Area Development
Foreign direct investment (FDI) in the Americas is dominated by three countries: the United States, Canada, and Mexico. All three are stable nations that are economically linked by the North American Free-Trade Agreement (NAFTA) - creating a market of about 450 million people with a combined GDP of nearly US$15 trillion. NAFTA also eliminates tariffs, facilitates border crossings, protects intellectual property, and certifies goods and products. By setting up operations in these countries, investors open up lucrative product-delivery channels to one of the wealthiest customer bases in the world.

The United States is the unquestioned leader in FDI in the Americas, both as an investor in other countries and as the recipient of foreign investment. In 2005, the U.S. was fifth in the world with 450 FDI projects; in comparison, Canada had 180 and Mexico 113.

According to the 2005 Foreign Direct Investment Confidence Index by business consulting firm A.T. Kearney, in 2004, "the United States was the largest FDI recipient in the world, capturing $96 billion - a strong rebound from the $56.8 billion received in 2003."

At the same time, Latin America continues to enjoy an economic rebound, which is attracting more foreign investment. The Kearney report states that "FDI inflows to Latin America increased after four years of declines - reaching $68.9 billion in 2004 up from $48 billion in 2003," much of that being driven by the manufacturing and natural resource sectors.

Companies want to invest in regions that have pro-business governments, low business costs, and stable economies. That's why Canada has witnessed a substantial growth in FDI - about CAN$416 billion in 2005, more than 6.5 times more than in 1980.

The United States is Canada's largest source of foreign investment. In 2005, the U.S. share of FDI in Canada was 64.1 percent, followed by the United Kingdom, France, and the Netherlands. Many FDI projects are in knowledge-based manufacturing sectors such as electronics, communications, and chemicals.

One reason Canada is booming is because it has the lowest business costs in the G8. In KPMG's 2006 Competitive Alternatives, Canada's costs were the lowest in the study. This is the sixth consecutive time KPMG has ranked Canada as the lowest-cost G8 country in which to do business, especially in growing sectors such as biotechnology, medical devices, pharmaceuticals, electronics, automotive, precision manufacturing, and back-office/call centers.

Leading global companies with multiple FDI projects in Canada are DaimlerChrysler, Imperial Oil, Shell, and Toyota, which reflect the growing importance of the automotive and energy sectors. In 2005, nearly 20 percent of FDI in Canada was in energy.

• Biotechnology: According to Ernst & Young, Québec and Ontario are two of the top-ranked regions in North America for biotech, with the cities of Montreal and Toronto the largest biotech clusters in Canada. Toronto is home to more than 100 life sciences companies, including global giants like Aventis Pasteur, Eli Lilly, GlaxoSmithKline, and AstraZeneca. Another hotspot is the Sherbrooke region in Québec, where startups conduct R&D and product commercialization at the180-acre Sherbrooke Biomedical Park.

Ottawa, the Canadian capital, is a rapidly growing life sciences cluster. With more than 40 government and university-based research institutes and 100 life-science companies based there, the cluster is growing about 15 percent annually. Key players are Adherex Technologies, Gamma-Dynacare Medical Laboratories, and Ottawa Life Sciences Technology Park.

"Ottawa is fortunate to have not only a wealth of talented researchers and scientists, but a supportive infrastructure which facilitates growth of both emerging companies and the sector as a whole," says Bill Dickie, president and CEO of Liponex. "The combination of academic institutions, research-oriented healthcare system, and the government through the NRC provide the local life science community with the support needed to grow and flourish."

• Energy: The global surge in prices for metals, oil, and gas have made Canada's natural resources more attractive to foreign investors. Investments are on the rise in the western provinces, which have large resources of oil, gas, metals, and diamonds. Some deposits that were previously difficult to extract, such as vast fields of oil sands, are now closer to commercialization because of new technologies. Recently, Husky Energy (owned by Chinese parent Hutchison Whampoa) invested $500 million in the Tucker Oil Sands project in Alberta, which is producing about 30,000 barrels of crude oil per day.

"Alberta's proven oil sands reserves of 174 billion barrels are a source of long-term, secure, and stable energy supplies," says Clint Dunford, the province's Economic Development Minister. "With an anticipated bitumen output of three million barrels a day by 2020, Alberta continues to investigate opportunities for investment and collaboration in oil sands projects."

