Thursday, July 12, 2018

Thoothukudi's loss is Sao Paulo's gain...

Latin America received 156 billion dollars of Foreign Direct Investment (FDI) in 2017, according to the report published by the UN Economic Commission for Latin America and Caribbean (ECLAC) this week. Of this South America received 111 billion dollars, Mexico and Central America 45 billion.

As usual, Brazil was the number one recipient in the region with 71 Billion dollars, followed by Mexico-32 bn, Colombia-14 bn, Argentina-12 bn, Peru-7 bn, Chile-6 bn , Panama-6 bn and Costa Rica-3 bn. Brazil was thefourth largest FDI recipient in the world.

FDI in Brazil was mostly acquisition of assets by Chinese firms. Foreigners are taking advantage of the low value of assets in Brazil, caused by the political uncertainty, the aftermath of the Car Wash scandal which has severely damaged the big Brasilian corporations and the drying up of domestic investment. The largest investment (acquisition)  in Latin America in 2017 was by the State Grid of China which invested 6.7 billion dollars in the energy sector of Brazil. The third largest investment in the region was also by a Chinese company State Power Investment Corporation in the renewable energy sector of Brazil with 2.3 billion dollars..

In contrast to Brasil, most of the FDI in Mexico went into greenfield investments strengthening especially the automobile, electronic and aerospace sectors in which Mexico has become a significant global player. Thanks to FDI, the Mexican automotive industry reached historic levels of production, exports and FDI in 2017, despite the uncertainty generated by the renegotiation of NAFTA. Today, 9 of the 10 largest manufacturers and the great majority of tier-1 suppliers in the world have operations in Mexico. There are some 2,600 plants producing parts, pieces and components, almost 600 of which are tier-1. In 2017, Mexico was the world’s seventh largest producer and fourth largest exporter of vehicles, as well as the sixth largest producer of car parts. 

Mexico has also emerged as the world’s second largest exporter of electronic equipment (mainly television sets), the third largest exporter of computers and the fifth largest exporter of communications equipment. 

In Mexico, there are some 300 firms, the great majority of them foreign, specialized in manufacturing parts and components for aeroplanes that are assembled in other countries. In the past five years, Mexico has positioned itself third, behind China and the United States, as a destination for FDI in the aerospace industry.

India has not made any large investment in the region in 2017, although Mexico has attracted a series of investment by medium and small Indian companies in recent years. Motherson Group has 15 autoparts plants in Mexico employing 22000 Mexicans. JK Tyres has 3 plants.The latest investment is by Parle in biscuit manufacturing in Mexico. 

In 2017, there was one significant Latin American investment in India. Grupo Bimbo of Mexico (the largest bread maker in the world) has acquired two Indian firms Harvest Gold and Ready Roti to make bread and rotis in India.

In 2018, Sterlite has won in auctions six Brazilian power transmission line projects, for which the company has committed 1.7 billion dollars of investment. Sterlite is bullish and is confident of winning more auctions in the future and has announced intention to invest 4 billion dollars in Brazil in the next four years. This is the largest ever project contract done by an Indian company in Latin America. The company is also exploring opportunities in Argentina, Chile and Mexico.

The CEO of Sterlite says, “We went to Brazil because the regulatory framework and the demand-supply scenario there are similar to what we have in India. What he did not say is "Thoothukudi's (Tuticorin) loss is Sao Paulo's gain..."