, ECLAC expects FDI inflows to the region to fall again by up to 5% in 2017.

South American economies, specialized in the production of commodities, in particular oil and minerals, and with strong commercial ties to China, will be affected by the global economic situation, as well as their very low growth rates (ECLAC expects 0.6% growth for 2017). While the growth forecasts for Central America and Mexico are more favourable, 3.6% and 2.2%, respectively, the uncertainty surrounding the NAFTA renegotiation may affect the flow of investment to those countries. Taking all of that into account, ECLAC expects FDI inflows to the region to fall again by up to 5% in 2017. In this scenario, foreign investments that help to narrow the region’s production and social gaps are increasingly important. FDI can be a key factor in technology transfer and the adoption of new management systems and business models that increase competitiveness and productivity. It can also play an important role in the development of road, port, energy and telecommunications infrastructure, especially in the context of fiscal spaces that are narrower than they were during the most recent commodity price boom. However, the positive effects of FDI are not automatic. The results in terms of integrating technology, promoting research and development and creating good-quality jobs have, in most cases, fallen short of expectations (ECLAC, 2016a). It is therefore important to review and improve Latin American and Caribbean countries’ strategies for attracting FDI, so that they focus more on modernizing the economy and diversifying production.

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The new United States Administration has stated that one of its priorities is to reform corporate taxes, in order to boost the economy and increase FDI.a The United States has tax legislation that has remained unchanged for the last 30 years, a tax system that has global reach and a higher corporate tax rate than the other economies of the Organization for Economic Cooperation and Development (OECD), although the effective rate may be lower. The current United States tax regime has pushed many transnationals to establish their headquarters in more favorable jurisdictions, such as Ireland or the Netherlands. Meanwhile, the high cost of repatriating profits leads firms to keep their earning —an estimated US$ 2.1  trillion (Bloomberg, 2015)— abroad. Many of these profits belong to digital technology and pharmaceutical companies such as Apple, Microsoft or Pfizer, which generate substantial international earnings thanks to intellectual property rights. Corporate income tax, 2016 Country Switzerland Ireland Canada Germany United Kingdom Japan Netherlands Mexico France United States

Rate 8.5 12.5 15.0 15.8 20.0 23.4 25.0 30.0 34.4 35.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Organization

for Economic Cooperation and Development (OECD), “Corporate and capital income taxes”, OECD Tax Database, 2016.

Although no official reform has been presented yet, proposals made to date include moving to a territorial system and cutting the corporate rate from 35% to between 15% and 20%. Implementing a sweeping tax reform could disrupt the global investment landscape, particularly in the light of the United States’ already dominant position. If this reform goes hand in hand with policies that encourage innovation and research and development, it could have a positive impact on FDI inflows to the country, particularly in digital technologies, the pharmaceutical industry (already the main recipient of FDI), the services sector and the financial sector (Ernst and Young, 2017). However, future FDI inflows, particularly those originating in China, could be subject to further review by the authorities. The Committee on Foreign Investment in the United States (CFIUS) allows the government to examine and, possibly, block mergers and acquisitions that threaten national security. It was established in 1975 in response to concerns about the increase in investments from the countries of the Organization of the Petroleum Exporting Countries (OPEC), because they were considered to be driven primarily by political rather than economic reasons. Today, with increased Chinese investments raising similar concerns in both the United States and Europe, CFIUS is expected be given a more prevalent role. Source: Bloomberg, “U.S. Companies are Stashing $2.1 Trillion Overseas to Avoid Taxes”, 4 March 2015 [online] http://www.

bloomberg.com/news/articles/2015-03-04/u-s-companies-are-stashing-2-1-trillion-overseas-to-avoid-taxes; Ernst and Young, The Outlook for Global Tax Policy In 2017: United States Tax Reform, Washington, D.C., 2017 [online] http://www. ey.com/Publication/vwLUAssets/ey-the-outlook-for-global-tax-policy-in-2017-us-tax-reform/$FILE/ey-the-outlook-for-globaltax-policy-in-2017-us-tax-reform.pdf. a See “A Better Way: Our Vision for a Confident America” [online] http://abetterway.speaker.gov/_assets/pdf/ABetterWay-TaxPolicyPaper.pdf.

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Box I.1 United States: the new Administration and foreign direct investment

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FDI has been crucial to expanding export activities, to growth (the automotive industry) and to creating new sectors (digital economy), but wide productivity and technology gaps and technological lags show the limitations of these positive effects. The fourth industrial revolution is a double-edged sword for the region that could heighten the risk of further widening the divide between winners and losers, among other things. Some developed countries with intensive manufactures production, and probably China, will become more competitive and will increasingly focus on the highest value added stages of global production chains. Given that the benefits of FDI depend not only on the type of investment, but also on the characteristics of the production systems of recipient countries, countries’ ability to take ownership of these benefits is closely linked to factors such as the workforce’s level of education, the competitiveness of local industry and its ability to develop links as suppliers to foreign companies, or the existence of a cluster of related businesses. The production and entrepreneurial context of the region —with its large productivity gaps among economic sectors and actors— means that policies that build local capacities must be implemented. These policies, together with FDI inflows, will help to create more dynamic production systems capable of producing higher value-added goods. In short, to attract FDI, policies are needed that are holistic and coordinated with capacity-building in recipient countries. This is essential for creating the conditions that, on the one hand, make a country attractive to investors and, on the other, enhance the capacity of local production systems to absorb the potential benefits of FDI.

F. Country analysis: instances of FDI growth are few and far between FDI inflows to South America fell 9.3% to US$ 118.219 billion, with only three countries receiving greater volumes of FDI than in 2015: Colombia, which recorded the highest growth, Brazil and Paraguay (see map I.1). In Central America, where FDI expanded by 4.9% to US$ 11.971 billion, only Panama and Costa Rica registered higher levels of FDI. In the Caribbean, FDI reached US$ 4.878 billion, with five countries —the Bahamas, Barbados, the Dominican Republic, Grenada and Saint Lucia— recording larger inflows than in 2015. The region of Latin America and the Caribbean has received a larger share of FDI as a percentage of GDP than the rest of the world, underscoring the relative weight of transnational companies in the region’s economies. Inward FDI was equivalent to 3.6% of GDP, while the global average stood at 2.5% (UNCTAD, 2015). In general, the region’s smaller economies received larger amounts of FDI relative to their GDP; for example, in Antigua and Barbuda, Barbados or Suriname, inflows are small in absolute terms, but are significant for the economy (see figure I.23). Similarly, in economies that have promoted FDI as part of their development strategies —such as Chile and Panama— inflows as a percentage of GDP are larger (4.9% and 9.4%, respectively), while Brazil’s inward FDI as a share of GDP (4.4%) was higher than that of other emerging economies which are also large recipients of this type of investment, such as China (1.2%) and India (2.0%).

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Map I.1 Latin America and the Caribbean (selected subregions and countries): foreign direct investment inflows, 2015 and 2016 (Billions of dollars)

34.878

Mexico 5.129

32.113

The Caribbean

4.878

Venezuela (Bol. Rep. of)

1.383

...

74.694 11.412

Central America

11.732

78.929

Brazil

11.971

Colombia 1.322

13.593

8.272

Ecuador

0.744

0.555

Peru

Paraguay

Bolivia (Plur. State of)

0.260 0.274

0.410

6.863

Uruguay 1.279 0.953

20.469 12.225 2015

Chile

Argentina

11.759 4.229

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of preliminary figures and official estimates at 15 June 2017. Note: The subregional total for the Caribbean excludes Trinidad and Tobago in 2016, since the respective information was not available. The data for Bolivarian Republic of Venezuela refer to the first three quarters of 2015.

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Figure I.23 Latin America and the Caribbean: FDI flows, 2016 (Percentages of GDP) 12 10 8 6 4

Ecuador

Argentina

Paraguay

Haiti

Bolivia (Plur. State of)

El Salvador

Guyana

Guatemala

Uruguay

Belize

Mexico

Dominican Rep.

Peru

Brazil

Latin America and the Caribbean

Colombia

Honduras

Chile

Barbados

Costa Rica

Bahamas

Jamaica

Nicaragua

Suriname

0

Panama

2

Antigua and Barbuda

56

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of preliminary figures and official estimates at 15 June 2017.

1.

Investment in Brazil remains resilient despite the recession

In 2016, Brazil’s inward FDI was up 5.7% from the year before and came in at US$ 78.929 billion. Since the mid-2000s, Brazil has been the most attractive market for foreign investment in the region, apart from being an important destination for transnational companies worldwide. In 2015 and 2016 it was the eighth largest recipient of FDI in the world, and the third emerging economy behind China and Singapore. The recovery cannot be explained by new incoming capital, but rather by continued and greater investment by transnational companies domiciled in the country.

Capital inflows —excluding reinvested earnings— were the most important component of FDI (57%), but fell 9.3% in 2016. Hence, the recovery cannot be explained by new incoming capital, but rather by continued and greater investment by transnational companies domiciled in the country. Intercompany lending and reinvestment of earnings increased, with the first accounting for 32% of total inward FDI after growing 38% in 2016. This increase followed the sharp contraction of 2015, and despite being much lower than in 2013 and 2014, transnational companies did receive greater volumes of external financing in 2016. Reinvested earnings represented a lower share of inflows (12%) but grew significantly, up 28%, which could be explained by the greater confidence of foreign companies in the Brazilian market. Capital inflows (excluding reinvested earnings) were mostly directed at the services sector (46%), once again highlighting the importance of this market’s size. Of this, the largest share went to commercial activities (11% of the total) and to electricity, gas and water services (6%), while investment in telecommunications fell, after having led for several years. Meanwhile, the manufactures industry received a larger share of inflows in 2016, up to 38% of the total. The automotive industry has been growing as a recipient of FDI in recent years and was the largest recipient within manufactures in 2016 (up 45% compared with 2015). The chemical industry also attracted a substantial part of manufactures investment, as did machinery and equipment, while investments in the metallurgical industry recovered modestly, although 2016 values only represented 70% of annual FDI in the 2007-2012 period. In the primary sector, oil and natural gas extraction benefitted the most from foreign investment, while metals mining also recorded greater inflows.

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As in previous years, one third of foreign capital invested in Brazil in 2016 (excluding reinvested earnings and loans) came from the Netherlands (20%) and Luxembourg (14%), making it difficult to identify the primary origin of these investments, as transnational companies attracted by the tax advantages use these markets to establish subsidiaries, and then invest in third markets. Putting these accounting difficulties aside, 50% of FDI came from the European Union, with the largest investments being made by Italy and the United Kingdom, while those from Germany, Spain and France declined. Outside Europe, the United States was the largest foreign investor in Brazil (12% of the total), although 2016 was the fourth year running in which investments from this country have fallen. As in 2015, Japanese investment also fell. In contrast, investments from China recovered in 2016 after dropping the year before, with the country once again positioning itself as one of the leading investors in Brazil, despite total investment figures not being fully captured by official statistics. In fact, two of the largest cross-border acquisitions of 2016 were carried out by Chinese companies. China Molybdenum Co. Ltd. acquired the niobium and phosphate business units of British company Anglo American, for US$ 1.5 billion, thus becoming the second largest supplier of niobium worldwide and the second largest supplier of phosphate in Brazil, while China Three Gorges Corporation acquired Duke Energy Corporation’s hydroelectricity plants, for US$ 1.2 billion, after the United States company decided to sell its Latin American business units in 2016. The Brazilian market is a priority for China Three Gorges Corporation’s international expansion, as reflected in its 30-year concession —awarded in 2015— to operate the Jupiá and Ilha Solteira hydroelectricity plants, through which the firm consolidated its position as the second largest privatelyowned energy company in Brazil. Smaller investments in other areas reflect a certain degree of diversification in the interests of Chinese companies in Brazil. For example, Hainan Airlines acquired a 23.7% stake in the Brazilian airline Azul, for US$ 450 million; Hunan Dakang International Food and Agriculture Co. Ltd. bought 57.6% of Friagril, a Brazilian grains trader, for US$ 200 million; and China Communications Construction Co. Ltd. took over the construction consultancy services provider Concremat Engenharia e Tecnologia, in a deal valued at US$ 106 million. Also, in keeping with China’s strategy of expanding its presence abroad to provide services to Chinese companies operating in international markets, the Bank of Communications of China acquired an 80% stake in the Brazilian bank BMM, for US$ 155 million, in what was the first transatlantic acquisition by China’s fifth largest commercial bank. This move is in addition to the launch of China Construction Bank’s Brazilian operations, which began in 2014 after its acquisition of the Brazilian firm BicBanco. The sheer size of the Brazilian market means that several business areas remain attractive despite the recession. For example, the United States group FLEETCOR, LCC acquired Serviços e Tecnologia de Pagamentos S.A. (known as Sem Parar), Brazil’s largest electronic road toll payment firm, for US$ 1.089 billion. In the beverage sector, the Mexican Coca-Cola FEMSA bought the bottling and beverage distributor Vonpar Refrescos S.A., for US$ 1.029 billion, thus consolidating its position in Brazil, while the United States firm Coty Inc. took over the beauty and personal care division of Brazilian pharmacy Hypermarcas S.A., in a deal valued at US$ 985 million. In the financial sector, the largest operation involved a US$ 619 million acquisition by Colombian group Suramericana S.A. of the Latin American operations of British insurer Royal & Sun Alliance Insurance Group (RSA), as part of RSA’s divestment in Latin America (including its subsidiaries in Argentina, Brazil, Chile, Colombia, Mexico and Uruguay). In the energy sector, through its subsidiary in Brazil, Italian company Enel was awarded privatization rights over electricity distributor Celg Distribuição in a deal worth US$ 647 million and in the light of which Brazil became Enel’s third largest market —in terms of customer volume— after Italy and the Iberian peninsula.

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Activity in the hydrocarbon sector was boosted by both Petrobras’s divestment strategy and by the opening up of deepwater hydrocarbon extraction to foreign capital. At the close of 2016, Petrobras had reached asset sales agreements, in Brazil and abroad, totalling US$ 13.6 billion (90% of the target set in its 2015-2016 strategic plan). Among the most important was the disposal of a 66% stake in an exploratory block in the pre-salt fields of the Santos basin to Norwegian State-owned Statoil, valued at US$ 2.5 billion (of which US$ 1.25 billion were received in 2016). Judging by greenfield announcements published in fDi Markets, it seems unlikely that FDI inflows to Brazil will increase substantially in 2017. In the last decade, there have been two distinctive periods of investment announcements in Brazil which have followed different trajectories: FDI grew consistently up to 2011, when it peaked at US$ 48 billion, and then began to fall, down to US$ 13 billion in 2016. With regard to large-scale projects —those that represent investment above US$ 100 million— only 36 were announced in 2016, in line with the 37 announcements made in 2015; yet in the period 2011-2013 87 projects were announced per year. Investments announced concerning the most important sectors also fell, although in 2016 there was an uptick in announcements in the telecommunications, renewable energy, automotives and chemical industries, four sectors that together accounted for close to 65% of the total (see figure I.24).

Figure I.24 Brazil: announced FDI projects by sector, 2013-2016 (Billions of dollars) 12 10 8 6 4 2013 2014

2

2015 0 Telecommunications Renewable energy

2016 Chemical industry

Automotive industry

Financial services

Metals mining

Others

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

In telecommunications, there were announcements in the services and data centres segment by United States companies Equinix, Alphabet Inc. (Google), Level 3 Communications and 8x8, Inc., as well as investments by the Spanish firm Telefónica S.A. and Mexican América Móvil. Enel of Italy announced investments in wind energy, while the Spanish firm Elecnor and Norwegian Scatec Solar announced solar energy projects. In the automotive industry, activity revolved around expansion projects announced by General Motors, Volkswagen, Toyota Motor and Fiat Chrysler Automobiles, and the announcement of a new plant in 2018 by China’s Zotye International Automobile

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Trading Co. Ltd. In the chemical industry, the largest projects were in agrochemicals, including India’s United Phosphorus Limited (UPL) announcement of a US$ 310 million investment to build a new plant, and the US$ 300 million project to expand the Brazilian subsidiary of United States firm Albaugh, LLC. These sectors thus remain attractive for FDI in a context where others have not recovered, owing to either external factors —metals mining projects for example have been severely affected by falling commodity prices— or specific country or regional factors, such as the contraction of GDP or the uncertainty caused by corruption cases involving important companies in the country. Official figures for May 2017 reflect an increase in FDI flows for the year, with continued large-scale acquisitions by Chinese companies, especially in the energy market. Inflows for the first five months of 2017 totalled US$ 32.456 billion, up 8.5% compared with the same period in 2016. In contrast with 2016, this increase can be explained by a rise in capital inflows. However, given that FDI flows are heavily influenced by large-scale transactions, this partial data point is insufficient to confirm that FDI will effectively grow in 2017.

2.

The rest of South America has yet to recover

Colombia posted FDI growth of 15.9% in 2016, making it Latin America’s third largest recipient of FDI, with inflows totalling US$ 13.593 billion. This improvement was mainly attributable to a large acquisition in the energy sector and to higher investment in services, although total investment remained below the levels seen during the commodities boom —between 2011 and 2014, Colombia received annual FDI inflows of US$ 15.5 billion. Capital inflows accounted for close to half of FDI (46%), but energy-related inflows failed to offset contraction in other areas, especially the oil and mining industries, resulting in a net decline of 15% compared with 2015. Conversely, intercompany lending, which accounted for 34% of total FDI, increased 133%, while reinvested earnings remained relatively flat compared with 2015 (falling just 2%), accounting for 20% of the total. The fall in commodities prices modified the sectoral composition of investment in Colombia. The extraction industries suffered a significant decline, while investment in services increased. Between 2006 and 2014, one third of foreign capital that entered in Colombia was invested in the oil sector (33%), and about 20% went to mining (mainly coal). Investment in extractive industries has contracted sharply in the last two years. So much so that in 2016, oil accounted for 16% of the total, a 14% drop compared with 2015, while there was no investment in mining, in fact, there was a slight divestment. Conversely, electricity, gas and water received large investments, by virtue of which the sector accounted for 27% of total FDI in 2016. The privatization of the energy company ISAGEN was the largest transaction in the energy sector in 2016. The Canadian investment fund Brookfield Asset Management acquired the Colombian State’s 57.61% stake and bought the remaining 42% of ISAGEN through other transactions, for a total investment of some US$ 3.5 billion. FDI in financial and business services also grew (22%), overtaking the oil sector (19% of total investment), as did FDI inflows for transport and communications (37%, reaching 8% of total investments). The manufactures sector remained one of the main recipients of FDI in Colombia (14% of the total), although it failed to sustain the upward trend it had maintained until 2014 and fell by 23%. The main foreign investors increased FDI flows to Colombia. With the acquisition of ISAGEN, Canada positioned itself as one of the two largest investors in 2016, on a par with the United States (16% of the total). The European Union accounted for 29%

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of the total, with most of the investment coming from Germany, Spain, France and the United Kingdom, although there was a decline in flows from Germany. However, investments from Latin America fell 9% in 2016, representing 18% of the total, with Panama as the main source, providing 10% of the total. According to fDi Markets, announced investment remained at a similar level to that of 2015. There were only a few large-scale projects, with only 5 of 97 announcements in 2016 valued at over US$ 100 million, specifically the expansion of oil extraction activities, valued at US$ 660 million, by GeoPark, a Bahamas-based company that operates in several Latin American countries; two shopping centre investments by Chile’s Parque Arauco and Cencosud, worth US$ 226 million and US$ 150 million, respectively; and investments in telecommunications by the United States firms Level 3 Communications and MVS USA, for a data centre project and a satellite telephone project, both worth around US$ 150 million. Recent FDI trends are positive and, excluding the sale of ISAGEN, which was accounted for in the first quarter of 2016, by March 2017 FDI inflows had grown 8.1% year-on-year. The rebound in flows to the manufactures sector made it the leading recipient in the first quarter (28% of the total), overtaking the oil sector, which was relegated to second place (24%). In 2016, FDI in Chile fell for the second year in a row and recorded its lowest level in 10 years after dropping by 40.3%, to US$ 12.225 billion. This was mainly due to the fall in intercompany lending —one of the most volatile components of FDI— which was down 72% and accounted for 23% of the total. Reinvested earnings fell slightly (5%) and accounted for 29% of total revenues, while capital contributions also declined, albeit at a slower pace (10%), and accounted for about half of total FDI flows. Although at the time of publication information disaggregated by economic sector was not available, according to the report by the Central Bank of Chile, Balanza de Pagos, Posición de Inversión Internacional y Deuda Externa Resultados al primer trimestre 2017 (2017), the largest recipients of FDI were mining, transport, and electricity, gas and water. The trends in cross-border mergers and acquisitions confirmed the importance of the services and financial sector in a market that witnessed greater activity in 2016, with transactions valued at US$ 5.4 billion. The largest transaction was the purchase of the Autopista Central highway concession by Spain’s Abertis from Canadian firm Alberta Investment Management Corporation (AIMCo), for US$ 1.028 billion, which allowed the Spanish company to gain control of the six concessions it has in Chile —its third largest market in terms of income, after Spain and France. The second largest was the sale of a 40.2% stake in the Chilean pension fund management firm AFP Habitat to the United States insurer Prudential Financial, Inc., for US$ 625 million. A similar figure (US$ 613 million) was paid by Qatar Airways for a 10% stake in the Chilean-Brazilian airline Latam Airlines Group S.A. According to fDi Markets, investment announcements fell 36% in 2016, although their value was higher than in 2014. About a quarter of the projects announced in Chile involve investments of more than US$ 100 million, and announcements for this level of investment have remained relatively stable in the last decade, at around 18 per year (16 projects of this magnitude were announced in 2016). As in 2015, renewable energy was the most attractive sector for greenfield projects, accounting for 70% of announced investment values. In the energy sector, the Irish firm Mainstream Renewable Power will invest US$ 1.65 billion in new wind farms after it was awarded 20-year power purchase contracts to supply 3,366 GWh per year, allowing it to start providing energy to the Chilean grid from 2021 and 2022. The growth of renewable energies in the country has been driven by foreign investment, mainly from European companies —in the last 10 years, 73% of the value of announced investments in renewable energies in Chile

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came from European firms. In 2016, France’s EDF Energies Nouvelles announced wind and solar energy projects valued at US$ 600 million, while Germany’s Anumar announced two solar energy projects worth US$ 515 million. In same year, the Brazilian company Latin America Power (LAP) announced investments totalling US$ 587 million in wind energy projects in southern Chile. Mining —which up to 2012 represented close to half of announced investments in Chile— has fallen sharply in recent years, with projects accounting for only 11% of the total in 2016. However, Chilean mining resources continue to attract foreign capital, with the downturn in copper offset by growing interest in lithium. In 2016, Rockwood Holdings Inc., a subsidiary of the United States group Albemarle Corporation, announced it had earmarked US$ 500 million for the expansion of its lithium extraction activities in the Atacama desert, while BHP Billiton reported that it would expand its copper operations to the tune of US$ 200 million. In telecommunications, several projects for the development of data centres and cloud services were announced in 2016. Investments in these types of projects may be smaller, but they are important because of the capabilities they require and the potential they offer to companies to broaden their range of services. The largest project was announced by Spain’s Telefónica S.A., which will invest an estimated US$ 344 million to install a strategic data centre, which will allow it to offer local Open Cloud solutions. Other important milestones in 2016 were the web hosting and content project announced by Amazon Web Services, estimated to be worth US$4 million, and a project valued at US$ 1 million announced by Spain’s Gigas Hosting S.A. The increase in the number of such projects may not be reflected in the balanceof-payments, as they do not generally require large cross-border capital transfers. However, they are of great value in terms of both diversification and the country’s inclusion in new production modes, where digital platforms and associated services play an increasingly pivotal role. FDI flows into Peru dropped by 17% and totalled US$ 6.863 billion in 2016. The country has been unable to attain the maximum levels it saw in 2012, when inflows, mainly attracted by the mining industry, reached close to US$ 12 billion. Reinvested earnings grew 39% year-on-year and were the largest component of investment in 2016 (61% of the total). However, this increase could not offset the decline in the other components, which meant that the drop in 2016 was largely the result of lower capital inflows —down 47% and accounting for 32% of FDI— and, to a lesser extent, of lower intercompany lending, which fell 57% and accounted for 7% of FDI. The volume of FDI that entered the country through cross-border mergers and acquisitions totalled some US$ 1.8 billion, similar to 2015 levels. The largest transaction in Peru was for a highway concession, with the French group VINCI purchasing Vía Expresa Línea Amarilla for US$ 1.66 billion. After falling to their lowest level in 10 years in 2015, investment announcements rebounded in 2016, with the highest values earmarked for transportation and logistics and renewable energies projects (33% and 25% of the total value of announcements, respectively). Dubai World, the maritime terminal operator based in the United Arab Emirates, is pursuing its investment plan in the port of Callao and announced investments in new logistics centres. Meanwhile, European companies won tenders for solar and wind energy projects, with investments announced by Italy’s Enel, Spain’s Grenergy Renovables and France’s EnerSur (ENGIE Energía Perú). The absence of major new projects in mining, a sector that in recent years attracted the greatest inflows of FDI to Peru, has had a negative impact on the inflow of new capital. However, in the first quarter of 2017, FDI inflows were up 61%, driven by increased reinvestment of earnings rather than the inflow of new capital.

Chilean mining resources continue to attract foreign capital, with the downturn in copper offset by growing interest in lithium.

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In 2016, Argentina received FDI in the amount of US$ 4.229 billion, 64% less than in 2015, but this decline should be considered in the context of regulatory changes that were introduced in 2016. Up to the end of 2015, there were various restrictions on the repatriation of funds that tended to exaggerate FDI flows associated with reinvestment of earnings.

Economic Commission for Latin America and the Caribbean (ECLAC)

In 2016, Argentina received FDI in the amount of US$ 4.229 billion, 64% less than in 2015. However, this decline should be considered in the context of regulatory changes that were introduced in 2016. Up to the end of 2015, there were various restrictions on the repatriation of funds that tended to exaggerate FDI flows associated with reinvestment of earnings. The removal of these restrictions by the new government led to a fall in reinvestment of earnings in 2016. As a result of this relaxation of the rules, the debts incurred with parent companies and subsidiaries were also reduced. The lower level of reinvested earnings and the payment of debts to parent companies and subsidiaries more than compensated for new capital inflows, which increased significantly compared with the previous year (177%, totalling US$ 3.649 billion). In contrast, the volume of cross-border mergers and acquisitions increased significantly from a total of less than US$ 200 million in 2015, to US$ 2 billion in 2016. After a number of disputes regarding the ownership structure of Telecom Argentina, the Mexican group Fintech Telecom LLC acquired a stake for US$ 849 million in 2016, granting it a controlling interest of 68%. Another major transaction in telecommunications was the acquisition of the free-to-air broadcaster Televisión Federal S.A. (Telefe) by the United States firm Viacom Inc. from Spain’s Telefónica S.A., for US$ 345 million. With this purchase, Viacom Inc. plans to continue developing the content market, expanding into Argentina and other Spanish-speaking markets. Telefónica S.A. has stated that it remains committed to investing in the country and is looking to concentrate on improving connectivity for the digital society. The FDI outlook could start to show positive results if the investments announced in 2016 actually materialize. The downward trend in the number and value of announced investments that had prevailed since 2012 was broken in 2016, with announcements hitting a record US$ 12 billion. Investments in the automotive industry, power plants, lithium production and telecommunications led the way with a 58% share of the total. Investment in the amount of US$ 2 billion was announced for the automotive industry, with expansion projects by General Motors, Fiat Chrysler, Nissan Motor Company and Grupo PSA worth between US$ 320 million and US$ 740 million. A call for tenders for fossil fuel concessions in the electricity sector led to announcements of worth US$ 1.5 billion, with the United States firms Stoneway Energy and APR Energy investing US$ 580 million and US$ 450 million, respectively, while Germany’s Siemens AG will invest US$ 270 million. Argentina’s energy infrastructure requires higher levels of investment and the flow of capital into the sector is expected to continue. In other areas, lithium production continues to attract foreign capital: Canada’s Enirgi Group will expand its operations in Salta, with an investment of US$ 720 million, while the joint venture between the Canadian firm Lithium Americas and Chile’s Sociedad Química y Minera de Chile S.A. (SQM) announced investments in Jujuy worth US$ 550 million (the Chinese group Ganfeng Lithium Co. Ltd., the largest integrated producer of lithium in China, acquired a stake in this joint venture in 2017). The South Korean steelmaker POSCO broke ground on a lithium plant in Salta, as part of a US$ 300 million project. Technological advances in telecommunications and new connectivity requirements boosted investments in all countries of the region. In Argentina, the largest broadband development projects were announced by Telefónica S.A. and América Móvil, in the amount of US$ 644 million and US$ 500 million, respectively, with total investments in the sector of US$ 1.1 billion. In consumer goods, Brazilian cosmetics company Natura plans to expand its operations with a US$ 460 million project, while the British firm Unilever is seeking to increase its installed capacity in Argentina with a US$ 360 million investment, and Dutch brewer Heineken, through its subsidiary Compañía Cervecerías Unidas (CCU), plans to invest US$ 300 million in a plant expansion project. In 2016, Uruguay saw a drop in FDI levels for the third year in a row, down to US$ 953 million, 25.5% less than in 2015 and the lowest level seen since 2005. Reinvested earnings rose, but not enough to offset the fall in capital inflows and intercompany loans,

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with the latter actually posting negative results. If only capital inflows and reinvested earnings are considered, FDI in 2016 was similar to levels in 2015 (2% less). The services sector has been the main recipient of FDI flows (on average 61% of the total in the period 2014-2015, according to the latest available data by sector), while renewable energy has been an attractive sector for foreign capital. The value of investment announcements fell in 2016, with only one project valued at more than US$ 100 million, namely the wind farm construction project announced by Germany’s ENERCON, valued at an estimated US$ 110 million. The second largest announcement was Hyatt’s US$ 65 million hotel construction project, while the French group Virbac acquired all of Laboratorios Santa Elena, the leading manufacturer of vaccines, particularly for cattle, and announced plans to increase capacity in a project estimated to be worth US$ 51 million. The sale of Tienda Inglesa, an established national supermarket chain, to United States investment groups Goldman Sachs Group, Inc. and Klaff Realty, for US$ 140 million, was the largest transaction recorded in the year. Other smaller transactions were carried out in the renewable energy and casino sectors. After reaching record levels in 2015, FDI in Ecuador fell 44% in 2016, returning to levels seen in previous years, with inflows standing at US$ 744 million. All FDI components decreased, but the biggest drop was in intercompany loans, which were negative. The oil industry remains the leading recipient of foreign capital (64% of the total in 2016) and the drop in FDI was smallest in this sector (14%). Manufactures and services were hit the hardest, with declines of 86% and 57%, respectively. The European Union was the largest investor bloc, while the four leading countries were China, Spain, the United States and the Netherlands, which accounted for around 80% of the total. Investments from the Netherlands were up 30%, and accounted for about half of the total, but, as was noted above, the origin of much of the capital entering through the Netherlands cannot be identified. FDI flows from Spain also increased, while investments originating in China and the United States fell, with each of these three countries accounting for around 10% of total inflows. Infrastructure development attracted large-scale projects. Dubai World, the maritime terminal operator based in the United Arab Emirates, was awarded the concession for Ecuador’s first deepwater port in Posorja, a US$ 1.0 billion investment that will allow Ecuador to receive post-Panamax vessels. Other smaller manufactures projects will together represent investment of around US$ 200 million. These include the expansion of the German tyre manufacturer Continental AG, valued at US$ 74 million, and a new plant to be built by the Swiss construction materials company Sika AG, for an estimated US$ 64 million. FDI in the Plurinational State of Bolivia fell by 26% in 2016 to US$ 410 million, the lowest level since 2007. Despite the slowdown in investment in extractive industries, the country’s mineral wealth continues to attract foreign capital. Oil and gas exploration and development plans announced by a consortium made up of Spain’s Repsol S.A. and Dutch-British Shell was the largest project announced in 2016 —US$ 500 million for the next five years—, followed by the construction of a steel plant by the Chinese company Sinosteel Corporation, with a planned investment of US$ 450 million. This project is currently in the final stage of the approval process required by the Export-Import Bank of China (EximBank) to provide financing. Some Chilean companies operating in the country also announced expansions in 2016. The Coca-Cola Embonor S.A. franchise will expand its production capacity and infrastructure in its operations in the Plurinational State of Bolivia, with a project valued at US$ 35 million. In the telecommunications sector, Empresa Nacional de Telecomunicaciones S.A. (Entel) announced a project worth US$20 million to expand the optical fibre network.

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Paraguay received US$ 274 million in FDI in 2016, a 5% increase compared with the previous year, 90% of which was new capital, a component that fell 10%. The total increase was attributable to reinvested earnings, which rose 65%. Intercompany loans registered negative values and were lower than the previous year. Although data by sector are not available for 2016, in recent years the financial services sector has been the main recipient of FDI in Paraguay (54% between 2013 and 2015), followed by commerce, hotels and restaurants (25% in the same period), with most investments coming from Brazil and the United States. Announced investments rose during 2016. Italian cement firm Financo, together with its subsidiary Colacem, announced one of the biggest projects, a new plant valued at US$ 200 million, which will supply Paraguay and central South America. In telecommunications, Swedish-based firm Millicom, operator of Tigo, announced plans to open a tier III data centre, which would require US$ 12 million of investment and will provide more advanced services for companies. In manufactures , the Brazilian meat processing company JBS S.A. opened its third processing plant —one of the most modern in Latin America— after investing US$ 80 million.

3.

Mexico: end of the growth run?

FDI flows into Mexico in 2016 remained at historically high levels, totalling US$ 32.113 billion, despite falling 7.9% compared with 2015.13 As a result, the country was the second largest foreign capital market in the region, after Brazil. With regard to FDI components, intercompany loans have grown steadily over the past five years (up 21.6% in 2016) and accounted for 42% of total investments. Capital inflows declined 19.8% and made up 33% of total FDI, while reinvested earnings fell for the third year in a row (23.9%), accounting for 25% of total inflows. The Mexican manufactures sector has been the main recipient of foreign capital inflows to the country. Between 1999 and 2015, 48% of FDI went to manufactures, while in 2016 the figure reached 61%. The automotive industry is the most attractive, receiving 19% of FDI, followed by the chemical industry (14%) and beverages and tobacco (7%).14 Once again, the United States was the largest investor in Mexico, with 39% of the total, although its share fell in relation to the figure for 2015 and the average for the period 1999-2016 (46%). Investments from the European Union accounted for 31% of the total, similar to that of 2015. Spain remained the most important European investor (11%) despite a fall in FDI outflows, while capital flows from Germany increased (9% of the total). Other major investors were Canada and Japan, both with a 6% share, while Brazil was the largest investor from Latin America and the Caribbean (3%). The energy market reform undertaken in 2013 established the basis for a wholesale electricity market, allowing private companies to supply electricity and develop transmission and distribution infrastructure through contracts with the Federal Electricity Commission (CFE). It also established a target for Mexico to generate 35% of its electricity from clean energy sources by 2025 (Reyes, 2014). To carry out the investments linked to this reform, foreign capital will have to enter the country, the bulk of it in the immediate future. The first two auctions of electricity concessions took place in 2016, with contracts awarded to Mexican and foreign companies. Following the first auction, 18 contracts were awarded to 11 companies, while the second saw 13

Figures according to the Balance of Payments and International Investment Position Manual, sixth edition (BPM6) of the International Monetary Fund (IMF, 2009). 14 Data by sector and country of origin are according to the fifth edition of the Balance of Payments and International Investment Position Manual, fifth edition (BPM5) (FMI, 1993). The results may change in the light of subsequent updates of sectoral information in BPM6.

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56 contracts distributed among 23 companies, mostly in the field of solar photovoltaic energy, but also in wind energy. In 2016, US$ 1.131 billion was invested in electricity generation, more than double the amount of 2015 (for the period 1999-2016, annual investment in the sector averaged US$ 440 million). In telecommunications, although recent reforms had allowed new operators to enter the market and large investments were seen in 2015, FDI fell in 2016 to US$ 753 million, well below the annual average for the period 1999-2016 of US$ 1.03 billion. Cross-border mergers and acquisitions activity was fairly muted in 2016, although two transactions exceeded the US$2 billion mark. The first was the acquisition of the Mexican laboratory Representaciones e Investigaciones Médicas, S.A. de C.V. by Teva Pharmaceutical Industries Ltd., the Israeli leader in generic pharmaceuticals, for US$ 2.3 billion. The deal led to a legal dispute between the seller and buyer which decided to close the plant. Although to date there is no indication that the problem was resolved, in April 2017 there was news of a possible resumption of operations in the coming months (Reuters, 2017). The second was the sale by Freeport-McMoRan Inc. of its oil assets in the Gulf of Mexico to Anadarko Petroleum Corporation, based in the United States, for US$ 2.0 billion, as part of its strategy to reduce debts and concentrate on metal mining, mainly copper. Thus, the only Freeport-McMoRan Inc. operations in Latin America are in Chile and Peru. A smaller but still noteworthy transaction was the acquisition for US$315 million of Grupo Productos Internacionales Mabe, a leading Mexican manufacturer of disposable hygiene products for babies, women and adults, by the Belgian Ontex Group N.V., which is seeking to consolidate its global presence with an Americas division. Investment announcements published by fDi Markets kept a healthy pace in 2016, with 50 projects over the US$ 100 million mark, in line with the annual average of the last ten years and 14% higher than in 2015. Despite the fact that the total value of announced investments for the automotive industry fell, the sector attracted some 20% of the total (in number and value). Unlike previous years, there were no big announcements, although there were announcements of smaller-scale projects (less than US$ 500 million) by companies based in Mexico to expand existing operations and build new facilities. The largest project in manufactures was the construction of a new brewery in Mexicali by the United States-based Constellation Brands, worth an estimated US$ 1.5 billion and which is expected to start production in 2019. The energy market was particularly active, with a quarter of the total value of investments announced in 2016 earmarked for energy projects. Renewable energy, mainly solar, accounted for most of the amount. The Italian firm Enel and the Spanish companies ACCIONA, Fisterra Energy, Grenergy Renovables and Iberdrola accounted for 61% of the total announced, followed by the Chinese firms Envision Energy and Jinko Solar, with 15%. The hydrocarbon projects announced included the construction of a liquefied natural gas plant in Yucatán by Korea Gas Corporation (KOGAS), based in the Republic of Korea, which will require an estimated investment of between US$ 1 billion and US$ 1.5 billion, and the expansion of TransCanada’s investment portfolio. In 2016, the Canadian firm was awarded two 25-year contracts for the construction and operation of gas pipelines, one for the Tula-Villa de Reyes pipeline as the sole investor (US$ 550 million) and another for the South Texas-Tuxpan pipeline in partnership with the Mexican firm IEnova (US$ 2.1 billion). Telecommunications operators expressed their continued interest in investing during 2016, making the sector the fifth-largest recipient of announced investments, despite a drop in the total value compared with 2015. The United States operator AT&T reported that it would continue to pursue its investment plan to consolidate its position in the Mexican market, as did Spain’s Telefónica S.A., which announced that it would

The energy market was particularly active, with a quarter of the total value of investments announced in 2016 earmarked for energy projects. Renewable energy, mainly solar, accounted for most of the amount.

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continue to invest in mobile telephony. Investments in telecommunications are expected to rise in the next few years, as a result of the Red Compartida project, a public-private partnership that seeks to increase coverage of advanced 4G LTE services and is expected to generate more than US$ 7 billion in investment over the next 20 years, which was put out to tender in 2017.— The winning bid was made by Altán Redes, a multinational consortium whose strategic partner is the Spanish Groupo Multitel and whose main investor is North Haven Infrastructure Partners II, an infrastructure fund managed by Morgan Stanley Infrastructure, and which comprises other international investment funds and Mexican partners. In April 2017, this consortium completed the US$ 2.3 billion financing process: 33% in the form of capital contributions by the partners, 37% in the form of loans from technology suppliers (China’s Huawei and Finland’s Nokia) and the remaining 30% will be provided by national development banks (the National Bank for Public Works and Services, Nacional Financiera and the National Foreign Trade Bank).

4. Central America: Panama performs well FDI to Central America grew 4.9% in 2016 and stood at US$ 11.971 billion. Higher investments in the subregion’s two main recipients —Panama, which received 44%, and Costa Rica, with 27%— offset the drop in FDI to the other Central American countries. Map I.2 Central America (selected countries): foreign direct investment inflows, 2015 and 2016 (Billions of dollars)

1.204 1.221

Honduras

Guatemala

0.888

4.494

0.399 El Salvador 0.374

Panama 3.145

2016

0.950 Nicaragua

1.181

2015

1.139

5.209

Costa Rica 3.180

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of preliminary figures and official estimates at 15 June 2017.

FDI flows to Panama rose 15.9% to US$ 5.209 billion in 2016, a record after four consecutive years of increases, following the upward trend that began in the mid-2000s. This level of investment placed Panama in sixth place in terms of FDI inflows for the whole of Latin America and the Caribbean, behind Peru. Reinvested earnings were the largest component of FDI in Panama, with 66% of the total, and the amount was just 2% higher than that seen in 2015. Intercompany loans made up 19% of FDI, down 7%, while capital inflows accounted for 15% of the total, making it the smallest component of FDI for the fourth year running.

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No sectoral data are available for 2016, but based on past performance, investment in Panama is clearly concentrated in the services sector, which received 91% of inflows on average between 2013 and 2015, primarily in the areas of commerce, financial services, telecommunications and media, and transport. In 2015, the most recent year for which data by origin are available, the United States and Colombia were the main sources of investment in Panama, accounting for 23% and 19%, respectively, followed by the European Union, with 13%, and South Africa, with 7%. According to data compiled by fDi Markets, the number of greenfield renewable energy projects in Panama declined in 2016, with the Taiwanese firm General Energy Solutions making the only announcement, with plans for a photovoltaic power plant. Meanwhile, in the area of natural gas-fired electricity generation, the United States-based multinational AES Corporation —with operations in Panama through two subsidiaries spanning almost 20 years— broke ground on a natural gas-fired power plant, the first of its kind in Central America, a project that will require investment in the amount of US$ 1.15 billion, to be made in conjunction with the Panama-based Inversiones Bahía. The expansion of the Panama Canal was completed in 2016 and the country is moving forward with a national strategy to improve its logistics position, seizing the opportunities offered by the port area. In line with the national maritime strategy, the Panamanian Maritime Authority has promoted a plan for the strategic development of the sector by 2040, which includes building a terminal for cruise liners on the Pacific side and a dock for related maritime industries, first on the Pacific side and later on the Atlantic side of the Canal. These tender processes will attract transnational companies and could potentially boost FDI inflows into the country, especially from Chinese companies looking to establish a greater presence in Central America through these bidding processes. Construction of the Panama Colon Container Port began in June 2017 —the first with the capacity to serve neopanamax vessels— after Chinese firm Shanghai Gorgeous Investment Development Co. Ltd. was awarded the concession. The associated investments will reach US$ 900 million, with the building work to be carried out by China Communications Construction Co. Ltd. In addition to the port, Shanghai Gorgeous Investment Development Co. Ltd. announced plans to build a natural gas-fired power plant, a project valued at US$ 900 million which is still awaiting environmental approval. Costa Rica was the second largest recipient of FDI in the subregion, with inflows totalling US$ 3.18 billion, up 1.1%. FDI to the country had been on a clear upward trend until 2013, after which it stabilized at around US$ 3 billion annually. Intercompany loans and reinvested earnings accounted for 80% of investments (42% and 38%, respectively) and increased compared with 2015, while capital inflows fell for the fourth year in succession, down 4%, accounting for 20%. Information by sector is only available for 2015, but this shows that services, manufactures and real estate were the main recipients of FDI in Costa Rica, with 29%, 28% and 11% of the total, respectively. The share of manufactures and services is similar to the average levels of the last decade, but the real estate share contracted compared with its past performance (23% of FDI in 2005-2015).15 The United States, which accounted for half the FDI inflows in 2015, remains the largest investor in Costa Rica. The European Union had a 28% share, with the Netherlands accounting for the lion’s share (17%)—which, as was mentioned above, makes it difficult to identify the exact origin of the funds— followed by Germany and Spain, with 4% each. Latin America accounted for 17% of FDI inflows to Costa Rica, led by Colombia (5%) and Mexico (4%). 15

Data by sector and country of origin are taken from the fifth edition of the Balance of Payments and International Investment Position Manual, fifth edition (BPM5) (FMI, 1993). The results may change in the light of subsequent updates of sectoral information in BPM6.