The Mackenzie Delta Producers Group (Imperial Oil Resources, Conoco Canada, Shell Canada, ExxonMobil Canada) is studying the possibility of purchasing the Mackenzie Valley Natural Gas Pipeline Project for about $8 billion. The project will develop onshore natural-gas fields in the Mackenzie Delta and transport the gas to Canadian and U.S. markets.

BHP Billiton Diamonds (Australia) is a major player in Canada and recently announced plans to invest $280 million in the new Koala underground project at the EKATI Diamond Mine near Wekweti, Northwest Territories. Reserves are estimated at about 10 million carats of diamonds. A number of international companies are continuing aggressive diamond exploration programs in the region.

• Automotive: Ontario has long been the heart of the Canadian automotive industry. Impressed by the province's infrastructure, technically skilled labor pool, ideal location, and incentives, the big automotive companies continue to invest there.

Honda Canada is planning to build a new CAN$154 million manufacturing plant in Alliston, Ontario, that will produce about 200,000 four-cylinder engines every year. Another manufacturer, Toyota Boshoku Canada, announced in July 2006 its intent to construct a CAN$65 million automotive interior manufacturing plant in Woodstock, which will create 330 new jobs.

"We worked very hard to bring the new Toyota plant to Woodstock and now we're seeing the wider benefits come into play," says Joseph Cordiano, Canada's Economic Development and Trade Minister. "Parts suppliers like Toyota Boshoku are creating more high-value jobs and helping Ontario build North America's most productive and efficient auto industry."

FDI has been steadily increasing in Mexico, a result of strengthening markets (especially manufacturing), recent bilateral economic agreements in Europe and Asia, better global competitiveness, and a pro-business climate. In the Kearney report, Mexico jumped from 22nd in 2004 to 16th in 2005.

According to the United Nations, Mexico received more foreign direct investment in 2005 than any other country in Latin America and the Caribbean region. The U.N. Economic Commission for Latin America and the Caribbean (ECLAC) stated that Mexico received about $17 billion in FDI in 2005, much of it going to the manufacturing sector and maquiladora assembly plants.

The Kearney report states that "Japanese investors rank Mexico their fifth-most attractive market, up from below the top 25 last year. The Japan-Mexico Economic Prosperity Agreement (EPA), effective in April 2005, offers Japanese companies new opportunities in Mexico."

Much of the maquiladora sector in Mexico is anchored by large American companies. High-tech manufacturing/assembly plants produce heavy machinery and transportation equipment, auto parts, televisions, ICT equipment, electronics, chemicals, plastics, and rubber. Leading multinational investors in Mexico are Con-Way Transportation Services, Menlo Worldwide, DaimlerChrysler, and Canplats Resources.

According to the Kearney report, "The maquiladora sector is helping Mexico's FDI inflows rebound. Mexican FDI inflows jumped from $12.8 billion in 2004 to $17.9 billion in 2005. The economic recovery in the maquiladora sector, supported by U.S. demand for imports, helped spur a return of manufacturing investors."

Even though American companies still lead the pack, more Asian firms are setting up maquiladora assembly plants. In 2005, their share of business was 37 percent, up from only 8.6 percent in 2000 - in part the result of new free-trade agreements. In contrast, the U.S. share of the Mexican maquiladora sector has dropped from 90 percent in 2000 to 56 percent in 2005.

A.T. Kearney's research indicates that in 2005, heavy and light manufacturers ranked Mexico eighth and sixth, respectively (up from 15th and 21st in 2004). Many of the big automakers and suppliers in Mexico such as Lear, Visteon, General Motors, Ford, DaimlerChrysler, Toyota, Honda, and Nissan are expanding their manufacturing plants. Since January 2004, Volkswagen and Ford have announced more than $3 billion in multiyear investments. Electronics investors ranked the country fourth, up from 21st a year earlier. Throughout 2005, leading electronics manufacturers, including Motorola, acquired facilities and land along the U.S. border, suggesting a continuing FDI improvement in the maquiladora sector.

The entire country has been designated a free-trade zone - companies, even 100 percent foreign ownership, can locate anywhere in Honduras and enjoy tax-free status. Leading industries are textiles and apparel. In fact, Honduras has one of the largest apparel manufacturing industries in Latin America.

