Political Risk Latin America Blog @PolRiskLatam

Investments in Latin American and the Caribbean are driven by developing Asian firms in the oil and gas sector, study says

Posted in Uncategorized by politicalrisklatam on July 29, 2011

United Nations Conference on Trade and Development Press Release, July 29th, 2011.

Foreign direct investment (FDI) flows to Latin America and the Caribbean increased by 13 per cent in 2010 to reach $159 billion, UNCTAD´s annual investment survey reports.

The strongest increase was registered in South America, where FDI rose by 56 per cent to $86 billion, with Brazil alone accounting for 56 per cent of this amount. Inflows to Central America climbed 20 per cent to $25 billion, of which Mexico attracted $19 billion. Flows to the Caribbean decreased by 26 per cent, to $48 billion, of which offshore financial centres represented 95 per cent, the World Investment Report 2011(1) (WIR11) reveals.

The report, subtitled “Non-equity modes of international production and development“, was released today.

FDI outflows from Latin America and the Caribbean increased by 67 per cent to $76 billion in 2010, the biggest surge among the world´s economic regions, the report says. The rebound was due to strong increases registered by Brazil and Mexico, the region´s two principal outward investors (figure 1).

Growth of both inflows and outflows stemmed from respective surges in cross-border merger and acquisition (M&A) sales and purchases. Latin America and the Caribbean witnessed a sudden increase in cross-border M&A sales from negative values (because of divestment) in 2009 to $29 billion in 2010, the highest level in the region since 2000. This shows a renewed interest by foreign firms in the acquisition of Latin American enterprises after a decade of sluggish cross-border M&A activity in the region. However, most of these acquisitions were undertaken by developing Asian transnational corporations (TNCs), mainly from China and India, in the oil and gas extractive industry in South America (table 1).

On the purchase side, the region´s TNCs, bolstered by strong economic growth at home, have increased their investments abroad, in particular in developed countries where investment opportunities have arisen in the aftermath of the global financial crisis. Brazilian companies such as Vale, Gerdau, Camargo Correa, Votorantim, Petrobras and Braskem have undertaken acquisitions in the iron ore, steel, food, cement, chemical, and petroleum refining industries in developed countries. Mexican firms such as Grupo Televisa, Sigma Alimentos, Metalsa and Inmobiliaria Carso have purchased firms in the United States in industries such as media, food, motor vehicles, and services. There also have been some important intraregional acquisitions, the most significant being the $1.9 billion purchase by Grupo Aval (Colombia) of BAC Credomatic, a foreign affiliate in Panama of General Electric Co.´s finance unit (table 1).

Preliminary data for 2011 show that FDI inflows have continued to rise in 2011, while outflows are declining. (continue reading… )

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