FDI flows to Panama rose to US$ 5.209 billion in 2016, a record after four consecutive years of increases.

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In the energy sector, Globeleq Mesoamerica Energy —which began its Costa Rican operations in 1996 with a 23 MW wind farm and which by the end of 2016 had an operational capacity footprint of 394 MW in wind and solar energy, and has projects in Costa Rica, Honduras and Nicaragua— was taken over by Guatemala’s Corporación Multi Inversiones (CMI), which thus consolidated its position in the Central American renewable energy market, which it entered in the mid-2000s. The subregion currently has an installed generating capacity of 711 MW from hydraulic, wind and solar energy plants, with plans to add 135 MW of capacity. In the financial sector, a major transaction was the acquisition of a 70% stake in Instacredit, a holding company that grants loans to the low and medium-low income segments of the population and has 52 branches in Costa Rica, 8 in Panama and 1 in Nicaragua, by the Mexican firm Crédito Real in a deal valued at US$ 70 million. A similar number of investment announcements were made in 2016 as in 2015, albeit for smaller-scale projects —none were valued above US$ 100 million— which is in line with investors’ focus on services, an area where projects tend to be comparatively less capital intensive. Most of the project announcements published by fDi Markets in 2016 were concentrated in software and information technology (IT) services and the medical industry. One of the largest projects was the opening of a new manufacturing plant for orthopaedic sports medicine supplies in the Coyol free zone by the British company Smith & Nephew, for an estimated US$ 55 million. Also in the area of medical services, Precision Coating, a supplier of plastic coating solutions for medical devices based in the United States, announced a US$ 21 million project in Coyol to supply the local market, while Edwards Lifesciences, also based in the United States, will build a plant to manufacture cardiac valve components for export, with an initial investment of US$ 10 million in the La Lima free zone. FDI into Guatemala totalled US$ 1.181 billion in 2016, down 3.3% from 2015. It was the second consecutive year of contraction, although the value remains above the average of the 2000s. Reinvested earnings were the largest component (91%), up 12% compared with the previous year, so the contraction is the result of lower capital inflows and intercompany loans, which accounted for 8% and 1% of the total, respectively. The commerce sector attracted 26% of FDI in 2016, the value of which grew 76% compared with 2015. Investments in electricity fell, but it was still the second largest sector, receiving 22% of the total, while FDI flows to manufactures (19% of the total) and telecommunications(13% of the total) grew 11% and 39%, respectively. Once again, the United States was the principal investor in the country, accounting for 34% of the total in 2016. The European Union accounted for 13%, with most of those investments originating in Spain (6%) and Luxembourg (5%), followed by Colombia, with 9%, and Mexico, 7%. Of those leading investors, only Colombia saw a drop in its outflows to Guatemala. Canadian investments, which had boomed between 2010 and 2014, also fell. One of the biggest projects announced was the construction of an oil refinery by the United States-based Maple Resources Corporation, for an estimated value of US$  88  million. In the logistics sector, the Danish company A.P. Moller-Maersk will invest US$ 80 million to expand its container terminal in Puerto Quetzal, while the largest project in manufactures was the expansion of the maize flour production plant of the Mexican company GRUMA, one of the world’s leading producers of maize flour and tortillas, estimated at US$ 47 million. FDI flows into Honduras fell 5.3% to US$ 1.139 billion in 2016. Despite this and the fact that it was the second consecutive year of contraction, total FDI was still higher than the income received by Honduras in the 2000s. Reinvested earnings were the largest component of investment, with 86%, and rose by 17%, while capital inflows accounted for 18% of the total, up 47% compared with 2015.

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Investment in financial services has grown steadily over the past three years and accounted for 40% of FDI in 2016. The telecommunications and manufactures sectors also received a significant share of foreign capital, 24% and 22%, respectively, up slightly compared with 2015. Investments in commerce fell by 8%, accounting for 11% of the total, while the share of FDI received by the maquila sector fell from 18% over the past decade to 3% in 2016. The origin of investment was relatively diverse compared with other countries of the region. Despite a drop in its outflows to Honduras, Panama was the main investor (15% of the total). The United States and Mexico invested more in Honduras, with each accounting for 14% of the total, while Colombia, Guatemala and Luxembourg accounted for 12%, with only FDI outflows from Colombia decreasing. In telecommunications, the Swedish firm Millicom, owner of the Tigo brand, announced that it would expand its 4G network to reach 33% of the population in 2016, a project valued at US$ 220 million. The United States textile firm Nike, which has seven factories in Honduras, announced the opening of a logistics centre in the north of the country, a project worth US$ 40 million. Textiles, together with tourism, agribusiness, business support services, intermediate manufacturing (spare parts) and housing, has been a priority area for the proposed strategy to attract investment as part of the Honduras 20/20 development plan, launched in 2016, which aims to secure 70% of the investment needed to fulfil its goals from foreign sources. Although investment inflows to Nicaragua fell by 6.5% in 2016, total FDI was US$  888  million, higher than the average for the 2000s. Manufactures and telecommunications remained the main recipients of foreign capital in 2016, with 31% and 26% of the total, and values were similar to those of 2015 (manufactures investment values dropped 2% and telecommunications rose 2%). Investment in commerce and services fell by 7%, accounting for 16% of the total, while the energy sector made up 14% of total FDI, with a small increase of 3%. Mining investments have been falling steadily over the past three years to reach negative territory in 2016, down from an average 18% share of the total between 2011 and 2013. According to fDi Markets, fewer projects were announced in 2016. Major manufactures projects included the opening of a new plant by the Japanese auto parts manufacturer Yazaki Corporation, which already has five factories in Nicaragua, a project valued at US$ 27 million, and the new shrimp feed processing plant project, valued at US$ 10 million, announced by the United States transnational company Cargill. Next Level Apparel, a textile company based in the United States, opened a storage and distribution centre to supply companies in Nicaragua and the United States, in a project with associated investments in the amount of US$ 10 million. In the financial sector, Banco de la Producción, a subsidiary of the Panamanian Promerica Financial Corporation, expanded its activities in the country by opening new branches. El Salvador received US$ 374 million of FDI in 2016, 6.2% less than the previous year. However, this decline was rather unusual because capital inflows increased in 2016, up to US$ 457 million, meaning that the contraction in total FDI was due to the decrease in intercompany lending, which was negative in 2016. Analysis of sectoral trends shows that investment in manufactures accounted for 79% of the total, with a similar value to that of 2015 (up 1.2%). Within the services sector, which accounted for the rest of the inflows, investments in the financial sector, the main recipient, increased, investments in commerce dropped and there were divestments in communications and electricity. The leading investors were Panama, which doubled its level of investment compared to 2015 and accounted for 59% of the total, the United States, with a 20% share despite a 71% decline in investments, and Honduras, with 12% of the total.

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Investment announcements increased in 2016, with projects concentrated in telecommunications and renewable energy. Spain’s Telefónica S.A., which trades as Movistar in El Salvador, announced an investment of US$ 250 million to roll out its LTE network. The Swedish firm Millicom, owner of the Tigo brand, expanded its mobile and 4G networks, with investments estimated at US$ 100 million and US$ 200 million, respectively. In the renewable energy sector, Neoen, a subsidiary of France’s Direct Energie, broke ground for a 100 MW photovoltaic power plant, which will be the largest in the country. In the financial sector, Banco Agrícola, a subsidiary of the Colombian concern Grupo Bancolombia, will invest US$ 55 million in a new operations centre.

5. The Dominican Republic still leads in the Caribbean Foreign direct investment to the Caribbean increased by 3.3% in 2016 and totalled US$ 4.878 billion. The largest recipient of investment was the Dominican Republic, which accounted for 49% of total FDI into the subregion, followed by Jamaica, with 16%. The countries of the Organisation of Eastern Caribbean States (OECS) together received 11% of total FDI in 2016. FDI flows to the Dominican Republic have been trending upwards for the past decade. In 2016 they increased by 9.2% to US$ 2.407 billion, making the country the ninth largest recipient of FDI in Latin America and the Caribbean. More than half of FDI took the form of reinvested earnings (55%), while new capital inflows represented 40%, a similar level to that of 2015, down just 0.6%. Tourism and real estate accounted for more than half of the investments, with 33% and 24%, respectively, while after three years of sharp falls, investments in mining and commerce and industry picked up, accounting for 17% and 13%of the total, respectively. Canada and the United States were once again the two main sources of FDI, with 20% and 15% of the total in 2016, even though investments from the United States contracted by 12%. The European Union was responsible for 17%, of which the largest investor was Spain (12% of the total), while Mexico was the largest contributor from Latin America and the Caribbean, with 5%. The tourism sector continues to develop and attracted fresh FDI (a rise of 17%), with Spanish companies announcing numerous projects in Punta Cana. For example, Riu Hotels & Resorts invested US$ 140 million in a new five-star hotel for adults only with 1,007 rooms and 3 million euros in its first water park. Another Spanish company, Grupo Piñero, invested an estimated US$ 103 million in a new luxury hotel also in Punta Cana, making it the group with the most hotels in the Dominican Republic. While FDI inflows for telecommunications and energy were quite modest in 2016, there have been several advances and investment announcements in these sectors, which could boost investment in the future. In 2016, work began on the first phase of the Monte Plata Solar plant, the first large-scale solar power plant in the Dominican Republic, led by General Energy Solutions, based in Taiwan province of China, and Soventix of Germany , with an investment of US$ 110 million. In the first phase of the project, 132,000 solar panels will be set up and generation capacity will be 30 MW, to be expanded to 60 MW in the second phase. The German firm F&S Solar announced that it will build two 107 MW and 115 MW solar parks, which will require an estimated investment of US$ 225 million. In telecommunications, in line with its investment plans for 2015-2017, Mexico’s América Móvil, through Claro República Dominicana, announced that it will invest US$ 265 million to expand its 4G LTE network and fibre optic services. The Dutch company Altice, which operates in the Dominican Republic under its Orange and Tricom brands, announced a project to build an entrepreneurship and innovation centre, with an estimated investment of US$ 67 million.

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Map I.3 The Caribbean (selected countries and groupings): foreign direct investment inflows, 2015 and 2016 (Millions of dollars)

OECSa countries 11% of the subregion’s FDI 78

Saint Kitts and Nevis 408

Bahamas 522

925

106

2 205

Haiti

69

Dominican Rep.

105

Antigua and Barbuda

Jamaica

154

146

2 407

790

36

Dominica 33

65

Belize 95

Saint Lucia

33

97 Saint Vincent and the Grenadines

121 104 61

Grenada 63 69

Barbados 228

279

Suriname 406

Trinidad and Tobago ...

122

Guyana 58

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of preliminary figures and official estimates at 15 June 2017. a Organisation of Eastern Caribbean States.

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FDI flows to the Dominican Republic have been trending upwards for the past decade. Tourism and real estate accounted for more than half of the investments.

Transnational companies have also expressed interest in other production and business services sectors. In the agrifood sector, Kılıç Holding, a Turkish firm specializing in aquaculture and fisheries, is examining the possibility of producing fish for export, with investment of US$ 200 million. Australia’s Acquire Business Process Outsourcing (Acquire BPO), which specializes in business services, announced the opening of a contact centre in the Dominican Republic, with an investment of US$ 30 million, while the Italian firm Ritrama, specialists in self-adhesive materials, continues to expand its operations in the region and opened a slitting and distribution centre in the Dominican Republic to service the whole Caribbean subregion, with an estimated investment of US$ 29 million. FDI inflows to Jamaica fell by 14.5% to US$ 790 million, with most going to tourism, a sector that the government expects will grow by at least 5% per year. The United States-based group, Karisma Hotels, announced that it would begin building the first of three hotels in the Sugar Cane megaproject, an initiative first announced in 2015 (Jamaica Observer, 2016a), while the Spanish group, Riu Hotels & Resorts, will invest US$ 60 million in the construction of its sixth hotel in Jamaica; hotel Riu Reggae will be a five-star, adults only hotel with 454 rooms. The renewable energy sector has also attracted foreign capital. Jamaica’s National Energy Policy, 2009-2030, states that the country will seek to increase investments and establishes a goal of 20% of renewable energy in the energy mix by 2030. In 2016, a 36  MW wind farm, a project valued at US$ 90 million, was opened to the west of Kingston. The farm was acquired later that year by British investor Sir Richard Branson, making it the largest private renewable energy project in Jamaica (Jamaica Observer, 2016b). In addition, the United States biofuel company, Benchmark Renewable Energy, announced a project for a large-scale bioethanol plant, with an annual production capacity of 10 million gallons and an additional 3 MW of electricity for the local grid, which will require investment to the tune of US$ 95 million. In the same area, the German fund MPC Capital AG will invest US$ 50 million in a photovoltaic power plant at Paradise Park, which is being developed by Eight Rivers Energy Company (comprised of the French firm Neoen, which is the majority shareholder, and the Jamaican company Rekamniar Frontier Ventures) (MPC Capital, 2016). The business services market continues to develop thanks to foreign investors and in 2016 India’s Hinduja Global Solutions (HGS) announced the opening of its fourth customer service centre in Kingston, a project valued at US$ 100 million. Jamaica has 7.3% of the world’s bauxite reserves (ECLAC, 2016a) and, in a transaction valued at US$ 229 million, the Chinese firm Jiuguan Iron & Steel Co. Ltd. (JISCO) purchased the vertically-integrated Alpart aluminium refinery —which has been inactive since 2009— from the Russian company UC RUSAL. Reopening and improving the plant will require an initial investment of US$ 220 million and JISCO has also announced that it will invest some US$ 2 billion over the next four years to create an industrial zone (Jamaica Observer, 2016c). FDI inflows to the Bahamas were up 27.8% to US$ 522 million in 2016, but that is still below the average for the last decade.16 Capital inflows accounted for a lower share of FDI (37%) and almost doubled their 2015 level. In October 2016, Hurricane Matthew hit the Bahamas directly, causing severe damage to infrastructure and property, as well as power outages and floods. The material costs of that disaster together with those incurred following Hurricane Joaquin, which preceded Matthew, are estimated at US$ 800 million (Bahamas Information Services, 2016). Most of the FDI that comes to the Bahamas goes to the tourism sector, which 16

The statistics from the Central Bank of the Bahamas are not fully comparable with those of other countries. In this document, FDI data represent the sum of two items on the financial account: direct investment and other private flows.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

is the key to rebuilding and boosting the economy. In 2016, work began on the first phase of the controversial Baha Mar hotel megaproject, which was acquired by CTF BM Holdings Ltd., a subsidiary of the conglomerate Chow Tai Fook Enterprises Ltd. based in Hong Kong SAR. This venture is expected to kick start the local economy (New York Times, 2017). The cruise business continues to thrive, with companies announcing expansion plans. MSC Cruises, a company founded in Italy and with headquarters in Switzerland, announced a project for a private island, Ocean Cay MSC Marine Reserve, in which it plans to invest US$ 200 million, while the United States-based Norwegian Cruise Line will invest to improve its private island in the Bahamas, Great Stirrup Cay. Meanwhile, Carnival Cruise Line, the other major United States cruise line, is planning to build a new port on the east side of Grand Bahama, with an investment estimated at between US$ 100 million and US$ 200 million. Barbados received US$ 228 million of FDI in 2016, which is triple the amount received in 2015, but still below the average for the last decade. In telecommunications, the Jamaican Digicel Group announced an infrastructure expansion project valued at US$ 84 million, which is expected to extend access to the fibre optic network to households. As part of the same project, it also launched its 4G LTE mobile telephone network, the first of its kind in the country. In the area of tourism, the Jamaican firm Sandals Barbados plans to double the size of the hotel complex it opened in 2015, by adding another 222 rooms, while United States-based group Hyatt announced the construction of a hotel on Lower Bay Street that will have 232 rooms and 30 condominiums, with an estimated investment of US$ 100 million. In 2017, work will finally begin on the long-delayed, US$ 200 million project to build a 450 room hotel on the site of historic Sam Lord’s Castle Hotel in Saint Philip, to be operated by the United States-based firm Wyndham Grand Resort. As it is linked to a transnational company, this project is expected to receive investment from abroad, which would boost FDI inflows, but in the meantime, the bulk of the funding will be provided by the Government of Barbados directly. In this particular case, Barbados has secured a loan from the Government of China to finance construction of the hotel, which will be built by China National Complete Plant Import & Export Co. Ltd. (Barbados Today, 2017). FDI in Suriname fell 20.4% to US$ 222 million. However, 2015 saw the highest reported amount of investment of the last 10 years, so inflows in 2016 were still above the average of previous years. The country’s natural resources have been the main attraction for foreign capital. In mining, the Canadian firm Iamgold signed an agreement with the Government of Suriname to acquire a stake in the Saramacca project and the encouraging results of the initial explorations mean that drilling will continue (Iamgold, 2017). In 2016, production began at the Merian open-pit gold mine, a project led by the United States-based group Newmont Mining Corporation and in which the State-owned oil company, Staatsolie, holds a 25% stake. This site has an estimated mine life of 11-13 years and reserves of approximately 3.8 million ounces. Annual production is expected to reach between 400,000 and 500,000 ounces in the first five years of operation. FDI flows to Haiti remained relatively stable, reaching US$ 105 million in 2016, despite being a year marked by political turmoil and the trail of destruction wreaked by Hurricane Matthew, with the ensuing damages estimated to be in the region of 21% of GDP. The maquila industry, particularly in the textile sector, has seen some activity. MAS Holdings, a Sri Lankan conglomerate specializing in the manufacture of underwear, announced the opening of a new plant in the Caracol industrial park, with an estimated

Chapter I

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Chapter I

investment of US$ 27 million. This project would make it the second foreign investor in the park, following in the wake of SAE-A Trading Co. Ltd., the global leader in textiles based in the Republic of Korea, which has been operating in the industrial park since 2012. Meanwhile Winds Group of Hong Kong SAR has opened a new sportswear factory where 12 million garments will be manufactured for mid-range brands in the United States, and announced that it will open a second plant in 2018 to double its production capacity. Both projects are expected to require investment totalling US$ 90 million. Although the government continues to pursue its efforts to promote Haiti as a tourist destination and improve the quality and range of services, the tourism sector and the country’s image have been hurt in 2016 by the political instability surrounding the presidential elections and the damage caused by Hurricane Matthew. The government has tried to promote the mining sector, whose potential value is estimated at US$ 20 billion in gold and precious metals, by establishing a new legal framework that allows exploitation by foreign companies. However, this is a controversial issue, as establishing a framework that ensures sustainable mining activities that contribute to development is a complex task for the industry, and civil society continues to voice concerns about the lack of assurances in this regard (Huffington Post, 2016). Guyana received US$ 58 million of FDI in 2016, close to half the value of investment received in 2015 (a decrease 52.3%) and of average inflows received during the first half of the 2000s. The energy sector received the lion’s share of FDI (34%) and more capital than in 2015, followed by the mining sector, 26% of the total, despite a 58% decrease. Investment in tourism, manufactures and agriculture was also down. Hydrocarbon exploitation is expected to effect major changes in the country’s economy in the coming years. Exploration of the Stabroek block by United States-based ExxonMobil yielded positive results and in June 2017 the company announced that it will begin the first phase of exploitation, which is expected to cost US$ 4.4 billion and develop approximately 450 million barrels of oil. FDI in Belize decreased by 49.7% in 2016, to US$ 33 million. With this second consecutive year of decline FDI reached levels similar to those of the 2000s. Capital inflows were the largest FDI component, accounting for 58%, and their contraction could not be offset by the increase in reinvested earnings. Services and natural resources have attracted much of the investment in previous years. In the agriculture sector, the Guatemalan company Santander Group completed the construction of a sugar mill and exported the first sugar shipment to Europe, while in the tourism sector, Norwegian Cruise Line launched a project which will see at least 130 cruise ships visit Belize every year, generating 500 direct jobs and 1,500 indirect jobs by 2020 (Cruise Industry News, 2016). In the first half of 2016, Trinidad and Tobago saw negative FDI flows of US$ 30 million, after reaching US$ 406 million in 2015.17 The capital outflows of transnational oil companies explains why FDI was negative in the first two months, while FDI totalled US$ 177 million in the other sectors in the first six months of 2016. In the past, hydrocarbon exploitation and petrochemicals have been the main recipients of FDI, meaning that movements by transnational companies have a major impact on the balance of payments and FDI inflows may be negative in some years. In the financial sector, National Commercial Bank Jamaica Ltd. acquired a 29.9% stake in the insurance and financial services firm Guardian Holdings Ltd., a leader in 17

In 2017, the Central Bank of Trinidad and Tobago adopted the methodology set out in the Balance of Payments and International Investment Position Manual, sixth edition (BPM6) of the International Monetary Fund (IMF, 2009) and modified part of the data sources, as a result only information for the first half of 2016 was available at the time of writing the present report.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

financial transactions in the Caribbean, while in telecommunications, the Jamaican company Digicel Group remains active in the market and announced a project in 2016, estimated at US$ 305 million, to expand its fibre optic network to households. FDI flows to member countries of the Organisation of Eastern Caribbean States (OECS) fell for the third year in a row, coming in at US$ 513 million in 2016, 5.8% less than in 2015. Antigua and Barbuda received inflows totalling US$ 146 million, which is in line with the average for the last five years, even though it fell 5.2%. Capital income accounted for 93% of FDI and was the main factor behind the contraction, as reinvested earnings and intercompany loans increased. FDI flows have been concentrated in tourism and most investment projects were announced in that sector. After being announced in 2015, the construction of the Hideaway at Royalton Antigua Resort & Spa in Deep Bay by Canada’s Sunwing Travel Group was finally approved in 2016, with total investments estimated at US$ 400 million. In Barbuda, the Paradise Found project, led by Robert De Niro, also received the necessary construction permits, despite opposition from local residents. This US$ 250 million project aims to upgrade and redevelop the site of the former K Club, which was once frequented by Princess Diana and closed its doors more than a decade ago (Forbes, 2016a). The boutique division of the United States chain Marriott announced the construction of Coconut Bay Beach Resort, its first hotel in the country, a project that will require a US$ 40 million investment and will consist of 40 luxury condominiums and a 70-room five-star hotel. Saint Vincent and the Grenadines received FDI totalling US$ 104 million in 2016, down 14% on 2015 but still within the range of investment received by the country in the past decade. Almost all of the investment came in the form of new capital (97%) and went to the tourism sector. In 2016, the real estate firm Sotheby’s International Realty began operating in the country, which is expected to boost the real estate market. In hotels, a three-year, US$ 100 million luxury tourism project was also announced. In 2016, work began on the first phase of the Pink Sands Club, an exclusive hotel complex with 26 rooms and 6 villas (Forbes, 2016b). In addition, a new international airport was opened in February 2017, with Air Canada announcing in May that it would start weekly flights from Toronto by the end of the year. This will be the first regular international service to the islands from North America and is expected to boost tourism. Saint Lucia received US$ 97 million in FDI in 2016, up 2.2% on 2015 and in line with inflows seen in the last four years. The increase was due to higher capital inflows, accounting for 76% of the total, and reinvested earnings and intercompany loans (12% of the total each). Tourism is the main economic activity in Saint Lucia. The Jamaican chain Sandals announced the construction of its fourth property in the country: a six-star luxury resort with 350 rooms, which will require an estimated investment of US$  65  million. Luxury tourism is one the country’s major attractions, and in 2016 Serenity at Coconut Bay, a luxury all-inclusive-boutique resort, was opened, and a project to build 20 villas in the south of the island —the Domaine Resort Development Project—was also announced, requiring investment of around US$ 6 million. Saint Lucia launched its citizenship by investment programme in early 2016, and will expand it in 2017 by eliminating the minimum net worth requirement of US$ 3 million. FDI in Saint Kitts and Nevis fell for the third year in a row in 2016, amounting to US$ 69 million, down 11.7% on 2015. Of this total , 97% was new capital. The government has implemented several reforms to its citizenship by investment programme in recent years, mainly to preserve the credibility of the programme and of the passport, as well as other changes to facilitate the process of including family members in the application. As in other Caribbean islands, tourism has been the main attraction for foreign capital.

FDI flows to member countries of the Organisation of Eastern Caribbean States (OECS) fell for the third year in a row, coming in at US$ 513 million in 2016, 5.8% less than in 2015.

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The United States-based Wyndham Hotel Group sees the country as one of the most desirable and exclusive destinations in the Caribbean, and will begin operations with a complex of 170 suites, condominiums and villas. The investment in this venture, due to be complete in 2019, is estimated at US$ 160 million. Among OECS countries, the largest increase in FDI was in Grenada, which rose 4.6% to US$ 63 million, 91% of which corresponded to capital income and the remaining 9% to reinvested earnings. The tourism sector has been growing since 2014, when the JetBlue service began operating and Sandals opened a resort. In 2016, JetBlue increased the number of direct flights from New York. In line with this growth, new tourism projects were announced. Construction began on the Levera Beach Resort, a 176-room hotel located on the least developed north-east coast of the island, a project that was green lighted as part of the country’s citizenship by investment programme. Plans were also announced for a new 146-room hotel to be developed by True Blue Development and operated by the United States boutique hotel chain Kimpton Hotels & Restaurants, a subsidiary of Intercontinental Hotels Group. The hotel will open in 2019. FDI in Dominica declined 6.9% to US$ 33 million, owing to lower capital inflows, accounting for 77% of the total, while reinvested earnings and intercompany loans remained steady (12% of the total each). Since its introduction in 2014, the citizenship by investment programme has been Dominica’s main source of FDI and was indispensible for the reconstruction effort following Tropical Storm Erika. As part of this programme, hotel projects by Kempkinski and Hilton were given the go-ahead and are scheduled to open in 2018. Another real estate project approved as part of the citizenship for investment programme is the announcement by the international chain Marriott, already present in the Dominican market thanks to its acquisition of Silver Beach Resort & Spa Dominica, that it will open a boutique hotel, part of its Autograph Collection brand.

Bibliography Bahamas Information Services (2016) “PM Christie: Hurricanes Matthew and Joaquin losses estimated in hundreds of millions”,Press release, 20 October [online] http://www.bahamas.gov.bs. Baker McKenzie (2017), “Rising Influence, Assessing China’s Record FDI Surge in North America and Europe” [online] http://www.bakermckenzie.com/en/insight/publications/2017/03/risinginfluence-china-fdi/ Barbados Today (2017), “New start date for Sam Lord’s”, 5 January [online] http://www. barbadostoday.bb/2017/01/05/new-start-date-for-sam-lords/. Casanova, L. and A. Miroux (2016), Emerging Market Multinationals Report (EMR) 2016: The China Surge, Emerging Markets Institute, S.C. Johnson School of Management, Cornell University. Central Bank of Chile (2017), Balanza de Pagos, Posición de Inversión Internacional y Deuda Externa Resultados al primer trimestre 2017 [online] http://www.bcentral.cl/es/faces/estadisticas/ SecExterno/BalanzaPago. Cruise Industry News (2106), “Harvest Caye open for cruise ship calls in Belize”, 18 November [online] http://www.cruiseindustrynews.com/cruise-news/16022-harvest-caye-open-forcruise-ship-calls-in-belize.html. ECLAC (Economic Commission for Latin America and the Caribbean) (2016a), Foreign Direct Investment in Latin America and the Caribbean, 2016 (LC/G.2680-P), Santiago. (2016b), Economic Survey of Latin America and the Caribbean, 2016 (LC/G.2684-P), Santiago. (2016c), Preliminary Overview of the Economies of Latin America and the Caribbean, 2016 (LC/G.2698-P), Santiago. (2011), Foreign Direct Investment in Latin America and the Caribbean, 2010 (LC/G.2494-P), Santiago.

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• 2017

IMF (International Monetary Fund) (2009), Balance of Payments and International Investment Position Manual Sixth Edition (BPM6), Washington, D.C. [online] http://www.imf.org/external/ pubs/ft/bop/2007/pdf/bpm6.pdf. (1993), Balance of Payments and International Investment Position Manual Fifth Edition (BPM5), Washington, D.C. Forbes (2016a), “Robert De Niro and Billionaire James Packer will transform Barbuda with luxury overwater resort”, 5 August [online] http://www.forbes.com/sites/jimdobson/2016/08/05/ robert-de-niro-and-billionaire-james-packer-will-transform-barbuda-with-luxury-overwaterresort/#aa394661ed4b. (2016b), “Caribbean Canouan Island debuts Pink Sands Club with $20,000 nightly villas and overwater spas”, 29 September [online] http://www.forbes.com/sites/jimdobson/2016/09/29/ caribbean-canouan-island-debuts-pink-sands-club-with-20000-nightly-villas-and-overwaterspas/#10d9a79d3a1c. Frankfurt School-UNEP Collaborating Centre for Climate and Sustainable Energy Finance (2017), Global Trends in Renewable Energy Investment 2017 [online] http://www.fs-unep-centre.org. Hanemann, T. and M. Huotari (2017), “Record flows and growing imbalances, Chinese Investment in Europe in 2016”, Merics Paper on China, No. 3, Mercator Institute for China Studies, Rhodium Group. Huffington Post (2016) “Preventing the next disaster in Haiti” [online] http://www.huffingtonpost. com/mark-schuller/preventing-the-next-disas_b_8961378.html. Iamgold (2017), “IAMGOLD provides update on drilling results from the 2016 exploration program on the Saramacca Project, Suriname”, 13 February [online] http://www.iamgold.com/. Jamaica Observer (2016a), “Karisma tells of US$900-m hotel project”, 28 August [online] http:// www.jamaicaobserver.com/news/Karisma-tells-of-US-900-m-hotel-project_72269. (2016b), “Richard Branson to acquire BMR Jamaica Wind Limited” [online] http://www. jamaicaobserver.com/news/Richard-Branson-to-acquire-BMR-Jamaica-Wind-Limited. (2016c), “JISCO to invest US$2 billion in Alpart” [online] http://www.jamaicaobserver.com/ business/JISCO-to-invest-US-2-billion-in-Alpart_67646. MPC Capital (2016), “MPC Capital launches Caribbean Renewables Platform and acquires stake in a solar PV project in Jamaica” [online] http://www.mpc-capital.com/contell/cms/server/ mpc-capital-com/misc/newsdetails.html?path=/server/mpc-capital-com/press/newsArticle/ press/2016-12-19. New York Times (2017), “In the Bahamas, a Long-Awaited Opening for Baha Mar Resort”, 17 April [online] http://www.nytimes.com/2017/04/17/travel/bahamas-baha-mar-resort-nassau-hotelcasino-opening.html. REN21 (Renewable Energy Policy Network for the 21st Century) (2017), Renewables 2017 Global Status Report, Paris. Reuters (2017), “Teva looks to resume some production at Rimsa plant in Mexico”, 25 April [online] http://www.reuters.com/article/us-teva-pharm-ind-rimsa-mexico-idUSKBN17R1B7. Reyes, J. (2014), “Por fin una reforma que liberó las oportunidades de México”, Reforma energética. motor de crecimiento y bienestar, A. Gallardo y L. María de la Mora (coords.), vol. 1, Mexico City, Fundación Colosio/Miguel Angel Porrúa. Skadden (2017), “Trump Administration Highlights Limitations of CFIUS Process” [online] http:// www.skadden.com/insights/publications/2017/06/trump-administration-highlights-limitations. The Economist (2017), “Chinese companies’ weak record on foreign deals”, 8 June [online] http:// www.economist.com/news/business/21723164-overpaying-commodities-and-trophy-assetshas-become-norm-chinese-companies-weak-record. UNCTAD (United Nations Conference on Trade and Development) (2017), World Investment Report, 2017: Investment and the Digital Economy (UNCTAD/WIR/2017), Geneva. (2015), UNCTADSTAT [online] http://unctadstat.unctad.org/wds/ReportFolders/reportFolders. aspx?sCS_ChosenLang=en.

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Annex I.A1 Table I.A1.1 Latin America and the Caribbean: inward foreign direct investment by country, 2002-2016 (Millions of dollars)   Antigua and Barbuda

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

80

179

95

238

361

341

161

85

101

68

138

101

155

154

146

Argentina

2 149

1 652

4 125

5 265

5 537

6 473

9 726

4 017

11 333

10 840

15 324

9 822

5 065

11 759

4 229

Bahamas

354

713

804

1 054

1 492

1 623

1 512

646

1 097

1 409

1 034

1 133

1 599

408

522

Barbados

228

185

228

390

342

476

615

255

446

458

548

56

559

69

228

25

-11

111

127

109

143

170

109

97

95

189

95

153

65

33

677

197

85

-288

281

366

513

423

643

859

1 060

1 750

657

555

410

Brazil a

16 587

10 123

18 161

15 460

19 418

44 579

50 716

31 481

88 452 101 158

86 607

69 181

96 895

74 694

78 929

Chileb

2 550

4 059

6 848

7 526

7 659

13 563

18 627

13 966

16 153

24 374

30 562

21 092

24 011

20 469

12 225

Colombiaa

2 134

1 720

3 116

10 235

6 751

8 886

10 565

8 035

6 430

14 648

15 039

16 209

16 163

11 732

13 593

659

575

794

861

1 469

1 896

2 078

1 615

1 907

2 733

2 696

3 205

3 195

3 145

3 180

Belize Bolivia (Plurinational State of)

Costa Ricac

21

32

27

32

29

48

57

58

43

35

59

25

35

36

33

Dominican Republicd

Dominica

917

613

909

1 123

1 085

1 667

2 870

2 165

2 024

2 277

3 142

1 991

2 209

2 205

2 407

Ecuador

783

872

837

493

271

194

1 057

309

166

644

568

727

772

1 322

744

El Salvadora

496

123

366

398

267

1 455

824

366

-226

218

484

176

311

399

374

Grenada Guatemalae Guyana Haiti Honduras

57

91

66

73

96

172

141

104

64

45

34

114

38

61

63

205

263

296

508

592

745

754

600

806

1 026

1 245

1 295

1 389

1 221

1 181

44

26

30

77

102

152

178

164

198

247

294

214

255

122

58

6

14

6

26

161

75

29

55

178

119

156

161

99

106

105

275

403

547

600

669

928

1 006

509

969

1 014

1 059

1 060

1 417

1 204

1 139

Jamaicaf

481

721

602

682

882

866

1 437

541

228

218

413

545

582

925

790

Mexicog

24 055

18 225

24 916

26 018

20 701

33 058

32 150

19 451

21 035

23 792

17 101

46 597

29 296

34 878

32 113

Nicaraguag Panamah Paraguay Peru

204

201

250

241

287

382

627

434

490

936

768

816

884

950

888

78

771

1 012

1 027

2 498

1 777

2 402

1 259

2 363

3 132

2 980

3 943

4 459

4 494

5 209

6

25

28

36

114

202

263

71

462

581

697

252

382

260

274

2 156

1 335

1 599

2 579

3 467

5 491

6 924

6 431

8 455

7 341

11 788

9 800

4 441

8 272

6 863

Saint Kitts and Nevis

81

78

63

104

115

141

184

136

119

112

110

139

120

78

69

Saint Lucia

57

112

81

82

238

277

166

152

127

100

78

95

93

95

97

Saint Vincent and the Grenadines

34

55

66

41

110

121

159

111

97

86

115

160

110

121

104

Suriname

-74

-76

-37

28

-163

-247

-231

-93

-248

70

174

188

164

279

222

Trinidad and Tobagoi

791

808

998

940

883

830

2 801

709

549

55

-1 849

-1 134

672

406



Uruguay

194

416

332

847

1 493

1 329

2 106

1 529

2 289

2 504

2 536

3 032

2 188

1 279

953

Venezuela (Bolivarian Republic of) j

782

2 040

1 483

2 589

-508

3 288

2 627

-983

1 574

5 740

5 973

2 680

320

1 383



Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017. a The data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. b From 2003 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. c From 2009 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. d From 2010 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. e From 2008 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. f From 2012 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. g From 2006 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. h From 2015 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. i From 2011 to 2015 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. j The 2015 data correspond to the first three quarters only.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

Table I.A1.2 Latin America and the Caribbean: inward foreign direct investment by destination sector, 2007-2016 (Millions of dollars)  

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2 627 5 144 2 426   37 0 117 16

1 600 474 2 220   7 0 93 9

859 154

420 74

2 544 4 861 2 622   13 0 79 5   530 274

1 222 5 446 4 567   29 0 59 5   622 240

2 816 5 709 4 787   100 0 90 6   1 166 119

5 631 4 295 3 924   22 0 64 9   1 550 317

4 000 6 947 5 775   10 0 113 9   1 558 390

-740 7 979 6 044   12 0 40 13   869 23

… … …   22 0 5 6   … …

303

290

193

132

171

220

162

164

168



  4 751 13 481 16 103   6 495 -657 6 481 215   4 452 1 760 2 673   33 689 1 170 4   30 184 1 453   -77 99 173   109 23 1 315 103   70 210 437 28

  12 995 14 013 17 449   4 599 1 570 8 725 256   5 176 1 696 3 693   467 555 1 031 26   357 574 1 938   265 198 595   31 28 479 365   174 175 369 36

  4 597 13 481 13 601   7 772 441 4 113 1 065   5 672 1 364 1 000   73 407 845 22   758 280 1 128   58 118 133   9 92 243 21   139 51 401 9

  16 261 21 273 14 702   5 216 637 6 838 2 818   4 976 210 1 244   31 966 446 23   240 566 1 218   189 120 -143   1 -65 -225 59   120 299 363 23

  10 297 26 837 31 987   18 222 942 4 876 -732   7 336 1214 6 098   38 737 1 401 2   1 060 355 862   380 122 143   -1 149 66 4   325 150 544 7

  6 528 22 206 31 444   13 881 2 602 8 999 3011   7 970 1985 5 084   -15 600 1 674 0   1 169 1 257 716   243 136 189   -3 -47 502 29   418 145 636 46

  9 990 15 218 23 880   4 304 1 454 8 911 4 694   8 385 2481 5 343   -9 382 2 717 0   93 404 1 494   274 138 316   6 285 -147 35   335 186 707 67

  5 621 16 922 33 357   4 370 1 648 11 620 4 704   6 517 2 837 6 810   97 503 2 148 0   -39 607 1 640   725 108 -60   1 88 245 -23   201 179 951 58

  8 310 20 967 28 628   10 681 424 4 401 4 952   3 257 2 471 6 005   442 799 1 609 0   6 368 1 831   628 264 430   1 292 77 28   156 205 759 101

  8 696 20 138 24 647   … … … …   2 319 1 914 9 360   … … … … … 418 320 1 669   521 37 186   1 296 83 -6   49 228 818 86

Argentinaa  Natural resources 2 464 Manufactures 3 020 Services 1 961 Belize   Natural resources 9 Manufactures 0 Services 101 Other 34 Bolivia (Plurinational State of)b Natural resources 486 Manufactures 164 Services Brazilc Natural resources Manufactures Services Chile Natural resources Manufactures Services Other Colombia Natural resources Manufactures Services Costa Rica Natural resources Manufactures Services Other Dominican Republic Natural resources Manufactures Services Ecuador Natural resources Manufactures Services El Salvador Natural resources Manufactures Services Other (maquila) Guatemala Natural resources Manufactures Services Other

79

80

Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

Table I.A1.2 (concluded)   Honduras

2007

2008

2009

2010

2011

2012

2013

2014

2016

 

 

 

 

 

 

 

 

 

 

30

4

10

84

62

41

70

72

65

10

Manufactures

384

267

98

341

392

438

325

667

395

237

Services

513

736

402

545

560

579

665

678

744

756

0

0

0

0

0

0

0

0

0

0

Natural resources

Other Mexicod Natural resources

 

 

 

 

 

 

 

 

 

 

1 931

4 604

1 502

1 498

988

3 217

5 776

2 687

1 263

1 347

Manufactures

13 670

9 111

7 227

14 280

10 947

9 143

30 694

16 576

16 310

16 401

Services

16 855

15 666

9 382

11 485

12 771

8 701

11 066

8 245

15 608

8 990

 

 

 

 

 

 

 

 

 

 

Nicaragua Natural resources

11

57

47

77

191

123

272

109

32

-19

Manufactures

121

122

70

108

226

302

234

246

280

275

Services

250

447

318

323

550

347

350

378

501

499

Other

0

0

0

0

0

22

125

151

137

134

Panama

 

 

 

 

 

 

 

 

 

 

Natural resources

-59

-59

-34

77

94

1 164

468

-18

11



Manufactures

161

161

104

-114

298

520

142

181

238



2 106

2 106

1 190

2 760

2 761

1 526

2 957

4 296

4 245



-11

-11

0

0

0

0

0

0

0



Paraguay

 

 

 

 

 

 

 

 

 

 

Natural resources

-2

7

7

-1

20

34

45

83

-25



Services Other

Manufactures

8

201

-33

302

210

409

-30

-12

100



196

55

98

160

351

254

237

311

185



 

 

 

 

 

 

 

 

 

 

Natural resources

338

604

253

329

383

220

378

136

124



Manufactures

263

261

242

131

190

340

240

290

70



Services

592

1 003

962

1 010

1 360

1 536

1 642

1 274

824



Other

136

238

71

820

572

440

772

487

261



Services Uruguay

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017. Data from the Central Bank of the Argentine Republic. b Gross foreign direct investment flows, excluding divestments. c Based on capital inflow data only. d Figures according to the Balance of Payments and International Investment Position Manual, fifth edition (BPM5). a

2015

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

Table I.A1.3 Latin America and the Caribbean: inward foreign direct investment by country of origin, 2007-2016 (Millions of dollars)   2007 Argentinaa United States 870 1 191 Spain 616 Netherlands 828 Brazil 833 France 438 Chile 301 Germany 427 Uruguay Bolivia (Plurinational State of)b  50 Spain 13 France 24 United Kingdom 242 Sweden 322 United States Brazilc  8 129 Netherlands 2 857 Luxembourg 6 073 United States 1 053 United Kingdom 2 202 Spain 313 Italy 1 233 France 284 Norway Chile  0 Spain 0 United States 0 Netherlands 0 Bahamas 0 Bermuda Colombia  159 Canada 2 697 United States 572 Spain 82 Bermuda 839 Panama -660 Netherlands Costa Rica  962 United States 51 Netherlands 1 Honduras 30 Colombia 71 Mexico 57 Spain Dominican Republic Canada 113 United States 536 Spain 605 Mexico -124 Italy 32 Ecuador  8 Netherlands 85 Spain 50 United States 85 China 11 Italy 5 United Kingdom El Salvador 841 Panama 499 United States 0 Honduras

