Tuesday, October 20, 2015

Brazil has received more FDI than India in 2015

The Indian media was ecstatic last month reporting that India had overtaken China and US in Foreign Direct Investment (FDI) in the first half of 2015. They quoted a Financial Times report which had estimated that India had received FDI of 31 billion dollars as against 28 billion received by China and 27 billion by US. It is not clear how FT arrived at this figure, since DIPP shows a figure of just 19.4 billion dollars. 
The Indian media have, however, missed the news that Brazil had received 42 billion dollars of FDI in the first semester of 2015 which is more than India's. In 2014, Brazil got FDI 97 billion dollars in FDI.
According to the 15 October report of ECLAC (the UN Economic Commission for Latin America and Caribbean), Brazil's FDI of 42 billion is 47% of the total FDI in Latin America and three times more than the 13.7 billion received by Mexico. 
The Brazilian FDI data becomes interesting in the light of the fact that Brazil is at the moment in the middle of painful political and economic problems including the massive Petrobras corruption scandal which has lead to arrest and jailing of dozens of top business barons and politicians. Brazil's GDP is projected to contract by 2.8% in 2015 and 1% in 2016 after an insignificant growth of just 0.1% in 2014. The Brazilian Real has depreciated by 38% in the last six months to 4 Reais to a dollar from 2.9 in April 2015 and from a strong peak of 1.66 in 2010.  Despite these issues, foreign investors have shown confidence in the long term prospects of Brazil.
According to ECLAC, Latin America had received a total FDI of 88.7 billion dollars in the first half of 2015. Chile was the third largest destination of FDI with 8.2 billion, followed by Colombia-6.8 billion, Argentina-5.3 billion and Peru-4 billion.
For Indian companies with global ambitions, this is an ideal time for investment and to build on the cumulative Indian investment of 15 billion dollars in Latin America. Details in http://www.businesswithlatinamerica.com/.  The asset prices in the region are low due to depreciation of currencies against the dollar, the fall in prices of commodities and the low growth of the region. But this is a cyclical downturn caused mainly by the Chinese slow down and decline in domestic consumption. The region has healthy macroeconomic fundamentals (with a few exceptions, of course) and the policy makers have learnt from past mistakes and misadventures. Latin America has done better than all the other regions in reducing poverty and inequality in the last decade. Democracies have become stronger with the rise in middle class which has become more assertive in holding the politicians more accountable.
Indian energy companies could expand investment in the oil sector of Brazil, Mexico and Colombia. They could enter the shale sector of Argentina, which has the third largest reserves in the world and  has just started producing oil and gas from shale. Indian companies could invest in mining in the region where mines are cheaper these days due to the low price and demand for metals at this time. There are also a number of manufacturing plants available for acquisition across the region from ethanol plants to pharmaceuticals.
The outgoing FDI from Latin America in Jan-June 2015 was 30.66 billion of which Brazil accounted for 13 billion, Chile-7.8 billion, Mexico-7.3 billion and Colombia-1.4 billion.
The Latin Americans have invested about 1.5 billion dollars in India in steel, auto parts and even cola drinks. Carlos Slim, the Mexican billionaire, who reclaimed his position as the world's richest person in 2014 with net worth of 79 billion dollars had visited India in May this year, on his first business exploratory trip. There are a number of other big Latin American investors and pension funds for whom the growing Indian market is an attraction. It is time that DIPP include the Latin American investors too as targets in their global FDI campaign.

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