Foreign Investment in the Andean Countries

This work provides a general picture of the evolution of Foreign Direct Investment (FDI) in the Andean countries. Then, following a brief review of FDI determinants in developing countries, it systematically examines the Andean countries' most important deficiencies in attracting FDI to dynamic and nontraditional sectors, based on the results of a survey conducted with executives of foreign companies installed in the Andean countries. The data clearly demonstrate grave deficiencies in essential state functions (administration of justice, probity and efficiency of the state institutions) that impede investments in general. Major problems can also be seen in various regulatory spheres (customs, foreign trade procedures, non-salary labor costs, steps for initiating new businesses) that offer a relatively unattractive picture for developing new activities. Finally, serious deficiencies can be seen in infrastructure and other aspects linked to logistics and transport. The document concludes with a set of recommendations grouped into three categories: (i) market orientation, recommending that Colombia and Venezuela target their investment attracting policy on access to the North American market and that the three remaining countries put special emphasis on the connection to markets of eastern South America. (ii) Institutional strengthening, geared to eliminating the uncertainty and instability factors linked to the deficient operation of state institutions, as well as revising bureaucratic procedures that act as a break on new business creation. (iii) A systematic review of each country's policies with respect to developing export platforms, to adjust them to what international experience indicates are the conditions for their successful development.