2008

2009

2010

2011

2012

2013

2014

2015

2016

2 720 -2 652 1 074 1 421 351 751 298 614

1 862 1 296 -97 -71 51 240 384 519

2 168 1 349 108 1 654 202 589 701 -47

2 945 -154 481 2 054 184 586 217 -152

3 623 -907 2 362 1 634 531 649 687 470

3 726 1 643 2 060 755 649 85 1 049 -127

5 668 1 737 2 595 610 1 058 666 862 266

3 899 2 697 1 405 1 140 879 856 706 463

… … … … … … … …

25 36 48 339 295

145 22 70 23 162

271 89 11 169 85

246 55 2 280 76

364 73 111 178 89

676 220 309 347 61

537 200 442 15 140

310 185 142 79 79

… … … … …

4 639 5 937 7 047 693 3 851 385 2 880 207

6 515 537 4 902 1 032 3 424 232 2 141 671

6 702 8 819 6 144 1 030 1 524 300 3 479 1 540

17 582 1 867 8 909 2 749 8 593 457 3 086 1 073

12 213 5 965 12 310 1 978 2 523 986 2 155 936

10 511 5 067 9 024 1 203 2 246 902 1 489 405

8 791 6 659 8 580 1 726 5 962 868 2 945 554

11 573 6 599 6 866 1 649 6 570 1 720 2 841 2 445

10 524 7 395 6 544 3 596 3 489 2 835 2 778 2 186

0 0 0 0 0

1 886 469 763 -65 1 014

1 529 2 902 2 962 1 160 128

2 087 4 749 2 746 361 1 152

144 8 162 4 573 204 1 478

3 951 335 5 025 19 288

5 452 1 823 2 034 562 -2 144

1 642 1 543 1 362 658 540

… … … … …

145 2 874 1 040 404 1 141 60

116 2 343 830 645 789 197

268 1 593 113 624 1 368 1

273 2 155 1164 924 3 508 1 072

291 2 476 628 367 2 395 -1 792

258 2 839 884 848 2 040 632

437 2 238 2 214 1 017 2 436 450

322 2 031 1 332 1 292 1 660 945

2 194 2 140 1 527 1 520 1 387 1 028

1 328 24 5 50 20 141

1 022 27 3 6 7 79

1 036 7 13 98 40 28

1 376 30 7 152 183 247

1 015 32 1 106 336 311

1 392 109 18 79 172 247

1 182 -59 3 109 237 291

1 503 471 171 141 123 120

… … … … … …

383 360 181 1 055 11

773 455 151 273 16

696 1 055 203 433 8

1 126 499 137 73 16

851 252 128 -32 1

143 374 33 6 0

158 321 7 244 10

91 405 32 -19 -1

480 356 281 118 48

-8 190 -29 47 17 6

-4 51 -607 56 1 6

11 -16 -535 45 10 5

7 52 12 80 25 15

11 50 94 86 27 19

48 71 42 94 61 1

76 67 10 79 27 25

293 71 186 114 25 21

383 100 87 72 42 34

321 129 0

80 74 0

206 -124 -4

27 23 0

-480 6 47

323 -72 -1

2 111 8

120 260 -14

221 76 46

81

82

Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

Table I.A1.3 (concluded)   Guatemala  United States Colombia Mexico Spain Luxembourg Switzerland Republic of Korea Honduras Panama United States Mexico Colombia Guatemala Luxembourg Mexicod United States Spain Germany Israel Canada Japan Belgium Nicaragua United States Mexico Venezuela (Bolivarian Republic of) Panama Spain Panama  United States Ecuador South Africa Mexico Switzerland Spain United Kingdom Paraguay United States Brazil Panama Uruguay Spain Trinidad and Tobago  United States India Canada United Kingdom Uruguay  Argentina Germany Brazil Italy Belgium Canada

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

326 3 76 42 37 13 13

229 15 76 66 37 22 4

151 21 50 64 21 6 23

343 22 97 50 6 43 63

127 155 81 2 0 4 38

227 48 96 49 0 29 35

221 155 143 74 25 19 48

441 142 105 43 39 25 34

385 164 60 62 47 15 33

404 108 79 72 54 37 34

22 460 92 0 15 0

16 449 30 0 44 0

1 92 168 0 14 171

14 185 124 0 61 133

16 141 154 20 44 149

22 173 192 22 52 124

63 128 266 31 37 150

152 -256 140 128 88 133

195 137 134 127 65 92

150 139 138 121 121 120

13 157 5 493 649 2 886 452 228

11 929 5 034 710 2 3 485 554 142

7 615 3 042 22 2 1 805 366 346

7 298 4 211 457 28 2 043 1 074 40

12 722 3 693 561 6 1 474 929 179

10 180 -400 994 114 1 838 1 829 21

15 003 329 1 693 8 4 479 1 961 13 254

8 930 4 459 1 689 9 3 021 1 425 1 292

17 242 3 409 1 451 1 1 190 1 734 842

10 410 2 856 2 395 2 015 1 672 1 522 1 088

84 128

126 164

88 48

88 90

159 115

121 149

244 125

… …

… …

… …

47

132

147

29

45

210

108







5 45

4 59

1 25

1 33

34 116

78 -19

77 74

… …

… …

… …

163 9 13 60 146 77 208

224 20 19 69 122 91 6

-19 -4 26 154 301 327 68

1 120 9 879 -9 444 -50 114

652 13 191 171 216 133 486

28 533 612 -51 152 68 -701

715 305 246 367 232 147 78

612 912 199 297 184 191 154

1 039 866 320 225 188 165 156

… … … … … … …

107 41 26 2 19

216 2 -13 2 16

35 22 -1 4 24

332 108 25 9 35

240 84 20 -3 22

86 169 11 9 94

-98 73 13 7 19

62 170 22 -1 11

104 101 77 34 30

… … … … …

574 21 3 159

403 16 2 194 146

469 17 4 152

363 13 3 118

488 2 994 64

560 1 1 586 25

1 272 2 357 21

361 348 248 31

… … … …

… … … …

373 16 86 0 46 3

534 4 183 4 -2 3

432 0 110 0 53 0

588 15 108 2 55 14

809 12 170 0 51 18

975 18 178 2 59 66

672 36 255 20 64 7

616 -1 253 -1 51 12

366 144 105 100 84 60

… … … … … …

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017. Data from the Central Bank of the Argentine Republic. b Gross foreign direct investment flows, excluding divestments. c Based on capital inflow data only. d Figures according to the Balance of Payments and International Investment Position Manual, fifth edition (BPM5). a

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

Table I.A1.4 Latin America and the Caribbean: inward foreign direct investment by component, 2007-2016 (Millions of dollars)  

2007

Antigua and Barbuda  Capital contributions 328 Intercompany loans 0 Reinvested earnings 12 Argentina  Capital contributions 2 578 Intercompany loans 1 846 Reinvested earnings 2 050 Bahamas Capital contributions 887 Intercompany loans 736 Reinvested earnings 0 Barbados  Capital contributions 420 Intercompany loans 24 Reinvested earnings 32 Belize  Capital contributions 100 Intercompany loans 13 Reinvested earnings 30 Bolivia (Plurinational State of)a  Capital contributions 27 Intercompany loans 654 Reinvested earnings 272 Brazil Capital contributions 26 074 Intercompany loans 18 505 Reinvested earnings 0 Chile Capital contributions 2 622 Intercompany loans 661 Reinvested earnings 10 280 Colombia  Capital contributions 7 024 Intercompany loans -121 Reinvested earnings 1 983 Costa Rica Capital contributions 1 377 Intercompany loans -2 Reinvested earnings 521 Dominica Capital contributions 28 Intercompany loans 9 Reinvested earnings 10 Dominican Republic   Capital contributions 1 616 Intercompany loans -446 Reinvested earnings 498 Ecuador   Capital contributions 151 Intercompany loans -368 Reinvested earnings 411

2008

2009

2010

2011

2012

2013

2014

2015

2016

149 0 12

79 1 5

96 1 5

61 2 5

110 6 22

65 29 7

106 41 7

143 3 7

135 3 8

4 552 4 777 396

2 133 -1 010 2 894

2 504 3 507 5 322

4 508 2 600 3 732

4 861 3 120 7 343

2 784 -783 7 821

-112 -945 6 121

1 319 2 382 8 058

3 649 -3 747 4 327

1 032 481 0

753 -107 0

960 137 0

971 438 0

575 458 0

410 723 0

374 1225 0

104 304 0

194 328 0

340 231 45

140 103 13

393 41 13

227 324 -93

230 113 206

118 -119 56

307 -76 329

398 -216 -112

274 -137 91

141 8 21

80 6 23

80 2 15

103 1 -8

193 0 -4

101 0 -6

145 0 7

57 0 7

19 0 14

45 850 407

1 177 509

1 141 793

5 130 899

19 282 1204

17 331 1682

313 889 919

20 741 405

406 470 208

30 064 20 652 0

19 906 11 575 0

40 117 13 470 34 865

54 782 16 451 29 925

52 836 22 541 11 230

41 648 38 346 -10 813

47 220 38 977 10 698

49 495 18 053 7 145

44 884 24 908 9 137

7 775 1 869 8 983

1 905 763 11 298

4 662 3 318 8 174

10 921 3 155 10 297

8 532 10 949 11 080

4 806 8 598 7 689

10 524 8 807 4 681

6 612 10 177 3 680

5 936 2 804 3 485

7 861 47 2 657

4 907 731 2 396

3 741 -635 3 325

8 282 1 872 4 494

9 088 1 239 4 712

9 749 2 368 4 091

9 176 2 493 4 495

7 353 2 006 2 373

6 224 4 675 2 694

1 594 39 446

1 050 -174 471

818 150 497

959 711 509

852 1 136 708

1 704 714 788

1 333 912 949

967 1 078 1 100

641 1 345 1 193

39 9 9

39 13 6

28 13 3

25 7 2

45 9 4

16 4 5

28 4 4

29 4 4

26 4 4

2 199 278 394

704 1 096 365

870 351 803

883 389 1 005

983 1 177 982

623 81 1 286

778 11 1 420

972 40 1 192

967 121 1 319

229 530 298

278 -225 256

265 -312 213

252 65 328

227 40 301

424 -7 310

848 -390 314

985 50 287

679 -146 211

83

84

Economic Commission for Latin America and the Caribbean (ECLAC)

Chapter I

Table I.A1.4 (concluded)  

2007

Grenada  Capital contributions 140 Intercompany loans 17 Reinvested earnings 15 Guatemala Capital contributions 260 Intercompany loans -30 Reinvested earnings 515 Honduras Capital contributions 220 Intercompany loans 203 Reinvested earnings 505 Mexico Capital contributions 18 097 Intercompany loans 6 458 Reinvested earnings 8 504 Panama Capital contributions 719 Intercompany loans 178 Reinvested earnings 879 Paraguay Capital contributions 43 Intercompany loans 129 Reinvested earnings 31 Peru   Capital contributions 733 Intercompany loans 924 Reinvested earnings 3 835 Saint Kitts and Nevis Capital contributions 135 Intercompany loans 3 Reinvested earnings 2 Saint Lucia Capital contributions 254 Intercompany loans 8 Reinvested earnings 15 Saint Vincent and the Grenadines Capital contributions 102 Intercompany loans 8 Reinvested earnings 11 Suriname  Capital contributions 0 Intercompany loans -247 Reinvested earnings ... Trinidad and Tobago Capital contributions 554 Intercompany loans -21 Reinvested earnings 297 Uruguay  Capital contributions 550 Intercompany loans 448 Reinvested earnings 331 Venezuela (Bolivarian Republic of) Capital contributions -806 Intercompany loans 773 3 321 Reinvested earnings

2008

2009

2010

2011

2012

2013

2014

2015

2016

128 1 12

97 2 5

56 3 5

39 1 5

29 0 5

109 0 5

33 0 5

55 0 6

58 0 6

198 75 482

94 19 488

265 -102 643

198 58 770

446 219 580

208 416 672

138 431 820

712 -452 961

91 14 1 076

568 -40 479

84 65 360

29 378 562

284 56 674

310 52 697

174 240 645

248 253 917

137 229 838

201 -42 981

12 989 9 876 9 285

11 468 2 648 5 335

15 869 -40 5 205

9 551 4 096 10 146

4 640 2 586 9 875

22 450 7 213 16 934

5 815 7 925 15 556

13 099 11 041 10 738

10 512 13 430 8 171

918 136 1 348

898 105 257

948 540 874

759 1 224 1 150

1 561 682 737

1 614 550 1 779

687 343 3 429

77 1 035 3 382

781 966 3 463

66 73 124

152 -58 -23

93 149 220

399 316 -134

421 40 236

355 -325 222

386 -197 193

277 -57 41

249 -42 67

2 981 656 3 287

1 828 -782 5 385

2 445 693 5 317

896 2 117 4 328

5 393 -508 6 903

2 490 3 202 4 107

-1 786 2 705 3 522

4 170 1 105 2 997

2 213 477 4 172

178 3 2

132 1 2

116 1 2

107 1 4

106 2 1

137 0 1

118 0 1

76 1 2

67 1 2

135 21 11

135 13 3

109 13 4

80 15 5

54 16 8

76 10 9

71 11 11

72 12 11

74 12 12

142 8 9

100 8 2

91 2 4

79 2 4

112 2 1

157 2 1

101 2 7

118 2 1

101 3 1

0 -231 ...

0 -93 ...

0 -248 0

0 -51 121

0 113 11

0 71 69

0 -21 27

… … …

… … …

2 322 -16 495

426 -12 296

309 -11 251

530 -476 0

-196 -1 653 0

-1 904 769 0

528 143 0

… … …

… … …

1 012 540 554

990 82 457

1 617 8 664

1 412 263 828

1 665 94 777

1 866 306 860

2 267 -527 448

1 012 81 186

806 -222 369

302 -11 2 336

-3 348 367 1 998

-1 319 1 457 1 436

-495 2 752 3 483

-307 3 292 2 988

-79 1 784 975

139 -967 1 148

… … …

… … …

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017. Gross foreign direct investment flows, excluding divestments.

a

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter I

Table I.A1.5 Latin America and the Caribbean: inward foreign direct investment stock by country, 2001-2016 (Millions of dollars and percentages of GDP)  

2001

2005

2011

2012

2013

2014

2015

2016

2001

2005

2011

2012

2013

2014

2015

2016

79 504

55 139

93 199

100 821

91 557

100 821

91 557

82 399

27

27

18

17

15

18

14

15

5 893

4 905

7 749

8 809

10 558

11 785

11 633

11 504

72

51

32

33

34

36

35

34

Brazil

121 949

181 344

695 505

742 144

741 436

738 874

597 539

763 749

22

20

27

30

30

30

33

43

Chile

0

79 138

179 375

211 793

220 175

231 576

238 194

255 647

0

63

71

79

79

89

98

103

Colombia

15 377

36 987

97 364

112 926

128 191

141 783

149 157

164 249

16

25

29

31

34

37

51

58

Costa Rica

3 600

7 510

19 353

22 302

26 271

30 079

33 761

37 407

21

37

46

48

53

59

62

65

Dominican Republic





21 740

25 143

26 660

29 035

31 309

33 820





38

41

43

45

46

47

Ecuador

6 876

9 861

12 502

13 070

13 797

14 569

15 891

16 635

28

24

16

15

15

14

16

17

El Salvador

2 252

4 167

8 120

8 918

9 341

10 025

10 025

10 307

16

24

35

37

38

40

38

38

Guatemala

0

3 319

7 751

8 938

10 255

11 977

13 189

14 575

0

12

16

18

19

20

21

21

99

150

744

900

1 061

1 160

1 265

1 370

3

4

10

12

13

13

15

18

Honduras

1 585

2 870

7 965

9 024

10 084

11 501

12 704

13 844

21

29

45

50

55

60

63

68

Jamaica

3 931

6 918

11 705

12 119

12 664

13 246

14 171

14 961

43

62

81

82

89

95

101

111

156 583

211 235

388 802

385 545

455 397

480 873

486 931

509 292

23

24

33

33

36

37

42

49

Nicaragua

1 565

2 461

5 617

6 385

7 200

8 084

9 034

9 922

29

39

58

61

66

69

71

75

Panama

7 314

10 167

23 875

26 762

30 677

35 135

39 629

44 839

59

62

69

67

68

71

76

81

Paraguay

1 016

1 127

3 877

5 288

5 077

5 439

4 411

4 685

13

13

15

21

18

18

16

17

11 835

15 889

50 317

62 105

71 905

76 346

84 618

91 480

23

21

29

32

36

38

45

48





859

1 035

1 232

1 397

1 676







19

21

24

27

33



2 406

2 844

15 147

17 407

19 564

21 240





12

16

32

34

34

37





39 074

44 518

40 206

40 180

33 018

30 139





32

31

13

11

9

6





Argentina Bolivia (Plurinational State of)

Haiti

Mexico

Peru Suriname Uruguay Venezuela (Bolivarian Republic of)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017.

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Table I.A1.6 Latin America and the Caribbean: outward foreign direct investment flows by country, 2001-2016 (Millions of dollars)   Antigua and Barbuda

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

13

14

13

15

17

2

2

2

4

5

3

4

6

6

6

6

Argentina

161

-627

774

676

1 311

2 439

1 504

1 391

712

965

1 488

1 055

890

1 921

875

1 787

Bahamas

94

40

72

169

143

333

459

410

217

150

524

132

277

397

158

359

Barbados

26

25

25

54

157

44

82

73

27

343

558

41

39

-213

141

-11

Belize

0

0

0

0

1

1

1

3

0

1

1

1

1

3

0

2

Bolivia (Plurinational State of)

3

3

3

3

3

3

4

5

-4

-29

0

77

-255

-33

-2

15

-1 489

2 479

229

9 822

2 910

28 798

17 061

26 115

-4 552

26 763

16 067

5 208

14 942

26 040

13 518

7 815

Brazila Chileb

0

0

1 709

2 145

2 135

2 212

4 852

9 151

7 233

9 461

20 252

20 556

9 888

12 800

16 742

7 125

Colombiaa

16

857

938

192

4 796

1 268

1 279

3 085

3 505

5 483

8 420

-606

7 652

3 899

4 218

4 516

Costa Ricac

68

132

152

206

150

219

430

197

274

318

405

894

804

424

459

496

4

1

0

1

13

3

7

0

1

1

0

0

2

2

2

2

Dominica El

Salvadora

Grenada

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

2

3

1

1

3

6

16

6

1

3

3

3

1

1

1

1

Guatemalad

0

0

0

0

0

0

0

16

26

24

17

39

34

106

117

111

Honduras

3

7

12

-6

1

1

2

-1

4

-1

2

208

68

103

91

260

Jamaicae Mexicof Paraguay

89

74

116

60

101

85

115

76

61

58

75

3

-86

-2

4

226

4 404

891

1 253

4 432

6 474

5 312

8 858

3 913

10 928

8 910

11 856

18 908

11 609

8 530

12 301

3 657

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

74

0

60

0

0

0

66

736

411

266

147

78

137

801

127

303

Saint Kitts and Nevis

2

1

2

7

11

4

6

6

5

3

2

2

2

2

2

3

Peru Saint Lucia

4

5

5

5

4

4

6

5

6

5

4

4

3

3

3

3

Saint Vincent and the Grenadines

0

0

0

0

1

1

2

0

1

0

0

0

0

0

0

0

Suriname

0

0

0

0

0

0

0

0

0

0

3

-1

0

0

0

0

58

106

225

25

341

370

0

700

0

0

67

189

63

-18

153



-6

-14

-15

-18

-36

1

-89

11

-16

60

7

3

-5

-39

13

4

204

1 026

1 318

619

1 167

1 524

-495

1 311

2 630

2 492

-370

4 294

752

1 024

-1 112



Trinidad and

Tobagog

Uruguay Venezuela (Bolivarian Republic of)h

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as at 15 June 2017. a The data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. b From 2003 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. c From 2009 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. d From 2008 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. e From 2012 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. f From 2006 to 2016 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. g From 2011 to 2015 the data are standardized according to the methodology of the sixth edition of the IMF Balance of Payments Manual. h The 2015 data correspond to the first three quarters only.

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CHAPTER

Disruptive change in a leading sector: relocation, business models and technological revolution in the global automotive industry A. An industry in constant change B. The new geography: the rise of East Asia C. Newcomers are challenging the traditional players D. Production models based on advanced technologies E. Disruptive changes on the short-term horizon F. An industry between technological upheaval and the redefinition of global leadership

Chapter II

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A. An industry in constant change A new global economy has emerged in recent decades. While globalization was continuously expanding, many manufacturing activities were relocated from their countries of origin to developing economies with the aim of cutting costs. Nonetheless, as this model is increasingly being called into question —and the concept of post-globalization gains traction— greater attention is now being paid to the location of manufacturing activity for the creation of production linkages, the development of scientific and technological capacities and the dynamism of innovation in national economies (Pisano and Shih, 2009). International enterprises place ever-greater value on these factors in their location decisions; and several advanced countries have renewed their interest in industrial policy to boost the competitiveness of their manufacturing sector. The relocation of activities to developing countries has not been confined to manufacturing and low-value-added services, and it has generated major tensions in the industrialized economies. The process has been supported by a gradual improvement in the innovation system in some emerging economies and difficulties in separating research and development (R&D) from manufacturing design activities, given the complementary nature of product innovation and processes, and the tensions that arise between those responsible for the strategic areas in question (Galvin, Goracinova and Wolfe, 2014). Firms are facing ever shorter product life cycles, extremely complex production processes, and increasing technological parity, requiring a wide range of capabilities. Many have been forced to focus on the skills and competencies of their core business and outsource a large number of activities and processes to save time and resources, thereby improving their flexibility and response capacity (Nieuwenhuis and Wells, 2015). In that context, the automotive industry is rapidly changing some key dimensions of its operations: geographical location, mode of production, relations within the production chain, collaboration mechanisms and product characteristics, as analysed in successive sections of this chapter. Rapid convergence between traditional manufacturing and electronics and software in the sector is changing power relations in the production chain. This subjects the industry’s traditional firms to major tensions; and it encourages enterprises that had not previously participated in the sector to enter technologically more advanced segments. This dynamic is coupled with the goal of many countries to strengthen their industrial activities by generating capacities and knowledge based on new technologies. This has enabled them to make progress with alternatives to the dominant paradigm of the internal combustion engine and to facilitate the incorporation of electronics, software and connectivity in automobiles. This has been possible thanks to the support provided to collaborative initiatives and platforms between companies, research institutions and governments (Warwick, 2013).

B. The new geography: the rise of East Asia The global automotive industry has grown strongly for more than a century and has managed to overcome episodes such as the Second World War, the rise in oil prices in the 1970s and the international financial crisis of 2008 (see figure II.1). At present, the sector remains a pillar of the world economy and a driver of economic growth and technological progress, with strong inter-industry linkages (ATKearney, 2013).

II

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Figure II.1 Global vehicle production, by vehicle type, 2000-2016 (Millions of units)

Economic Commission for Latin America and the Caribbean (ECLAC)

100 90 80 70 60 50 40 30 Buses and coaches

20

Heavy trucks

10

Commercial light vehicles Passenger vehicles 2016

2015

2014

2012

2013

2011

2010

2009

2008

2007

2005

2006

2004

2003

2002

2001

0 2000

90

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

1.

The location of production has undergone sweeping changes in the past few decades.

Redefining the global oligopoly: a new triad of regions

The location of automotive production has experienced a major transformation in recent decades. In 1950, the United States dominated the industry unchallenged, accounting for 76% of vehicle manufacture worldwide. Germany and Japan emerged later as two new major players and started to challenge that leadership. By 1990, Japan’s share of world production had grown to 28%, comfortably ahead of the United States (20%) or Germany (10%). At the turn of the new century, the relocation of production became consolidated as a central element in the strategies of the world’s leading manufacturers, with the share of emerging economies rising sharply (see figure II.2 and annex table II.A1.1) Although developed countries continued to provide the most important markets, the favourable growth prospects of the largest emerging economies, together with the rapid diffusion of market-friendly reforms, the liberalization of foreign trade and lower production costs, combined to concentrate the expansion of production capacity in developing countries, particularly in Asia (see annex tables II.A1 and II.A2) Over the last two decades, the global production of the automotive industry has grown at around 3% per annum, albeit with large differences between regions (Gao, Hensley and Zielke, 2014). Between 2000 and 2016, output rose from 58.4 million to about 95 million units, of which more than 75% were passenger vehicles. By 2016, 45% of production was taking place in developing countries in Asia; and China had become the world’s largest vehicle manufacturer, producing 30% of the total (see figures II.1, II.2 and II.3).

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Figure II.2 Vehicle production, by selected countries and regions, 1950-2016 (Percentages)

China accounts for 24% of global production and developing countries, especially Asia raise their production capacity.

2016

11

11 14

2010

18

20

45% of production is located in developing Asian countries and China is the world’s largest vehicle producer, accounting for 30%.

30

21

24

1980

26 29

Germany and Japan emerge as important new players and begin to challenge the leadership of the United States.

31

The United States is the unchallenged leader, with 79% of global vehicle production.

79

1950

North America European Union China Other Asia

South America Russian Fed. and Turkey Japan and Rep. of Korea Other

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

Vehicle manufacturers and their suppliers have deployed ambitious investment plans to expand their production capacity in developing countries. Between 2003 and 2016, cross-border investments announced by the main vehicle manufacturers amounted to nearly US$ 600 billion, of which about 40% went to Asian countries, mainly China (23% of the total) (see figure II.4).

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Figure II.3 Main vehicle-producing countries, 2000-2016 (Millions of units)

28.1

30 25 20

12.8

15

12.2

10 5

2.1

0

2016

2000

2000

2016

China United States Japan Germany India Rep. of Korea Mexico Spain Canada 2016

Brazil 0

5

10

15

20

25

30

2000

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

Vehicle manufacturing in the traditional markets of industrialized countries declined considerably. Production in the United States —badly affected by the 2008 crisis— saw its share of the global total slump from 22% to 13% between 2000 and 2016 (see box II.1). In the same period, Japan’s share also retreated sharply from 17% to 10% of world production, while the European Union’s share dropped from 29% to 20% (see figure II.2).1

1

The European vehicle-producing countries most affected include France (from 5.7% to 2.2%), Spain (from 5.2% to 3.0%), the United Kingdom (from 3.1% to 1.9%) and Italy (from 3.0% to 1.2%). In contrast, Germany has kept a substantial part of its productive capacity within its own borders despite a sharp fall (from 9.5% to 6.4%).

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Figure II.4 Vehicle manufacturers: announced cross-border investments, by selected countries and regions, 2003-2016 (Billions of dollars) 55

44

33 Other Other Asia Japan-Rep. of Korea China Russian Fed. and Turkey European Union South America North America

22

11

0 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

In late 2008, the economic downturn undermined demand, and the leading American manufacturers saw their revenues decline. This led Chrysler and General Motors to file for protection under Chapter 11 of the Bankruptcy Code. General Motors, Ford Motor and Chrysler were also carrying serious structural problems associated with high labour costs, especially inherited costs associated with pensions and retiree health insurance. Tighter credit restrictions in the wake of the crisis also hampered manufacturers’ ability to negotiate bank loans to help them survive the slump in demand and access credit to finance new vehicle purchases. Lastly, the rise in oil prices undermined the demand for light commercial vehicles and vans, more than in other segments. These types of vehicles were the most profitable for United States manufacturers; and General Motors, Chrysler and Ford were especially dependent on them. Chrysler and General Motors received US$ 62 billion in loans from the United States Treasury through the Automotive Industry Financing Programme, under the Troubled Asset Relief Programme in December 2008 and July 2009. Loans from the Automotive Industry Financing Programme were conditional on applicants being able to submit a viable restructuring plan. In April 2009, Chrysler and General Motors accepted the provisions of Chapter 11 of the Bankruptcy Code, and ambitious restructuring plans were put in place that included renegotiation of debt and contracts with workers’ unions, plant closures, asset sales, a reduction in the number of dealers, and, in the case of Chrysler, partnership with the Italian manufacturer Fiat. Confident in the success of the restructuring of both companies, the Governments of Canada and the United States supported them with abundant financial resources. Ford, which had originally sought government aid along with Chrysler and General Motors, drew on a US$ 10 billion credit line it had secured prior to the crisis and continued to operate without government support. United States manufacturers were thus able to bring production plans more into line with consumer demands. In fact, as a result of the restructuring, with fewer operating plants and lower debt obligations, General Motors and Chrysler gained flexibility enabling them to adapt rapidly to changing demand conditions. The new wage structure negotiated with the unions also contributed to cost reductions and a downscaling of the output of unprofitable vehicles in the United States, especially compact cars.

Box II.1 Crisis of the United States automotive industry

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Box II.1 (concluded)

Although the crisis hit all vehicle manufacturers, it was felt much less intensely by foreign manufacturers with operations in the United States. In general, Japanese and German companies had lower fixed costs and a more balanced product range aligned with consumer needs. In fact, they sold more passenger cars than light sport utility vehicles (SUVs), light trucks and pick-up vehicles. Many analysts disapproved of the measures adopted by the government, arguing that Chrysler would go bankrupt even with a bailout, and that Ford really did not need one. The main impact of the rescue was job savings at General Motors. Nonetheless, the economic recession forced this firm to cut production and employment, despite the bailout. Moreover, as the economic situation improved, the Japanese manufacturers Toyota Motor and Honda continued to invest and create new jobs in the United States. Source: Economic Commission for Latin America and the Caribbean (ECLAC).

The upshot of this dynamic is automotive production currently concentrated in a triad formed by North America, the European Union and certain Asian countries. This represents a deconcentration with respect to the traditional predominance of the United States, but also the creation of an oligopoly of countries, with few significant entrants.

2.

Stability among the dominant enterprise group

Although there has been a major shift in global production towards emerging economies, the firms that have pursued this strategy are the same as have dominated the industry over the last few decades (see figure II.5). Between 2000 and 2015, four of the top five vehicle manufacturers have remained at the apex of the industry. Japan’s Toyota Motor, Germany’s Volkswagen, and General Motors and Ford of the United States have been able to defend their leading positions. In contrast the United-States-based Chrysler, currently part of Italy’s Fiat Chrysler Automobiles (FCA), which was hit by the 2008 financial crisis and has undergone multiple changes of ownership, slipped several rungs. In contrast, the South Korean group Hyundai Motor emerged as the world’s third largest vehicle producer in 2015 (see figure II.5 and annex table II.A1.3). Early in the 2000 decade, manufacturers in the United States, Europe and Japan each accounted for around 30% of world production. Fifteen years later, while the European and Japanese manufacturers had maintained their share, those of the United States had dwindled to around 16%. In the same period, however, the manufacturers of China, India and the Republic of Korea increased their weight in the global automotive industry. Particularly significant has been the performance of Chinese firms, which expanded from a 1% share of global vehicle production in 2000 to one of 13% in 2015. To access the market, overcome protectionist measures and take advantage of State support, the leading international manufacturers started operations in China in partnership with local enterprises, with a commitment to share technology. Although Chinese production is essentially for the domestic market, the leading firms also have started to export (see box II.2). Historically, vehicle manufacturers have made and sold a large proportion of their production in their country of origin. More recently however, transport costs, exchange-rate risks, trade barriers, the saturation of domestic markets and favourable growth prospects in certain emerging markets have sharply reduced this

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Chapter II

percentage, prompting manufacturers to produce in the region where they intended to sell their products (USITC, 2013). In the early years of the 2000 decade, the largest manufacturers (except Volkswagen) had more than 50% of their production in their country of origin. In contrast, only Toyota, Hyundai and Bayerische Motoren Werke (BMW) now have less than 60% of their production abroad (see figure II.6). Figure II.5 Leading vehicle manufacturing firms, 2000-2015 (Units)

Units 10 083 831

9 872 424

5 954 723

7 988 479

8 133 375

2015

2000

5 106 749

7 485 587

7 322 951

6 396 369

2 488 321 2000

2015

2000

2015

2000

2015

2000

2015

Toyota Volkswagen Hyundai General Motors Ford Nissan Fiat Chrysler Automobiles (FCA) Fiat Honda Suzuki Renault PSA Peugeot-Citroën BMW SAIC Motors Daimler AG DaimlerChrysler Mazda Changan Motors Mitsubishi Dongfeng Motors BAIC Motor Tata Motors

2015 2000 0

2 100 000

4 200 000

6 300 000

8 400 000

10 500 000

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

95

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Economic Commission for Latin America and the Caribbean (ECLAC)

Box II.2 China: the rapid rise of the global automotive industry leader In the early 1980s, the Chinese government started lifting restrictions on vehicle purchases. With limited local production, despite the existence of high tariffs, this led to rapid import growth and inflated the trade deficit. In response, local authorities imposed restrictions on imports and sought to stimulate domestic production by entering partnerships with international manufacturers to form joint ventures with domestic firms. The first foreign manufacturers to sign contracts to produce vehicles in China were American Motors Corporation (later taken over by Chrysler), Volkswagen and Peugeot.a In these early joint ventures, the Chinese partners had very limited access to the technology of foreign manufacturers; and production processes essentially involved the assembly of totally unassembled components. Leading vehicle producing countries, 2000-2016 (Millions of units) 30 25 20 15 10 United States

5

Japan Germany China

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

In the early 1990s, the Chinese auto industry started to gain momentum; and vehicle production rose from 1 million to 2 million units between 1992 and 2000. China’s admission to the World Trade Organization (WTO) in 2001 boosted vehicle manufacturing still further. Between 2000 and 2010, production grew at an annual rate of 26.4%, which implied an annual increase in production capacity of over 1 million units. In 2008 China overtook the United States and the following year surpassed Japan to become the largest producer of vehicles in the world. In 2016, production and sales exceeded 28 million units, thus extending the country’s leadership worldwide in terms of volume. Between 2006 and 2016, the number of vehicles per 1,000 inhabitants in China rose from 18 to 104, which is still a very low penetration rate despite very strong growth. By 2015, there were more than 172 million vehicles in use in China, a figure surpassed only by the United States. Nonetheless, despite the economic slowdown and increasing traffic and pollution problems, this indicator is expected to reach about 158 ​​vehicles per 1,000 inhabitants by 2021 (EIU, 2017). Production and sales of light vehicles are thus set to increase from about 25 million units in 2016 to around 33 million in 2022, making China the driver of the global automotive industry (PwC, 2016a). Most Chinese production is destined for the local market, with vehicle exports only modest thus far. Between 2009 and 2012 they increased from 370,000 to 1,056,000 units, before slipping back to 708,000 in 2016, or 2.5% of total production. Low prices have not been enough to seduce international consumers, owing to problems with product quality (EIU, 2017). On the other hand, economic growth generated substantial import growth, especially of models not produced locally. Between 2009 and 2014, imports grew from 421,000 to about 1,423,000 units, before dropping back to 1,041,000 in 2016, owing to an increase in local supply of high-end vehicles produced in China. Vehicle production in China remains fragmented with many small-scale producers; nonetheless a small group of large companies concentrate a large share of production. Foreign manufacturers operating under joint ventures with local firms dominate the market, led by Volkswagen and General Motors, and followed some way behind by Honda, Toyota

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Box II.2 (concluded)

and Hyundai. The massive investment made by foreign manufacturers has resulted in large surplus productive capacity, estimated at 50% in 2015 (EIU, 2017). As the market cools, margins will be squeezed and small domestic producers will be forced to consolidate. At present, local producers are beginning to gain ground over foreign manufacturers. In 2016, Chinese manufacturers with their own brands control about 43% of the market, led by SAIC Motor Corporation, Changan Motors, Dongfeng Motor Corporation and BAIC Automotive Group (CAAM, 2017). Foreign investment by Chinese automakers will also help international expansion. Greeley is using its Swedish Volvo subsidiary to expand in Europe, while Dongfeng’s investment in the PSA Group will support the French automaker’s investment in the Islamic Republic of Iran, among other markets. The joint ventures policy has had mixed results. On the one hand, the country with the largest automobile market in the world has been able to be supply itself largely with locally manufactured products. Between 2003 and 2016, foreign vehicle manufacturers announced investments in China worth over US$ 140 billion, equivalent to 23% of the total cross-border investment made by these companies globally during that period. The industry has created hundreds of thousands of jobs, boosted a booming domestic parts, accessories and components industry with export capacity; and it has helped drive the rapid expansion of the consumer economy. As a result, China’s automotive industry policy, which is actually one of import substitution, has been successful. More than 30 years after the establishment of the first joint venture, and unlike in Japan and the Republic of Korea, foreign-brand vehicles continue to dominate the domestic market. In the joint ventures, the Chinese counterpart is generally in charge of assembly operations, while the foreign manufacturer focuses on brands, design and research and development (R&D). Foreign manufacturers have been very cautious in the sphere of intellectual property and cutting-edge technologies (Chang, 2016). Accordingly, the Chinese authorities have started to shift the emphasis of their automotive sector policy —from industry growth to strategic aspects such as innovation, the deployment of local brands and the promotion and development of alternative energy vehicles, especially electric ones. Source: Economic Commission for Latin America and the Caribbean (ECLAC). a In 1984, the first joint venture between American Motors Corporation (AMC) and Beijing Automobile Works, now known as the Beijing Automotive Industry Corporation (BAIC), was set up. In the same year, the partnership between Volkswagen and the Shanghai Automobile Assembly Plant, now known as the Shanghai Automotive Industry Corporation (SAIC), was created; and, in 1985, the third joint venture was established between Peugeot and Guangzhou Automotive Manufacturing Plant, which is currently named Guangzhou Automobile Industry Group.

Figure II.6 Geographical distribution of production by the main vehicle manufacturers, by selected regions and countries, 2000-2015 (Percentages) 100 90 80 70 60 50 40 30 20

GM

2015

2000

2015

2015

BMW

2000

2015

PSA

2000

Renault

2000

2015

2015

Fiat

2000

2015

VW

2000

2015

Hyundai

2000

Suzuki

2000

2015

2015

Honda

2000

2015

Nissan

2000

Toyota

2000

2015

0

2000

10

Ford

Other European Union Other Asian countries China South America North America Country of origin

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

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The geographical restructuring of production did not only affect vehicle manufacturers, since far-reaching changes were generated among other agents in the production chain. First, there were significant changes in the leadership and origin of the main suppliers (see annex II.A4). In 2000, 40 of the world’s 100 largest suppliers were United States enterprises, and they generated about 47% of sales in this group (see figure II.7). Since then, the structure of the market has changed rapidly, however. While United States firms are now less prominent among major international suppliers —badly hit by the impact of the financial crisis— German and Japanese companies have gained ground. Among the top 100 global suppliers, the number of United States firms fell from 32 to 25 between 2005 and 2015, bringing their share of total sales down from 34% to 18%. In contrast, while the number of Japanese and German players remained relatively constant during this period, they increased their share of the total sales of the world’s 100 largest suppliers to 29% and 25%, respectively, in 2015. Lastly, important new players have emerged, particularly firms from China, India and the Republic of Korea, which were virtually absent 15 years ago. Figure II.7 World’s 100 largest suppliers of components to vehicle manufacturers, by number of firms, sales and enterprise origin, 2000-2015 (Percentages)

Number of firms

9

19

20

16 19

Sales

30

16 14

18

4

9

29

25

4 14 47

40 25

Other Asian countries

6 18

2015 Japan

}

Important new actors emerge (firms in China, India and the Republic of Korea).

Japanese and German firms increase their share in the total sales of the world’s 100 largest suppliers, to 29% and 25%, respectively, in 2015.

13

4

2000

}

2000 Germany

Other European countries

}

The number of United States firms falls from 40% in 2000 to 25 in 2015, and their share of total sales falls from 47% to 18%.

2015 Other North American countries

United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Automotive News, “Top 100 global OEM parts suppliers. Ranked on 2000 global OEM automotive parts sales”, Detroit, June 2001 [online] http://www.autonews.com/assets/PDF/CA27371020.PDF; “Top 100 global suppliers: the top 100 global OEM parts suppliers ranked by 2005 global OEM parts sales”, Detroit, June 2006 [online] http://www.autonews.com/assets/PDF/CA99567518.PDF; “Top 100 global suppliers: the top 100 global OEM parts suppliers ranked by 2010 global OEM parts sales”, Detroit, June 2011 [online] http://www.autonews.com/assets/PDF/ CA74326610.PDF; “Top suppliers: North America, Europe and the world”, Detroit, June 2016 [online] http://www.autonews.com/assets/PDF/CA105764617.PDF.

Second, despite maintaining a strong presence in their region of origin, parts, accessories and component suppliers rapidly expanded the geographical diversification of their sales, accompanying the internationalization process among vehicle manufacturers. Between 2005 and 2015, for example, Germany’s Robert Bosch GmbH grew its worldwide sales to vehicle manufacturers from US$ 28.4 billion to US$ 44.825 billion —reducing its European share from 69% to 47%, while practically maintaining its presence in North America (17% versus 20%), but expanding significantly in Asia (from 14% to 31%) (see figure II.8).

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Figure II.8 Sales by the main global suppliers to the automotive industry, by region, 2005-2015 (Percentages) A. 2005

B. 2015

Robert Bosch GmbH

Robert Bosch GmbH

Continental AG

Continental AG

ZF Friedrichshafen AG

ZF Friedrichshafen AG

Faurecia

Faurecia

Johnson Controls Inc.

Johnson Controls Inc.

Lear Corp.

Lear Corp.

Magna International Inc.

Magna International Inc.

Denso Corp.

Denso Corp.

Aisin Seiki Co.

Aisin Seiki Co.

Hyundai Mobis

Hyundai Mobis 0

20

40

60

80

100

North America

0 Europe

Asia

20

40

60

80

100

Rest of the world

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Automotive News, “Top 100 global suppliers: the top 100 global OEM parts suppliers ranked by 2005 global OEM parts sales”, Detroit, June 2006 [online] http://www.autonews.com/assets/PDF/CA99567518.PDF; “Top suppliers: North America, Europe and the world”, June 2016 [online] http://www.autonews.com/assets/PDF/CA105764617.PDF.

The suppliers invested heavily in their international expansion. Between 2003 and 2016, they announced cross-border investments of close to US$ 263 billion (equivalent to 50% of investment by manufacturers). Investment announcements were fairly evenly distributed between North America (29%), the European Union (26%) and Asia (34%), where China accounts for over 17% of the total (see figure II. 9). Nearly 70% of cross-border investment announcements were made by German (25%), Japanese (24%) and United States (19%) firms. Figure II.9 Cross-border investments announced by automotive industry suppliers, by selected countries and regions, 2003-2016 (Billions of dollars) 25

20

15 Other Other Asian countries Japan-Rep. of Korea China Russian Fed. and Turkey European Union South America North America

10

5

0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

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3.

International trade continues to be intrafirm and intraregional

The consolidation of the triad of regions has meant that global manufacturers produce in several locations in order to supply different regional markets. Given the investments announced by the leading manufacturers and their suppliers, the structure of trade flows between major markets can be expected to persist in the coming years. In this scenario, countries or markets that have been net importers are likely to see their auto industry trade deficits widen, without many opportunities to reverse the trend (PwC, 2016b). Automotive product trade flows are determined by intrafirm relationships.

