Wednesday, June 04, 2014

Foreign Direct Investment ( FDI ) in Latin America in 2013

Latin America received 179 billion dollars of FDI in 2013, the highest record for the region, according to the report released by ECLAC ( Economic Commission for Latin America and Caribbean ) of the United Nations, on 29 May ( ). This amount is larger than the 159 bn $ received by US, 127 bn $ received by China and three times more than the 56 bn $ received by Africa. Brazil and Mexico had received more FDI than India's 28 bn$ in 2013.
The FDI in the region has gone up by 6.4% from 169 bn $ in 2012 and has been steadily increasing from 2003 onwards with the sole exception of 2009. Economic growth and high international demand for commodities are the two main factors for the growth in FDI, according to ECLAC. 
ECLAC expects FDI in 2014 to be around the same figure or slightly less than in 2013.
Brazil was the top FDI recipient with 64 bn $ followed by Mexico-38 bn, Chile-20 bn, Colombia- 16.7 bn, Peru- 10 bn, Argentina – 9 bn and Panama – 4.7 bn.  South America had received FDI of 130 bn $  while Central America got 10.7 bn
Service sector attracted 38% of the FDI, Manufacturing –36% and natural resources-26%. Greenfield investments accounted for around sixty percent of the total FDI in the period 2003-13. 
EU was the largest source of FDI in 2013 while US continued to be the largest investor country in Latin America. Japan was the largest Asian investor. ECLAC admits that they have found it difficult to track Chinese investments and estimates that the Chinese have been investing about 10 bn$ annually since 2010.
Latin American outward FDI in 2013 was 31.6 bn, a thirty three percent fall from the previous year. Mexico was the top investor with 13 bn $ followed by Chile with 11 bn and  Colombia- 7.6. Brazil had negative outflow in 2013 as it had in 2011 and 2012 also, since the Brazilian companies preferred to bring in money from developed markets where the interest rate is lower than in Brazil.
Investment and export opportunities for India
In 2013, there was no big-ticket Indian investment in Latin America and in fact there has been some disinvestment. Reliance pulled out from its investment in oil and gas in Peru. Renuka Sugar and Punjab Chemicals and Cropcare Ltd have been trying to close their operations in Argentina and Brazil respectively since these have been bleeding the balance sheets of the parent companies in India.
Indian investment in the region has picked up in 2014. Some companies have entered with investment in sectors such as IT, pharmaceuticals and hotels. Hero and Bajaj have announced plans to set up Latin American assembly units of their vehicles.

Indian business could explore opportunities for exports as well as investment in the following areas which are attracting FDI and local investment in Latin America.
Oil and gas
The Brazilian oil sector  received  FDI of 11 bn $ in 2013. The Brazilian oil company Petrobras has one of the largest corporate investment plans in the world amounting to 220 billion dollars in the period 2014-18. Mexico, which has liberalized its its energy sector last year and removed the monopoly of state companies, is set for large investment in exploration and production of oil and gas as well as in downstream units.
Argentina has 27 billion barrels of shale oil reserves, according to the latest estimates from the US Energy Department. The Argentines are inviting foreign investment, offering incentives and tax concessions. There are also opportunities for investment in the oil and gas sector in Bolivia, Ecuador and Colombia.
It should be noted here that Latin America is projected to account for two-thirds of the growth in the world’s oil supply over the next two decades. India, which needs to import increasing quantities of crude oil in the future, could get access to the sources of supplies by augmenting its investment in the region.
FDI in 2013 in automotive sector in Mexico  was 2.9 bn $ and in Brazil - 2.6 bn $. The Mexican automotive sector had received 19 bn $ in the period 2007-13 and the country has become the eight largest maker of vehicles coming close to the seventh placed Brazil and sixth ranked India. Foreign Companies have announced plans for investment of 34 billion in the Brazilian automotive sector in the period 20014-17.  Mexico is the fourth largest vehicle exporter in the world and exports 82% of the 3 million vehicles it makes annually. 68% of the exports go to US. Some Indian companies have already set up auto parts plants in Mexico and Brazil and others are exporting to OEMs in the two countries.
Solar energy
Chile's Atacama desert ( which receives the highest solar radiation) is attracting both FDI and local investment in solar energy. There are proposals for a total production of 9.9 GW involving investment of about 10 bn $. The solar energy produced from Atacama will be competitive in price compared to the grid price without any subsidy.
Wind energy
Latin America installed wind energy capacity of 2 GW in 2013 and is expected to add 31.5 GW in the period 2014- 2022. Brazil, is, of course, the largest market but the government has imposed conditions of domestic inputs in terms of equipments. There are a number of wind energy projects even in Central American countries such as Costa Rica, Nicaragua and Honduras.
Mining investment opportunities abound in countries such as Chile, Colombia, Peru and Bolivia. However, the investors should note the strong wave of protests by indigenous communities and NGOs against environmental damage and displacement of population. So the governments are tightening the regulations. Also the fall in prices of metals and minerals have dampened the investment.
The IT market of the region has been growing well despite the general slow down in GDP growth rate. The Brazilian IT market grew by 15.4% in 2013 with revenue of 61.6 bn $. The Indian companies operating in the region could expand their services to local clients as well as those in US and Europe. 
Mexico and Central America offer opportunities for investment in manufacturing for exports to US which has Free Trade Agreements with them. Mexico has an ecosystem for manufacturing of appliances, cars and consumer goods while Central America is ideal for garments and labour-intensive light goods.

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