About 40 percent of FDI in the Honduran textile industry is controlled by U.S. companies. Honduras is the third-largest exporter of textiles to the United States and is the base of operations for several large American companies, including Fruit of the Loom, Lear Corporation, Gildan, and Russell, which has made Honduras its headquarters for all of the Americas.

Anvil Knitware, Parkdale Mills, Delta Apparel, and Pride Chemicals are some of the apparel companies located in the new $50 million Green Valley Industrial Park, one of the most technologically advanced industrial developments in Latin America. The master plan was designed by O2 Planning and Design, an award-winning Canadian architecture and design firm.

"This 500-acre complex is well-suited on the north coast of Honduras, about 90 minutes from Puerto Cortes, the largest maritime port in Central America," says Ana Rivera, marketing manager for the industrial park. "Green Valley has the best textile training center in the region and can provide customized technical training for any manufacturing industry."

Costa Rica
Costa Rica is one of the most stable economies in Latin America. Recovered now from its debt crisis of 25 years ago, the economy has maintained an annual average growth rate of about 4.5 percent. That economic growth, combined with one of the lowest risks in Latin America, has given Costa Rica more access to global capital markets.

Nearly 75 percent of the FDI in Costa Rica is from the United States, and 10 percent from Europe. About three-quarters of all FDI is invested in Costa Rica's manufacturing industry, especially the electronics, medical devices, and automotive sectors. "The high-tech manufacturing industry has experienced tremendous growth in Costa Rica," says Pilar Madrigal, investment representative for the Costa Rican Investment Promotion Agency. "There are currently more than 50 companies in the electronics sector, such as Intel, Trinquint, and Panduit, generating more than 11,000 direct jobs and US$2.120 million in exports during 2005."

In the automotive field, Bridgestone Firestone produces more than 8,000 tires per day for cars and light trucks in Costa Rica, most of which are shipped to the United States. Seton - a leather car seat-cover manufacturer that supplies Audi, BMW, DaimlerChrysler, General Motors, Porsche, and Volkswagen - has been operating in Costa Rica since July 2002. In 2004, it opened an international logistics facility to handle all its purchasing and delivery requirements.

According to the Economic Commission for Latin America and the Caribbean (ECLAC) report Foreign Investment in Latin America and the Caribbean, Brazil was second only to Mexico in receiving the most FDI in Latin America in 2005. A. T. Kearney's research shows that Brazil's ranking jumped from 17th in 2004 to seventh in 2005. FDI in Brazil has been steadily on the rise, reaching $18.2 billion in 2004. Much of the increase is FDI is, per Kearney, "due to the country's healthy macroeconomic performance, resulting from increased exports to China, higher commodity prices, rising incomes, and increasing demand."

Brazil definitely has the attention of manufacturers from around the world. Leading investors are the United States, Germany, France, and Japan. According to IBM's Global Investment Locations database, Brazil attracted 39 percent of all registered R&D projects in Latin America in 2005 - almost twice as many as Mexico.

Key manufacturing sectors are heavy machinery, transportation equipment, chemicals, and plastics. Top companies in Brazil are Siemens, Accor, Cargill, Degussa, and Eka Chemicals. Brazil is one of the top-ranked countries in the world for FDI for chemicals manufacturing and research and development. The pharmaceuticals sector has also increased production over the last several years, including several significant expansions.

"Many foreign companies are applying for licenses to produce generic drugs in Brazil," according to the Kearney report. "In 2004, a wholly-owned Brazilian subsidiary of India's Glenmark Pharmaceuticals Ltd. acquired Laboratories Klinger, a local pharmaceutical firm, and obtained approved product registrations, most of which were generics, in the process."

The manufacture of transportation equipment and automotive equipment continues to be strong, driven by an improved global economy, low interest rates, and government-sponsored tax concessions. A number of international automotive companies are planning on expanding operations in Brazil, including Fiat, General Motors, Mitsubishi Motors, and Hyundai.

Despite the manufacturing gains and the improved economy, the Kearney report indicates that Brazil still faces considerable obstacles: "Brazil suffers from one of the most rigid labor markets in the world, high business costs, heavy bureaucracy, and slow implementation of public-private partnerships needed to address infrastructure bottlenecks."