Unforeseen exchange-rate fluctuations could affect the profitability of vehicle production, particularly for export. In Germany and Japan, for example, appreciations of the euro and yen have increased the relative cost of vehicle production; so manufacturers cut back on export-oriented production and boosted their production in third countries. Automotive product trade flows are determined by the intrafirm relationships forged in the international production systems of the leading manufacturers.2 This dynamic, fostered by the proliferation and consolidation of free trade and economic integration agreements, affords a heavy intraregional bias to trade in automotive products, especially in North America —under the North American Free Trade Agreement (NAFTA)— and in the European Union. In Asia, since much of the production base remains in the firms’ home markets, exports serve a wider range of destinations. Moreover, import volumes are smaller, such as in Japan and the Republic of Korea, or else are sourced from mature markets to complement supply and provide more sophisticated inputs to local production processes, as is the case in China (see figures II.10 and II.11). In this context, the European Union, NAFTA, China, Japan and the Republic of Korea currently account for about 90% of total automotive industry exports and 80% of the industry’s total imports3 (see annex tables II.A1.5 and II.A1.6). Light vehicles (passenger cars and light commercial vehicles) accounted for 56% of global trade in automotive products in 2015, while heavy vehicles (trucks and buses) generated around 10%. Lastly, parts, components and accessories for vehicle manufacture, along with internal combustion engines, account for the other third of automotive product trade (see figures II.12 and II.13).4 2

3

4

Automotive products include: motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles for the transport of ten or more persons, including the driver), including station-wagons and racing cars (781); Motor vehicles for the transport of goods and special purpose motor vehicles (782); Road motor vehicles, n.e.s. (783); parts, and accessories of the motor vehicles of groups 722, 781, 782 and 783 (784); Internal combustion piston engines for propelling vehicles of division 78, group 722 and headings 744.14, 744.15 and 891.11(713.2); and electrical equipment, n.e.s., for internal combustion engines and vehicles, and parts thereof (778.3). Between 2000 and 2015, automotive exports increased from US$ 528 billion to US$ 1.3 trillion and accounted for just over 8% of total merchandise exports worldwide. The European Union is the origin of about 50% of these trade flows, although only a third goes to markets outside the bloc (WTO, 2016, ACEA, 2016). The leading individual exporter is Germany (18.3%), followed by Japan (10.3%), the United States (9.8%), Mexico (7.3%) and the Republic of Korea (5.4%). The European Union also generates around 40% of global imports of automotive products, 88% of which come from within that region. In North America, over 50% of imports are internal. The United States is currently the world’s largest importer of automotive products (22%), followed by Germany (8%), the United Kingdom (6%), China (5.6%) and Canada (5.2%). In North America, 77% of exports and 53% of imports of automotive products, respectively, have both destination and origin in NAFTA member countries. In the United States, light vehicles are the most important item, accounting for 43% of total exports, while Canada (27%) and Mexico (6%) are also important destinations. 44% of exports of automotive products are parts, accessories and components (including internal combustion engines), mainly destined for Mexico (39%) and Canada (38%). Lastly, heavy vehicles account for 13% of these sales abroad, with Canada (73%) as the priority destination. On the other side of the equation, 58% of automotive imports correspond to light vehicles, with 40% sourced from Canada and Mexico. About 31% are components, parts, accessories and engines, mainly from Mexico. The remaining 11% corresponds to imports of heavy vehicles, where Mexico is the main supplier. As a complement, while Canada specializes in light-duty vehicles, with 73% of its exports of automotive products mainly destined for the United States (96%), Mexico exhibits a fairly balanced supply, where light vehicles, components, parts, accessories and engines, and heavy vehicles have a similar share of 34%, 35% and 31%, respectively, mainly for the United States (see figures II.12 and II.13).

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Figure II.10 Main automotive product exporting countries, by geographical destination, 2000-2015 (Percentages)

62 77

98

58

2000 2015 United States

94

97

2000 2015 Canada

84

89

81

79

72

50

45 54

89

2000 2015 Germany

2000 2015 France

2000 2015 Spain

2000 2015 United Kingdom

2000 2015 Japan

2000 2015 Mexico 9

39

41

39

2000 2015 Rep. of Korea

36

28

2000 2015 China

15 10

41

31

43

European Union (28 countries) Japan South and Central America

38

2000 2015 World

North America Asia-Pacific Rest of the world

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

Figure II.11 Main automotive product importing countries, by geographical origin, 2000-2015 (Percentages) 100 90 80 70 60 50 Rest of the world South and Central America Asia-Pacific Japan North America European Union (28 countries)

40 30 20

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Spain

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Canada

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China

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World

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

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Figure II.12 Main automotive product exporting countries, by type of product, 2000-2015 (Percentages) 100 90 80 70 60

Electrical equipments for engines and vehicles

50

Engines

40

Parts and accessories

30

Buses

20

Goods vehicles

Germany

France

Spain

United Kingdom

United States

Canada

Mexico

Japan

Rep. of Korea

China

2015

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2015

2000

2015

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Passenger vehicles and light commercial vehicles

World

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE). Note: Automotive products corresponding to categories 781, 782, 783, 784, 713.2 and 778.3 of the Standard International Trade Classification (SITC) Rev. 3.

Figure II.13 Main automotive product importing countries, by type of product, 2000-2015 (Percentages) 100 90 80 70 60

Electrical equipments for engines and vehicles

50

Engines

40

Parts and accessories

30

Buses

20

Goods vehicles

Germany

France

Spain

United Kingdom

Belgium

Italy

United States

Canada

Mexico

China

Passenger vehicles and light commercial vehicles 2015

2000

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2015

2000

2015

2000

2015

2000

2015

2000

2015

2000

2015

2000

2015

2000

2015

2000

0

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10 2000

102

World

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE). Note: Automotive products corresponding to categories 781, 782, 783, 784, 713.2 and 778.3 of the Standard International Trade Classification (SITC) Rev. 3.

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The United States is a net importer of motor vehicle products, posting a sectoral trade deficit of US$ 167 billion in 2016. After collapsing in the wake of the 2008 international crisis, United States imports have since rebounded vigorously to reach a level of US$ 295 billion by 2016. Building on geographical proximity, NAFTA has transformed Canada and Mexico into the main suppliers of the United States market, displacing other major automotive product suppliers, such as Germany and Japan, in particular (CAR, 2017; USITC, 2013).5 In 2016, Mexico and Canada were, respectively, the source of 28% and 20% of United States automobile imports and the destination for 20% and 40% of its automotive exports. This trend is explained by the growing presence of Japanese, German and, recently, Korean, manufacturers in the United States, Canada and Mexico, with production largely destined for the United States market (Klier and Rubenstein, 2015). In brief, trade flows serve to reinforce the high degree of regional and enterprise concentration of automotive production. The strong regional bias in trade reflects the strategies pursued by vehicle manufacturers and their suppliers, who locate production close to major markets so as to minimize transport and labour costs.

C. Newcomers are challenging the traditional players The internationalization and regional concentration of the industry unfolded in an increasingly competitive market, where the major vehicle manufacturers sought new ways to reconcile economies of scale with productive diversification and segmentation, so as to serve ever more demanding and diverse consumers (ECLAC, 2010). In this context, mergers, acquisitions and alliances of varying scope were fundamental for increasing and strengthening market share, improving coverage, accessing new distribution channels, and achieving economies of scale, synergies and new productive and technological capabilities, while also expanding the product range in an increasingly segmented market.

1.

Competition among the top manufacturers

The large European manufacturers have been particularly active (see annex table II.A1.7). Volkswagen deployed an ambitious strategy for absorbing other European manufacturers and strengthened its position in the markets for compact cars (SEAT and Skoda), highend cars (Audi, Bentley, Bugatti, Lamborghini and Porsche), heavy vehicles (Scania and Maschinenfabrik Augsburg-Nürnberg (MAN SE), and motor-cycles (Ducati). There were also mergers between the French firms Peugeot and Citroën in 1976 (forming the PSA Group), and between the Italian firm Fiat and the United States firm Chrysler (to form Fiat Chrysler Automobiles (FCA)), which was completed in 2014. France’s Renault and Japan’s Nissan have a strategic alliance to share production facilities around the world while maintaining their separate identities (Renault supports Nissan in Europe and South America, while Nissan supports Renault in North America and Asia).

5

The case of Mexico is discussed in detail in chapter III of this report.

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Table II.1 Main relations between the largest vehicle manufacturers, ownership shares, technological alliances, partnerships to share productive infrastructure, and joint ventures, 2017

Ford Ford Motor General Motors

BMW

Renault

Volkswagen Fiat Chrysler Automobiles (FCA) Daimler AG

Grupo PSA Toyota Motor Mitsubishi Motors

Honda

Suzuki Motor

Nissan

Mazda

SAIC Motor

FAW

Dongfeng Motor

GM

BMW

Renault

VW

FCA

Daimler

PSA

Toyota

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Honda

Suzuki

Nissan

Mazda

SAIC

FAW

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Dongfeng

North America European Union China Japan-Rep. of Korea Alliance to share productive infrastructure Technological alliance Ownership stake Joint venture

Partnerships between firms are global and not necessarily generated between firms in the same country. European firms tend to forge technological alliances. Japanese firms make alliances to share productive infrastructure. Chinese firms set up joint ventures with large vehicle manufacturers.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from S. Aversa, “C.A.S.E.Car of the future: the AlixPartners global automotive outlook 2015”, Torino, AlixPartners, 2015 [online] http://www.anfia. it/allegati_contenuti/AlixPartners%20Auto%20study%20ANFIA%202015_stampa.pdf.

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The 2008 financial crisis triggered intensive merger and acquisition (M&A) activity. While some companies, such as those of the United States, sought to spin-off non-strategic assets to improve their financial indicators, certain European and Asian companies, particularly in China and India, found great opportunities to grow and gain access to assets that enabled them to pursue a rapid process of technological and commercial convergence with a view to improving and diversifying their product range. As the dominant players started to focus on restructuring their production base —both geographically and technologically— opportunities became scarce and mergers between manufacturers gradually lost momentum. In recent months, however, there have been signs of a potential new wave of transactions that could herald a new stage for the industry. In August 2016, Toyota completed its total takeover of Daihatsu (in which it had held a 51% stake since 1998) for US$ 3.132 billion. Toyota aims to turn its acquisition into a manufacturer of low-cost compact cars for emerging markets such as China and India. Through this operation, Toyota will provide technological support to Daihatsu, and the two firms will share suppliers and commercial networks (Forbes, 2016a). In October 2016, Nissan acquired a 34% stake in Mitsubishi Motors in an agreement integrating it into the Renault-Nissan Alliance; and the conglomerate thus became one of the three largest vehicle manufacturers in the world, with annual production of almost 10 million units. The firms estimated that the partnership would generate significant synergies in the area of ​​common platforms and joint purchasing, which could produce savings equivalent to 20% of the investment. Also highlighted was their strong complementarity in the development of autonomous driving technologies, hybrid vehicles and electric cars (Fortune, 2016a). Similarly, as discussed below, the progress of autonomous driving technologies, artificial intelligence and low-emission vehicles force smaller manufacturers to seek partnerships with some of their competitors to reduce costs, share R&D expenses and stay in the market. In February 2017, Suzuki Motor and Toyota officially announced that they were to start talks aimed at forming a partnership in areas such as shared management, hybrid and electric vehicles, safety and autonomous driving technologies (Automotive News, 2017). In March 2017, the PSA Group bought Opel and Vauxhall (the Opel brand in the United Kingdom) from General Motors for around € 2.2 billion (El País, 2017a). Of the amount paid by the French group, € 1.3 billion represented the assets of the Opel-Vauxhall subsidiary, while the other € 900 million were used to purchase General Motors’ financial arm in Europe. In the latter case, the acquisition was shared equally between the PSA Group and the French bank BNP Paribas, with the commitment to maintain the United States subsidiary’s current network in Europe. Through this operation, the PSA Group seeks to expand and strengthen its production base to position itself as the second largest car manufacturer in Europe, after Volkswagen. The resulting enterprise will manufacture over 5 million cars worldwide and generate some € 1.7 billion in synergies thanks to the joint development and use of platforms and engines (El País, 2017b). A few weeks after this transaction, and as part of the restructuring of its international operations, General Motors announced it would abandon South Africa and India to focus on its most profitable markets (The Detroit News, 2017). In South Africa, in addition to no longer selling vehicles, General Motors will transfer its production facilities to the Japanese firm Isuzu, a manufacturer specializing in heavy vehicles with which GM has maintained a close relationship in recent years. In India, it will no longer sell vehicles on the domestic market but produce for export only, mainly serving Mexico, South Africa and Central America. A second General Motors plant in India stopped producing in early 2017 and was sold to its Chinese partner, SAIC Motor (CNN Money, 2017a).

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As a result of the geographical restructuring of production and business consolidation, global production is currently concentrated in a few companies. Some 50 manufacturers from a dozen countries generate 99% of global production, with about 30% generated by the international production network of Japanese manufacturers. Further behind are firms from Germany (16%), the United States (16%), China (13%) and the Republic of Korea (9%). In 2015, the top five manufacturers were responsible for 46% of world production; and the top 10 accounted for 72%. Between 2000 and 2015, apart from the arrival of the Korean company Hyundai and ownership changes in Chrysler, the key changes were the evolution shown by the largest manufacturers grouped by country of origin. While the United States firms, General Motors and Ford, which had led the industry at the start of the 2000 decade, experienced a rapid loss of world production share, Asian manufacturers, mainly Japanese (Toyota, Nissan and Honda) and those from the Republic of Korea (Hyundai), substantially improved their global position. Over the past 15 years, the combined market share of General Motors and Ford has dropped from 27% to 15%, whereas the four largest Asian manufacturers (Toyota, Hyundai, Nissan and Honda) boosted their share of global production from 23% to 31%. European firms display conflicting trends: while Volkswagen (and to a lesser extent Bayerische Motoren Werke (BMW)) increased their share of world production (from 9% to 11%), the PSA Group and Renault slipped back (from 9% to 7%). This could change following the PSA Group’s takeover of Opel, bringing the French manufacturers in line with the German trend. Although the ten largest manufacturers have maintained their importance, new players have started to appear and challenge them, most notably Chinese firms (see Box II.2). While the top 10 manufacturers’ share of total global production shrank from 80% to 72% between 2000 and 2015, the production of own brands —not counting joint ventures with other international manufacturers— of the largest Chinese automotive companies in the world market increased from 1% to 13% over the same period. Moreover, while there were just four Chinese firms among the 41 largest vehicle manufacturers in 2000, by 2015 there were 21 in the top 50. Despite the long-term slowdown projected for mature markets, competition in the automotive industry is increasingly intense, with a larger number of manufacturers and an unprecedented and growing number of models launched on the market. Between 2000 and 2015, the number of manufacturers grew from 89 to 97, while the number of models increased from 1,544 to 2,306. While introducing new models on the market has become easier, thanks to the adoption of global modular platforms as discussed below, manufacturers face the new operational complexities of managing an ever-more extensive product portfolio (IHS Markit, 2015) (see annex table II.A1.9). In this complex and competitive landscape, an extensive network of relationships has emerged among the major manufacturers (see table II.1). The corresponding links currently include cross-shareholdings, the establishment of joint ventures and alliances for collaboration in the technological field, and for the sharing of production or marketing platforms. Although European and Japanese manufacturers are particularly active in collaborating with their peers of the same origin, these relationships are not limited to geographical proximity and there are many that bring together large companies from different continents (for example, the partnership between Nissan, Renault and Mitsubishi Motors). The largest manufacturers have succeeded in maintaining their leadership positions through an international relocation strategy based on an extensive network of alliances with some of their peers to support a broad and flexible production base that makes it possible to supply a wide range of products to increasingly segmented markets. The

Global production is concentrated in just a few firms. In 2015, the top five manufacturers were responsible for 46% of world production.

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expansion in the product range was achieved by acquiring a number of specialized manufacturers, together with a resolute R&D strategy to accompany changes in consumer preferences and to adapt new technological developments —mainly in electronics, connectivity and new materials— that were starting to have applications available in the market. For example, the three largest manufacturers —Volkswagen, Toyota and Hyundai— supply vehicles for virtually every market segment and have pioneered the launch of hybrid and electric versions (see annex table II.A1.9).

2.

The increasing power of suppliers

Complementary to what is happening among the vehicle manufacturers —slowing of consolidation and the appearance of challenging new firms from emerging economies— major changes are also taking place among component, parts and accessory suppliers that will change the industry’s future value chain.6 To ensure a reliable supplier base, the manufacturers encouraged them to set up their own factories in the markets to which production was shifting. In this process, suppliers grew in size and quickly became international enterprises. Thus, auto-makers are increasingly assemblers rather than “manufacturers”. Between 1985 and 2015, the contribution made by suppliers to total industry value-added grew from 56% to 82% (Kallstrom, 2015). The stability and profitability of vehicle manufacturers are intricately linked to their growing global supplier base, in a dynamic that has intensified manufacturers’ reliance on their suppliers, especially in emerging markets. As the international expansion of the industry and convergence between conventional and electronic automobiles gather pace, manufacturers are forging ever closer relations with their suppliers. Mergers and acquisitions among suppliers in the automotive industry have increased markedly in recent years (see annex table II.A1.8). Between 2010 and 2015, the value of such operations grew from US$ 13 billion to a record US$ 50 billion, before dropping back to US$ 20 billion in 2016 (PwC, 2016c and 2017a). At least five forces are driving this trend: •

Positive expectations for growth in the global automotive industry.



The intense process of consolidation among the largest global suppliers.



The growing role of Chinese suppliers.



The disruptive effect of new regulatory requirements —energy efficiency and environmental care— and technological changes affecting the supplier firms’ business model.



The existence of suppliers that made deep adjustments as a result of the 2008 crisis and now display sound financial indicators. This gives them the liquidity to make new purchases or become attractive assets for takeover.

After far-reaching internal restructuring, major companies are scaling up their production and strengthening capabilities to underpin the profitability needed to stay at the top of the industry value chain (PwC, 2016d). These actions are driving a rapid process of consolidation of the components, parts and accessories subsector, led by a small group of firms from Germany, the United States and Japan. 6

Vehicle production requires thousands of parts and inputs from many suppliers. An automobile usually consists of 20,000 to 30,000 components (JAMA, 2016). In the past, the value chain was tightly controlled by the vehicle manufacturers, which greatly limited the suppliers’ bargaining power. However, as part of their risk reduction strategies, some manufacturers have decoupled from their component subsidiaries (examples including Ford, General Motors and Toyota with Visteon, Delphi and Denso, respectively).

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The steady growth of automobile production, the increase in size and strengthening of the market position of top-tier suppliers, and the increasing technological content they build into vehicles have allowed the most efficient and innovative supplier firms to generate significant leverage and boost their earnings to historical levels. This performance has afforded suppliers greater liquidity to make new acquisitions; and their earnings figures have also attracted interest from financial investors with no prior experience in the sector (PwC, 2016c) (see annex table II.A1.8). Most of the acquisitions are explained by the suppliers’ need to keep up to date in an industry undergoing rapid and intense technological change. The largest vehicle manufacturers are competing to offer better engines and drive systems, while complying with increasingly stringent regulatory standards on energy efficiency and environmental care, and at the same time meeting consumers’ demand for vehicles with increasingly sophisticated connectivity, autonomy and entertainment. These manufacturers’ demands have fostered consolidation, mergers and acquisitions, and fuelled a strong innovative momentum among suppliers (PwC, 2016c). Recently, some of the largest acquisitions have targeted two particularly important areas: propulsion systems and advanced electronics for driving assistance. •

In view of the need to manufacture lighter, more energy-efficient and less polluting vehicles, there have been new developments in turbocharging, direct fuel injection and alternative propulsion systems, such as electricity and hydrogen. Technologies such as direct injection and turbocharging are expected to attain vehicle penetration rates of 57% and 40%, respectively, in 2021 (PwC, 2016d). In this context, a key acquisition was that of Remy International Inc., an electric motors specialist, by BorgWarner, a United States engine manufacturer and turbocharger specialist, for US$ 951 million (Bloomberg, 2015a).



With the increasing incorporation of technology in vehicles, advanced electronics, software and certain hardware components (sensors and cameras) have become a priority goal. This scenario is opening up major opportunities, both for established suppliers and for new entrants. Three large transactions stand out: the purchase of the Israeli autonomous driving technology firm Mobileye by Intel for US$ 14.7 billion in March 2017; acquisition of the United States security systems provider, TRW Automotive Holdings Corp., by Germany’s ZF Friedrichshafen AG for US$ 12.494 billion; and purchase of the software area of the Finnish enterprise Elektrobit by Europe’s second autoparts producer, Germany’s Continental AG, for US$ 680 million (Bloomberg, 2015b).7 With these operations, the firms have positioned themselves as key suppliers of components for autonomous vehicles, one of the industry’s areas of greatest growth potential.

On the other hand, some diversified suppliers are spinning-off less profitable segments and transferring them to enterprises that are looking to strengthen their margins through economies of scale. This strategy includes both the creation of Adient (production of seats and interiors) by Johnson Controls —valued at nearly US$ 29 billion— and the sale of the interiors business of the Canadian firm Magna to the Spanish group Antolin for US$ 525 million (Automotive News, 2015). Thus, with rising R&D expenditures and the urgent need to supply new and innovative products, some major suppliers are attempting to move from low-margin activities towards new ventures based on lighter, more flexible high-tech assets, and thus achieve attractive margins.

7

The agreement between ZF Friedrichshafen AG and TRW Automotive Holdings Corp. allows the former to incorporate new capabilities that the latter possessed in radar and vision systems, security-oriented computers and electronic power steering, thereby enabling it to offer more sophisticated driving support systems to the company (PwC, 2016e).

Suppliers are gaining increasing importance within the production chain owing to the international expansion of the industry and convergence between conventional manufacturing and electronics.

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Against this backdrop, Chinese supplier firms are becoming increasingly important players in the industry like their vehicle manufacturers (see figure II.8). Firstly, there is an intense process of consolidation of the fragmented local production base. Secondly, some companies have sought alternatives abroad to incorporate capabilities and diversify. Examples include the acquisition of the Italian tyre manufacturer Pirelli by China National Chemical Corp. (ChemChina) for about US$ 7.7 billion (Reuters, 2015a); the purchase of Dutch semiconductor manufacturer NXP Semiconductors N.V. by the Chinese investment fund Beijing Jianguang Asset Management Co., Ltd. (JAC Capital), for US$ 2.75 billion (Bloomberg, 2016a); and the creation of a joint venture between Yanfeng Automotive Trim Systems Co., part of the Shanghai Automotive Industry Corporation (SAIC) group, and United States-based Johnson Controls, to create the world’s largest interior components supplier (Johnson Controls, 2015). With acquisitions of this type, Chinese suppliers are progressing their international expansion strategy by strengthening relations with the world’s major manufacturers, gaining leadership in various market segments and incorporating new competencies and key capabilities. The consolidation of suppliers is far from over, however. With the arrival of new emerging-market entrants and rapid technological change, the number and value of transactions is likely to continue to increase. To satisfy the demands of regulatory authorities and vehicle manufacturers, many suppliers need to rapidly incorporate new capabilities in energy efficiency, alternative propulsion systems, connected cars8 and autonomous driving.9 At the same time, vehicle manufacturers have continued to replace local or regional suppliers with global players that can support simultaneous vehicle launches on several continents. Takeovers will likely remain an efficient and rapid response to these challenges (PwC, 2016c).

D. Production models based on advanced technologies 1.

The new production platforms

Consumer preferences force manufacturers to diversify the models and features offered by their vehicles. In the last 20 years, the largest manufacturers have tripled the number of models they have on the market (Oliver Wyman, 2013). However, in a capital-intensive industry with strong pressure to reduce costs and with ever-shorter product life cycles, companies are forced to rationalize their manufacturing platforms and move towards modular and flexible systems, while reducing the number of production centres and scaling up. The industry leaders are deploying new platforms to produce in large volumes and at lower costs from common components —engine, cockpit, bodywork, electrical architecture, propulsion, braking and steering systems and so forth— to enhance their flexibility to offer a wide range of models. Volkswagen has been a pioneer, moving towards four modular platforms worldwide. In 2012, the Volkswagen Group announced the MQB (modularer Querbaukasten) platform, which debuted the following year in the new generations of Audi A3, VW Golf, SEAT León and ŠKODA Octavia.10 Other manufacturers, such as the 8

Connected cars have Internet access, are equipped with various sensors and are able to send and receive signals, perceive the surrounding physical environment and interact with other vehicles or entities. 9 Autonomous vehicles —also known as self-driving automobiles or robotic cars— operate without a human driver, thereby reducing transport costs and increasing comfort and (in most cases) safety. 10 The MQB (Modular Transverse Construction Block) platform assembles a wide range of medium, executive and luxury vehicle models, with front-mounted transverse engines and front- or all-wheel drive, using standardized components.

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PSA Group, Daimler AG, BMW, FCA, General Motors, Ford, Toyota and the Renault-Nissan Alliance, are adopting similar strategies (see figure II.14). The Renault-Nissan Alliance estimates that its Common Module Family (CMF) platform will generate a 30% to 40% reduction in entry cost per model, and a 20% to 30% reduction in the cost of parts and components (Jackson, 2016).11 A generalization of this trend would lead to a reduction in the number of production platforms worldwide: the leading manufacturers would reduce their number of platforms from 277 to 195 between 2005 and 2020, while increasing vehicle production by around 50%. Most importantly, the proportion of vehicles produced on the larger platforms would grow from 35% to 83% in the same period (IHS, 2015). Figure II.14 Average production per vehicle construction platform, by firm, 2014-2022 (Units and number of platforms)

The number of platforms will fall 900 000 800 000

9

800 000 800 000

8

8

700 000 700 000

700 000

7

600 000 600 000 600 000

600 000

6 500 000 500 000 500 000 5

500 000 400 000

The proportion of vehicles produced in large platforms will increase

Vehicle production will rise

4

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300 000

3

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2

3

6 5

400 000

4 300 000

3

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1

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Hyundai BMW

2014

Honda

Renault Nissan

Ford

2022

Toyota

PSA

GM

Suzuki

FCA

Mazda

Daimler Mitsubishi

Number of platforms accounting for 80% of production in 2022 (right scale)

Nissan Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of M. Jackson, “The race for competitive advantage via global scale”, paper presented at the Seminar UMTRI Automotive Futures: Globalization of the Auto Industry, Ann Arbor, Michigan, 13 April 2016 [online] http://www.umtri.umich.edu/ sites/default/files/Mike.Jackson.IHS_.Globalization.2016.pdf.

2.

Investments in innovation

Investment in R&D in the industry has increased steadily in recent years (see figure II.15). In 2015, with an R&D investment of US$ 109 billion, the automotive industry accounted for 16.1% of the world total, only surpassed by the electronics and computer sector (24.5%) and health care (21.3%). In terms of investment in R&D as a percentage of sales, however, the industry is less prominent, with about a third of the intensity reported by the software and Internet sector (PwC, 2016f).12 11

The CMF system is based on compatible modules —such as the engine, the cab and the front and rear sections of the lower part— which are then joined together to form the complete vehicle. It uses different platforms to build a vehicle, which allows for a wider variety of models and features. The PSA Group plans to build up to six types of vehicle on a single production line following introduction of the Efficient Modular Platform (EMP). 12 In 2015, with an intensity of R&D spending of 4%, the automotive industry ranks fifth, behind software and Internet (13.8%), health care (11.1%), electronics and computing (6.9%), and aerospace and defence (4.0%).

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Figure II.15 Investment in research and development (R&D) by the automotive industry, 2005-2015 (Billions of dollars)

Economic Commission for Latin America and the Caribbean (ECLAC)

120 100 80 60 40 20 0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of PwC, The 2015 Global Innovation 1000: Automotive Industry Findings, 2016 [online] http://www.strategyand.pwc.com/media/file/Innnovation-1000-2015-Autoindustry-findings.pdf.

Connectivity-related features are becoming an increasingly important revenue source for manufacturers and for some of their key suppliers (PwC, 2016e). While manufacturers are looking to innovate in products, they are also exploring new business models. In the near future, some of the mobility solutions will depend on the ability to manage digital platforms and cloud-based systems. The 20 firms that invest most in R&D worldwide include five automobile manufacturers: Volkswagen, Toyota, General Motors, Ford and Daimler AG. Since 2012, Volkswagen has been leader among the most active firms in this field (European Union, 2016). On average, the R&D spending intensity of the major manufacturers has remained stable around 4% and 5% of sales, with the exception of Volkswagen and BMW and the very surprising Tesla Motors. In fact, this electric vehicle manufacturer holds leading positions in several rankings of the most innovative companies in the world (Forbes, 2016b; PwC, 2017b; BCG, 2017). Moreover, the major suppliers, in addition to showing sustained growth, report R&D investment levels equivalent to some of the leading vehicle manufacturers. Most interestingly, they almost double R&D intensity, which confirms that it is suppliers that sustain much of value creation and innovation in the production chain (see figure II.16).

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Figure II.16 Investment in research and development and R&D intensity of the leading vehicle suppliers and manufacturers, 2005-2015

Investment in R&D (billions of euros)

Manufacturers

Suppliers

13.612

5.202

Schaeffler AG

Mahle GmbH

HELLA KGaA Hueck & Co.

1.350 1.240 1.102 0.954 0.663 0.657 0.647 Valeo SA

Robert Bosch GmbH

Tata Motors

Nissan Motor

FCA

BMW

Honda Motor

Ford Motor

Daimler AG

General Motors

Toyota Motor

Volkswagen Group

2.528

Delphi Automotive

3.041

2.334

Aisin Seiki Co.

4.108 4.054

ZF Friedrichshafen AG

5.487 5.169

Continental AG

6.889 6.529 6.154

Denso Corp.

8.047

Investment in R&D as a percentage of sales (percentages) 17.0

2005

2010

8.8

2015

2005

2010

5.7

5.5

Autoliv Inc.

6.3

Gentex Corp.

6.4

Nexteer Automotive

6.6

Continental AG

7.4

Valeo SA

Delphi Automotive

Denso Corp.

Visteon Corp.

4.4

HELLA KGaA Hueck & Co.

4.4

Nissan Motor

4.5

Ford Motor

4.9

General Motors

4.9

Honda Motor

Renault

4.9

Daimler AG

7.5 5.6

BMW

6.2

Tata Motors

Volkswagen Group

Tesla Motors

6.4

9.1

Robert Bosch GmbH

10.4

2015

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of European Union (EU), The 2016 EU Industrial R&D Investment Scoreboard, Directorate Growth and Innovation, Brussels, 2016 [online] http://iri.jrc.ec.europa.eu/scoreboard16.html.

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Currently, about two thirds of the industry’s R&D investment is located in the United States (27%), Germany (15%), Japan (15%) and China (11%). Between 2007 and 2015, the top three maintained their share, while China expanded from 4% to 11% of the world total. In parallel with the relocation of production, firms in the sector spend an increasing proportion of their R&D budget in countries other than that of their parent company. The significant increase in China’s share explains part of this process, as well as the manufacturers’ bid, under the conditions imposed by the Chinese Government, to diversify their scientific, technological and innovation capabilities, to bring them closer to their production’s destination markets. Currently, R&D investment abroad accounts for almost two-thirds of the total, mainly in the United States (34%) and China (14%), followed by Germany (6%) and Japan (5%). %) (PwC, 2016f), while domestic investment in R&D is heavily dominated by firms in Japan (33%) and Germany (32%) (see figure II.17). This expenditure, both domestically and externally, continues to reinforce the industry’s high concentration around three large agglomerations in North America, the European Union and the axis formed by China, Japan and the Republic of Korea. Figure II.17 Automotive industry: investment in research and development (R&D), domestic and imported, by country, 2007-2015 (Percentages) 100 90 80 70 60 50 40

Rest of the world

30

China

20

Japan

10

Germany

0

United States 2007

2015

Imported

2007

2015

Domestic

2007

2015 Total

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of PwC, The 2015 Global Innovation 1000: Automotive Industry Findings, 2016 [online] http://www.strategyand.pwc.com/media/file/Innnovation-1000-2015-Auto-industry-findings.pdf.

In 2015, the top five vehicle manufacturers spent about US$ 45 billion on R&D. For most of the industry, however, success has been elusive and there is very little differentiation among participants (PwC, 2016e). To preserve their share of value creation in a commercially and technologically complex scenario, manufacturers and suppliers will have to foster higher levels of innovation, as software and Internet businesses already do. This will entail coping with shorter innovation cycles and, most likely, increasing their investments. As manufacturers have focused on core competencies, their suppliers have captured an increasing share of value creation, both in production and in R&D. Between 2012 and 2025, the share of manufacturers in the creation of value in R&D worldwide is likely to fall from 60% to 47%, while that of the suppliers is estimated to grow from 31% to 36%, and that of engineering service providers from 9% to 17%. Suppliers will consolidate their position in production, increasing their share in value creation from 65% to some 71%, while that of manufacturers is estimated will fall from 45% to 29% (Oliver Wyman, 2013).

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The manufacturers’ classic business model, built around the revenue obtained from the sale of new vehicles, is changing as the return on value creation continues to decline. In a market with more demanding consumers, manufacturers are under greater pressure to produce increasingly personalized vehicles; and they have been caught up in a crowding-out dynamic, where more and better technological features are required to stay in a very competitive and saturated international market. In this scenario, technological progress, which in the past was the manufacturers’ preserve, is occurring more and more in the suppliers’ sphere of action. Moreover, factors such as brand reputation and service are gaining importance for differentiating between manufacturers (GTAI, 2016a). Suppliers are playing an increasingly important role in some modules traditionally dominated by the manufacturers, such as chassis and bodywork. The need to move towards more energy-efficient products will force new, lighter solutions to be adopted. In a first stage, the most important bodywork changes will occur in high-end vehicles, where there is greater scope for progress in lightweight structures, new materials and design. On the other hand, growing demand for greater safety by consumers will dominate value creation in the chassis module in the mass consumption vehicle segment. The greatest change is likely to occur in the electric propulsion segment, which is currently one of the most important innovation spaces in the industry. Although manufacturers will continue to control key technologies in this area, their share in creating value for this module will fall to 9% by 2025, maintaining a small share of production. In addition, manufacturers producing internal combustion engines will put even more emphasis on assembly and on research, development and innovation activities, to make progress in more energy-efficient and environmentally-friendly products. However, their share in value creation is expected to drop to 32% (see figure II.18).

Suppliers are playing an increasingly important role in some modules traditionally dominated by manufacturers.

Figure II.18 Vehicle manufacturers and suppliers: share of value added, by module, 2002-2025 (Percentages) 100 90 80 70 60 50 40 30 20 10

Chassis

Drive train

Internal combustion engines

Electric gear system

Carriage

Exterior bodywork

Interior

2025

2012

2002

2025

2012

2002

2025

2012

2002

2025

2012

2002

2025

2012

2002

2025

2012

2002

2025

2012

2002

2025

2012

Suppliers Vehicle manufacturers 2002

0

Electronics

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Germany Trade and Invest (GTAI), Industry Overview: The Automotive Industry in Germany 2016/2017, Berlin, September 2016 [online] http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industryoverview-automotive-industry-en.pdf?v=14.

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New plants will make it possible to produce better-quality vehicles with fewer faults, a larger variety of models, with a shorter time to market and, above all, lower costs. These physical objectives are being integrated into the digital world to combine smart machines, production systems and processes to form cyber-physical production systems, which are the centre of the fourth industrial revolution (ECLAC, 2016b). Productivity gains will be made not only within the factory (during production), but all along the value chain, starting with engineering and product development (for example through prototyping and virtual testing, or 3D printing), together with supplier logistics and management. For this to happen, three groups of industry participants must work in coordination. First, infrastructure providers such as telecom operators (America Movil, AT&T, Telefonica) and platform managers (Cisco, Amazon), need to offer support structures and services, ranging from cloud computing to storage and big data analysis. Second, technology firms (General Electric, Siemens, Asea Brown Boveri (ABB) Group) need to provide collaborative robots or remote maintenance systems. Lastly, vehicle manufacturers can become one of the key drivers of the deployment of new technologies (Roland Berger, 2016a). The automotive industry is facing its greatest technological change in more than a century. In this world, strategic alliances between manufacturers and suppliers, and also within the supply chain, will become increasingly important and offer significant growth potential. The automotive industry is facing its greatest technological change in more than a century.

The new production models of the largest manufacturers increase automation and digitization very significantly, with the widespread incorporation of robots, artificial intelligence and the creation of digital networks with the suppliers. Exploiting digital technologies, they will be able to improve manufacturing techniques by virtue of the principle of commercial efficiency, or just in time, improving the logistics and cost efficiency of an industry involving a large number of suppliers distributed around the world. Continuous real-time data exchange affords a much higher level of intelligence and individualized automation. At present, BMW has to deliver about 30 million parts at the right time and place every day, so that around 9,000 vehicles can be produced at the group’s 31 production plants around the world (IHS Markit, 2016). In the future, the firm plans to have a fully networked supply chain, operate with autonomous transport robots and use existing vehicle information for the delivery process, to make the logistics more flexible and efficient (BMW Group, 2016a). Audi, for its part, has stated that fixed assembly line times are becoming less efficient (Audi, 2016). The more the number of derivatives and model variations grow, the harder it is to control that complexity and integrate new routines into a rigid sequential process. The firm’s response is modular assembly, which has already started to be used in the test phase at the Audi plant in Györ (Hungary). With this method, smaller, independent work centres can achieve work routines that are highly flexible in terms of time and space. Driverless transport systems bring vehicles under construction and the parts required from one work centre to another, while a central computer controls driverless transport and recognizes the needs of each centre, ensuring a regular flow (Audi, 2017). These advances are not confined to vehicle manufacturers. Some of the main suppliers are also at the cutting edge of technology. The largest supplier company in the world, Robert Bosch GmbH, is the only one that actively embraces the three levels of the Internet of Things: devices, gateways and centralized computing.13 The firm offers 13

The intelligence of the Internet of Things is developed on three levels. The first is the furthest from centralized equipment and is determined by the capacity of devices to process information. The second consists of the gateways, which group traffic from different devices; and the third is the infrastructure of the firms or the centralized platforms to which devices and gateways send information. The first two are the edge and the third is the cloud. A cloud-only system is a centralized intelligence system, while one that has processes on the Edge is of distributed intelligence.

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key integration technologies (such as sensors and software) from which it develops new services. It is currently at the forefront in different applications for connected mobility and autonomous driving. To that end, it is implementing collaborative partnerships with some of the world’s leading software businesses, including IBM, SAP, General Electric, Software AG and Amazon. In this scenario, the vehicle manufacturers will continue to adjust their productive specialization and optimization strategies, and they are likely to start exploring expansion alternatives in new businesses along the value chain frontier associated with service delivery. The aim of this would be to halt, and if possible reverse, their loss of share in the income and profits of the value chain. Leading providers that are currently making large investments in R&D and gaining significant advantages in hardware, software and connectivity services with new vehicles, will seek to consolidate their growing share of revenues and profits. Neither group has its survival guaranteed. Both the manufacturers and the suppliers need to generate strategic capabilities ahead of future disruptive changes. This means identifying segments and markets with growth potential at an early stage, to understand their firms’ growth possibilities, review their value-creation strategy and achieve a competitive position for the future.

E. Disruptive changes on the short-term horizon In recent years, the automotive industry has enjoyed high rates of growth and profitability; but there is still considerable uncertainty, not just economic, about its future. Several disruptive trends, driven by external forces, are causing the boundaries of the industry to blur and even disappear (IBM, 2015). At least three forces will shape the industry in the coming years (see diagram II.1): •

Rapid convergence with the digital economy.



Changes in the concept of mobility and patterns of consumption.



Stricter regulatory requirements on safety, energy efficiency and environmental stewardship.

As the industry speeds up its transition from the traditional to the digital economy, from physical goods to services and from hardware to software, there will be major changes in the distribution of revenues and profits, and changes in the boundaries and power relations between the participants in the chain (see figure II.19). Traditional vehicle manufacturers and suppliers will see their share of total revenues decline. The suppliers’ revenue source will shift from engines, interiors and chassis, to electronics, software, cloud services and batteries, making new technology and software suppliers more important, particularly with the growth of electric vehicles. The market for spare parts, accessories and components is likely to continue growing in the short term, as the use of shared mobility increases; but it will then decline with the growth of electric vehicles. Moreover, revenues associated with shared mobility and strictly digital services, such as on-board entertainment and location-based information providers, should increase rapidly.

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Diagram II.1 Disruptive trends facing the automotive industry

Changes in the concept of mobility and in consumption patterns

Convergence with the digital economy

Regulatory requirements

Automotive industry Source: Economic Commission for Latin America and the Caribbean (ECLAC).

Figure II.19 Global automotive industry: revenue and profits, 2015 and 2030 (Percentages)

3%

10

14

2 7

12

7

4%

19%

20

14

5

14

10

8

7

14

13

11 11

4 11

36%

Suppliers’ revenue sources will shift from engines, interiors and chassis, to electronics, software, cloud services and batteries, making new technology and software suppliers more important, particularly with the growth of electric vehicles. Moreover, revenues associated with shared mobility and strictly digital services, such as on-board entertainment and location-based information providers, should increase rapidly.

16 10 10

49

44

2015

2030

Revenues

41

29

2015

Profits

Traditional vehicle manufacturers and suppliers will see their share of total revenues decline.

2030

Shared mobility

Digital services

Suppliers of new technologies and software

Traditional hardware suppliers

Insurance

Financing

Parts and accessories market

Vehicle sales

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of PwC, Connected Car Report 2016: Opportunities, Risk, and Turmoil on the Road to Autonomous Vehicles, 28 September 2016 [online] http://www.strategyand.pwc.com/media/file/Connected-car-report-2016.pdf.

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The digitization of the industry

(a) Spread of connected vehicles and the arrival of autonomous vehicles The technological revolution is producing huge and rapid advances in wireless connectivity, artificial intelligence, low-cost hardware (cameras, sensors, radars) and software that unites all these elements. Innovative firms, both car manufacturers and suppliers, as well as new participants from the technology industry, are investing heavily to deliver new applications, features and services. This dynamic is placing special emphasis on the high-end segment, led by Volkswagen, BMW and Tesla. Similarly, new prototypes of connected vehicles are starting to appear for specific applications, such as large mining trucks, robot taxis, buses printed using 3D technology, and small, low-cost urban autonomous vehicles (known as “pods”).14 Electronics are penetrating the automotive industry as never before, and very fast (see diagram II.2). The first digital engine control modules were introduced in the 1980s. Today, an average car contains about 60 microprocessors (four times more than 10 years ago), along with over 10 million lines of software code (more than half of the number of lines of code used in a Boeing 787 Dreamliner) (CAR, 2014). A decade ago, electronics and software accounted for no more than 20% of the total cost of a vehicle; today the figure has risen to 35% (PwC, 2016g). In a state-of-the-art car with a conventional internal combustion engine, the electronic component represents about 40% of value-added, and the proportion can reach 75% in electric or hybrid vehicles (Scuro, 2017). By 2030, the cost share is likely to exceed 50% (WardsAuto, 2016). Furthermore, nearly 90% of automotive industry innovations in 2015 included electronics and software in areas related to safety, connectivity and entertainment (ConnectorSupplier, 2016). The largest vehicle manufacturers, along with their suppliers, have focused on traditional areas such as quality and safety, and have used “infotainment” systems to differentiate their products.15 Users want to be connected and have convenient to access their personal content anywhere, anytime, on all of their devices. In this scenario, cars are rapidly becoming another node in the network, allowing for more comfortable, safe and efficient journeys (see diagram II.2). The production of connected automobiles is growing rapidly.16 Between 2015 and 2020, the production of new cars equipped with data connectivity —via a built-in communications module or a connection to a mobile device— is forecast to increase from 6.8 million to 61 million units, or from 10% to 75% of the total (see figure II.20) (Gartner, 2016). With this rapid incorporation of intelligence, by 2018 one in every five vehicles will be able to discern and share data on their mechanical status, positioning and environmental conditions (Hewlett Packard Enterprise, 2016). The dramatic increase in vehicle connectivity will imply a significant increase in the value of the world market for components and related services, from € 30 billion to € 170 billion between 2014 and 2020 (McKinsey, 2014). 14

In mid-2016, the United States firm Local Motors presented a small self-contained, electric, 3D-printed and partially recyclable shuttle-bus called Olli. The firm claimed this was the first self-driving vehicle to use the Watson Internet of Things (IoT) cognitive learning platform, developed by International Business Machines (IBM), (The Verge, 2016a). In late 2016, NuTonomy, of Singapore, became the first company to publicly test autonomous taxis, thus beating Uber, the firm that pioneered development of this type of vehicle (The Verge, 2016b). 15 Many manufacturers have developed their own information and entertainment systems, including dashboard units, along with the software that runs them and enables them to interact with other devices, such as smartphones. 16 In addition to the basic concept of a connected vehicle with Internet access, new markets have emerged, such as vehicleto-infrastructure (V2I), vehicle-to-vehicle (V2V), vehicle-to-the cloud (V2C) and vehicle-to-everything (V2X) (Hewlett Packard Enterprise, 2016).

