Costa Rica, Panama And Puerto Rico Lead As Promising FDI Destinations

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Foreign direct investment (FDI) has grown at a remarkable rate over the past two decades, and as investors seek new channels it is the developing countries that become more attractive destinations.

Last year, specifically, was a year of mixed results for global FDI. After a drop during the first quarter – mostly caused by specific transactions between multinationals with presence in the UK and the US –global FDI rebounded to approximately USD 325 billion in Q2. But some countries did see a steady and significant increase in the number of FDI projects they attracted. Here we discuss the top 3 promising countries of the Caribbean & Central America region, as ranked on economic, financial and business strength by fDi Intelligence’s 2015/16Top 10 Caribbean & Central American Countries of the Future.

1. Costa Rica

Costa Rica ranked as the top “Country of the Future” after winning 29 FDI projects in 2014 (Caribbean & Central America overall ranking). The country has achieved great development and economic expansion over the past 25 years. Even though Costa Rica still needs to continue developing efforts to improve competitiveness and the overall business climate, its stable political and economic structures and leadership in sectors like agriculture and tourism play a large role in attracting investors, especially in the hi-tech manufacturing sector, as companies take advantage of Costa Rica’s well-educated workforce, and modern facilities and services.

2. Panama

Panama ranked 2nd with 25 earned projects in 2014. Over the past decade, the country has been one of the fastest-growing economies worldwide; it grew an estimated 6.2% in 2014 and is expected to grow an estimated 6.2% this year. Additional structural reforms in areas like energy and education are required so Panama can continue with its growth, but the country has begun to gain benefit from recent infrastructure projects such as the expansion of the Panama Canal and investments in roads, airports and a new line for the Metro that will add 16 stations to the system.

3. Puerto Rico

The Economic Potential, Connectivity and Business Friendliness categories of the ranking helped Puerto Rico move up to third place overall. The island is strategically located mid-way between North and South America, two of the world’s fastest-growing economic regions and incentives aimed at stimulating economic development and attract FDI in sectors like manufacturing, tourism and renewable energy are already in place. However, Puerto Rico’s economic crisis is evident - the public debt is reaching USD72bn, one of the largest debt defaults in its history. The IMF says a series of structural reforms could help improve the situation.

What about the rest of the region?

The rest of the countries on the fDi Intelligence Top 10 Caribbean & Central American Countries of the Future 2015/16 (Overall ranking) are: Dominican Republic (4), Guatemala (5), Cayman Islands (6), El Salvador (7), Bermuda (8), Nicaragua (9) and Trinidad & Tobago (10).

FDI is an important source of private external finance for developing countries. With the decline in the number of projects since 2013 in major sectors such as financial services and tourism, countries in the region will face greater competition for fewer projects. It is important they encourage infrastructure and skills development, as well as look to emerging sectors. The IMF says what is likely to be more critical in the future is the distinctive combination of locational advantages and, especially, created assets that a country or region can offer potential investors.

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