Electronics and software account for around 35% of the total cost of a vehicle today.

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Diagram II.2

Automotive industry: evolution of technology incorporation

Mechanization:

Electrification:

Digitization:

Connectivity:

Autonomization:

Mechanical devices replace manual actions

Technological improvement of car parts Electric windows Power door locks

Introduction of embedded digital components Radio data system technology Parking cameras Working parts sensors

Interconnection of digital components

Incorporation of smart hardware and software

Embedded in-car connectivity

Autonomous driving

Monitoring real-time car operating data

Automatic self-diagnosis systems

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Statista, Digital Market Outlook. Connected Car Market Report, New York, March 2017.

Figure II.20 Global production of connected automobiles, by mode of connection, 2015-2020 (Thousands of units and percentages of the total)

80 000

80

70 000

70

60 000

60

50 000

50

40 000

40

30 000

30

20 000

20

Percentage of total vehicles produced (right scale)

10 000

10

Connection to a mobile device

0

0

2015

2016

2017

2018

2019

2020

Built-in communications module

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Gartner, “Forecast: connected car production, worldwide”, September 2016 [online] http://www.gartner.com/newsroom/id/3460018; Hewlett Packard Enterprise, The Internet of Things and Connected Cars, April 2016 [online] http://h20195.www2.hpe.com/v2/getpdf. aspx/4AA6-5105ENW.pdf?ver=1.0.

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Over the next few years, in addition to selling their products, vehicle manufacturers are likely to try to grow their revenues by offering new safety, autonomous driving and connectivity services. The specific content of each of these features will change over time. The current characteristics of safety features may converge with those of autonomous driving as the latter becomes more widespread. Sales of connected vehicles could generate additional revenue that would triple over the next five years, to reach about US$ 156 billion by 2022 (PwC, 2016e) (see figure II.21). With annual growth rates of close to 30%, autonomous driving and safety will be the most dynamic features, although they will probably only gradually be incorporated into the price of new vehicles. It is also likely that a large portion of the potential of the connectivity services segment will be captured by third parties (PwC, 2016e).

A. By type of provision (billions of dollars) 160

100

140

90 80

120

70

100

60

80

50

60

40 30

40

20

20 0

Figure II.21 Additional revenue for the global connected vehicles market, by type of feature and segment, 2015-2022

B. By segment (percentages)

10 2015

2016

Connectivity services

2017 Autonomous driving

2022 Safety

0

2017 Top of the range models

2022 Mass consumption models

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of PwC, Connected Car Report 2016: Opportunities, Risk, and Turmoil on the Road to Autonomous Vehicles, 28 September 2016 [online] http://www.strategyand. pwc.com/media/file/Connected-car-report-2016.pdf.

As manufacturers have progressively incorporated sensors and telemetry systems, the information available on vehicle operation and driver behaviour has increased. At present, the vast majority of participants in the chain are interested in collecting data on both; but there is still considerable uncertainty about how to use such information. Consumers have benefited the most thus far, through easy access to a wealth of information on the prices, discounts, technical specifications and performances of products offered on the market. The spread of connectivity means a rapid evolution towards autonomy, from simple alert-and-assist features to more comprehensive, integrated and connected systems (see diagram II.2, figure II.22 and table II.2) (Goldman Sachs, 2016). Suppliers are strengthening their capabilities in software, sensors, cameras and other components for advanced driver assistance systems (ADAS) and human-machine interface that allow the driver and passengers to interact with the vehicle’s different systems —mainly on-board entertainment, connectivity and ADAS. The components market for advanced driver assistance systems is set to grow by 16% per year between 2015 and 2025, from € 6.1 billion to around € 30 billion (Roland Berger, 2016b).

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Figure II.22 Revenues of the global market for advanced driver assistance systems in light vehicles, by component, 2015-2025 (Billions of euros)

30 25 20 Lane change assistance

15

Night vision Sleepiness detection

10

Parking assistant Blind spot detection

5 0

Adaptive cruise control, heavy traffic assistant and automatic pilot 2015

2017

2019

2021

2023

2025

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Roland Berger, Global Automotive Supplier Study 2016. Being Prepared for Uncertainties, July 2016 [online] http://www.rolandberger.com/publications/ publication_pdf/roland_berger_global_automotive_supplier_2016_final.pdf.

Table II.2 Evolution of autonomous driving Level of automation

2010

Level 5: Driverless vehicles Level 4: Autonomous vehicles with driver control Level 3: Conditioned automation and limited autonomous driving

2015

2020

Restricted tests

Full deployment Small-scale cars Deployment of as a service (CaaS) low-speed CaaS Small-scale deployment Volume production Full deployment

Restricted tests

2025

2030

Automatic pilot for highway Automatic pilot for parking Automatic pilot for dense traffic

Level 2: Partial automation combined with autonomous functions Nivel 1: conducción asistida en funciones específicas Level 0: Zero automation-normal driving

Parking assistant Dense traffic assistant Lane change assistance Autonomous emergency braking Adaptive cruise control Driver warning and assistance systems

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of M. Jackson, “The race for competitive advantage via global scale”, paper presented at the Seminar UMTRI Automotive Futures: Globalization of the Auto Industry, Ann Arbor, Michigan, 13 April 2016 [online].http://www.umtri.umich.edu/ sites/default/files/Mike.Jackson.IHS_.Globalization.2016.pdf; E. Juliussen, Connected Cars: Perspectives to 2025, IHS Automotive Technology, 27 April 2016.

Connectivity features are currently highly focused on high-end vehicles, which generate two-thirds of total revenue (see figure II.21B). Manufacturers generally launch innovative products and value-added services at the high end of the market, taking advantage of the larger margins that these types of cars allow. Nonetheless, extending connectivity to all types of vehicles will generate huge market growth and hence a noticeable drop in the prices of the features in question; it will also jeopardize differentiation strategies based on them. In the next few years, autonomous driving features are likely to become as common as airbags. Moreover, the flexibility of the new modular platforms makes it possible to rapidly incorporate technological innovations in the field of connectivity, entertainment, safety and propulsion systems (IHS, 2015). In this scenario, automobile prices are not expected to suffer many changes; those at the high end would probably rise by 4%, while prices in the mass-consumption market would be unlikely to increase by more than 1% (PwC, 2016e).

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The major manufacturers and some technology companies have plans to put models with high degrees of autonomy on the market (see table II.3). Vehicles of automation levels 4 and 5 could account for 4% of light vehicle sales by 2030, rising to 16% by 2035 (Wall, 2016) (see table II.2). To this end, manufacturers and suppliers are investing increasing shares of their revenues in R&D, which allows them to patent a large number of technological innovations related to autonomous driving. Since 2010, Robert Bosch GmbH has applied for 2,710 autonomous driving patents, followed by Toyota (2,061), Volkswagen (1,173), the Japanese supplier DENSO (1,022) and Honda (882) (Automotive News, 2016a). Table II.3 Announcements of autonomous vehicle launches, by level of automation, 2014-2021 Automation level

2014

2015

2016

2017

2018

2019

Level 5: Driverless vehicles Level 4: Autonomous vehicles with driver control

Level 3: Conditioned automation and limited autonomous driving

Level 2: Partial automation combined with autonomous functions

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of press information.

Firms in Germany and Japan have gained a leading position in autonomous driving technologies. Between 2010 and 2015, the German and Japanese industries invested around € 28 billion and € 26.1 billion a year, respectively, in R&D; and a substantial part of this has been devoted to connected and autonomous driving (GTAI, 2016b; EU, 2016). Since 2010, Japanese and German automakers and component suppliers have obtained 42% and 35% of all patents on automatic driving technologies. These figures show that the mass production of autonomous vehicles is starting to appear more clearly on the horizon, but further time is needed for it to settle. The collaborative relationships between the actors in the production chain need to consolidate, particularly the most innovative ones, in order to move towards closer integration between R&D and production, and to incorporate technologies that historically have not been on the manufacturers’ radar. This can be seen especially in the advent of driver assistance technologies, a predecessor of fully autonomous driving (ThomsonReuters, 2016). The most advanced manufacturers in the development of autonomous vehicles include: Daimler AG, BMW, Volkswagen Group, Toyota, Renault-Nissan Alliance, Ford and General Motors. Daimler AG is implementing major R&D initiatives to create autonomous vehicles. In 2014, it was the first to introduce a safety and autonomous driving system (known as “Intelligent Drive”) in the Mercedes Benz S-Class, which made it an industry leader (Automotive News,

2020

2021

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2014).17 It has also made progress in technologies that enable the autonomous driving of trucks and communication between fleets of vehicles of this type (Highway Pilot), with commercial production set to begin in 2025 (Daimler, 2017).18 In early 2017, Daimler AG signed a cooperation agreement with Uber to develop and produce autonomous cars that will be integrated into its global fleet (Bloomberg, 2017a). It also signed an agreement with Robert Bosch GmbH to pool efforts in the development of fully autonomous vehicles, aimed at supplying robotized taxis and shared cars at the start of the next decade. The agreement focuses on the joint development of the software and algorithms needed to make these advanced driving systems safe and predictable (Fortune, 2017a). BMW formed an alliance with Mobileye —the leading provider of advanced driver assistance systems— and Intel, to produce a fully autonomous car by 2021, called iNEXT. In mid-2017, BMW announced that it would launch a fleet of 40 cars with this technology for testing in cities in the United States and Europe (Fortune, 2017b). Following the emissions scandal that erupted in 2015, in mid-2016, Volkswagen launched Strategy 2025 to restructure the company, focusing on electric vehicles and autonomous driving technologies. Over the next 10 years, it plans to market about 30 fully electric vehicles and sell between 2 million and 3 million of them by 2025 (Forbes, 2016c). In early 2017, Volkswagen introduced a prototype that combines the concepts of electric vehicle, autonomous driving and shared mobility. The self-driving car, or “Sedric” will be completely autonomous, with no steering wheel or pedals; and it will have an interior designed as a small room with four seats (two facing two) (El País, 2017c). At the same time, Volkswagen’s subsidiary Audi, drawing on a long collaboration with the United States enterprise Nvidia —which specializes in integrated circuits and graphics processing systems— announced the launch of an autonomous car in 2020 and exhibited a prototype (Q7 SUV) which learnt to drive alone in four days, based on Nvidia’s artificial intelligence (The Verge, 2017a). Together with BMW and Audi, Daimler AG acquired the map and navigation company HERE Technologies for US$ 3.1 billion in late 2015 (Wired, 2015). This gave the main German manufacturers a sophisticated mapping service (considered a key component for autonomous driving) and achieved greater independence from the main competitors in this service: Apple, Google, Amazon and Facebook.

The major manufacturers are preparing to produce autonomous vehicles by the end of this decade.

Currently, Toyota is the vehicle manufacturer with the largest number of autonomous driving patents (Automotive News, 2016a). It has made the most of universities and provided funding of about US$ 50 million to the Massachusetts Institute of Technology (MIT) and Stanford University. In 2015, Toyota set up a research centre in Silicon Valley with a budget of some US$ 1 billion to speed up the development of new applications in artificial intelligence, robotics and advanced materials. The two main research lines of the Toyota Research Institute (TRI) are the Chauffeur and Guardian systems.19 In March 2017 in California, Toyota introduced the second generation of a vehicle equipped with sensors, cameras and radar, offering various autonomous driving functions. In early 2017, Ford announced that it would produce autonomous vehicles within four years. To that end, it planned a US$ 1 billion investment in Argo AI, an enterprise founded by former Google and Uber experts, specialized in robotics and artificial intelligence, to develop the software needed for the next generation of driverless cars 17

In the Intelligent Drive system, sensors, controls and 36 technologies are integrated and work together, resulting in driving autonomy of about 70%. Intelligent Drive includes systems to help prevent collisions, a pedestrian and animal recognition feature, lane keeping, parking assistance, rear-crash monitoring, crosswind stabilization, distance control, night vision and a suspension that automatically adjusts before the car hits an imperfection on the road. Those technologies work with 12 ultrasonic and six radar sensors and eight cameras that monitor 360 degrees of the car (Automotive News, 2014). 18 Using cameras and radar sensors, the Highway Pilot technology analyses traffic and transmits information to the systems, controlling vehicle speed and direction. In addition, thanks to an integrated three-dimensional map, autonomously driving trucks always know where they are going (Daimler, 2017). 19 While Chauffeur is a fully autonomous system, Guardian is a high-level assistance platform for the driver, which constantly monitors the driving environment both inside and outside the vehicle, in order to avoid collisions (Forbes, 2017a).

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(The Telegraph, 2017). In partnership with Argo AI, Ford expects to develop technology that can be licensed to other players in this segment to generate additional revenue (Forbes, 2017b). General Motors is one of the few vehicle manufacturers that has sought to develop endogenous technological capabilities, for which it has made a series of acquisitions. In early 2016, it purchased the assets of Sidecar, a mobility platform; and it invested US$ 500 million in Lyft, the Uber competitor with which it entered into a partnership to develop a private transport service with autonomous vehicles. Shortly afterwards, it bought the small-business software firm, Cruise Automation, for US$ 688 million to speed up the company’s development of autonomous automobile technology. This strategy has quickly yielded good results: Cruise Automation technology prototypes are being tested in Arizona, as are those of Google. In 2018, General Motors intends to launch an autonomous version of its Chevrolet Bolt electric car, which will be used primarily by Lyft (Fortune, 2017c). Lastly, General Motors has internally developed a semiautonomous technology that will be launched on the market in its high-end Cadillac models in 2018 (Autoblog, 2017). Although the firm has been more cautious about revealing its plans, it is known that 40 Chevrolet Bolt autonomous vehicles have been tested with an engineer in the driver’s seat in several cities across the United States. It is highly likely that the first autonomous cars will be used under General Motors’ agreement with Lyft. Since 2016, Nissan has been marketing the Serena model in Japan, with ProPilot technology that makes it possible to drive automatically in a lane with no hands on the steering wheel. Nissan has announced the next version of ProPilot for 2018, which will automate lane changes; and in 2020 it will launch new features capable of automating driving in even more complex environments such as intersections and urban routes. In early 2017, Nissan began testing an autonomous vehicle on various roads in Europe. The autonomous Nissan Leaf model includes millimetre-wave radar, laser scanners, cameras, high-speed computer chips and a specialized human-machine interface, among many other components. It also introduced Seamless Autonomous Mobility (SAM), a technology developed by the National Aeronautics and Space Administration (NASA), which uses artificial intelligence to help partially autonomous vehicles make decisions in unpredictable situations. In recent months, other major manufacturers have also unveiled their plans for autonomous driving. In late 2016, the PSA Group confirmed that a fleet of 15 prototypes had travelled more than 120,000 kilometers in autonomous mode along several European highways (including a fully autonomous trip between Paris and Bordeaux). In March 2017, the firm announced the start of testing with autonomous vehicles and non-expert drivers in Paris, as part of the Autonomous Vehicles for All (AVA) programme. Following these tests, it plans to market the first semi-autonomous vehicles in 2020 (PSA Group, 2017). In addition, in early 2017, Hyundai introduced a first autonomous version of its Ioniq model, with a LiDAR system included (PCWorld, 2017).20

(b) New entrants: the entry of global digital platforms The new trends are putting a strain on the entire vehicle production chain. In this turbulent scenario, changes in industry leadership are likely to occur, with the entry of new players, mainly from the technological frontier; and there will be strong pressures for traditional manufacturers to speed up and strengthen innovation initiatives in technology, corporate management and the business model. At the same time, a new generation of strategic partnerships between companies from different sectors is gathering pace. 20

The LiDAR system is a technology that is highly coveted among the leading manufacturers. It consists of a radar-like system, which uses lasers instead of radio waves to construct a three-dimensional image of the surrounding landscape. As satellite navigation systems are only accurate to less than five meters and can easily be confused by tall buildings and glass, autonomous vehicles require a series of additional sensors to accurately position themselves and detect pedestrians, vehicles and other objects.

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New players are entering the automotive industry, mainly from the cutting edge of technology.

At least two types of firm that had not previously participated in the automotive chain are now seeking to gain a strong foothold in it. First are the large technology firms, such as Google, Apple and Uber, which view the automotive industry as an attractive space to diversify and use their capabilities to develop new products and business models. Second are firms with a long track record in the electronics and software areas, such as Intel and Samsung, which are trying to position themselves in a number of critical components in the new value chain. Closer convergence and alignment between technological companies and traditional vehicle manufacturers seem inevitable. With great secrecy, Apple invested some US$ 10 billion in R&D in its Project Titan to produce a car to compete with Tesla. It is currently thought to be working on an electric vehicle —the iCar— which should come to market by 2020 (Express Drives, 2017). Unlike other manufacturers, however, Apple has kept a low profile and has not tested its prototypes on public roads. In the last few months there has been a lot of news about possible takeovers or partnerships involving Apple, apparently to boost and hasten development of the iCar project. Since 2015 there has been speculation about a possible cooperation agreement with German manufacturers BMW and Daimler AG, and with the new electric vehicle enterprise named Faraday Future, which has come as a surprise (Forbes, 2015, McRumors, 2015, Safe Car News, 2016). In late 2016 there was speculation about possible takeovers of British manufacturer McLaren, which has extensive experience in advanced materials (carbon fibre) and innovative technologies (touch screen controls and hybrid electric propulsion systems), and of Lit Motors, which is known for its development of a two-wheeled electric vehicle with a self-balancing system (The Verge, 2016c; Forbes, 2016d). Nonetheless, Apple now seems to be reviewing its autonomous car vehicle strategy, since its progress does not match that achieved by its main competitors, Google and Uber. Some analysts say that Apple should focus on applications and services for the next generation of cars and abandon the project to build its own vehicle. In fact, the good results from Apple’s on-board entertainment and connectivity platform leave the company well-positioned to deliver content adapted to autonomous vehicle passengers (Forbes, 2017c).21 In late 2016, Google grouped all activities related to the development and commercialization of an autonomous vehicle in a new company: Waymo (the name is an abbreviation of the expression “a new way forward in mobility”).22 At the same time, the new firm announced an agreement with FCA to create a fleet of 100 Chrysler Pacifica hybrid cars which Waymo will adapt to provide an autonomous taxi service. In late April 2017, FCA announced the delivery of 500 additional vehicles to Waymo to implement a pilot programme in Phoenix, Arizona. Although it is not the first initiative to provide a service with these characteristics, its main difference is the scale. Waymo has performed more road testing than any other firm, with over 4 million km driven without major incident (Forbes, 2017d). It is currently negotiating with Honda to share its autonomous driving technology (Bloomberg, 2016b). Thus, the Google programme, which began more than seven years ago, has become a catalyst behind an extremely competitive race to produce automated vehicles on a commercial basis. Google’s vehicle is the most technologically advanced thus far (Forbes, 2017c).

21

In 2014, Apple launched CarPlay, a platform that integrates essential iPhone functions including calls, messages, maps, music, podcasts and audiobooks directly into a vehicle’s centre console for seamless connectivity. This has been Apple’s most significant move into the auto world and is widely available on most new brands of cars (Toyota being a notable exception) (Forbes, 2017c). 22 For over six years, Google’s autonomous vehicle development has been assigned to Google X’s Special Projects Department. With the creation of Waymo, an independent firm was established within Alphabet Inc., which will remain under the aegis of headquarters in Mountain View, California, but with more room for manoeuvre and decision-making.

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In recent months, Uber has focused on the development of driverless vehicles. In late 2016, in a bid to save development time, it bought the Otto self-driving truck business for some US$ 680 million, and it announced a US$ 300 million partnership with the Chinese-Swedish manufacturer Volvo Group to develop autonomous vehicles. Uber conducted the first tests in Pittsburgh, with a model made by Ford, and continued testing in San Francisco with cars produced by the Volvo Group. At the same time, a truck with Otto’s technology and a cargo of 50,000 beers travelled 200 km without a driver along Colorado highways in October 2016. Thus, an autonomous Uber truck made the first driverless commercial freight journey (Wired, 2016). The rapid evolution of ADAS and connectivity and entertainment platforms has also encouraged technology, hardware and software companies to enter this market. For vehicle manufacturers and traditional suppliers, it is practically impossible to develop their own competitive technologies. In this scenario, major acquisitions are taking place and all types of strategic partnerships are being developed to access frontier technologies. As part of its overall restructuring strategy, Canada’s BlackBerry Limited abandoned the production of smartphones to enter the software development market. In October 2016, BlackBerry Limited and Ford announced a partnership to work on automotive technologies, particularly in the connectivity and autonomy areas (Bloomberg, 2016c). Ford will thus replace its entertainment systems —based on Microsoft’s SYNC technology— with the systems manufactured by QNX, a BlackBerry subsidiary. This firm has a strong presence in the automotive market thanks to QNX’s integrated on-board entertainment systems. Nonetheless, it usually licenses its software to hardware vendors who, in turn, sell products to vehicle manufacturers. Under this agreement, the Canadian firm will deal directly with the final buyer, Ford, and will become a top-tier supplier (Forbes, 2016e). This should help it build deeper relationships within the industry and establish similar agreements with other manufacturers. The largest transaction in the semiconductor industry took place in October 2016, when the leading smartphone chip developer, Qualcomm, based in the United States, paid about US$ 46 billion for Dutch semiconductor maker NXP Semiconductors, which had been created from a division of Philips (Bloomberg, 2016d). In recent years, NXP Semiconductors has specialized in the development of hardware for on-board entertainment systems, autonomous vehicle components and devices for the Internet of Things. This purchase enables Qualcomm to strengthen its area of expertise and expand, from a position of leadership, into new markets with huge potential, such as connected vehicles and autonomous driving. When Intel bought Mobileye, the latter had partnerships with BMW and Intel to produce an autonomous car; with the United States supplier Delphi Automotive, to develop autonomous automobiles; and with the French firm Valeo to advance the merger of front camera and sensor systems. This operation was the largest takeover of a firm exclusively dedicated to autonomous driving, and Intel will try to speed up development of this technology, combining it with a cloud-to-car solution to differentiate itself from NVIDIA Corporation and Qualcomm, which have similar technologies (ZDNet, 2017). In March 2017, Samsung paid about US$ 8 billion for Harman International, a United States firm traditionally associated with high-end audio equipment, which has quickly become the most important and successful supplier in the entertainment systems and related services segment.23 Currently, about 65% of Harman International’s revenue comes from component supply and software development for automakers (Fortune, 2016b). To achieve this position, the firm made a series of strategic acquisitions which enabled it to upgrade its capabilities in the software, mobility, cloud processing and 23

Over 80% of the world’s luxury vehicles (including Audi, BMW, Ferrari, Hyundai, Lexus, Mercedes-Benz, Porsche AG and Toyota) are powered by Harman International automotive technologies.

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cybersecurity areas, all key technologies that made it possible to achieve a position of leadership in the dynamic connected vehicles market.24 With this purchase —the largest by a South Korean company abroad— and unlike Apple and Google, Samsung is not looking to build a platform to manufacture connected and autonomous vehicles, at least in the short term; instead it is focusing on a less risky and possibly more profitable option, namely the hardware. There is also space in the new motor vehicle industry for innovative SMEs.

However, the story does not end here. In recent months, several small firms have appeared —generally emerging enterprises based in Silicon Valley and led by former employees of some of the major technology companies, such as Google, Apple and Uber— which have been working on autonomous driving software and hardware. Their aim is to develop new products, applications or services that can be licensed; and they have met a highly positive response from venture capitalists. The most successful enterprises include:

24



Zoox, which for two or three years has been working to build an autonomous vehicle. At present, it is developing an electric and autonomous prototype for use in a private transport service (ride-hail service). In late 2016, it completed a successful fundraising round of US$ 250 million, bringing its market value to more than US$ 1.5 billion (Financial Review, 2016). This enterprise is particularly interesting as it is progressing, without any known partnerships, in several different areas: vehicle construction, software development for autonomous driving, and the deployment of a ride-hail platform (Business Insider, 2016).



Drive.ai, which has specialized in the development of deep learning software, a category of automatic learning, for autonomous driving. By late 2016 it had raised about US$ 12 million and entered into several partnerships with ride-hail firms (Reuters, 2016a).



NuTonomy, an MIT spin-off enterprise based in Singapore and Massachusetts, which has made remarkable progress in mobile robotics and autonomous driving, challenging Uber, its primary competitor. In May 2016, it received investments of around US$ 16 million from firms and institutions in Singapore to develop an autonomous on-demand transport service. A few months later, it started testing in Singapore with six driverless taxis, carrying passengers under real conditions. During the trial period, users have to pre-register; the journeys are free, with pre-set pick-up and delivery locations; and they must be ordered through an application on a smartphone. NuTonomy engineers also travel in the vehicles, collecting data on the experience and, if necessary, taking control of the car. The firm expects to start offering the service to the general public in 2018 (La Vanguardia, 2016a). In addition to operating in Singapore, NuTonomy is working on other, more embryonic, ventures in Michigan (United States) and the United Kingdom, in collaboration with the British-Indian firm Jaguar Land Rover. In May 2017, NuTonomy entered into an agreement with the PSA Group to incorporate its autonomous driving technology into the new Peugeot 3008 SUV model and test it on the open road in Singapore, starting in September. This partnership would also make it possible to evaluate an on-demand autonomous mobility service in an urban environment, which is included in the PSA Group’s strategic plan (Autonomous Vehicles for All) (PSA Group, 2017).

The firms taken over include the following: the automotive division of the Danish company Bang & Olufsen, supplier of audio products for luxury car manufacturers (US$ 156 million); S1nn GmbH & Co. KG, German developer of information and entertainment systems, connectivity and audio solutions for cars (US$ 50 million); Symphony Teleca, Indian-American provider of global software services (US$ 780 million); and Redbend Software and TowerSec, two Israeli firms specializing in cybersecurity (US$ 170 million and US$ 75 million, respectively).

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Nuro.ai, which seeks to exploit the automatic learning and robotic capabilities of its founders at Google to develop products that allow completely autonomous driving within two to four years (Recode, 2016).

Digital technology firms are not only supplying new products and services to manufacturers, but they are also gaining space in the basic technologies that enable vehicles to function, thereby altering the industry’s traditional value chain. At the same time, with progress in driver-assistance systems, the first regulations started to appear aimed to ensuring the safety of autonomous driving and enable drivers, pedestrians and vehicles to coexist in mutual harmony. These regulatory changes have been announced in the countries of origin of the companies that are spearheading the innovations in question: Germany, the United States and Japan. In the United States, 33 states have started to legislate on this subject, and 13 of them have passed laws on autonomous vehicles. Nevada was the first to authorize the operation of autonomous vehicles in 2011. In late 2015, California —one of the most advanced states in this area— required tests of autonomous vehicles to have a duly authorized person on board, who could take back control and would be held liable in the event of a traffic accident. In early 2017, the Californian authorities relaxed the regulations and allowed testing to be performed without human control (Bloomberg, 2017b). At the same time, Germany has launched a reform of traffic legislation to allow automatic systems to take control of the vehicle, although the driver will retain responsibility in the event of an accident (CleanTechnica, 2017).

2.

Mobility, connectivity and new patterns of consumption

The mobility systems of the future will be very different from those of today. Several of the current technological trends —ranging from energy decentralization to the Internet of Things and artificial intelligence— will converge to drastically change mobility systems.25 The individual traveller will be at the centre of this evolution, so consumers will need to be open to the adoption of new technologies and services (McKinsey & Company, 2016). Two sets of factors that point in this direction are listed below.

25



There are new forms of mobility that are gaining an increasing presence in the market: electric vehicles, shared mobility and autonomous driving. Lower battery costs, increased autonomy, and upgraded charging infrastructure have boosted sales of electric vehicles (Mc Kinsey & Company, 2017). Shared car services, hourly or by-the-minute car rentals, and private transport services already operate in many cities around the world, are available in smartphone applications and are heavily backed by venture capital. Moreover, a large number of vehicle manufacturers, suppliers, technology firms and innovative start-ups are rapidly moving towards autonomous driving.



There are other, equally important, trends in mutually reinforcing areas related to mobility. Between 2016 and 2030, the proportion of the world’s population living in urban areas is forecast to increase from 54.5% to 60%, thereby putting extra pressure on services as demand increases (United Nations, 2016). Against this backdrop, the authorities are starting to attach more importance to issues such as habitability and sustainability. At the same time, the emergence of the

At present, the vast majority of energy systems are centralized; in other words large power plants generate the energy which is then transported to distribution centres and from there to each individual consumer. This system has been useful, but suffers from problems of efficiency, cost and environmental sustainability. To overcome these difficulties, a new paradigm is emerging based on the need to be sustainable, efficient, reliable and have the lowest possible cost. Non-conventional renewable energies make it possible to generate on a small scale, which gives rise to the concept of distributed generation.

Autonomous driving poses new regulatory challenges.

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new technologies is being matched by alternatives such as shared mobility and electric vehicles, which could mitigate the congestion and pollution in large cities. This scenario will favour cleaner transport systems based on electric vehicles, while discouraging the ownership and use of private cars. These measures would optimize shared mobility and expand public transport (McKinsey & Company, 2016). The preferences and interests of potential buyers are changing radically. Consumers’ “loyalty” to individual brands is weakening, and automobiles are increasingly valued as a means of transport. This trend seems to be exacerbated among the inhabitants of large cities in developed countries, where car ownership is starting to lose importance in their preferences. This is reinforced by growing problems of affordability, especially among younger generations. Vehicle ownership is becoming less attractive for millennials, since it is a costly and underused asset that quickly depreciates (BCG, 2016a). This is likely to increase the number of people who would prefer to pay to drive alone only when they need to. These changes in consumption patterns are unlikely to radically change the size of the market, but they will change how much the consumer is willing to pay for a vehicle.26 In recent years, the automotive industry has seen major quality improvements across the board, which have narrowed the gap between mass-consumption and luxury products. This trend, coupled with the increased demands of consumers, has allowed sophisticated components to become standard features of the new models in more economical demand segments. The emergence of automobile transport service platforms has had disruptive effects in sectors with a long history, and has generated fierce opposition from taxi drivers wherever they operate. Founded in 2009 and a pioneer in the sharing economy, Uber has become the most valuable start-up enterprise in the world, with a market capitalization of over US$ 70 billion. The Uber application can be used in more than 60 countries and in 425 cities around the world. The firm’s high valuation is based on its ambitious objectives: to use autonomous vehicles and thus make trips in Uber cheap and convenient, with the ultimate aim of consumers completely renouncing car ownership (The Economist, 2016a). In a short time, many technology companies, including Lyft, Curb, China’s Didi Chuxing and Cabify, have started to emulate Uber’s business model. The manufacturers are starting to adapt to this new reality. Taking advantage of the proliferation of connectivity, many are seeking to diversify and reinvent themselves to evolve from vehicle assemblers to mobility companies (The Economist, 2016b). In recent months, some of the largest manufacturers have turned their attention to ride-hailing services (chauffeur-driven car reservation through a smartphone app) and car sharing:

26



General Motors invested US$ 500 million in Lyft —Uber’s main competitor in the United States, with a market value of US$ 5.5 billion— to develop an ride-hail service with autonomous cars (Bloomberg, 2016c).



Volkswagen announced a US$ 300 million investment in Gett, an Israeli firm that is very popular in Europe, in an agreement that envisages expansion in the United States, where it acquired the private transport service Juno for US$ 250 million (Fortune, 2017d).



Toyota made a small investment in Uber and a strategic investment in United States-based Getaround car sharing enterprise, to develop a mobility services platform and a smart key box that makes it possible to open or close doors and start the engine with a mobile phone.

Shared transport services could reduce automobile demand by about 550,000 units and cause a net revenue loss of US$ 7.4 billion for automakers (BCG, 2016b).

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Daimler AG set up its Moovel subsidiary to address the new challenges of urban mobility, and developed the sophisticated Car2Go car rental service. It also acquired the RideScout taxi booking service in the United States and Germany’s Mytaxi, which later merged with its UK partner, Hailo, to become the European leader in private passenger transport applications. More recently it invested in Uber’s German competitor Blacklane (Bloomberg, 2014, 2016f and 2016g; Forbes, 2016f).



BMW has invested in several companies linked to the mobility business, including: Ridecell, a leading provider of software to promote mobility as a service (MaaS), including automobile services and shared travel (BMW Group, 2016b); JustPark and ZIRX, parking location services (Business Insider, 2015); Moovit, a public transport application and mapping service (BMW Group, 2015); and Zendrive, a firm that uses data and analytics to improve driving (BMW Group, 2014). Since 2011, the German manufacturer has invested in DriveNow, a firm that provides temporary vehicle use services in several European cities and under the name ReachNow in the United States. It recently also invested in the emerging United States firms Scoop and Summon: in the former to develop a platform enabling people living in the same neighbourhood or working nearby to contact each other for car sharing; and in the latter to offer chauffeur-driven car reservation services via a smartphone application, which recently moved from India to San Francisco (Fortune, 2016c).



In some cases, these agreements allow manufacturers to supply vehicles to mobility platforms. Examples are Toyota and General Motors, which have designed a financing mechanism enabling Uber and Lyft drivers to purchase their vehicles.

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To shift the balance from ownership to use, automakers need to change their mode of operation. Thus far, their dominance of the automobile manufacturing business has kept competitors at bay; but they often lack the skills needed to address new service areas that rely on constant interaction with customers and the handling large amounts of information. Thus, the momentum demonstrated by manufacturers in their recent investments in mobility services probably reflects their need to learn how these new business segments work and benefit, as much as possible, in the short run. Enterprises based exclusively on data management and sales services can hit limits, especially given the spread of platforms combining the digital domain with in-house or outsourced manufacturing capabilities. Google is moving ahead in the production of an autonomous vehicle, followed closely by Apple, which is also exploring options in the private transport market following an investment of about US$ 1 billion in Didi Chuxing, the largest Chinese platform (Fortune, 2016d). There are also several start-ups looking for innovative formulas enabling rapid generalization of mobility services (The Economist, 2016b). In the future, more efficient use of public transport, growth of shared cars and the increasing number of journeys made by private transport services will discourage vehicle sales and confront vehicle manufacturers with a more dynamic scenario or even a fall in demand.

3.

A regulatory context for sustainability

Vehicle manufacturers will start to target their innovation effort on areas such as the environment and energy efficiency. Moreover, electromobility and the new materials for light vehicles will become more prominent and generate significant changes in the industry value chain. Nonetheless, these changes will not mean a reduction in cost pressure, as consumers will demand better-quality vehicles with more features; and the authorities will demand safer and more efficient cars. However, given the strong competition, it will be hard, or even impossible, to compensate for these increases by raising vehicle prices.

Electromobility and the new materials will become more prominent and generate significant changes in the automotive value chain.

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Laws, regulations and policies tend to lag behind technological progress, at least at the start of a new phase. In the automotive industry, for example, seatbelts started to appear in vehicles in the late 1940s, but they first became mandatory only 20 years later, under a law passed in Australia in 1970. At the present time, regulations are starting to change in several areas, and standards are being introduced that reflect technological changes, increased awareness and concern for the environment, and the need to advance energy efficiency. Many countries have also implemented emission-limiting standards and have started to deploy various zero-emission mobility models. At the same time, the rapid emergence and consolidation of new technological paradigms makes various instruments available to tackle these challenges (ECLAC, 2016).27 In the last few years, manufacturers and suppliers have been adapting to new standards and have made progress on various aspects of conventional vehicles. Firstly, there have been major improvements in energy efficiency and in cutting emissions from internal combustion engines. Secondly, new materials have been incorporated that reduce vehicle weight and hence the consumption of fossil fuels. If manufacturers fail to comply with the regulations, they may face harsh penalties and a serious deterioration of their image and prestige with consumers. This happened with Volkswagen when, in September 2015, it was found to have installed software to change the results of pollutant emission controls on more than 10 million diesel-powered cars sold between 2009 and 2015 (The Guardian, 2015). In this context, electric vehicles are starting to be seen as one of the most attractive alternatives. Electric propulsion is probably the fastest growing segment in production, despite uncertainty regarding the acceptance of this technology on the world market. Electric vehicles have benefits associated with pollution reduction, energy diversification and climate change mitigation, as well as lower operating costs than their internal-combustion counterpart.28 The most serious obstacles to wider adoption of electric vehicles are the limitations and high cost of autonomy (attributed to energy storage technologies), poor accessibility to recharging infrastructure and its high cost, and lack of awareness of the technology, or confidence in it (IEA, 2016). Technological progress and cost reduction coupled with generous purchase subsidies have boosted electric vehicle sales (see figure II.23). For example, Norway and Germany propose banning the sale of vehicles that use gasoline and diesel engines from 2025 and 2030, respectively. As a result of a massive support and promotion plan that reduces the cost of an electric car by up to 50%, Norway has the world’s largest number of fully electric cars per capita. By 2016, electric vehicles represented nearly 40% of all new passenger vehicles registered in the country (The Guardian, 2017).

27

The search for a new development paradigm through the 2030 Agenda for Sustainable Development and the Sustainable Development Goals, together with the need to address the effects of climate change through the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC), are evidence of the growing awareness of these global problems. 28 Assuming current electricity and fuel taxation, a 100-km trip would cost about one fourth to one-fifth of the cost of using a car powered by a conventional internal combustion engine in Europe, and roughly half in the United States. Over five years, this would generate fuel savings of over US$ 3,000 in Europe, and about US$ 2,000 in the United States (IEA, 2016).

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Figure II.23 Selected countries: national subsidies to purchase an electric vehicle, by type, 2016 (Dollars per vehicle)

20 000

Norway

11 750 16 550

Rep. of Korea

7 200 10 000

China

6 500 8 750

United States

France

4 750 7 100 1 250 6 500 6 250

Netherlands

United Kingdom

Japan

Norway has the largest number of fully electric cars per capita in the world, thanks to a massive support and promotion plan that reduces the cost of an electric vehicle by as much as 50%. In 2016, electric vehicles represented nearly 40% of all new passenger vehicles registered in Norway.

6 200 3 750 5 500 3 000

Battery-driven electric vehicle Plug-in hybrid electric vehicle

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Energy Agency (IEA), Global EV Outlook 2016: Beyond One Million Electric Cars, Paris, May 2016 [online] http://www.iea.org/publications/freepublications/publication/Global_EV_Outlook_2016.pdf.

Electric vehicle sales of have grown rapidly from about 130,000 units in 2012 to some 770,000 units in 2016, representing about 0.85% of the global vehicle market. There are now more than 2 million electric vehicles operating around the world, led by China with about 650,000 units. Between 2014 and 2016, the Chinese electric car market expanded more than sixfold in what was the world’s highest growth rate. In the same period, the number of manufacturers in this segment (with more than 100 units sold) rose from 14 to 21, and the number of models available increased from 29 to 68 (EV Volumes, 2017). These results are based on a plan that requires all manufacturers to ensure that at least 8% of their production consists of electric vehicles by 2018, to attain the goal of about 5 million units in circulation by 2020 (Fortune, 2017f). Second placed is the United States with about 570,000 units, where interest in electric vehicles is expected to continue to grow strongly. This is demonstrated by the spectacular response to the announcement of Tesla’s new Model 3 in April 2016, which will be available in 2017. This vehicle has a base price of US$ 35,000, for which about 400,000 reservations were made with a deposit of US$ 1,000 in the first 20 days following the announcement (Forbes, 2017e). In third place comes Japan, followed by Norway, surprisingly given its size, and then the Netherlands, France and the United Kingdom. The impact of electric vehicles on the population, however, remains barely noticeable in most countries (see figure II.24).

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Figure II.24 Trend in the global stock of electric vehicles,a by selected region and country, 2012-2016 (Thousands of units)

Economic Commission for Latin America and the Caribbean (ECLAC)

2 100 1 750 1 400 1 050 Rest of the world 700

Japan European Unionb Norway

350

United States 0

China 2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Energy Agency (IEA), Global EV Outlook 2016: Beyond One Million Electric Cars, Paris, May 2016 [online] http://www.iea.org/publications/ freepublications/publication/Global_EV_Outlook_2016.pdf. a Includes battery-powered electric vehicles and plug-in hybrid electric vehicles. b Germany, France, Netherlands, the United Kingdom and Sweden.

The rapid fall in the prices of lithium-ion batteries has been one of the key factors driving the sales of electric vehicles. Batteries currently account for one-third of the cost of producing an electric vehicle (Bloomberg, 2016h). Between 2010 and 2016, their average price dropped by about 80%, from US$ 1,000 per kWh to US$ 227 per kWh (McKinsey & Company, 2017). Prices are set to fall further, as the industry scales up and improvements are made in battery chemistry and management systems; and they are forecast to be below US$ 190 per kWh by the end of the decade and under US$ 100 per kWh in 2030 (McKinsey & Company/Bloomberg, 2016). These developments would make electric vehicles competitive with their conventional internal-combustion counterparts by the mid-2020s. These forecasts could be more optimistic for high-use vehicles such as delivery fleets and taxis. The expectation is that 2025 will inaugurate an era of change (see figure II.25). After a slow start, hybrids are forecast to gain momentum after 2020, although they will be seen as a transient technology. A little later, electric vehicles will become the dominant technology in the long run (PwC, 2016h). Long-range electric vehicles are expected to cost about US$ 22,000 by 2040; and 35% of new vehicles worldwide will have a power socket (BNEF, 2016). One of the most serious obstacles noted by consumers is the limited autonomy of electric vehicles. Nonetheless, significant progress has been made recently in this area. Between 2013 and 2017, two of the most popular models —the Nissan Leaf and the Tesla S— extended their range by 75 to 107 miles and by 208 to 249 miles, respectively (McKinsey & Company, 2017). Part of this constraint is starting to be overcome with the accelerated roll-out of electric-vehicle charging infrastructure. Some projections suggest that the number of public and private facilities around the world could increase from about 1 million in 2014 to 12.7 million in 2020 (IHS Markit, 2015). In developed countries, governments and several manufacturers are investing heavily in freight infrastructure. In the United States, for example, as part of the sanctions it received following the emissions scandal, Volkswagen is committed to investing US$ 2 billion over the next 10 years in electric vehicle recharging stations (Forbes, 2017f).

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Figure II.25 European Union, North America and China: share of propulsion systems in vehicle sales, 2014-2030 (Percentages) 100

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Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Centre for Solar Energy and Hydrogen Research Baden-Württemberg (ZSW), “Electromobility”, Stuttgart, 2017 [online] http://www.zsw-bw.de/en/media-centre/data-service.html#c6700.

The Tesla S and Nissan Leaf models were the top-selling electric cars in the world in 2016 (see figure II.26B). These two manufacturers, although starting from different strategies, now seem to be converging. In late 2010, the launch of the Nissan Leaf set out to seduce the mass market and quickly became the best selling electric car with more than 200,000 units sold. In addition, thanks to a sustained R&D effort with Renault, the company upgraded the model’s performance: the 2016 version of the Nissan Leaf incorporated a new battery that increased autonomy by 20% (Nissan, 2016). Tesla, for its part, has successfully targeted the high-end market. Nonetheless, the spectacular response to the launch of the Tesla Model 3, which has become the most desired car in history, could be a turning point in the electric vehicle market, by taking them out of the high-end niche market to speed up their universalization. Taking advantage of strong local market dynamics and generous government incentives, Chinese automaker BYD Auto topped the 2016 global electric vehicle sales ranking, surpassing 100,000 units (see figure II.27A). With three models among the best-selling vehicles in the world and 30% of the electric vehicle market, BYD Auto is the standout market leader in China, outperforming other manufacturers such as BAIC Automotive Group, Zotye, Chery, Zhidou, SAIC Motor Corporation, JAC Motors, Geely, Lifan Group, Dongfeng Motor Corporation and Changan Motors (EV-Sales, 2017). Along the same lines, the Swedish-Chinese manufacturer Volvo became the first large automaker to announce the end of its production with conventional engines. In July 2017, Volvo announced that from 2019 it would only manufacture cars with electric and hybrid engines. Between that year and 2021, the Swedish-Chinese firm will launch five models of electric cars, two of them high-performance (Forbes, 2017g). The most important European companies by volume are Volkswagen and BMW. Both have focused on plug-in hybrid electric vehicles, with small batteries and little autonomy. This type of vehicle, which has evolved from conventional models with an internal combustion engine, has been highly encouraged in some European countries and can be an interesting transition alternative (by offering electric autonomy for the city and a gasoline/diesel backup for longer journeys). Nissan, for its part, has taken the opposite approach: developing a totally electric vehicle from scratch.

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Figure II.26 Electric vehicles: sales by manufacturer, type and model, 2016 (Thousands of units) A. By manufacturer and type

B. By model

BYD

Tesla Modelo S

Tesla

Nissan Leaf EV

Wolkswagen

BYD Tang PHEV

BMW Nissan

Chevroret Volt EREV

BAIC

Mitsubishi Outlander PHEV

Zotye

BMW i3 EV/EREV

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Tesla Modelo X

Mitsubishi

BYD Qin PHEV

Renault Ford

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BYD e6 EV 0

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Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of EV Volumes, “Global plug-in sales for 2016”, 2017 [online] http://www.evvolumes.com/country/total-world-plug-in-vehicle-volumes/.

Tesla’s good results could change the electric vehicle market. With the success of Model 3, orders far exceeded the company’s capacity (76,230 units in 2016), and it announced it would scale up its production to 500,000 units by 2018 (nearly six times the 2016 level). With an R&D intensity more than double that of other manufacturers (see figure II.16B), Tesla is likely to leave the high-priced electric vehicle niche and reinvent itself as a large-volume manufacturer. Recent developments have boosted its market capitalization to over US$ 51 billion, more than General Motors (US$ 50.9 billion) and Ford (US$ 44.8 billion) (Fortune, 2017f). Alongside Tesla, firms such as General Motors and Nissan continue to move forward in improving their electric vehicles, increasing their autonomy and targeting the mass-consumption segment, with vehicles priced in the range of US$ 30,000 and below.

F. An industry between technological upheaval and the redefinition of global leadership The automotive industry is in the midst of a far-reaching transformation, serving as a catalyst and driver of major technological and productive changes, which represents a genuine industrial upheaval. Although vehicle manufacturers have been leading this process for many decades, suppliers of parts, components and accessories have recently become increasingly important in the production chain, powering technological development. In stylized terms, the industry is concentrated in three macroregions: North America, the European Union and Asia. Five countries maintain strong hegemony in terms of production, vehicle manufacturing, supply and technological development: the United States, Germany, Japan, Republic of Korea and China. The first three of these have dominated the industry for decades, but China has been growing rapidly and has now become the world’s largest vehicle producer.

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In this context, fierce competition, consumer pressure and rapid technological progress have favoured the consolidation of manufacturers and suppliers, the emergence of new alliances between firms in the production chain and with enterprises from other industries, and the need to deploy flexible production models that offer consumers a wide range of alternatives. In the production sphere, new platforms are appearing that combine large-scale manufacturing with increasing flexibility. The leading manufacturers are expected to concentrate about 80% of their global production on three to five of these new modular platforms. Manufacturers are thus trapped in an exclusion dynamic, where they require more and better features, with a high innovation and technology content, to maintain their market position. Their concentration in areas of specialization will enhance the importance of suppliers in the chain. This dynamic is forcing firms to increase funding for research, development and innovation. In fact, 5 of the 20 firms that invest the most in R&D worldwide are in the automotive sector. While manufacturers invest an average of around 5% of their sales in R&D, suppliers of parts, accessories and components have an R&D intensity of close to 10%. Supplier firms thus try to satisfy the manufacturers’ demanding requirements in order to hold on to the contracts signed between them. Despite the good results achieved by the industry since the 2008 financial crisis, it now faces new, potentially disruptive challenges that could greatly alter the structure of the sector in the near future. There are at least three major trends that will determine its dynamic in the coming years: convergence with the digital economy, changes in the concept of mobility and in consumption patterns, and regulatory requirements in the fields of safety, the environment and energy efficiency. Faced with these changes, the broader industry market is also set to change significantly. Between 2015 and 2030, while the share of vehicle sales can be expected to fall from 50% to 28%, shared mobility services will grow from 0% to 20%. Traditional suppliers will see their market share decline from 10% to 3%, while suppliers of new technologies, electronics and software will grow theirs from 1% to 10%. The industry is experiencing colossal disruption in which electronics, digitization and software are the key elements. A vehicle today has about 60 microprocessors, four times more than a decade ago. In 2005, electronics and software accounted for about 20% of the total cost of a vehicle; today this figure reaches 35% and is expected to be over 50% by 2030, and as much as 75% in the case of electric vehicles. The incorporation of digital technologies in vehicles allows for rapid progress in connectivity and autonomous driving. About 75% of the new vehicles sold in 2020 are expected to be connected. The rapid spread of these features will help lower their cost and incorporate them into most vehicles, regardless of the sale price. While many of these features are currently limited to high-end models, which use them as a differentiating factor, they will quickly become generalized and extended to mass-market vehicles. In a context of strong competition, the incorporation of new technologies will not necessarily translate into higher prices. Autonomous driving is also spreading rapidly. The great majority of the major manufacturers are announcing new models with a high degree of automation by 2020. Although German and Japanese firms are at the forefront in this area, United States manufacturers also aim to gain a major stake. These advances are attracting digital platforms that have not previously shown interest in the automotive industry. Examples include Apple, Google, Uber, Intel and Samsung, which are becoming involved in different areas, from vehicle manufacture to the development of components and services linked to connectivity and autonomous driving.

The automotive industry is expanding and its frontiers are dissolving, and innovative products and business models are emerging.

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These advances, coupled with other macro trends, such as overpopulation, congestion in large cities and pollution, are changing consumption patterns and the regulatory requirements facing the industry. Firstly, manufacturers see consumer loyalty weakening, as people begin to doubt the urgency of purchasing a vehicle or even the need. Against this backdrop, many firms are expanding the frontiers of the industry and entering new shared mobility and private transport services. Secondly, technological progress (mainly in batteries) and public policies that seek to mitigate the effects of climate change are driving the development of electromobility. Some countries, led by China, Norway and the United States, have introduced incentives that help overcome consumer fears about electric vehicles: low autonomy, high prices, and sparse recharging infrastructure. In short, the automotive industry is experiencing the greatest revolution in its history since the universalization of the Fordist assembly line: the frontiers of the sector are expanding and dissolving; new products and business models are emerging that were unimaginable two decades ago. The convergence between traditional manufacturing and digitization is shifting the structure of the production chain and leaderships within it. Although expectations surrounding the new forms of mobility and the role of the automotive industry are positive, they will be processed in contexts of great economic, technological and organizational uncertainty, both in the business world and in the global economy.

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• 2017

Klier, T. H. and J. M. Rubenstein (2015), “Auto production footprints: Comparing Europe and North America”, Economic Perspective, 4Q/2015, Chicago, Federal Reserve Bank of Chicago [online] http://www.chicagofed.org/publications/economic-perspectives/2015/4q-klier-rubenstein. La Vanguardia (2016a), “Singapur inicia una prueba real con seis taxis eléctricos sin conductor”, 26 August [online] http://www.lavanguardia.com/economia/20160826/404199520644/singapurprueba-taxis-electricos-sin-conductor-nutonomy.html. Mazzucato, M. (2015), The Entrepreneurial State: Debunking Public vs. Private Sector Myths, London, Anthem Press. McKinsey (2014), “What’s driving the connected car”, September [online] http://www.mckinsey. com/industries/automotive-and-assembly/our-insights/whats-driving-the-connected-car. Mc Kinsey & Company (2017), “Electrifying insights: How automakers can drive electrified vehicle sales and profitability”, January [online] http://www.mckinsey.com/industries/automotiveand-assembly/our-insights/electrifying-insights-how-automakers-can-drive-electrified-vehiclesales-and-profitability. (2016), “An integrated perspective on the future of mobility”, October [online] http://www. mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/anintegrated-perspective-on-the-future-of-mobility. McKinsey & Company/Bloomberg (2016), An Integrated Perspective on the Future of Mobility, October [online] http://www.bbhub.io/bnef/sites/4/2016/10/BNEF_McKinsey_The-Futureof-Mobility_11-10-16.pdf. Mc Rumors (2015), “Mercedes-Benz Maker Remains Open to ‘Different Types’ of Collaboration with Apple”, 21 August [online] http://www.macrumors.com/2015/08/21/daimler-mercedesbenz-apple-cooperation/. Nieuwenhuis, P. and P. Wells (2015), The Global Automotive Industry, Chichester, West Sussex, John Wiley & Sons. Nissan (2016), Annual Report 2016, Tokyo [online] http://www.nissan-global.com/EN/DOCUMENT/ PDF/AR/2016/AR16_E_All.pdf. Oliver Wyman (2013), Automotive Manager: Automotive Value-Chain Structure Changes Massively, Munich [online] http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/files/ archive/2013/Oliver_Wyman_Automotive_Manager_I_2013.pdf. Pavlínek, P. and J. Zenka (2016), “Value creation and value capture in the automotive industry: Empirical evidence from Czechia”, Environment and Planning, vol. 48, No. 5 [online] http:// journals.sagepub.com/doi/pdf/10.1177/0308518X15619934. PCWorld (2017), “Taking a ride in Hyundai’s Ioniq autonomous car”, 5 January [online] http://www. pcworld.com/article/3154847/car-tech/taking-a-ride-in-hyundais-ioniq-autonomous-car.html. Pisano, G. and W. Shih (2009), “Restoring American competitiveness”, Harvard Business Review, July-August. PSA (2017), “Initial tests of the Groupe PSA’s autonomous car for “non-expert” motorists”, 28 March [online] http://media.groupe-psa.com/en/press-releases/group/initial-tests-groupepsas-autonomous-car-non-expert-motorists. PSA Group (2017), “Groupe PSA and nuTonomy form strategic partnership to test fully autonomous vehicles in Singapore”, Press Release, 3 May [online] http://media.groupe-psa.com/en/groupepsa-and-nutonomy-form-strategic-partnership-test-fully-autonomous-vehicles-singapore. PwC (2017a), “PwC Deal: Global Automotive M&A. Deal Insights Year-end 2016”, January [online] http://www.pwc.com/gx/en/automotive/publications/assets/auto-deals-insights-2016.pdf. (2017b), “The Global Innovation 1000: The top innovators and spenders” [online] http://www. strategyand.pwc.com/innovation1000. (2016a), Global Industry Trends & China Market Update, December [online] http://www. careers.pwccn.com/webmedia/doc/636178249625813543_global_cn_outlook_t1_dec2016.pdf. (2016b), Autofacts: Trends & Challenges of the Automotive Industry, 16 March [online] http://www. automotivelogistics.media/wp-content/uploads/2016/03/ALEurope16_ChristophStuermer,Pwc_ Session1.pdf. (2016c), Consolidation in the Global Automotive Supply Industry: 2016 Report, November [online] http://www.strategyand.pwc.com/reports/consolidation-global-automotive-supply. (2016d), M&A in the Global Automotive Supply Industry: Study Finds a Bull Market with Room to Grow, January [online] http://www.strategyand.pwc.com/media/file/MA-in-theglobal-automotive-supply-industry.pdf.

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Anexo II.A1 Table II.A1.1 Vehicle production, selected countries and regions, 2000-2016 (Thousands of units)

NAFTAa United States

2000

2005

2006

2007

2008

2010

2011

2012

2013

2014

2015

2016

17 697

16 319

15 882

15 455

12 922

2009 8 761

12 154

13 478

15 801

16 501

17 423

17 955

18 166

12 800

11 947

11 264

10 781

8 672

5 709

7 743

8 662

10 336

11 066

11 661

12 106

12 198

Canada

2 962

2 688

2 572

2 579

2 082

1 490

2 068

2 135

2 463

2 380

2 394

2 283

2 370

Mexico

1 936

1 684

2 046

2 095

2 168

1 561

2 342

2 681

3 002

3 055

3 368

3 565

3 597

2 087

2 990

3 212

3 805

4 020

3 851

4 267

4 391

4 366

4 667

3 861

3 008

2 688

340

320

432

545

597

513

717

829

764

791

617

527

473

Brazil

1 682

2 531

2 611

2 977

3 216

3 183

3 382

3 408

3 403

3 712

3 146

2 429

2 156

Chile

5

7

7

11

9

3

5

0

0

0

0

0

0

Colombia

24

55

71

74

34

25

37

28

71

77

71

78

79

Ecuador

1

25

25

26

29

15

22

24

24

15

6

5

0

Peru

0

0

0

0

0

0

0

0

0

0

0

0

0

14

0

0

0

0

0

0

0

0

0

0

0

0

21

52

66

172

135

112

104

102

104

72

20

18

3

17 142

18 385

18 698

19 725

18 439

15 290

17 079

20 954

16 276

16 318

17 127

18 254

18 809

455

602

855

938

946

983

1 076

1 200

1 179

1 133

1 251

1 247

1 350

France

3 348

3 549

3 169

3 016

2 569

2 048

2 229

2 243

1 968

1 740

1 821

1 972

2 082

Germany

5 527

5 758

5 820

6 213

6 041

5 210

5 906

6 147

5 649

5 718

5 908

6 033

6 063

Italy

1 738

1 038

1 212

1 284

1 024

843

838

790

672

658

698

1 014

1 104

Poland

505

613

715

793

951

879

869

838

655

590

594

661

682

Slovakia

182

218

295

571

576

461

562

640

927

975

971

1 039

1 040

Spain

3 033

2 753

2 777

2 890

2 542

2 170

2 388

2 373

1 979

2 163

2 403

2 733

2 886

United Kingdom

1 814

1 803

1 648

1 750

1 650

1 090

1 393

1 464

1 577

1 598

1 599

1 682

1 817

Other European Union countries

540

2 051

2 207

2 270

2 140

1606

1 818

5 259

1 670

1 743

1 882

1 873

3 602

1 206

1 355

1 508

1 660

1 790

725

1 403

1 990

2 233

2 192

1 887

1 378

1 304

431

879

988

1 099

1 147

870

1 095

1 189

2 233

1 126

1 170

1 359

1 486

18 071

25 833

28 192

30 715

31 256

31 760

40 930

40 576

43 696

45 779

47 405

47 879

51 521

China

2 069

5 708

7 189

8 882

9 345

13 791

18 265

18 419

19 272

22 117

23 732

24 567

28 119

Republic of Korea

South America Argentina

Uruguay Venezuela (Bolivarian Republic of) European Union (EU) (28 countries) Czechia

Russian Federation Turkey Asia-Oceania

3 115

3 699

3 840

4 086

3 807

3 513

4 272

4 657

4 562

4 521

4 525

4 556

4 229

India

801

1 639

2 020

2 254

2 315

2 642

3 557

3 927

4 175

3 898

3 845

4 161

4 489

Iran

278

817

905

997

1 051

1 394

1 599

1 649

1 000

744

1 091

982

1 165

10 141

10 800

11 484

11 596

11 564

7 934

9 629

8 399

9 943

9 630

9 775

9 278

9 205

412

1 123

1 194

1 287

1 394

999

1 645

1 458

2 429

2 457

1 881

1 909

1 944

1 255

2 047

1 560

1 611

1 781

1 487

1 964

2 067

2 316

2 411

2 557

2 425

2 371

Japan Thailand Other Asian countries Africa Global total

329

522

567

545

583

413

515

557

586

626

720

835

902

58 374

66 482

69 258

73 372

70 552

61 843

77 661

79 956

85 474

87 398

89 837

90 844

94 977

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA). North American Free Trade Association.

a

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter II

Table II.A1.2 Vehicle sales, selected countries and regions, 2005-2016 (Thousands of units)

NAFTAa United States

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

20 243

19 899

19 301

16 240

12 859

14 204

15 598

17 527

18 765

19 910

21 175

21 497

17 444

17 049

16 460

13 493

10 601

11 772

13 041

14 786

15 883

16 843

17 846

17 866

Canada

1 630

1 666

1 690

1 674

1 482

1 583

1 620

1 716

1 781

1 890

1 940

1 984

Mexico

1 169

1 184

1 151

1 074

776

848

937

1 025

1 101

1 176

1 389

1 648

3 096

3 458

4 308

4 662

4 638

5 516

5 980

6 144

6 265

5 565

4 514

4 052

403

460

565

612

487

698

883

830

964

614

644

709

Brazil

1 715

1 928

2 463

2 820

3 141

3 515

3 633

3 802

3 767

3 498

2 569

2 050

Chile

200

200

230

253

181

303

356

362

398

354

298

320

Colombia

150

205

235

210

195

285

295

285

287

314

272

247

Ecuador

93

90

92

113

93

132

140

121

114

120

81

64

Peru

23

33

51

93

77

121

150

191

201

187

173

170

Uruguay

15

15

19

25

38

55

55

56

61

57

51

47

175

209

319

200

137

125

121

131

99

24

15

3

18 186

18 516

18 870

17 386

16 227

15 665

15 664

14 358

14 136

14 995

16 454

17 568

South America Argentina

Venezuela (Bolivarian Republic of) European Union (EU) (28 countries) Czechia

176

184

207

215

187

187

195

194

186

216

260

291

France

2 598

2 544

2 629

2 615

2 719

2 709

2 687

2 332

2 207

2 211

2 345

2 478

Germany

3 615

3 772

3 482

3 425

4 049

3 198

3 508

3 394

3 258

3 357

3 540

3 709

Italy

2 495

2 606

2 777

2 422

2 357

2 164

1 943

1 546

1 421

1 493

1 726

2 050

255

280

355

398

322

367

339

330

353

392

432

505

75

84

89

102

93

74

78

78

75

82

90

101

Spain

1 959

1 953

1 939

1 363

1 074

1 114

931

791

823

1 030

1 277

1 347

United Kingdom

2 828

2 734

2 800

2 485

2 223

2 294

2 249

2 334

2 596

2 843

3 061

3 124

Other European Union countries

4184

4358

4591

4360

3203

3559

3733

3360

3217

3372

3722

3964

1 807

2 245

2 898

3 222

1 597

2 107

2 902

3 142

2 999

2 592

1 441

1 404

715

618

595

494

557

761

864

818

893

807

1 011

1 008

Poland Slovakia

Russian Federation Turkey Asia-Oceania

20 409

21 819

23 626

24 284

28 268

35 192

35 405

38 226

40 579

42 557

43 411

46 858

China

5 758

7 216

8 792

9 381

13 645

18 062

18 505

19 306

21 984

23 499

24 662

28 028

Republic of Korea

1 145

1 177

1 279

1 246

1 462

1 511

1 586

1 532

1 544

1 662

1 834

1 823

India

1 440

1 751

1 994

1 983

2 266

3 040

3 288

3 596

3 241

3 177

3 425

3 669

858

971

1 038

1 190

1 320

1 643

1 688

1 044

805

1 288

1 222

1 449

5 852

5 740

5 309

5 082

4 609

4 956

4 210

5 370

5 376

5 563

5 047

4 970

693

675

631

615

549

800

794

1 424

1 331

882

800

769

4 663

4 289

4 583

4 787

4 417

5 179

5 334

5 954

6 299

6 487

6 423

6 150

Iran Japan Thailand Other Asian countries Africa Global total

1 113

1 314

1 322

1 256

1 159

1 251

1 447

1 569

1 654

1 718

1 550

1 314

65 924

68 353

71 563

68 315

65 569

74 972

78 170

82 129

85 606

88 338

89 685

93 856

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA). North American Free Trade Agreement.

a

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Table II.A1.3 Twenty largest vehicle manufacturers: production, sales, market value and employment, 2010-2015 Ranking

Firm

1 2

Toyota Motor Volkswagen Group

3

Hyundai Motor

4 5 6 7

General Motors Ford Motor Nissan Motor Fiat Chrysler Automobiles (FCA) Fiat Chrysler Honda Motor Suzuki Motor Renault PSA Peugeot-Citroën BMW (Bayerische Motoren Werke) SAIC Motors Daimler AG Mazda Motor Changan Motors Mitsubishi Motors Dongfeng Motors BAIC Motor Tata Motors

8 9 10 11 12 13 14 15 16 17 18 19 20

Production Year (thousands of units) Home country established 2010 2015 Japan 1937 8 557 10 084 Germany 1937 7 341 9 872 Republic 1967 5 765 7 988 of Korea United States 1908 8 476 7 486 United States 1903 4 988 6 396 Japan 1933 3 982 5 170 Italy 2014 4 865 Italy 1900 2 410 United States 1925 1 578 Japan 1948 3 643 4 544 Japan 1920 2 893 3 034 France 1898 2 716 3 033 France 1896 3 606 2 982

Sales (billions of dollars)

Market value (billions of dollars)

2010 211 168

2015 236 246

2010 127 82

2015 177 73

Employment (thousands of employees) 2010 2015 321 349 352 610

64

125

22

46



180

134 118 87 72 103 31 47 69

152 150 102 123 118 27 50 61

42 36 13 63 12 11 6

50 54 43 10 51 14 29 12

202 164 169 197 177 52 125 198

215 199 152 238 208 62 120 187

Germany

1916

1 481

2 280

74

102

27

60

94

122

China Germany Japan China Japan China China India

1995 1886 1920 1957 1970 1969 1958 1945

347 1 940 1 308 1 103 1 174 650 616 1 011

2 261 2 135 1 541 1 540 1 219 1 209 1 170 1 009

15 110 26 … 20 10 0 14

102 166 28 … 19 20 13 41

21 45 5 … 8 13 0 8

34 75 10 … 4 10 5 20

4 258 39 … 31 96 … …

93 284 46 … 30 192 126 77

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA); Forbes, “The Global 2000: the world’s biggest public companies” [online] http://www.forbes.com/global2000/ [date of reference: 25 May 2016]; and Fortune, “Global 500” [online] http://beta.fortune.com/global500/ [date of reference: 21 July 2016].

Table II.A1.4 Twenty largest suppliers to the automobile industry: sales, market value and employment, 2010-2015 Ranking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Firm

Home country

Robert Bosch GmbH Denso Corp. Magna International Inc. Continental AG ZF Friedrichshafen AG Hyundai Mobis Aisin Seiki Co. Faurecia Johnson Control Inc. Lear Corp. Valeo SA Delphi Automotive Yazaki Corp. Sumitomo Electric Industries JTEKT Corp. Thyssenkrupp AG Mahle GmbH Yanfeng Automotive Trim Systems Co. BASF SE

Germany Japan Canada Germany Germany Republic of Korea Italy France United States United States France United States Japan Japan Japan Germany Germany China

1886 1949 1957 1881 1915 1977 1949 1997 1885 1917 1923 2011 1941 1911 1935 1999 1920 1944

Sales (billions of dollars) 2010 2015 34 565 44 825 32 850 36 030 23 600 32 134 24 819 31 480 15 748 29 518 14 433 26 262 24 613 25 904 18 220 22 967 16 600 20 071 11 955 18 211 7 952 16 088 13 817 15 165 12 531 14 104 11 228 13 510 8 285 11 670 … 11 395 6 628 11 339 … 11 242

Germany

1865

10 400

Year established

10 613

Market value (billions of dollars) 2010 2015 … … … 37 783 … 16 643 … 49 149 … … … 21 300 … 11 999 … … … 25 599 … 9 146 … 12 202 … 23 851 … … … 11 116 … 5 513 … … … … … …

Employment (number of employees) 2010 2015 … 374 778 … 146 714 … 128 975 … 207 899 … 138 269 … 47 000 … 94 748 … 99 281 … 139 000 … 136 200 … 82 800 … 173 000 … 279 800 … 240 798 … 43 912 … 156 487 … 66 000 … … …



Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Automotive News, “Top suppliers” [online] http://www.autonews.com/assets/ PDF/CA105764617.PDF, 20 June 2016; Automotive News, “Top 100 global suppliers” [online] http://www.autonews.com/assets/PDF/CA74326610.PDF, 13 June 2011; Forbes, “The Global 2000: the world’s biggest public companies” [online] http://www.forbes.com/global2000/ [date of reference: 25 May 2016]; and Fortune, “Global 500” [online] http://beta.fortune.com/global500/ [date of reference: 21 July 2016].

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Chapter II

Table II.A1.5 Exports of automobile products, by geographical origin, 2000-2016 (Billions of dollars) European Union (UE) Belgium Czechia France Germany Italy Spain United Kingdom Other European Union countries North America United States Mexico Canada Japan Republic of Korea China Turkey India Brazil Rest of the world Total

2000

2005

2010

2015

2016

279 25 5 39 92 18 28 26 46 159 67 31 61 88 15 2 2 1 5 19 568

489 40 13 63 172 28 43 38 92 188 86 35 67 123 38 10 9 3 12 43 915

542 35 24 51 201 30 45 39 116 205 100 56 50 150 54 28 14 8 13 72 1 086

650 40 33 47 243 36 53 52 145 288 130 97 62 137 71 49 17 11 10 90 1 324

637 44 36 49 244 38 57 54 116 289 128 96 66 145 65 48 19 13 11 50 1 278

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

Table II.A1.6 Imports of automobile products, by geographical destination, 2000-2016 (Billions of dollars) European Union Belgium Czechia Germany France Italy Spain United Kingdom Other European Union countries North America United States Mexico Canada Japan Republic of Korea China Turkey India Brazil Rest of the world Total

2000

2005

2010

2015

2016

246 23 3 42 30 25 26 39 58 236 170 20 46 10 2 4 6 0 4 68 576

425 35 7 76 51 43 46 64 104 288 205 25 58 13 4 14 12 1 5 142 904

433 41 11 84 55 40 32 60 111 279 190 29 60 14 8 53 15 4 18 246 1 069

499 43 16 104 53 36 41 78 129 406 293 45 68 19 15 73 20 5 14 254 1 306

492 47 18 111 58 42 43 75 97 409 295 44 70 21 15 75 20 5 11 170 1 220

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

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Table II.A1.7 Vehicle manufacturers: main mergers and acquisitions, 2000-2017 (Billions of dollars and percentages) Date 10/07/2009 18/09/1998 06/06/2014 01/08/2012 29/06/2011 03/08/2007 07/12/2009 22/07/2008 21/01/2014 22/03/2013 27/07/2016 30/06/2000 15/01/2010 26/08/2010

Buying company

Country

Company acquired

Country

United States Germany Germany Germany Germany United States Germany Germany Italy Germany Japan United States Germany China

General Motors Chrysler Corp. Scania AB Porsche AG MAN SE Chrysler Holding LLC Porsche AG Scania AB FCA US LLC (Chrysler Group) MAN SE Daihatsu Motor Jaguar Land Rover Suzuki Motor Corp. Denway Motors Ltd.

United States United States Sweden Germany Germany United States Germany Sweden United States Germany Japan United Kingdom Japan China

12/12/2012 06/03/2017

Vehicles Acq. Holding LLC Daimler-Benz AG Volkswagen AG Volkswagen AG Volkswagen AG Cerberus Capital Management LP Volkswagen AG Volkswagen AG Fiat S.p.A. Volkswagen AG Toyota Motor Ford Motor Co. Volkswagen AG Guangzhou Automobile Group Co. Ltd. Renault-Nissan PSA Peugeot-Citröen

France, Japan France

02/06/2008

Tata Motors Ltd.

India

30/06/2014 20/10/2016 23/03/2007 10/06/2009

Renault-Nissan Nissan Motor Co. Ltd. Volvo AB New CarCo Acquisition LLC

18/10/2000 02/08/2010 01/03/2002 28/03/2002 02/01/2001 17/03/2009

Daimler AG Zhejiang Geely Holding Group Co. Ltd. Renault SA Nissan Motor Co. Ltd. Volvo AB MAN SE

France, Japan Japan Sweden Italy, Canada, Estados Unidos Germany China

Avtovaz PJSC Opel-Vauxhall (subsidiaries of GM) Jaguar Land Rover (subsidiary of Ford) Avtovaz PJSC Mitsubishi Motors Corp. Nissan Diesel Motor FCA US LLC

27/03/2000 28/03/2007 03/06/2011 17/10/2002 29/09/2006

Volkswagen AG Porsche Automobil Holding SE Fiat S.p.A. General Motors Fiat S.p.A.

Germany Germany Italy United States Italy

19/07/2012

Germany

09/04/2008 05/01/2015

Volkswagen AG (Automobili Lamborghini S.p.A.) Renault SA Volvo AB

19/11/2013 18/06/2014 29/04/2014

Daimler AG Nissan-Renault Dongfeng Motor Corp.

Germany Japan, France China

France Japan Sweden Germany

France Sweden

Percentage acquired 100 100 37 50 25 80 50

Amount

41 30 49 100 20 100

46 800 40 466 9 152 8 730 7 418 7 400 5 568 4 370 4 350 3 694 3 098 2 913 2 532 2 387

Russian Federation United States, Germany, United Kingdom United States

42 100

2 318 2 330

100

2 300

Russian Federation Japan Japan United States

33 34 76 100

2 185 2 179 2 037 2 000

Mitsubishi Motors Corp. Volvo Personvagnar AB

Japan Sweden

34 100

1 895 1 800

Nissan Motor Co Ltd. Renault SA Renault Véhicles Industriels Volkswagen truck and bus manufacturing unit in Brazil Scania AB Volkswagen AG FCA US LLC Daewoo Motors Ferrari S.p.A. Esercizio Fabbriche Automobili e Corse Ducati Motor Holding

Japan France France Germany, Brazil

12 16 100 100

1 769 1 727 1 723 1 612

Sweden Germany United States Republic of Korea Italy

19 3 16 100 29

1 597 1 390 1 268 1 170 1 133

Italy

100

1 046

Avtovaz PJSC Dongfeng Commercial Vehicles Co. BAIC Motor OAO Avtovaz PSA Peugeot-Citröen

Russian Federation China

25 45

1 000 902

China Russian Federation France

12 75 14

873 750 720

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Bloomberg.

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Chapter II

Table II.A1.8 Suppliers to the automobile industry: main mergers and acquisitions, 2000-2017 (Billions of dollars and percentages) Amount

Netherlands United States

Percentage acquired 100 100

Germany Israel United States Germany United States Italy

100 100 100 100 100 …

15 634 14 132 12 857 8 132 8 000 7 104

United States

100

5 575

United States United States United States

100 100 100

5 319 4 725 3 230

Calsonic Kansei Corp. Nokia maps and navigation service York International Corp. Federal-Mogul Holdings LLC NXP Semiconductors NV

Japan Finland United States United States Netherlands

100 100 100 100 100

3 112 3 100 3 082 2 953 2 750

Germany United Kingdom United States Japan United States Germany United Kingdom Germany United States United States

100 100 100 100 100 100 100 … 100

2 665 2 344 2 040 1 952 1 910 1 894 1 785 1 629 1 600 1 475 1 458 1 317 1 251

… 100 100

1 199 1 196 1 179

Germany United States Belgium China Japan Japan

SPX Service Solutions Rhiag-Inter Auto Parts S.p.A. Asahi TEC Corp. Punch Powertrain SA Metaldyne Corp. Kwik-Fit Group Ltd.

United Kingdom United States China, United States United Kingdom United States United States, India United States Italy Japan Belgium United States United Kingdom

100 100 50

United States United States Japan

Getrag GmbH TI Automotive Ltd. General Parts International Inc. Toyoda Machine Works Ltd. Veyance Technologies Inc. MTU Friedrichshafen GmbH HellermannTyton Group PLC Buderus AG Air Distribution Technologies Inc. Goodyear Engineered Products International Inc. Kwik-Fit Group Ltd. Hayes Lemmerz International Yanfeng Visteon Automotive Trim Systems Co. Ltd. Motor vehicle division of FCI Group Old Remco Holdings LLC Alliance Tire Group BV

100 100 100 100 100 100

1 150 1 141 1 140 1 119 1 113 1 036

Date

Buying company

Country

Company acquired

Country

27/10/2016 25/01/2016

Qualcomm Johnson Controls Inc.

United States United States

25/07/2007 13/03/2017 15/05/2015 08/01/2009 14/11/2016 06/11/2015

Continental AG Intel Corp. ZF Friedrichshafen AG Schaeffler GmbH & Co. KG Samsung China National Chemical Corp. (ChemChina) Carlyle Group LP y Onex Corp.a Tesla Inc. Blackstone Group LPa American Axle & Manufacturing Holdings Inc. KKR & Co LPa BMW, Daimler AG y Audi Johnson Controls Inc. Icahn Enterprises LPa Beijing Jianguang Asset Management Co. (JAC)a Magna International Inc. Bain Capital LLCa Advance Auto Parts Inc. JTEKT Corp. Continental AG EQT Partners ABa Delphi Automotive PLC Robert Bosch GmbH Johnson Controls Inc. Carlyle Group LPa

Germany United States Germany Germany Republic of Korea China

NXP Semiconductors Johnson Controls International plc (JCI) (Adient) Siemens VDO Automotive AG Mobileye NV TRW Automotive Holdings Corp. Continental AG Harman International Industries Pirelli & C. S.p.A.

United States, Canada United States United States United States

Allison Transmission Holdings Inc. (subsidiary of GM) SolarCity Corp. TRW Automotive Holdings Corp. Metaldyne Performance Group Inc.

United States Germany United States United States China Canada United States United States Japan Germany Sweden United States Germany United States United States France Brazil China

26/10/2012 11/11/2015 01/07/2016

PAI Partnersa Iochpe Maxion S.A. Huayu Automotive Systems Co. Ltd. Delphi Automotive PLC BorgWarner Inc. Yokohama Rubber Co. Ltd.

04/12/2012 21/03/2016 25/11/2008 31/08/2016 11/01/2007 04/07/2011

Robert Bosch GmbH LKQ Corp. BHF Kleinwort Benson Group Ningbo Yinyi Group Co. Ltd. Asahi TEC Corp. ITOCHU Corp.

07/08/2007 22/11/2016 03/03/2003 03/11/2016 22/11/2016 03/08/2015 12/12/2005 03/07/2008 13/06/2016 01/04/2016 30/06/2014 02/01/2014 27/12/2005 30/01/2015 31/03/2006 21/12/2015 18/07/2003 16/06/2014 01/08/2007 17/08/2005 01/02/2012 19/12/2013

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Bloomberg. Investment fund.

a

47 000 28 667

151

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Economic Commission for Latin America and the Caribbean (ECLAC)

Table II.A1.9 Largest vehicle manufacturers: main subsidiaries and brands and type of vehicles produced, 2017 Parent company

Subsidiaries/brands

Segment

General Motors

Chevrolet GMC Cadillac Buick Holden Ford Motor Lincoln Volkswagen Audi Porsche AG Lamborghini Bugatti Automobiles S.A.S. MAN SE (Maschinenfabrik Augsburg-Nürnberg SE) Navistar Bentley Motors Scania AB SEAT, S.A. Škoda Auto Ducati Motor Holding S.p.A. Mercedes-Benz Smart GmbH EQ BMW Mini Rolls Royce Motor Cars Fiat Alfa Romeo Automobiles S.p.A. Ferrari S.p.A. Lancia Automobiles S.p.A. Maseratti S.p.A. Chrysler Dodge Jeep Ram Trucks Citroën SA Peugeot DS Automobiles Opel Vauxhall Renault Nissan Renault Samsung Motors Co., Ltd. Automobile Dacia S.A. AvtoVAZ Toyota Motor Daihatsu Motor Co., Ltd. Lexus Nissan Datsun Infiniti Renault SA Mitsubishi Motors Honda Acura Hyundai Motor KIA Motors Geely Volvo Cars The London Taxi Company Tata Motors Jaguar Cars Land Rover Tata Daewoo Commercial Vehicles

❸❹❺❼❽❾❿⓬ ❿ ❹❺❻❾ ❷❸❹❺❾ ❺ ❷❸❹❺❼❽❾❿⓬ ❻ ❶❷❸❹❺❻❼❽❾❿⓬ ❷❸❹❺❻❼❾⓬ ❻❼❾ ❼ ❼

Ford Motor Co. Volkswagen AG Group

Daimler AG BMW Group Fiat Chrysler Automobiles (FCA)

PSA Peugeot Citroën

Renault

Toyota Group Nissan

Honda Motor Hyundai Motor Company Geely Automobile Tata Motors

Year established 1911 1911 1902 1903 1986 1903 1917 1937 1932 1931 1948 1909

Home country United States United States United States United States Australia United States United States Germany Germany Germany Italy Italy



1758

Germany

⓫ ❻❼ ⓫ ❷❸❽❾ ❷❸❺❾ ⓭ ❸❹❺❻❼❽❾⓬ ❶⓬ ⓬ ❸❹❺❻❼❽❾⓬ ❷ ❻ ❶❷❸❼❽❿⓬ ❷❸❹❼❾ ❼ ❷❺❽ ❺❻❼❾ ❹❺❽ ❹❿ ❾ ❿ ❶❷❸❹❽❾ ❶❷❸❹❽❾ ❸❹ ❶❷❸❹❽ ❷❸❹❺ ❶❷❸❽❾❿ ❷❸❼❽❾❿⓬ ❷❸❹❾ ❷❸❽❾ ❷❸❹❾ ❶❷❸❹❺❼❽❾❿⓬ ❾ ❸❹❺❻❼❾⓬ ❷❸❼❽❾❿⓬ ❷❸ ❸❹❺❾ ❶❷❸❽❾❿ ❶❷❸❾❿⓬ ❷❸❼❽❾⓬ ❹❺ ❶❷❸❹❺❻❼❽❾⓬ ❶❷❸❹❽❾⓬ ❶❷❸⓬ ❸❹❺❼❾ ❺ ❸ ❹❺❻❼❾ ❾ ⓫

1902 1919 1911 1950 1895 1926 1926 1994 2016 1916 1959 1906 1899 1910 1947 1906 1914 1925 1914 1941 2009 1919 1810 2009 1862 1857 1899 1933 1994 1966 1966 1937 1907 1989 1933 1933 1989 1899 1970 1948 1986 1967 1944 1986 1927 1899 1945 1922 1947 2002

United States United Kingdom Sweden Spain Czechia Italy Germany Germany Germany Germany United Kingdom United Kingdom Italy Italy Italy Italy Italy United States United States United States United States France France France Germany United Kingdom France Japan Republic of Korea Romania Russian Federation Japan Japan Japan Japan Japan Japan France Japan Japan Japan Republic of Korea Republic of Korea China Sweden United Kingdom India United Kingdom United Kingdom Republic of Korea

Share (percentages) 100 100 100 100 100 100 100 100 100 100 100 71 17 100 91 100 100 100 100 100 100 100 100 100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 100 44 80 100 67 100 100 100 100 100 100 15 34 100 100 100 100 100 100 100 100 100 100 100

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the respective firms. Note: ❶ city cars;❷ small cars;❸ medium-sized cars; ❹ large cars; ❺ executive cars; ❻ luxury cars; ❼ sports cars; ❽ multipurpose vehicles; ❾ light commercial vehicles, such as crossover utility vehicles (CUVs) and sport utility vehicles (SUVs); ❿ Pick-up trucks; ⓫ heavy commercial vehicles (trucks, buses); ⓬ hybrid and electric vehicles; ⓭ motorcycles.

Foreign Direct Investment in Latin America and the Caribbean

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III CHAPTER

The automotive industry in Mexico: a success story under pressure Introduction: building a success story A. The growing importance of Mexico’s motor vehicle industry B. A new business model: high-end vehicles for the global market C. Strengthening the network of suppliers D. Mexico reaches record levels of production, exports and domestic sales, but faces capacity-building limitations E. Caught between the technological revolution and policy changes in the United States Bibliography

Chapter III

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Introduction: building a success story

III

Chapter III

In its long history, the Mexican motor vehicle industry has gone through periods of both boom and rapid growth and of deep crises that forced a reassessment of the goals and strategies of public policy and private investment. Merely a decade after its solid performance in the 1960s, the sector was seen to portray everything that was wrong with Mexico’s development. In particular, it was considered one of the main culprits of the manufacturing sector’s trade deficit and an example of a truncated form of industrialization, characterized by the assembly of end products with no carry-over to intermediate inputs or capital goods, the true bearers of technological progress. In some cases the industry was deemed an example of Latin America’s “showcase modernization” (Fajnzylber, 1983). At the heart of the problem was a proliferation of different models which led to a fragmented production structure that prevented the industry from achieving a scale that could lead to reasonable levels of profitability without protectionist measures. During the crisis of the 1980s and as a result of the redefinition of the automotive strategy —reducing and later eliminating quantitative goals for domestic content— the industry began a process of expansion that was later boosted by the North American Free Trade Agreement (NAFTA). Scepticism surrounding the industry had been based on its low inclusion of national components and on the fact that it was considered simply as a maquila operation. However, since the international financial crisis of 2008, the Mexican motor vehicle industry has experienced a rapid transformation: from a low-cost platform for mass-market vehicle assembly to an integrated production chain that is more diversified in terms of products and technological sophistication. The industry now contributes over 3% of the country’s GDP and 18% of its manufacturing output. It runs a yearly trade surplus of US$ 52 billion, accounted for over US$ 51.2 billion in cumulative foreign direct investment (FDI) inflows between 1999 and 2016 (11% of the total) and is a direct employer of 900,000 workers (ProMéxico, 2016). Furthermore, 80% of Mexico’s motor vehicle production is exported, mainly (86%) to the other two NAFTA member countries, making it the seventh largest producer and fourth largest exporter in the world. The purpose of this chapter is to analyse the industry’s current situation, highlighting its strengths and weaknesses, especially in the context of two large sets of tensions: the first derived from the technological revolution (covered in chapter II of this publication) and the second from the changes to the political landscape of the United States, especially with regard to NAFTA in a context of post-globalization pressures.

A. The growing importance of Mexico’s motor vehicle industry In the mid 1980s Mexico was a marginal player in North America’s automotive industry, producing less than 3% of all vehicles. However, steps towards trade liberalization in 1985, the passage of NAFTA in 1994 and the introduction of sectoral development policies have paved the way for billions of dollars from the world’s largest carmakers and suppliers to be channelled to the Mexican motor vehicle industry, which has more than doubled its presence in the region (see figure III.1).

Equi volorio mos ma peliqui omnieni tassim re excearum et rero modis expelescimus eaquide et eos si cus dolupitatus de odis.

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Figure III.1 North America: vehicle production by country, 1990-2016 (Units and percentages) Every year since 2008, Mexican production has outstripped that of Canada

Adoption of NAFTA a in 1994

The international financial crisis had a major impact on the United States automotive industry

12.2 million 9.8 million

3.6 million 1.9 million

2.4 million

821 000 1990

1992

1994

1996

1998

2000

Mexico

2002

2004

2006

Canada

2008

2010

2012

2014

2016

United States

6.5

19.8

15.5

13.0

77.9

1990

67.1

1992

1994

1996

1998 Mexico

2000

2002

2004

Canada

2006

2008

2010

2012

2014

The trade liberalization of 1985, the adoption of NAFTA in 1994 and sectoral development policies allowed the Mexican automotive industry to triple its share of North American output between 1990 and 2016. Meanwhile, the United States automotive industry’s share fell from 78% to 67% over the same period.

2016

United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA). a North American Free Trade Agreement.

The Mexican motor vehicle industry has exhibited healthy growth in recent decades, but its marked exporting bias means it remains highly dependent on the economic performance of the United States. Between 1990 and 2016, especially after the adoption of NAFTA, the percentage of vehicles manufactured in Mexico and earmarked for export jumped from 34% to 80% (see figure III.2). Mexico’s motor vehicle industry has recorded solid results whenever its northern neighbour’s economy has been in ascendancy, while the sector has been negatively affected at times of recession in the United States. The global financial crisis of 2008 was particularly harsh on both the economy of the United States and its automotive industry, which in turn had severe consequences for

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Chapter III

Mexico’s motor vehicle sector. Mexican production fell by almost 30% between 2008 and 2009 before later recovering —along with its exports and domestic sales— at an annual average rate of 14%, with a peak of close to an historical 3.5 million units in 2016 (see figure III.2). Thus, all three North American countries have recorded seven years of uninterrupted growth in sales and production, with no apparent signs of abating. This in turn has boosted the sustained expansion of installed production capacity in the United States and in Mexico to meet future demand (PwC, 2016). Figure III.2 Mexico: production, exports, total domestic sales and vehicle imports, 1988-2006 (Export ratio and millions of units) 4.0

90.0

3.5

78.8

3.0

67.5

2.5

56.3

2.0

45.0

1.5

33.8

1.0

22.5

0.5

11.3

0

0 1988

1992

1996

2000

2004

2008

2012

Export ratio (left scale) Production Exports Domestic sales Imports

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Mexican Automotive Industry Association (AMIA).

In 2016, aggregate production by Canada, Mexico and the United States reached 18.2 million vehicles. While the United States and Canada have seen their share of production within the bloc drop in recent years, Mexico’s has increased notably; between 2005 and 2016, the United States saw its share of production within NAFTA shrink from 73.2% to 67.1%, while Mexico’s increased from 10.3% to 19.8%. In every year since 2008, Mexico’s production has been higher than Canada’s (see figure III.1). In addition, Mexico has captured 9 of the last 11 new assembly plants announced for the continent since 2011, and it is expected to significantly increase light vehicle production to close to 5 million units by 2020 (CAR, 2016). North America’s production base is geared towards satisfying the subregion’s demand, mainly from the United States, with a strong emphasis on light commercial vehicles such as crossover utility vehicles (CUVs), sport utility vehicles (SUVs) and pickup trucks. In 2016, light commercial vehicles accounted for two thirds of production and sales in Canada and the United States, and close to two fifths in Mexico (see figure III.3B). This specialization of production stands in contrast to that of the world’s other main manufacturing regions; in North America, light commercial vehicles represent 61% of production, while in the European Union, Japan, the Republic of Korea and China, close to 90% of production is focused on passenger vehicles (see figure III.3A). This consumption pattern has meant that North America accounts for close to 60% of global light commercial vehicle production, a trend that, barring any significant fuel price hikes, can be expected to continue. However, environmental pressures and demands for greater energy efficiency could accelerate technological innovation in the form of new light materials, smaller engine sizes, hybrid solutions and increased use of electro-propulsion technologies.

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Figure III.3 Specialization of production by selected regions and countries, by type of vehicle, 2000-2016 (Percentages)

United States

Mexico 4 29

66

2000

4

41

55

2016

European Union 3 11

1 10

3

54

43

2000

Canada

46

66

66

52

2016

12

5 8

The North American productive base is geared towards internal demand in the subregion’s market, chiefly that of the United States, where there is a strong preference for light commercial vehicles such as crossover utility vehicles (CUVs), sport utility vehicles (SUVs) and pickup trucks.

34

32

2000

Japan and Rep. of Korea 5

1

2

2

2016

China 4

7 6

In the European Union, Japan, the Republic of Korea and China, passenger vehicles account for close to 90% of production.

66

86

89

83

87

87

29

2000

2016

2000

Passenger vehicles

2016

2000

Light commercial vehicles

2016

Heavy vehicles

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

Today, light vehicles represent 96% of Mexican production (55.4% passenger vehicles and 40.7% light commercial vehicles), while heavy vehicles account for 4% of production (trucks and buses). This specialization is a result of consumption patterns in North America, albeit with greater emphasis on passenger vehicles (see figure III.3). Despite the small proportion of heavy vehicles in Mexico’s total production, the country’s share of this category within NAFTA increased from 16% in 2000 to 33% in 2016.

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New requirements for emissions and energy efficiency have increased the costs of both production and research and development (R&D), which has led manufacturers to seek cost savings in other areas. One strategy has been for automobile companies to move operations from their industrialized economies of origin to developing countries, a process that has enhanced Mexico’s importance —and that of other emerging economies close to large markets— as a destination for productive investments, focused mainly on vehicle assembly. In addition to geographical proximity, a broad network of free trade agreements, active sectoral policies and a favourable attitude towards foreign investment, labour costs have become a key determinant in the relocation of the auto industry’s production facilities. The current average wage for auto plant workers in Mexico stands at US$ 2.38 per hour, in comparison to approximately US$ 24 per hour earned by workers in the United States (see figure III.4) (Welch and Cattan, 2017). Hence, manufacturing in Mexico instead of the United States generates labour cost savings of between US$ 600 and US$ 700 per vehicle, which represents close to half the cost savings made when producing vehicles in Mexico to be sold in the United States (CAR, 2017a).

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Figure III.4 United States and Mexico: average hourly wage for workers and unsupervised employees in the automotive industry, 2007-2017 (Dollars per hour)

35 30 25 20 15 10 5 0 2007

2008

2009

Vehicle manufacturers in the United States

2010

2011

2012

Suppliers in the United States

2013

2014

Vehicle manufacturers in Mexico

2015

2016

2017

Suppliers in Mexico

24.2

2.4 Mexico

United States

Manufacturing in Mexico instead of the United States generates labour cost savings of between US$ 600 and US$ 700 per vehicle.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from United States Department of Labor, Bureau of Labor Statistics, and National Institute of Statistics and Geography (INEGI) of Mexico.

Mexico has become the main destination for foreign investment in new North American assembly plants and an increasingly important destination for the deployment of a new network of suppliers in the bloc (see figure III.5A). In recent years, and especially after 2010, a large number of international automakers have closed some of their domestic production lines in order to establish a manufacturing base in Mexico. Companies from the United States invested heavily in Mexico, and while German and Japanese companies prioritized investments in the United States, they have gradually been increasing their presence in Mexico (see figures II.5B and II.6).

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Figure III.5 North America: cross-border investments in the automotive industry, 2003-2016 (Billions of dollars) A. Manufacturers and suppliers, by investment destination

B. Manufacturers and suppliers, by country of origin and investment destination Country of destination Canada Mexico United States Canada Mexico United States Canada Mexico United States Canada Mexico United States Canada Mexico United States

Country of origin

30 25 20 15

Others

10

Japan

35

Rep. of Korea

40

Germany

United States

45

5 0

Canada

Mexico

0

United States Carmakers

5

10

15

20

25

30

Suppliers

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

Thus, a sizeable part of United States’ smaller share of NAFTA production is attributable to new installed capacity in Mexico, which has replaced the expansion of capacity in the United States (or the transfer of auto manufacturing to more distant countries). That said, the United States has yet to transfer its existing production capacity to Mexico on a mass scale; in 2016, the country still represented 67% of NAFTA production (see figure III.1B), but it has been missing out on incremental growth and on investments from automakers and suppliers that are choosing to locate new facilities in Mexico (see figures III.6 and III.7) (CAR, 2016). Figure III.6 Mexico: cross-border investments announced by automakers and suppliers, by country of origin, 2003-2016 (Billions of dollars) 20

15

10

5 Suppliers Carmakers

United States

Germany

Japan

Rep. of Korea

2010-2016

2003-2009

2010-2016

2003-2009

2010-2016

2003-2009

2010-2016

2003-2009

2010-2016

0 2003-2009

160

Others

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets.

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Figure III.7 North America: vehicle production, by company and country of manufacture, 2000-2015 (Thousands of units and percentages)

Mexico doubled its share of the regional production of the largest United States producers 6 000

100

5 000

84

83

4 000

67

3 000

50 46

2 000

33

20

18

1 000

17

14

11 5

General Motors

Ford

Canada

Fiat Chrysler Automobiles (FCA)

United States

Toyota

Mexico

Honda

Nissan

Percentage of Mexico (right scale)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

This trend should become more pronounced as plants that are currently under construction come on line. For the past 15 years, firms from the United States (General Motors, Ford and Fiat-Chrysler Automobiles (FCA)) have seen their production drop sharply, a trend that has only started changing quite recently. In that context, regional production by major United States automakers in Mexico doubled, although not all firms followed the same strategy (see figure III.7). While General Motors and FCA focused on light commercial vehicles, Ford emphasized passenger vehicles (see figure III.8) (Detroit Free Press, 2016). Changes and adjustments to capacity have been ongoing; between 2016 and 2020, production numbers in the United States and Canada are expected to decline by 430,000 and 135,000 units respectively, while output volume in Mexico is set to grow by some 850,000 vehicles, 9% of total NAFTA production (CAR, 2016).

2015

2010

2005

2000

2015

2010

2005

2000

2015

2010

2005

2000

2015

2010

2005

2000

2015

2010

2005

2000

2015

2010

2005

2000

2015

2010

2005

0 2000

0

Volkswagen

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Figure III.8 North America: General Motors, Ford and Fiat-Chrysler vehicle production, by country and type of vehicle, 2000-2014 (Thousands of units and percentages) A. Passenger vehicles

B. Light commercial vehicles

3 000

60

3 000

30

2 500

50

2 500

25

2 000

20

1 500

15

1 000

10

40

2 000

30

1 500

20

1 000

10

Fiat Chrysler Automobiles (FCA)

Ford Canada

General Motors

United States

Mexico

2014

2010

2005

2000

2014

2010

2005

2000

2014

2010

2005

2000

2014

2010

2014

2000

General Motors

2005

0

2000

0

2010

-10

2005

0

2000

5

2014

500

2010

0 2005

500

Fiat Chrysler Automobiles (FCA)

Ford

Percentage of Mexico (right scale)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from International Organization of Motor Vehicle Manufacturers (OICA).

With the exception of Nissan, Japanese companies have been more conservative insofar as moving production to Mexico. In the 1980s Japanese carmakers invested heavily and began manufacturing vehicles in the United States in order to overcome import barriers. However, in similar vein to their United States counterparts, Japanese companies have gradually started to lean towards Mexico when expanding their production capacity to serve the North American market, especially Nissan and Honda (see figure III.7).

Canada

Mexico

United States Others

United States

Canada Mexico

Mexico

United States

Canada

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

2016

2010

2005

2000

1995

2016

2010

2005

1995

2000

2016

2010

1995

0

2000

2016

2010

2005

2000

1995

2016

2010

2005

2000

1995

2016

100 90 80 70 60 50 40 30 20 10 2010

100 90 80 70 60 50 40 30 20 10 0

2005

B. Imports

2000

A. Exports

2005

Figure III.9 North America: exports and imports of automotive products, by geographical destination, 1995-2016 (Percentages)

1995

162

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Trade flows of automotive products in North America show strong intraregional biases, which have been determined by the intra-industry relationships established in the regional production chain dominated by the major automakers and further strengthened by NAFTA: between 80% and 90% of United States automotive trade with its North American partners takes place at the intra-industry level (Wilson, 2011), and automakers and suppliers are highly dependent on inputs produced within the bloc itself (see figure III.9).1 After the 2008 crisis, intraregional trade picked up significantly, with the United States acting as the bloc’s main exporter and importer. As the United States’ trade deficit deepened and Canada’s foreign trade balance turned negative, Mexico’s exports recorded solid growth, overtaking Canada in 2009 and expanding the country’s trade surplus in automotive products (see figure III.10). Figure III.10 North America: exports and imports of automotive products, and trade balance, 1990-2016 (Billions of dollars)

A. Exports 140 120 100 80 60 40 20 0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

B. Imports 300 250 200 150 100 50 0 1990

United States

1

Canada

Mexico

In 2016, 78% of North American exports of automotive products were shipped to NAFTA member countries, while 55% of these imported goods came from within the bloc. For the same year, 94% of Canadian exports and 84% of Mexican exports of automotive products were shipped to the United States, which in turn was the source of 67% and 53% of Canadian and Mexican imports in this sector, respectively. Also, 60% of exports from the United States were shipped to México (20%) and Canada (40%), which in turn were the countries of origin of 48% of automotive products imported by the United States.

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Figure III.10 (concluded)

Economic Commission for Latin America and the Caribbean (ECLAC)

C. Trade balance 75 50 25 0 -25 -50 -75 -100 -125 -150 -175

1990

1992

1994

1996

1998

2000

United States

2002

2004 Canada

2006

2008

2010

2012

2014

2016

Mexico

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

Close to 50% of exports and imports of automotive products in North America are related to light vehicles (i.e. passenger vehicles and light commercial vehicles) (see figure III.11). The United States is the main destination market, while Canada and Mexico are the first and fourth largest markets of origin, respectively. Autoparts and components for the automotive industry are manufactured and assembled in all three NAFTA countries, and these parts can cross the borders of member countries up to eight times before they are finally assembled in one of the three (Wilson, 2017). As a result of this deep commercial and manufacturing integration, up to 40% of the content of a vehicle manufactured in Mexico could have been originally made in the United States (CAR, 2016). The relocation of auto manufacturing activities has also led to a geographical reorganization of the supply chain. Manufacturers have encouraged suppliers to locate as close as possible to their assembly plants in order to optimize response times, mitigate logistics costs and manage risk. Again, Mexico has benefited from the arrival of a great number of world-class suppliers, who in turn have enjoyed greater proximity to their end-clients, lower costs and a favourable financial and commercial environment (see figure III.5). The local production chain has thus been strengthened, as has Mexican value added to vehicles manufactured in the country. Moreover, many suppliers have established production capacities that exceed local demand and have therefore channelled their surpluses to export markets, which in turn has increased the intense cross-border trade of automotive parts and components and strengthened Mexico’s position in the North American motor vehicle sector. Between 2006 and 2015, suppliers invested US$ 48.4 billion in North America, through which they generated the capacity required to meet the needs of the expanding production of new vehicles. Of the total invested, US$ 44.4 billion were deployed in the construction and expansion of plants in the United States, which was 13 times more than the amount invested in Mexico (US$ 3.4 billion), which in turn was markedly above the investments made in Canada (US$ 580 million) (Sedgwick, 2016). In short, automotive production in North America has moved from Canada and the mid-west of the United States to the south-east of the United States and to Mexico.

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Figure III.11 North America: exports and imports of automotive products, by type, 1995-2016 (Percentages)

A. Exports 100 90 80 70 60 50 40 30 20

Canada

Mexico

2016

2010

2005

2000

1995

2016

2010

2005

2000

1995

2016

2010

2005

2000

0

1995

10

United States

B. Imports 100 90 80 70 60

Electrical equipment for automotive products

50

Engines

40

Parts, accessories, components

30

Buses

20

Trucks

10

Passenger automobiles and light commercial vehicles

Canada

Mexico

2016

2010

2005

2000

1995

2016

2010

2005

2000

1995

2016

2010

2005

2000

1995

0

United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE). Note: Automotive products per groups 778.3, 713.2, 784, 783, 782 and 781 of the Standard International Trade Classification (SITC), Rev. 3.

Between 2010 and mid 2016, automobile companies, including car manufacturers, invested some US$ 80.7 billion in the United States and close to US$ 25.8 billion in Mexico. Investments in the United States centred mainly on the Great Lakes region (62%) —led by General Motors, Ford and FCA— and on the southern states (19%), where Japanese, South Korean and European producers have a strong presence (AAPC, 2016). As discussed below, these figures cast doubt on assertions that the United States automobile industry has been destroyed by lower operating costs in Mexico.

B. A new business model: high-end vehicles for the global market In the past 25 years the Mexican automotive industry has gone from being focused on satisfying the needs of its domestic market to become an export platform hosting the majority of the world’s leading manufacturers and suppliers. Key to this deep transformation has been the combination of the country’s trade openness, the signing of NAFTA and

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active sectoral policies.2 Hence, regulatory changes, proximity and preferential access to the United States, lower relative costs and the existence of a sizeable domestic market have paved the way for the arrival of large foreign direct investment (FDI) inflows. Between 1999 and 2016, automakers and their foreign suppliers invested over US$ 51.2 billion, close to 11% of total FDI received by Mexico (CNIE, 2017). Almost two thirds of this was invested by suppliers of parts and components, another third by light vehicle manufacturers, while heavy vehicle manufacturers accounted for 3% (see figure III.12). These investments have allowed Mexico to build a comprehensive production chain within its territory, which has also become highly integrated with the production base of the United States. There are currently nine manufacturers active in Mexico, and others are expected to arrive before the end of the decade. The light vehicle end-use industry has established 20 manufacturing facilities in 14 states (see table III.1). In 2016, Kia (a subsidiary of Hyundai Motor) and Audi (a subsidiary of Volkswagen Group) opened new plants. Large FDI inflows in the past four years have yielded 10 new automobile plants, five belonging to newcomers (Audi, BMW, Kia, Daimler AG and Infiniti-Nissan) and the other five to incumbent manufacturers. Some of these plants are among the largest and most modern in North America, and in aggregate they will expand production by 450,000 units, potentially making Mexico the sixth largest car manufacturer in the world (ProMéxico, 2016). Additionally, and largely on account of these new plants, Mexico is diversifying its specialization in compact and subcompact vehicles with a view to positioning itself in the demanding high-end segment by virtue of the presence of Audi, BMW, Infiniti-Nissan and Mercedes-Benz. Production has been concentrated in three large regions, where it has expanded as a natural extension of the auto industry in the United States. Towards the middle of the twentieth century, the sector began developing in the centre of the country; later, as a result of Mexico’s development policies, it grew in the northern border region and, after the 2008 crisis, it began expanding rapidly in the Bajío region States of Aguascalientes, Querétaro and Guanajuato. These three regions currently have similar shares of national production. To the north, the Monterrey-Saltillo corridor is home to the largest assembly plants in North America and accounts for almost 30% of national autopart production. In the Bajío region, the Guanajuato cluster stands out, with more than 300 firms, including General Motors and a Volkswagen engine plant in Silao, Mazda in Salamanca and Honda in Celaya. Volkswagen and Audi own large plants in the central region (Puebla and San José Chiapa), where a great number of suppliers can also be found (see table III.1). United States manufacturers were the first to arrive in Mexico. Ford and General Motors, and later Chrysler, have been producing vehicles for the local market since the 1920s, taking advantage of Mexico’s import substitution-based industrialization policies. Towards the end of the 1980s, when Japanese manufacturers arrived in the United States, Mexico became an ideally located hub for United States firms to increase their competitiveness over vehicles from Asia. In this context, and further buoyed by the signing of NAFTA, Mexico was rapidly transformed into an export platform. After the crisis of 2008, and as a part of their restructuring and recovery process, firms from the United States decided to strengthen their operations in Mexico, investing both in the modernization and expansion of their existing facilities and in the construction of new plants.

2

In 1989, as part of the liberalization of its economy, Mexico issued a decree aimed at developing and modernizing its automobile industry. This new legal framework allowed for a reduction in the share of national components in vehicles and promoted foreign investment in order to foster greater competitiveness in the industry.

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Chapter III

Figure III.12 Mexico: foreign direct investment (FDI) in the automotive industry, by subsector, 1999-2016 (Millions of dollars and percentages)

Annual revenues 21

7 000

18.1% 18

6 000

4 837

5 000

15

4 000

12

3 000

9

2 000

6

1 000

3

0

0 1999

2000

2001

2002

Manufacture of parts for motor vehicles

2003

2004

2005

2006

2007

Manufacture of light vehicles

2008

2009

2010

2011

Manufacture of heavy vehicles

2012

2013

2014

2015

2016

Percentage of total FDI (right scale)

Cumulative revenues Between 1999 and 2016, investments from foreign vehicle manufacturers and their suppliers accounted for almost 11% of all FDI received by Mexico.

3

33 Manufacture of heavy vehicles

US$

51.2 billion 64

Manufacture of light vehicles

Manufacture of parts for motor vehicles

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Government of Mexico [online] http://www.gob.mx/se/ acciones-y-programas/competitividad-y-normatividad-inversion-extranjera-directa.

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Table III.1 Mexico: light vehicle assembly plants and estimated annual vehicle production, 2016 and 2022 Company

State

City

BMW

San Luis Potosí

San Luis Potosí

2019

Sedan S3 (2019)

-

135 753

Fiat Chrysler Automobiles (FCA)

Coahuila

Saltillo

2013

RAM, Promaster trucks

275 248

263 208

México

Toluca

2011

Fiat 500, Dodge Journey, Fiat Freemont

224 751

203 484

Ford Motor

Sonora

Hermosillo

1983

Ford Fusion and Lincoln MKZ

328 480

337 640

México

Cuautitlán

1964

Ford Fiesta

105 272

153 879

Coahuila

Ramos Arizpe

1981

Chevrolet Captiva, Chevrolet Sonic, Chevrolet Cruze, Cadillac SRX, Chevrolet Equinox (2017) and Holden Captiva (2017)

139 565

202 073

Guanajuato

Silao

1994

Chevrolet Silverado, GMC Sierra

378 938

324 509

San Luis Potosí

San Luis Potosí

2008

Chevrolet Aveo, Pontiac G3, Pontiac Wave, Chevrolet Equinox (2017), Chevrolet Onix (2019) and Chevrolet Prisma (2019)

171 963

211 459

General Motors

Honda

Launch year Models

2016

2022

Jalisco

El Salto

1995

CR-V and HR-V (2017)

63 126

50 243

Guanajuato

Celaya

2014

Honda Fit/Jazz and HR-V

144 569

170 109

Kia Motors

Nuevo León

Pesquerías

2016

Forte and Rio

244 503

250 000

Mazda

Guanajuato

Salamanca

2013

Mazda2, Mazda3 and Yaris R (Toyota)

207 563

200 125

Nissan

Aguascalientes

Aguascalientes

1982

Sentra, Versa, Note and March

460 077

241 227

Aguascalientes

Aguascalientes

2013

Sentra Tiida

140 518

321 886

Morelos

Industrial City of the Valley of Cuernavaca (CIVAC)

1966

NV200, NP300 Frontier, Versa, Tsuru

174 008

303 403

Aguascalientes

Aguascalientes

2017

Infiniti QX50 (2017) and Mercedes-Benz Class A (2018)

-

259 677

Nissan/Daimler Toyota Volkswagen

Baja California

Tecate

2004

Tacoma

Guanajuato

Apaseo el Grande

2019

Corolla (2019)

Puebla

Puebla

1966

Beetle, Jetta, Golf and Tiguan (2017)

457 615

590 959

Puebla

San José Chiapa

2016

Audi Q5

219 645

220 000

3 818 165

4 726 901

Total

82 324

83 622

-

203 645

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the companies and PwC, Autofacts: Industry Update, June 2016 [online] http://www.automotivelogistics.media/wp-content/uploads/2016/06/FVLNA16_Session1_Brandon%20Mason_Pwc.pdf.



In the past 15 years, Ford has announced investments of some US$ 12 billion in Mexico, aimed at restructuring and expanding its assembly plants in Cuautitlán and Hermosillo, as well as opening a new engine plant in Chihuahua and a transmission plant in Guanajuato (see table III.2). Towards the end of 2016, Ford announced that in 20 or 30 years time it would transfer its entire production of compact vehicles from the United States to Mexico, and that it planned to deploy new production platforms to reduce manufacturing times, cut costs and speed up its time-to-market (Detroit Free Press, 2016). However, in early 2017, as a result of changes announced by the new Administration in the United States, the company started to change its strategy and eventually cancelled a US$ 1.6 billion investment it had earmarked to build a plant in San Luis Potosí, where it planned to manufacture the new generation of the Ford Focus (El Financiero, 2017a).



In 2008, General Motors opened a new plant to manufacture the Chevrolet Aveo in San Luis Potosí, as well as other facilities to build transmissions and engines. By the end of 2014, once the situation of the parent company had stabilized after the crisis, General Motors announced an ambitious investment plan of US$ 3.6 billion over four years to modernize and expand its plants in Toluca, Ramos Arizpe, Silao and San Luis Potosí, especially its production platforms for light commercial vehicles and subcompact passenger vehicles. These resources, in addition to the US$ 1.4 billion announced the year before, took General Motors’ investment in Mexico to US$ 5 billion (Forbes México, 2014).

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• 2017

The crisis in 2008 affected Chrysler significantly and led to major changes in the company’s ownership structure. Towards mid 2009 the firm finalized its partnership with Fiat, thus breathing new life into the company and its Mexico operations. In 2010, the new partnership announced an investment of US$ 550 million in the Chrysler plant in Toluca to begin production of the Fiat 500 model (América Economía, 2010). Also, US$ 1.085 billion were invested in the construction of a new plant in Saltillo to manufacture a new light commercial vehicle, the Ram ProMaster, and additional outlays of US$ 164 million were allocated for a new production line in one of the company’s engine plants in Saltillo (Vanguardia, 2013).

Volkswagen and Nissan arrived in Mexico in the 1960s as the first non-United States manufacturers, and although they were initially attracted by the domestic market, they began exporting towards the end of the 1980s. Mexico’s accession to NAFTA and the adoption of regulations related to subregional content in products led these companies to make large efforts and investments to develop networks of local suppliers with a view to access the United States market. At the same time, other large Japanese manufacturers channelled their investments towards the southern region of the United States instead. However, in the mid 1990s, Honda established its first plant in Mexico, followed by Toyota 10 years later. Both firms were looking to address specific market niches with limited levels of production. Japanese companies in North America sought to counter the strategy of United States and European companies by relocating their more technologically intensive production processes to increase productivity and cut costs in a bid to focus on higher quality vehicles. The commissioning of new plants in Mexico by Nissan, Honda, Toyota and Mazda, together with new investment announcements, was a clear example of the global reorganization process in which North America played a pivotal role (Álvarez, 2016).

3



In 1966, Nissan opened a plant in the Industrial City of the Valley of Cuernavaca (CIVAC) in Jiutepec, State of Morelos, the first built by the company outside Japan. A second plant in Aguascalientes followed in 1982. Known as A1, it was modernized in the mid 2000s thanks to a US$ 1.3 billion investment. With a first-stage investment of some US$ 2 billion (Nissan, 2013), the company opened a third plant in 2013, also in Aguascalientes (A2), which is now considered among the best and largest in North America. Towards mid 2014, the Nissan-Renault Alliance and Daimler AG announced the construction of a new plant in Aguascalientes (known as the Cooperation Manufacturing Plant Aguascalientes project, or COMPAS) through an investment of US$ 1 billion for the production of the new generation of high-end Mercedes-Benz and Infiniti compact vehicles. This is Daimler’s first North American light vehicle production plant with production based on its modular front architecture (MFA) platform.3 Production of Infiniti models is set to begin in 2017, while roll-out of Mercedes-Benz vehicles is earmarked for 2018 (Nissan, 2015). Nissan is currently the largest manufacturer in North America, after overtaking historical leaders General Motors and Ford.



Volkswagen’s Mexican operations are located mainly in Puebla. After a series of expansions, the Puebla plant has become one of the industry’s largest complexes in North America. In 2011 the German automaker began building a new engine plant in Silao, State of Guanajuato, and early in 2014 it announced the construction of an Audi brand SUV plant. Shortly after, it also announced plans to build a new version of the Tiguan model, with market launch penned for 2017, which would require an investment of close to US$ 1billion to expand

The MFA platform allows changing the location of different components in the interior of vehicles, such as seats or ceilings. It is also designed to adapt to different propulsion systems: batteries, fuel cells, hydrogen tanks and even gas tanks. Early in 2018, Daimler AG aims to file a patent for its MFA technology and begin developing a vehicle powered by gasoline, gas, electricity and hydrogen.

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and modernize the Puebla plant. This would enable the firm to deploy its new MQB (modularer Querbaukasten) architecture, based on a modular transversal building block. In light of these projects, the lion’s share of the US$ 7billion that the German manufacturer planned to invest in North America will be deployed in Mexico, with a clear intention to boost the high-end segment and update —through the use of its MQB technology— the production platforms for its subcompact passenger vehicle models Golf, Jetta and Bora. The firm’s plants in Puebla are its largest manufacturing operations outside Germany. •

Honda began manufacturing and exporting vehicles out of Mexico in 1995, firstly with the Accord and, as of 2007, with its light commercial CR-V model. In 2014 the firm opened a new assembly plant in Celaya for the production of its compact Honda Fit and, later on, the HR-V crossover, as well as a transmissions plant. Both projects represent a total investment of some US$ 1.27 billion, and include the deployment of the firm’s new global small platform (GSP) (El Financiero, 2014). However, by mid 2016, Honda announced that it would be moving production of the CR-V from Jalisco to Indiana, United States, and that the Jalisco facility would be used to manufacture its HR-V model, as at the Celaya plant (El Economista, 2016a).



Toyota began manufacturing vehicles in Mexico in 2004 after opening a plant in Baja California on the back of a US$ 140 million investment. Initially, the plant produced approximately 30,000 Tacoma pickup trucks and by 2015 its output had grown to approximately 100,000 units. That same year Toyota announced that it would invest US$ 150 million to increase its Tijuana plant’s annual production to 160,000 units by 2018 and improve its production platform architecture (El Financiero, 2015a). At the same time it announced a US$ 1.0 billion investment to build a new plant for the production of its Corolla model in Celaya, State of Guanajuato, as of 2019. This latest investment is part of Toyota’s strategy to realign its North American operations, in which Mexico now has an increasingly important role (El Financiero, 2015a). Aside from the new plant, Toyota announced investments totalling US$ 240 million for the assembly of its new compact Toyota Yaris at the Mazda facility in Salamanca, State of Guanajuato (El Economista, 2015).

Table III.2 Investment announcements by light vehicle manufacturers in Mexico, 2003-2016 (Millions of dollars) Ford

2003-2010

2011

2012

6 942

1 300

59

2013

2014

2015

2016

Total

1 200

1 300

377

11 178

40

43

6 468

889

753

5 735

General Motors (GM)

2 490

840

231

560

3 617

Nissan

3 109

2 000

377

491

408

Daimler AG

3 406

753

320

1 435

1

702

377

2

3 013

2 221

1

Hyundai Motor Volkswagen Toyota Motor

7

118

190

Fiat Chrysler Automobiles (FCA)

120

Honda

550

800

Mazda

660

377

BMW

10

Total

20 399

7 737 5 914

10

420

1 377

4 154

753

753

160

1 856

158

525

193

377

77

470

35

1 373 1 932 1 037

1 013 6 448

2 608

1 023 3 269

9 413

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets. 

3 560

1 710

47 406

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Over the past five years, the impetus of the Mexican automotive industry and the improved expectations for the United States market have both spurred other firms to launch manufacturing operations in Mexico. Among the new entrants there are two clearly distinguishable groups: one made up by Kia and Mazda, focused on manufacturing compact vehicles, and the other comprising Audi, Mercedes-Benz, Infiniti and BMW, devoted to the high-end segment. The global approach shared by these new entrants stands in contrast with previous initiatives, which followed a more regional strategy. •

Towards the end of 2011, Mazda committed to investing US$ 500 million for the construction of a new plant in Salamanca, State of Guanajuato. Three years later, the plant began manufacturing the Mazda2 and Mazda3 models, with a production capacity of 140,000 units, which by 2016 had risen to 250,000 units (El Financiero, 2015b). Mazda’s Mexican operations have prioritized internal combustion engine models based on the SKYACTIV platform.4 Under its strategic alliance with Toyota, the firm also manufactures the Yaris R model (El Universal, 2015).



Towards the end of 2014, Kia —a subsidiary of the South Korean automaker Hyundai— began building a new plant in Nuevo León, the marque’s first in Latin America. After an investment of some US$ 3billion, Kia began rolling out its Forte model in 2016 and the Rio in early 2017, reaching a total annual production of approximately 300,000 units (El Universal, 2016a).



Towards the end of 2016, after a four-year construction period, the Volkswagen subsidiary Audi opened a new plant in San José Chiapa, State of Puebla. Made possible by a US$ 1.3 billion investment by Volkswagen, this is the first luxury automobile production plant in Mexico. Production of the new version of the Q5 SUV has been planned for the facility, with a target of 150,000 units by the end of 2017. The plant will be able to draw on 180 suppliers, 60 of which are newcomers to Mexico and the remainder incumbent manufacturers; hence, national components will make up 71% of the Q5. This will allow the automaker to comply with the various free trade agreements that Mexico has entered into and, at the same time, produce a totally global product (El Universal, 2016b). This plant uses Volkswagen’s MLB (modularer Längsbaukasten) platform —a longitudinal construction block for high-end vehicles with a longitudinal front engine and front-wheel or all-wheel drive— allowing the use of the same electrical and mechanical components for different models.



Towards mid 2014, BMW announced an investment of US$ 1 billion to build a plant in San Luis Potosí, which will begin operations in 2019. The facility will have an annual production capacity of 150,000 units and will be used to assemble the BMW 3 Series (BBC, 2017a).



Almost simultaneously, Daimler AG and the Renault-Nissan Alliance entered into the Cooperation Manufacturing Plant Aguascalientes joint venture (COMPAS) to build and operate a new plant in Mexico using the MFA platform. With an annual production capacity of 230,000 vehicles, roll-out of Infiniti models is set for 2017, with Mercedes-Benz models following a year later (Vanguardia, 2015).5

For a long time Mexico’s automobile industry was centred on the production of mass-market subcompact vehicles.The opportunities afforded by lower local costs encouraged international manufacturers to transfer a large proportion of the passenger vehicles they produced for sale in the United States to Mexico, most particularly their cheaper models. However, on the back of an increasingly larger and sophisticated network of suppliers and 4

5

The SKYACTIV platform is characterized by its flexibility and use of advanced engine and transmission technologies. The Daimler-Renault-Nissan strategic partnership began in 2010 with engine projects in North America and compact cars in Europe, but the addition of the Mexican initiative has transformed it into a truly global cooperation effort.

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without abandoning its established large scale operations, Mexico has in recent years begun targeting more demanding segments, such as CUVs, SUVs and pickups. It has achieved this through sizeable investments in state-of-the-art platforms, which allow high degrees of flexibility in the scaling up of production to manufacture models that are increasingly geared towards the global market. Additionally, and in response to the demands of the United States market, Mexican vehicles now incorporate the latest technological advances in connectivity and passenger entertainment, thus establishing the foundations for some of the key features of tomorrow’s industry, such as electric-powered and self-driving vehicles. The recent arrivals that specialize in high-end automobiles will be key players in this new scenario insofar as their more global production outlook will support Mexico’s commercial diversification, foster the arrival of new suppliers and strengthen the country’s research, development and innovation activities.

C. Strengthening the network of suppliers Up until the 2008 crisis, the Mexican automotive sector had one significant vulnerability: its high dependency on imported inputs and an inadequate and weak network of local suppliers. However, in recent years, the parts and components industry has been the recipient of record investments (see figure III.12), which have translated into the expansion and modernization of the country’s productive base and paved the way for the arrival of over 700 new suppliers (Expansión, 2016) (see table III.3). Table III.3 Investment announcements by automotive industry suppliers in Mexico, 2003-2016 (Millions of dollars) 2003-2010 Robert Bosch GmbH Magna International Inc. Halberg Précision DPH Holdings (formerly Delphi) Caterpillar Getrag Group PPM Shenzhen Johnson Electric Yazaki Group GKN ThyssenKrupp (TK) Continental AG Commercial Vehicle Group Autoneum Hitachi Total

570 339 600 43

2011

2012

43 100 54

2013 460 108

73 500

2014

2015

2016

Total

109

208

683 159 43

75

500 149 3

152

1 865 914 600 594 500 500 500 484 384 372 356 329 322 304 302 8 328

305

500

183

62 43

50

25 2 183

100 531

335 1 12

43 18

2 343

43

72

25

43 100 1 064

1 049

77 654

180 95 43

176 31 229 217

1 857

989

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets. 

German autoparts firm Robert Bosch GmbH, the largest supplier in the world, is the main investor in the Mexican autoparts sector and has operated in the country for over 60 years (see table III.3). In the last 10 years it has invested more than US$ 400 million, and expects to invest another US$ 500 million between 2016 and 2020. Through these investments, it has been building its production capacity to satisfy the growing demand for high-tech automobile parts in North America and Latin America (Bosch, 2016). Bosch owns 10 manufacturing plants in Mexico, with the largest in Toluca and Ciudad Juárez. In 2013 it announced investments of US$ 300 million to increase the capacity of its Toluca plant and focus most of its efforts on the supply of electric motors and gasoline systems for the North American market (Bosch, 2013). Apart from its Toluca plant, between 2015 and

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2016 the firm also expanded its facilities in Ciudad Juárez, Hermosillo, Aguascalientes and San Luis Potosí with investments totalling US$ 150 million. Early in 2016, it announced the construction of a new plant in Querétaro, where it plans to invest US$ 80 million. Operations at this plant are planned to begin in late 2017 and will focus on state-of-the-art steering systems that offer driver assistance features and reduced fuel consumption (Bosch, 2016). Bosch’s case is illustrative of the healthy momentum in the autoparts sector, which has been the recipient of huge investments by domestic and foreign companies. Of the top 15 suppliers worldwide, 14 are present in Mexico (see table III.4). In that context, Mexico plays an increasingly important role in the well-organized North American cross-border production system. These dynamics have helped the industry generate deep linkages within the Mexican economy and a deeper relationship with that of the United States, which in turn has contributed to the progressive transformation of the country from a vehicle assembly platform to a more integrated production system that is therefore more sustainable. Company

Country of origin

Robert Bosch GmbH

Germany

Mexico 4

United States 20

Canada

Denso Corp.

Japan

4

22

-

Magna International Inc.

Canada

2

3

7

1

Continental AG

Germany

16

52

4

ZF Friedrichshafen AG

Germany

11

29

3

Hyundai Mobis

Republic of Korea

-

4

-

Aisin Seiki Co.

Italy

4

19

-

Faurecia

France

13

21

1

Johnson Controls Inc.

United States

10





Lear Corp.

United States

22

21

-

Valeo SA

France

8

15

-





Delphi Automotive

United States

46

Yazaki Corp.

Japan

13

16

2

Sumitomo Electric Industries

Japan

5

2

1

JTEKT Corp.

Japan

1

12

1

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by the companies.

D. Mexico reaches record levels of production, exports and domestic sales, but faces capacity-building limitations Production of light vehicles in Mexico increased significantly from 1.6 million units in 2005 to 3.5 million units in 2016 through solid investments by manufacturers and suppliers. In 2016, the country achieved historical milestones in production, exports and domestic vehicle sales (see figure III.2). With those results, Mexico has consolidated its position as the largest producer in Latin America —easily outstripping Brazil— and the seventh in the world, apart from being the fourth largest exporter of automotive products (see chapter II). During the 2000s and leading up to the global crisis in 2008, General Motors was the dominating force in both production and exports. From 2008 onwards, Nissan became the largest producer, but General Motors continued to be the main exporter, followed by Nissan, FCA and Ford (see figure III.13A and table III.5). At the same time, Volkswagen began steadily increasing its production for export, bringing in new models widely accepted in the United States, such as the Jetta, Golf and New Beetle. In fact, Volkswagen’s Mexican operation is an export platform for models exclusively manufactured in Mexico and aimed at every market in the world.

Table III.4 North America: production plants for autoparts manufacture of major global suppliers, by country, 2017 (Number of plants)

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Figure III.13 Mexico: production and exports of light vehicles, by manufacturer, 2010-2016 A. Production (thousands of units) Nissan General Motors Fiat Chrysler Automobiles (FCA) Volkswagen Ford Honda Mazda Toyota 2010

Hyundai-Kia

2016 0

150

300

450

600

750

900

B. Exports, by type of vehicle (thousands of units) 600 500 400 300 200 Light commercial vehicles

100

Ford

Fiat Chrysler Automobiles (FCA)

General Motors

Honda

HyundaiKia

Mazda

Nissan

Toyota

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

2016

Automobiles 2010

0

Volkswagen

C. Exports, by destination market (percentages) 100 90 80 70 60

Others

50

Africa

Fiat Chrysler Automobiles (FCA)

Ford

General Motors

Honda

HyundaiKia

Mazda

Nissan

Toyota

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

2016

2010

North America 2016

Central America

0

2010

South America

10 2016

Europe

20

2010

Asia

30

2016

40

2010

174

Volkswagen

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Mexican Automotive Industry Association (AMIA) and Mexican Association of Automobile Distributors (AMDA).

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A significant part of the production of all manufacturers operating in Mexico is earmarked for export. Ford and FCA have the highest export propensity, with more than 90% of their production targeting external markets, mostly in North America. Production, and therefore exports, of manufacturers that operate in NAFTA member countries complement each other so as to satisfy the needs of different market segments. GM and FCA specialize in larger vehicles, such as CUVs, SUVs and pickups, while Ford focuses on subcompact passenger automobiles (see figure III.13B). In turn, Volkswagen’s decision to produce certain models exclusively in Mexico means that it maintains a high export propensity as well as a greater market diversification compared with its competitors (see figure III.14). Figure III.14 Mexico: characteristics of the domestic motor vehicle market, 2008-2016 (Thousands of units)

A. Domestic sales by type of vehicle and imports of used vehicles 1 600 1 400 1 200 1 000

Pickups Minivans SUVs Sports cars Luxury automobiles Subcompacts Compacts Used imported vehicles

800 600 400 200 0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

B. Imports of new vehicles, by origin, and imports of used vehicles 1 000 900 800 700 600 500

Others Asia MERCOSUR

400 300 200

European Union

100

NAFTA a Used imported vehicles

0 2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Mexican Automotive Industry Association (AMIA) and Mexican Association of Automobile Distributors (AMDA). a North American Free Trade Agreement.

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Table III.5 Mexico: production, exports, domestic sales and imports of light vehicles, by manufacturer, 2000-2016 (Thousands of units) Production

Company

2000

2005

2010

2013

2014

2015

Nissan

313

363

506

680

806

823

848

General Motors

445

428

559

646

678

690

703

Fiat Chrysler Automobiles (FCA) Volkswagen

405

344

257

439

500

504

459

426

300

435

516

475

458

415

Ford

281

148

394

525

443

434

391

19

24

55

63

144

204

254

102

182

149

54

64

71

105

139

344

450

539

519

500

Honda Mazda Toyota Kia Exports

Nissan

108 154

155

General Motors

325

333

460

526

554

540

540

Fiat Chrysler Automobiles (FCA) Volkswagen

372

340

224

402

466

477

443

340

242

351

424

398

393

334

Ford

235

107

385

520

427

413

377

7

15

41

38

105

162

206

0

84

154

140

54

64

71

101

135

235

190

264

293

349

403

Honda Mazda Toyota Kia Domestic sales Nissan

93 173

General Motors

217

250

156

202

217

256

309

Fiat Chrysler Automobiles (FCA) Volkswagen

112

124

79

96

89

103

104

169

149

130

190

195

219

247

Ford

144

191

89

87

81

90

102

24

38

Honda Mazda Toyota

35

38

58

60

74

88

25

33

41

57

55

47

61

70

85

105

12

37

94

26

45

56

Kia Imports

2016

Nissan

14

27

27

34

General Motors

97

155

56

82

92

106

145

Fiat Chrysler Automobiles (FCA) Volkswagen

79

121

45

59

54

76

88

83

91

46

98

118

154

167

Ford

98

150

81

82

65

69

88

Honda

13

29

24

33

21

32

40

25

33

23

29

46

35

47

61

70

81

101

12

37

80

Mazda Toyota Kia

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Mexican Automotive Industry Association (AMIA) and Mexican Association of Automobile Distributors (AMDA).

Japanese carmakers with manufacturing capacity in the south of the United States have opted for a clear segmentation of their Mexican production. Honda, Mazda and Toyota have concentrated on a limited range of models: CUVs, compact automobiles and pickups, respectively. Nissan, however, has adopted a different policy insofar as the largest share of its production targets the Mexican end-market. The firm also has the lowest import ratio to complement its local offerings. In fact, of the 11 best-selling models in the Mexican market in 2016, 5 were manufactured locally by Nissan. In that same year, only 56% of the firm’s output was shipped to international markets, mostly North America (80%) and South America (15%) (see figure III.13C).

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• 2017

In contrast with the United States and due to per capita income levels in Mexico, the domestic market is dominated by compact and subcompact (medium-sized) passenger vehicles, which in 2016 accounted for 24% and 37% of domestic passenger vehicles sales, respectively (see figure III.14A). Given that Mexican production is conditioned by consumption patterns in the United States, a large part of its domestic market is served by imports, mainly of compact models manufactured in Asia and in the Southern Common Market (MERCOSUR) (see figure III.14B). Nissan and General Motors dominate the Mexican domestic market: the first, by virtue of its domestic production, and the second, through the vehicles it manufactures in other parts of the world —especially Asia— and imports to Mexico. Nissan managed to position itself in the domestic market thanks to the wide acceptance of certain models that have remained among the top sellers for several decades, in particular the Tsuru, which was launched in 1984. The domestic market has been recovering steadily since the crisis of 2008. First, more stringent controls on imports of used vehicles from the United States were put in place in order to counter the alarming level reached by those imports between 2005 and 2009, which seriously affected manufacturers and importers of new vehicles. In 2011, the government issued a decree regulating imports of used vehicles, requiring certificates of origin and compliance with certain physical and mechanical conditions, as well as pollution standards and other requirements (El Economista, 2016b). This measure reduced the share of these vehicles in the total number of automobiles traded from 66% in 2011 to 9% in 2016 (see figure III.14). Also, the favourable expectations for the Mexican market and the changes in consumption patterns in the United States led to an expansion in automakers’ supply of locally manufactured compact models: the Fiat 500 by FCA, the new versions of the Aveo and the Sonic by General Motors, the Mazda2 and Nissan Versa, to name a few. Mexico has also recorded solid results in a smaller albeit still important production segment, that of heavy vehicles. Manufacturers carry out assembly, stamping and bodywork activities, producing a wide range of trucks for export and the domestic market. There are in total 11 manufacturers of heavy vehicles in Mexico and 2 companies specialized in engines that are active in 8 states (ProMéxico, 2016). As in the case of light vehicles, NAFTA has been a key determinant in the performance of this segment. Mexico manufactured 150,889 units in 2016, after reaching a record 190,978 units in 2015 and consolidating its position as the fifth largest global manufacturer in this category after China, Japan, India and the United States. Between 2005 and 2016, the share of heavy vehicles in total Mexican exports of automotive products increased from 3% to 6% (see figure III.15), and the country’s share of heavy vehicle production in North America grew from 17% in 2006 to 35% in 2016. Between 2009 and 2016, production of autoparts in Mexico increased in value terms from US$ 41.2 billion to US$ 88.4 billion (Export, 2016). The expansion of vehicle production has spurred greater demand for parts and components, and the enhanced technological sophistication incorporated into vehicles has also broadened the scope of products that manufacturers are now demanding from their suppliers. Furthermore, many of the first- and second-tier suppliers that have historically served automakers located in Mexico have been compelled to follow them and invest close to their Mexican plants so as to secure new supply contracts or hold on to existing ones. Thus Mexico is now the world’s sixth largest autoparts manufacturer, closely behind the Republic of Korea. Mexican autoparts production could reach US$ 100 billion in value terms by 2020, which could take it to the fourth position globally behind China, the United States and Japan, and above the Republic of Korea and Germany (Albín, 2016).

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Figure III.15 Mexico: exports and imports of automotive products, by type of good, 1995-2016 (Billions of dollars) A. Exports

B. Imports

100

45

90

40

80

35

70

30

60

25

50

20

40

15

30

10

20

5

10 0

1995

2000

2005

Electrical equipment for automotive products

2010 Engines

0

2016 Parts, accessories, components

1995 Buses

2000 Trucks

2005

2010

2016

Passenger automobiles and light commercial vehicles

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE). Note: Automotive products per groups 778.3, 713.2, 784, 783, 782 and 781 of the Standard International Trade Classification (SITC), Rev. 3.

Autoparts firms do not only serve the needs of manufacturers operating in Mexico. Between 2009 and 2016, exports of autoparts increased significantly from US$ 9.298 billion to US$ 26.273 billion (see figure III.15). Despite the large number of free trade agreements that Mexico has entered into, it lacks diversity in the markets where it sells its autoparts, with more than 90% of production exported to the United States and Canada (see figure III.16). In 2015, Mexico was the fifth largest exporter of autoparts in the world, behind Germany, the United States, Japan and China. In 2016, 60% of autoparts imported by Mexico came from the United States, followed by Japan (10%), China (7.3%), the Republic of Korea (5%) and Germany (4.3%). Figure III.16 Mexico: exports and imports of automotive products, by geographical origin and destination, 1995-2016 (Billions of dollars) A. Exports

B. Imports

100

45

90

40

80

35

70

30

60

25

50

20

40

15

30 20

10

10

5

0

1995

2000 Others

2005 Rep. of Korea

2010

0

2016 Japan

China

1995 Brazil

2000 Germany

2005 Canada

2010

2016

United States

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

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More than 90% of the world’s top 100 autoparts suppliers have operations in Mexico (Sedgwick, 2016). The 10% that is absent corresponds to Chinese companies currently undergoing intense restructuring and consolidation processes. In total, there are some 1,400 autoparts suppliers operating at present in Mexico, 65% of which are foreign firms (ITA, 2016), with the majority being from the United States (29%), Japan (27%) and Germany (18%) (INA, 2015). Of these, 600 are first-tier companies, meaning they have the capacity to fully satisfy the needs of manufacturers operating in Mexico. However, there are only 400 second-tier suppliers, and another 400 in the third tier, which in aggregate falls short of the volume needed to satisfy the industry’s present and future demand (Modern Machine Shop, 2017). With a few exceptions, most domestic autoparts suppliers have been unable to adapt to a more competitive environment, although it seems that the industry on the whole is beginning to increase its capacity (CEIGB, 2017). Despite manufacturing autoparts worth over US$ 88 billion —with exports valued at close to US$ 26.3 billion— Mexico still has to import second- and third-tier inputs valued at US$ 23 billion, such as electrical components, harness parts, fabrics, leather and vinyl for seat upholstering, seat-belt components, airbags and tyres. Although production costs have been the main driver of the Mexican motor vehicle industry’s expansion, there are other relevant competiveness factors behind its growth and future sustainability: (i) higher levels of local value added owing to technical progress and the strengthening of the production chain, thanks to a greater number of engineers and the increased use of qualified labour, (ii) greater flexibility to respond to demand, and (iii) inclusion of substantial innovations, especially in the production of new models. Alongside its productive capacity, Mexico has also deployed a broad network of support centres for the industry, addressing issues of design, innovation, scientific and technical development, as well as materials and products testing. Map III.1 Mexico: research and development centres for the automobile industry, 2017 Baja California Nuevo León Sonora

Querétaro

Chihuahua

Jalisco State of México San Luis Potosí

Aguascalientes

Puebla

Sectors Private

Academic

Public

Joint

Mexico City

Source: ProMéxico, La industria automotriz mexicana: situación actual, retos y oportunidades, Mexico City, Secretariat of Economic Affairs of Mexico, October 2016 [online] http://www.promexico.mx/documentos/biblioteca/la-industria-automotriz-mexicana.pdf.

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There are currently 28 research and development centres, 13 private centres associated with major manufacturers and suppliers, 7 centres related to academic institutions, 7 public centres and 1 public-private partnership, including: •

The Querétaro Centre for Research and Technical Assistance (CIATEQ): created by the federal government in conjunction with the National Council for Science and Technology (CONACYT), the National Laboratories for Industrial Development (LANFI), the government of the State of Querétaro and the business community in the region led by Grupo ICA and Grupo SPICER. CIATEQ provides technological support for the automobile and autoparts industries, covering basic engineering, manufacturing machinery and specific purpose equipment, tools, control and measurement systems, prototypes, as well as developing purpose-built vehicles.



The Nissan Technical Centre (NISTEC) began operating in the mid 1990s in Toluca, State of México. NISTEC belongs to Nissan’s worldwide R&D network and works in close cooperation with other centres located in the United States and Brazil, with which it shares responsibilities; the Mexican centre is devoted to parts design and vehicle testing. NISTEC has invested mainly in testing equipment for parts and vehicle development and for emissions calibration and checking, with a target of cutting engine emissions by 70% (ProMéxico, 2016). Among other facilities, NISTEC has a testing track at the Aguascalientes plant, as well as gas emissions laboratories in Mexico City and Manzanillo.



The Chrysler Centre for Research, Development and Testing of Automotive Engineering was opened in 2005, in Santa Fe, Mexico City, to develop and test new Dodge, Chrysler, Jeep and Mitsubishi models. It specializes in vehicle testing, engine dynamometers and transmissions, and has emissions testing laboratories and a metrology and materials engineering laboratory. It works at the technological forefront in areas such as environmentally friendly materials, alternative fuels and reducing the emissions and consumption of conventional engines.



The Centre for Vehicle Electronic Technology (CTEV) was opened in 2006 in Guadalajara, Jalisco, as a joint venture between the Western Institute of Technology and Higher Education (ITESO) and the company Soluciones Tecnológicas. CTEV specializes in the development of electronic systems for automobile applications and is gradually moving towards the technological forefront in areas such as electronic components and software.



The Centre for Research in Advanced Materials (CIMAV) was opened in Chihuahua in 1994 and is part of the National System of Public Research Centres of CONACYT. It was created through an agreement between the federal government, the government of the State of Chihuahua and the delegation of Chihuahua to the National Chamber of Manufacturing Industries.

Mexico’s R&D network has its strengths and weaknesses. It is a reasonably well-organized system made up of federal and state agencies, private companies and academic institutions which are grouped around a common set of objectives. However, these centres are quite heterogeneous in terms of their specializations, funding, human resources, relationships with international networks, institutional histories and the updating of their technological capabilities. Additionally, they have developed most of their competencies in key areas of traditional auto manufacturing and therefore may require greater investment levels to align their targets with the most recent trends that are changing the entire industry (see chapter II).

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E. Caught between the technological revolution and policy changes in the United States Two sets of factors must be considered when analysing the prospects of the Mexican automotive industry. On the one hand is the transformation driven by the technology revolution under way in the global motor vehicle industry, along with changes in the concept of mobility and consumption patterns and regulatory pressure in the fields of safety, the environment and energy efficiency. On the other hand is the uncertainty triggered by the announcements of the new Administration in the United States in relation to the industry.

1.

The technological revolution and competitiveness: robotics

Mexico has received major investments in recent years, which have helped it expand and modernize its base of automobile manufacturers and suppliers. The country has transitioned from being a low-cost export platform to become a well-organized production system that hosts the industry’s main global players and is closely integrated with the North American economy, especially that of the United States. Mexico is consequently an important member of one of the three main regional clusters that account for a substantial share of global motor vehicle production, innovation and R&D activities. The Mexican sector specializes in manufacturing subcompact passenger cars and light commercial vehicles aimed at the United States market and is at the technological forefront of the production of medium-sized conventional automobiles. In addition, the arrival of high-end manufacturers (Daimler AG, Volkswagen-Audi, BMW and others) has contributed to the development of a denser productive fabric, with some suppliers providing electronic- and software-intensive components. This virtuous process could nonetheless be threatened by the latest trends in the global automotive industry. First of all, although Mexico has been able to attract many leading global carmakers and a large number of first- and second-tier suppliers, it still lags behind in terms of third- and fourth-tier companies. This points to the weakness of the local production structure, especially in relation to small and medium-sized high-tech, knowledge-intensive companies. Not only does this represent a lost opportunity to build local value added into automotive products, it also limits the spillover of indirect production and technology benefits to the rest of the local economy. A second, related factor is the creation and optimization of local capabilities in human resources, science, technology, innovation and enterprise development. Mexico has made notable progress on these fronts, but not enough given the fast pace of the industry and of capacity-building in these areas in other parts of the world, especially China. A denser industrial fabric and more solid local capacities would lessen the risks to the Mexican automotive industry from the changes beginning to occur in the sector. In addition, given the rapid pace of technological change in the motor vehicle industry, the advantages of Mexico’s wage gap with respect to the United States and Canada (which is a major source of the country’s competitiveness) will dissipate rapidly. Advances and falling costs in robotics could threaten jobs in the industry in the medium term, at least for some of the best paid workers (see box III.1).

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Box III.1 Generic robot cost versus average manufacturing labour costs (Dollars per hour) Commercialization of industrial robots is on the rise, with the global motor vehicle industry the most intensive user of the technology to the tune of 1,200 robots per 10,000 workers, compared with national averages of 100-200 units per 10,000 workers in Japan, the United States and Germany (IFR, 2016). The use of robots in the automotive industry grew at an annual rate of 20% between 2010 and 2015, representing 38% of the total number of robots sold globally at the end of this period. In this context, Mexico has become an increasingly important emerging market; in 2015, the country doubled its demand to 5,500 units, clearly surpassing the 1,400 units acquired by Brazil that same year. From a labour market perspective, the shift towards robotization has revived past tensions between technological progress and job creation, especially in terms of the threat to jobs posed by automation in the auto sector. Leaving aside the impact of automation per se, the employment issue is especially relevant for Mexico insofar as its lower labour costs have historically been a key differentiating factor in its competitiveness vis-à-vis the United States. A simulation presented below compares the trajectory of labour costs with that of robot costs for similar tasks. The labour data are based on hourly earnings, including wages and other benefits, while the variables considered for robots are initial investment and maintenance costs. Data on labour costs are plotted according to historical trends, while two scenarios are considered for robots at cost reduction rates of 8% and 15%, on the basis of Sirkin, Zinser and Rose (2014). The initial hypothesis for the cost of a welding robot —widely used in the automotive industry— was US$ 8 per hour in 2015, rising to US$ 28 per hour for a generic industrial robot. For that same year, manufacturing labour costs per hour in Mexico came in at US$ 5.90 per hour, with a projected annual growth of 3%. Under these assumptions, cost convergence for the whole of the manufacturing sector would materialize towards the end of the 2020s, a non-trivial finding for many traditional motor vehicle industry suppliers operating in Mexico. However, the timeline is much tighter for carmakers: in the case of welding robots, cost convergence could already be taking place in 2017. Figure 1 Generic robot cost vs. average manufacturing labour costs (Dollars per hour) 30 25 20 15 10

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Cost of a generic robot

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Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Sirkin, H., M. Zinser and J. Rose, “The shifting economics of global manufacturing:

how cost competitiveness is changing worldwide”, The Boston Consulting Group, August 2014 (robot price data), and The Conference Board, “International comparisons of hourly compensation costs in manufacturing, 2015 - Summary tables” [online] http://www.conference-board.org/ilcprogram/index.cfm?id=38269 (labour cost data).

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Box III.1 (concluded) Figure 2 Welding robot cost vs. average manufacturing labour costs (Dollars per hour) 12 10 8 6 4 Cost of a welding robot

2

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Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Sirkin, H., M. Zinser and J. Rose, “The shifting economics of global manufacturing:

how cost competitiveness is changing worldwide”, The Boston Consulting Group, August 2014 (robot price data), and The Conference Board, “International comparisons of hourly compensation costs in manufacturing, 2015 - Summary tables” [online] http://www.conference-board.org/ilcprogram/index.cfm?id=38269 (labour cost data).

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Federation of Robotics (IFR), World Robotics 2016: Industrial Robots, September 2016.

2.

Changes in United States policy: executive orders and renegotiation of the North American Free Trade Agreement (NAFTA)

Pressures on the automotive industry resulting from recent policy changes by the incoming Administration in the United States revolve around international trade and industrial policy decisions. Even though economic policy issues have always played a key role in presidential campaigns, rarely have trade, investment and fiscal policies been such an important factor in an election, and in global political discourse, as they were in 2016. During the campaign, the new President’s economic platform was presented as an alternative to the globalization agenda and included the withdrawal of the United States from the Trans-Pacific Partnership (TPP) and from NAFTA, tariffs of 45% on imports from Mexico, the reduction of the trade deficit and the reform of corporate tax legislation to stimulate the repatriation of companies, jobs and capital. These proposals were grouped under the collective slogan and policy of “America First”, which is aimed at repositioning the United States as the main hub of global manufacturing, especially in the automotive industry. The effects of the new trade and industrial policy discourse began to be felt immediately after the election. In the 10 weeks that elapsed between the election and his inauguration, the President-elect concentrated heavily on the automotive industry and reached a number of agreements with United States manufacturers in the sector to withdraw planned investments in Mexico or commit to reshoring plants and jobs to the United States. For instance, Ford announced that it would cancel its planned investment of US$ 1.6 billion in Mexico and that it would instead invest US$ 700 million in a plant in Michigan to manufacture electric

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and autonomous driving vehicles (Welch, 2017). Similarly, soon after the President-elect indicated that General Motors should manufacture its Chevrolet Cruze in the United States or run the risk of paying border taxes, the firm announced that it would invest US$ 1 billion to strengthen its manufacturing capacity in the country and that it would keep 1,500 jobs in the United States (Reuters, 2017b). On the basis of these initial actions, once the new Administration took office in January 2017, the President signed executive orders on a broad range of issues, in order to create institutions, streamline regulatory process and authorizations, and strengthen mechanisms for boosting manufacturing in the United States (see table III.6). Table III.6 United States: executive orders, January-June 2017 Topic

Decree

Objective

Institutions

Presidential Executive Order on the establishment of Office of Trade and Manufacturing Policy (OTMP)

To defend and serve United States workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit and strengthen the United States manufacturing and defence industrial bases.

Trade policy

Presidential Memorandum Regarding Withdrawal of the United States from the Trans-Pacific Partnership (TPP) Negotiations and Agreement

To permanently withdraw the United States from TPP negotiations, and to begin pursuing, wherever possible, bilateral trade negotiations to promote United States industry, protect United States workers, and raise United States wages.

Omnibus Report on Significant Trade Deficits

To address the challenges to economic growth and employment that may arise from large and chronic trade deficits and the unfair and discriminatory trade practices of some of United States trading partners, improve general conditions for free and fair trade and competition and ensure the strengthening of United States manufacturing and defence industrial bases.

Presidential Executive Order on Buy American and Hire American

To maximize the use of goods, products and materials produced in the United States to promote economic and national security, stimulate economic growth, create good jobs at decent wages, strengthen the middle class and support the American manufacturing and defence industrial bases.

Presidential Memorandum Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing

To support the expansion of manufacturing in the United States through expedited reviews of and approvals for proposals to construct or expand manufacturing facilities and through reductions in regulatory burdens affecting domestic manufacturing.

Environment

Presidential Executive Order on Promoting Energy Independence and Economic Growth

To review existing regulations that potentially burden the development or use of domestically produced energy resources and appropriately suspend, revise, or rescind those that unduly burden the development of domestic energy resources.

Infrastructure

Executive Order Expediting Environmental Reviews and Approvals for High Priority Infrastructure Projects

To streamline and expedite environmental reviews and approvals for all infrastructure projects, especially projects that are a high priority for the Nation, such as improving the electric grid and telecommunications systems, and repairing and upgrading critical port facilities.

Enforcement of the law

Presidential Executive Order on Establishing Enhanced To ensure the timely and efficient enforcement of United States trade laws, Collection and Enforcement of Antidumping and Countervailing including antidumping and countervailing duties, and intellectual property rights. Duties and Violations of Trade and Customs Laws

Manufacturing

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of The White House, “Executive Orders” [online] http://www.whitehouse.gov/ briefing-room/presidential-actions/executive-orders.

Among these new institutions, the Office of Trade and Manufacturing Policy (OTMP) was created to serve domestic workers and manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit and strengthen the country’s manufacturing and defence industrial bases.6 This executive order —together with those addressing preferential treatment for United States products and workers (“buy American, hire American”), the reduction of regulatory and financial burdens on building and expanding manufacturing plants and the construction of infrastructure to support domestic and global trade— aims to strengthen and prioritize the country’s industrial capabilities, including the motor vehicle industry.7 6 7

See The White House, “Presidential Executive Order on Establishment of Office of Trade and Manufacturing Policy” [online] http://www.whitehouse.gov/the-press-office/2017/05/01/presidential-executive-order-establishment-office-trade-and.] Even though the Office of Trade and Manufacturing Policy (OTMP) and the policy of preferential treatment for products and workers of the United States (“buy American, hire American”) are new and were warmly received by the automotive industry, other governments have also embarked on these types of policies before; for example, the Obama Administration created the White House Office of Manufacturing Policy, as well as a national network of technological centres known as Manufacturing USA to boost innovation in the manufacturing sector.

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The Administration also began to review environmental regulations affecting the motor vehicle industry, including the Corporate Average Fuel Economy (CAFE) Standards —recently strengthened by the Environmental Protection Agency (EPA) in order to reach energy efficiency levels of 54.5 miles per gallon by 2025— which the outgoing Administration had designed as part of efforts to combat climate change and drive the development of hybrid and electric vehicles. Carmakers were largely in favour of the new executive order as complying with new standards could have cost up to US$ 33 billion (Financial Times, 2017). After this first raft of reforms and deregulation, the Administration shifted its attention to NAFTA. Although it was initially thought that the United States would withdraw from the agreement, on 18 May 2017 the Administration asked Congress to approve the start of NAFTA update talks with Mexico and Canada after a 90-day period. The idea is apparently to modernize the agreement’s provisions on intellectual property rights, regulatory practices, public enterprises, e-commerce, services, customs procedures, sanitary and phytosanitary measures, employment, the environment and small and medium-sized enterprises. Despite the absence, at June 2017, of detailed information on the scope of negotiations, NAFTA renegotiation discussions will probably revolve around the same issues addressed in the withdrawal from TPP. Also, negotiations should be consistent with the priorities and objectives established by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which include boosting liberalization by all possible means, supporting global value chains and robust labour and environmental regulations, and ensuring that World Trade Organization (WTO) disciplines are enforced in the context of the traditional and digital trade in goods and services. Both Mexico and Canada have given their support for updating NAFTA, which was adopted 23 years ago, and they have indicated a desire to preserve the regional automotive production chains. Although the United States has to date emphasized regulatory issues, negotiations on tariffs and rules of origin will be crucial in reaching a new agreement. Under NAFTA, all automotive import duties were waived as long as rules of origin were met: a regional content value of 62.5% for automobiles, light trucks, engines and transmissions, and of 60% for other types of vehicles and parts. In this framework, any major changes to the existing trade preferences could significantly upset production and supplier chains in North America. Although it is too soon to gauge the effect of these new policies —many of which have yet to be implemented— and the scope of the NAFTA negotiations is not fully clear, any change in automotive production chains would be highly damaging to jobs and competitiveness. In such a scenario, China could see a strengthening of its dominant role as a producer of parts, components and specialized machinery, given the sheer size and low costs of its motor vehicle industry (CAR, 2017b). At this juncture of pressures from the technological revolution combined with the shifting focus of trade and industrial policies in the United States, Mexico’s automotive industry enjoys a strong position. However, this will not shield it from significant challenges to its status as one of the world’s largest producers and exporters. Beyond the trade negotiations currently under way, Mexico will have to base its responses on new sectoral and technology policy efforts, framed by the current reality of the global automotive industry.

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Economic Commission for Latin America and the Caribbean (ECLAC)

Expansión (2017a), “¿Hay más inversiones automotrices en riesgo por el ‘efecto Trump’?”, 4 January [online] http://expansion.mx/empresas/2017/01/03/mas-inversiones-automotricesen-riesgo-por-el-efecto-trump?utm_source=expansion&utm_campaign=InternalTraffic&utm_ medium=RELATED_ARTICLE. (2016), “Las inversiones automotrices siguen firmes en México pese a las amenazas de Trump”, 4 November [online] http://expansion.mx/empresas/2016/11/03/inversiones-automotricessiguen-firmes-en-mexico-pese-a-amenazas-de-trump. Export (2016), “Mexico: automotive parts and supplies”, 17 October [online] http://www.export. gov/article?id=Mexico-Automotive-Parts-and-Supplies. Fajnzylber, F. (1983), La industrialización trunca de América Latina, Mexico City, Editorial Nueva Imagen. Financial Times (2017), “Trump reopens review of US fuel efficiency standards”, 15 March [online] http://www.ft.com/content/63e317b0-0936-11e7-97d1-5e720a26771b. Forbes (2017a), “Fiat Chrysler ready to move pickup trucks from Mexico if Trump plays cards right”, 26 January [online] http://www.forbes.com/sites/joannmuller/2017/01/26/fiat-chrysler-readyto-move-pickup-trucks-from-mexico-if-trump-plays-cards-right/#4508c8782db5. Forbes México (2014), “General Motors invertirá 5,000 mdd en México”, 11 December [online] http://www.forbes.com.mx/general-motor-invertira-5000-mdd-en-mexico/. Fortune (2017a), “Ford cancels a $1.6 billion Mexico plant and adds 700 jobs in Michigan”, 3 January [online] http://fortune.com/2017/01/03/ford-cancels-mexico-plant-trump/. (2017b), “Hyundai boosts U.S. investment to $3.1 billion after Trump’s threats”, 17 January [online] http://fortune.com/2017/01/17/donald-trump-hyundai-auto-investment/. (2016), “Donald Trump says he stopped Ford from moving to Mexico. But it wasn’t even leaving”, 18 November [online] http://fortune.com/2016/11/18/donald-trump-ford-mexico-kentucky/. IFR (International Federation of Robotics) (2016), World Robotics 2016: Industrial Robots, September. Iliff, L. (2016b), “Mexico’s boom strains suppliers: strains on labor markets, infrastructure”, Automotive News, 5 September [online] http://www.autonews.com/article/20160905/ OEM10/309059954/mexicos-boom-strains-suppliers. INA (Industria Nacional de Autopartes) (2015), “Industria Nacional de Autopartes, A.C.” [online] http://docplayer.es/818210-Industria-nacional-de-autopartes-a-c.html. ITA (International Trade Administration) (2016), 2016 Top Markets Report: Automotive Parts, Washington, April [online] http://trade.gov/topmarkets/pdf/autoparts_Top_Markets_Report.pdf. Modern Machine Shop (2017), “La industria automotriz mexicana y sus desafíos para 2017”, 11 January [online] http://www.mms-mexico.com/art%C3%ADculos/la-industria-automotrizmexicana-y-sus-desaf%C3%ADos-para-2017. Motorpasión (2017), “La EPA se adelanta a Donald Trump y blinda los niveles de emisiones aprobados por Obama”, 16 January [online] http://www.motorpasion.com/industria/la-epase-adelanta-a-donald-trump-y-blinda-los-niveles-de-emisiones-aprobados-por-obama. Naughton, K. (2017), “Ford cancels plans for new $1.6 billion Mexico plant”, Bloomberg, 3 January [online] http://www.bloomberg.com/news/articles/2017-01-03/ford-cancels-1-6-billion-mexicoplant-after-trump-s-criticism. Nissan (2015), “COMPAS, el nuevo complejo productivo de manufactura de la alianza RenaultNissan y Daimler, integra una herencia de excelencia en manufactura en México”, 18 August [online] http://nissannews.com/es-MX/nissan/mexico/releases/compas-el-nuevo-complejoproductivo-de-manufactura-de-la-alianza-renault-nissan-y-daimler-integra-una-herencia-deexcelencia-en-manufactura-en-m-xico. (2013), “Nissan inaugurates all-new Aguascalientes, Mexico plant, building on reputation for quality and efficiency”, 13 November [online] http://www.nissan-global.com/EN/NEWS/2013/_ STORY/131113-01-e.html. ProMéxico (2016), La industria automotriz mexicana: situación actual, retos y oportunidades, Mexico City, Secretaría de Economía, October [online] http://www.promexico.mx/documentos/ biblioteca/la-industria-automotriz-mexicana.pdf. PwC (2017a), Autofacts: US: Ushering in a New Era, April [online] http://www.pwc.com/gx/en/ automotive/autofacts/analyst-notes/pdf/analyst-note-us-trump-april-2017.pdf. (2017b), Autofacts: US Emissions Update. CAFE, CARB, and the Current Cacophony of Regulations, May [online] http://images.info.pwc.com/Web/PwC/%7B4c14b0e3-f209-49bc9a44-fad68c32b5cd%7D_Analyst_Note_-_US_Emissions_Update_(May_2017).pdf. (2016), Autofacts: Industry Update, June [online] http://www.automotivelogistics.media/wpcontent/uploads/2016/06/FVLNA16_Session1_Brandon%20Mason_Pwc.pdf.

Foreign Direct Investment in Latin America and the Caribbean

• 2017

Reuters (2017a), “Toyota to invest $10 billion in U.S. over five years”, 9 January [online] http:// www.reuters.com/article/us-usa-autoshow-toyota-idUSKBN14T1NN. (2017b), “General Motors to invest additional $1 billion in US”, 17 January [online] http://www. reuters.com/article/us-gm-jobs-trump-idUSKBN15107B. Sedgwick, David (2016), “Suppliers’ $48 billion spending spree: Mexico trails as automakers call for more capacity”, Automotive News, 1 August [online] http://www.autonews.com/ article/20160801/OEM10/308019948/suppliers-$48-billion-spending-spree. Sirkin, H., M. Zinser and J. Rose (2014), “The shifting economics of global manufacturing: how cost competitiveness is changing worldwide”, The Boston Consulting Group, August. The Globe and Mail (2017), “The countdown to NAFTA talks has begun. What’s going on?: A guide”, 19 May [online] http://www.theglobeandmail.com/news/politics/nafta-renegotiations-trumpcanada/article33715250/. The New York Times (2017a), “Trump, in meeting, urges automakers to build in United States”, 24 January [online] http://www.nytimes.com/2017/01/24/business/trump-us-automakersmeeting.html?_r=0. (2017b), “Trump sends Nafta renegotiation notice to Congress”, 18 May [online] http://www. nytimes.com/2017/05/18/us/politics/nafta-renegotiation-trump.html. (2017c), “Trump expected to pull U.S. from Paris Climate Accord”, 31 May [online: http:// www.nytimes.com/2017/05/31/climate/trump-quits-paris-climate-accord.html?_r=0. (2017d), “Missing: Donald Trump’s trillion-dollar infrastructure plan”, 27 February [online] http:// www.nytimes.com/2017/02/27/opinion/missing-donald-trumps-trillion-dollar-infrastructureplan.html. Vanguardia (2015), “Producirán Daimler y Renault-Nissan vehículos compactos en México”,28 July [online] http://www.vanguardia.com.mx/producirandaimleryrenaultnissanvehiculoscompactosenmexico -2356805.html. (2013), “Grupo Chrysler confirma inversión por mil 249 MDD en Saltillo, Coahuila”,10 October [online] http://www.vanguardia.com.mx/grupochryslerconfirmainversionpormil249mddensaltillocoahuila -1849630.html. Washington Post (2017a), “Donald Trump tells Detroit auto CEOs that environmental regulations are ‘out of control’”, 24 January [online] http://www.washingtonpost.com/news/innovations/ wp/2017/01/24/donald-trump-tells-detroit-auto-ceos-environmental-regulations-are-out-ofcontrol/?utm_term=.429b668046f7. (2016a), “Trump warns of ‘retribution’ for companies that offshore jobs, threatening 35 percent tariff”, 8 December [online] http://www.washingtonpost.com/news/wonk/wp/2016/12/04/ trump-warns-of-retribution-for-companies-that-offshore-jobs-threatening-35-percent-tariff/?utm_ term=.41e4855b8952. Welch, D. (2017), “GM plans $1 billion U.S. investment in nod to Trump”, Bloomberg, 16 January [online] http://www.bloomberg.com/news/articles/2017-01-17/gm-said-to-plan-1-billioninvestment-in-u-s-additional-jobs. Welch, D. and N. Cattan (2017), “How Mexico’s unions sell out autoworkers”, Bloomberg, 5 May [online] http://www.bloomberg.com/news/articles/2017-05-05/how-mexico-s-unions-sellout-autoworkers. Wilson, C. (2017), Growing Together: Economic Ties between the United States and Mexico, Washington D.C., Mexico Institute/Woodrow Wilson International Center for Scholars, March [online] http://www.wilsoncenter.org/sites/default/files/growing_together_economic_ties_ between_the_united_states_and_mexico.pdf. (2011), Working Together: Economic Ties between the United States and Mexico, Washington D.C., Mexico Institute/Woodrow Wilson International Center for Scholars, November [online] http://www.wilsoncenter.org/sites/default/files/Working%20Together%20Full%20 Document.pdf. Wired (2017a), “Want to gut emission rules? Prepare for war with California”, 8 March [online] http://www.wired.com/2017/03/want-gut-emission-rules-prepare-war-california/.

Chapter III

189

Publicaciones recientes de la CEPAL ECLAC recent publications www.cepal.org/publicaciones Informes periódicos / Annual reports También disponibles para años anteriores / Issues for previous years also available •

Estudio Económico de América Latina y el Caribe 2016, 236 p. Economic Survey of Latin America and the Caribbean 2016, 232 p.



La Inversión Extranjera Directa en América Latina y el Caribe 2016, 170 p. Foreign Direct Investment in Latin America and the Caribbean 2016, 164 p.



Anuario Estadístico de América Latina y el Caribe 2016 / Statistical Yearbook for Latin America and the Caribbean 2016, 132 p.



Balance Preliminar de las Economías de América Latina y el Caribe 2016, 132 p. Preliminary Overview of the Economies of Latin America and the Caribbean 2016, 124 p.



Panorama Social de América Latina 2015, 226 p. Social Panorama of Latin America 2015, 222 p.



Panorama de la Inserción Internacional de América Latina y el Caribe 2016, 174 p. Latin America and the Caribbean in the World Economy 2015, 170 p.

Libros y documentos institucionales / Institutional books and documents •

Panorama fiscal de América Latina y el Caribe 2017: la movilización de recursos para el financiamiento del desarrollo sostenible, 2017, 115 p. Fiscal Panorama of Latin America and the Caribbean 2017: Mobilizing resources to finance sustainable development, 2017, 108 p. • ECLAC Thinking. Selected Texts (1948-1998), 2016, 520 p. •

La matriz de la desigualdad en América Latina, 2016, 96 p. The social inequality matrix in Latin America, 2016, 94 p.



Autonomía de las mujeres e igualdad en la agenda de desarrollo sostenible, 2016, 184 p. Equality and women’s autonomy in the sustainable development agenda, 2016, 168 p. Autonomia das mulheres e igualdade na agenda de desenvolvimento sustentável. Síntese, 2016, 106 p.



La Unión Europea y América Latina y el Caribe ante la Agenda 2030 para el Desarrollo Sostenible: el gran impulso ambiental, 2016, 112 p. The European Union and Latin America and the Caribbean vis-à-vis the 2030 Agenda for Sustainable Development: The environmental big push, 2016, 112 p.



Horizontes 2030: la igualdad en el centro del desarrollo sostenible, 2016, 176 p. Horizons 2030: Equality at the centre of sustainable development, 2016, 174 p. Horizontes 2030: a igualdade no centro do desenvolvimento sustentável, 2016, 176 p.



40 años de agenda regional de género, 2016, 130 p. 40 years of the regional gender agenda, 2016,128 p.



La nueva revolución digital: de la Internet del consumo a la Internet de la producción, 2016, 100 p. The new digital revolution: From the consumer Internet to the industrial Internet, 2016, 100 p.

Libros de la CEPAL / ECLAC books 145 Política industrial rural y fortalecimiento de cadenas de valor, Ramón Padilla, (ed.), 2017, 242 p. 144 Desde el gobierno abierto al Estado abierto en América Latina y el Caribe, Alejandra Naser, Álvaro Ramírez-Alujas, Daniela Rosales (eds.), 2017, 466 p. 143 Protección social en América Latina: la desigualdad en el banquillo, Ana Sojo, 2017, 246 p. 142 Consensos y conflictos en la política tributaria de América Latina, Juan Carlos Gómez Sabaini, Juan Pablo Jiménez y Ricardo Martner (eds.), 2017, 446 p. 141 Brechas y transformaciones: la evolución del empleo agropecuario en América Latina, Jürgen Weller (ed.), 2016, 274 p. 140 Protección y formación: instituciones para mejorar la inserción laboral en América Latina y Asia, Alberto Isgut, Jürgen Weller (eds.), 2016, 428 p. Protection and training: Institutions for improving workforce integration in Latin America and Asia, Alberto Isgut, Jürgen Weller (eds.), 2016, 428 p. 139 Hacia una nueva gobernanza de los recursos naturales en América Latina y el Caribe, Hugo Altomonte, Ricardo J. Sánchez, 2016, 256 p.

Páginas Selectas de la CEPAL / ECLAC Select Pages •

Planificación y prospectiva para la construcción de futuro en América Latina y el Caribe. Textos seleccionados 2013-2016, Jorge Máttar y Mauricio Cuervo (comps.), 2016, 222 p.



Desarrollo inclusivo en América Latina. Textos seleccionados 2009-2016, Ricardo Infante (comp.), 2016, 294 p.



Globalización, integración y comercio inclusivo en América Latina. Textos seleccionados 2010-2014, Osvaldo Rosales (comp.), 2015, 326 p.



El desafío de la sostenibilidad ambiental en América Latina y el Caribe. Textos seleccionados 2012-2014, Carlos de Miguel, Marcia Tavares (comps.), 2015, 148 p

Copublicaciones / Co-publications •

El imperativo de la igualdad, Alicia Bárcena, Antonio Prado, CEPAL/Siglo Veintiuno, Argentina, 2016, 244 p.



Gobernanza global y desarrollo: nuevos desafíos y prioridades de la cooperación internacional, José Antonio Ocampo (ed.), CEPAL/Siglo Veintiuno, Argentina, 2015, 286 p.



Decentralization and Reform in Latin America: Improving Intergovernmental Relations, Giorgio Brosio and Juan Pablo Jiménez (eds.), ECLAC/Edward Elgar Publishing, United Kingdom, 2012, 450 p.



Sentido de pertenencia en sociedades fragmentadas: América Latina desde una perspectiva global, Martín Hopenhayn y Ana Sojo (comps.), CEPAL/Siglo Veintiuno, Argentina, 2011, 350 p.

Coediciones / Co-editions •

Perspectivas económicas de América Latina 2017: Juventud, Competencias y Emprendimiento, 2016, 338 p. Latin American Economic Outlook 2017: Youth, Skills and Entrepreneurship, 2016, 314 p.



Desarrollo e integración en América Latina, 2016, 314 p.



Hacia un desarrollo inclusivo: el caso del Uruguay, 2016, 174 p.



Perspectivas de la agricultura y del desarrollo rural en las Américas: una mirada hacia América Latina y el Caribe 2015-2016, CEPAL/FAO/IICA, 2015, 212 p.

Documentos de proyecto / Project documents •

La transversalización del enfoque de género en las políticas públicas frente al cambio climático en América Latina, Marina Casas Varez, 2017, 101 p.



Financiamiento para el cambio climático en América Latina y el Caribe en 2015, Joseluis Samaniego y Heloísa Schneider, 2017, 76 p.



El cambio tecnológico y el nuevo contexto del empleo: tendencias generales y en América Latina, Sebastian Krull, 2016, 48 p.



Cambio climático, políticas públicas y demanda de energía y gasolinas en América Latina: un meta-análisis, Luis Miguel Galindo, Joseluis Samaniego, Jimy Ferrer, José Eduardo Alatorre, Orlando Reyes, 2016, 68 p.



Estado de la banda ancha en América Latina y el Caribe 2016, 2016, 46 p.

Cuadernos estadísticos de la CEPAL 44 Las cuentas de los hogares y el bienestar en América Latina. Más allá del PIB, 2016. 43 Estadísticas económicas de América Latina y el Caribe: Aspectos metodológicos y resultados del cambio de año base de 2005 a 2010

Series de la CEPAL / ECLAC Series Asuntos de Género / Comercio Internacional / Desarrollo Productivo / Desarrollo Territorial / Estudios Estadísticos / Estudios y Perspectivas (Bogotá, Brasilia, Buenos Aires, México, Montevideo) / Studies and Perspectives (The Caribbean, Washington) / Financiamiento del Desarrollo / Gestión Pública / Informes y Estudios Especiales / Macroeconomía del Desarrollo / Medio Ambiente y Desarrollo / Población y Desarrollo / Política Fiscal / Políticas Sociales / Recursos Naturales e Infraestructura / Seminarios y Conferencias.

Manuales de la CEPAL 5

Estimación de las erogaciones sociales a partir del sistema de cuentas nacionales: una propuesta para las funciones de educación, salud y protección social, María Paz Colinao, Federico Dorin, Rodrigo Martínez y Varinia Tromben, 2016, 63 p.

4

Territorio e igualdad: planificación del desarrollo con perspectiva de género, 2016, 84 p.

3

Manual de formación regional para la implementación de la resolución 1325 (2000) del Consejo de Seguridad de las Naciones Unidas relativa a las mujeres, la paz y la seguridad, María Cristina Benavente R., Marcela Donadio, Pamela Villalobos, 2016, 126 p.

2

Guía general para la gestión de residuos sólidos domiciliarios, Estefani Rondón Toro, Marcel Szantó Narea, Juan Francisco Pacheco, Eduardo Contreras, Alejandro Gálvez, 2016, 212 p.

Revista CEPAL / CEPAL Review La Revista se inició en 1976, con el propósito de contribuir al examen de los problemas del desarrollo socioeconómico de la región. La Revista CEPAL se publica en español e inglés tres veces por año. CEPAL Review first appeared in 1976, its aim being to make a contribution to the study of the economic and social development problems of the region. CEPAL Review is published in Spanish and English versions three times a year.

Observatorio demográfico / Demographic Observatory Edición bilingüe (español e inglés) que proporciona información estadística actualizada, referente a estimaciones y proyecciones de población de los países de América Latina y el Caribe. Desde 2013 el Observatorio aparece una vez al año. Bilingual publication (Spanish and English) proving up-to-date estimates and projections of the populations of the Latin American and Caribbean countries. Since 2013, the Observatory appears once a year.

Notas de población Revista especializada que publica artículos e informes acerca de las investigaciones más recientes sobre la dinámica demográfica en la región. También incluye información sobre actividades científicas y profesionales en el campo de población. La revista se publica desde 1973 y aparece dos veces al año, en junio y diciembre. Specialized journal which publishes articles and reports on recent studies of demographic dynamics in the region. Also includes information on scientific and professional activities in the field of population. Published since 1973, the journal appears twice a year in June and December.

Las publicaciones de la CEPAL están disponibles en: ECLAC publications are available at:

www.cepal.org/publicaciones También se pueden adquirir a través de: They can also be ordered through:

www.un.org/publications

United Nations Publications PO Box 960 Herndon, VA 20172 USA Tel. (1-888)254-4286 Fax (1-800)338-4550 Contacto / Contact: [email protected] Pedidos / Orders: [email protected]

www.eclac.org

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