Sharp drop in foreign investment in America …

The covid-19 pandemic arrived on an already damaged Latin American economic scenario, among other things, because of the very poor management of several right-wing governments They did not solve one of the pending tasks and ruined much of what had been built in the previous decade. “Populism” showed a long better performance than the conservative period that followed, in that unwritten norm that is the Latin American pendular history.

Chapter of direct external investments is one of the samples. They were in decline, stopped in 2019 and collapsed in 2020. The opposite of the first decade and a half of the century, when there was a cycle with its own characteristics, led from the Caribbean to Tierra del Fuego mostly by progressive governments, with exceptions on the Pacific , where strong foreign direct investment (FDI) was registered.

Several of the post-2015 governments promised to increase them and make them a “rain” that would boost the region. That nonsense had a notable spokesperson in Mauricio Macri, whose predictions, like others, were deliberately false or turned out to be a fiasco.

According to a recent document by the Economic Commission for Latin America and the Caribbean (ECLAC), the decade ended in 2019 had its maximum historical value in 2012. After that year (in the last section of the period of popular mandates, expansion was threatened) the fall in FDI “has been almost uninterrupted, which has become evident mainly in the countries of South America.”

ECLAC reports that 160,721 million dollars of FDI entered in 2019, 7.8 percent less than that registered in 2018. Thus, “FDI inflows represented 3.2 percent of GDP, a figure slightly lower than the average for the last decade ”, which was 3.4 percent.

Developing

FDI has never been the most important engine of a country’s development. On the contrary, as the historical experience of the industrialized world shows, development rests on a powerful national market, a local investment that retains the surplus to be reinvested inside borders with high degrees of productive density, and a vigorous mobilization of internal resources.

The United States, China, Japan and advanced European countries followed that course without paying attention to the precepts of the free market that their leaders promulgated but avoided. This does not mean that FDI, if they comply with the labor, environmental and tax laws of the host country, are a good company and, eventually, complement the process.

According to ECLAC, in 2019 the regional distribution of FDI was the following: only nine countries had more entries than in 2018. They were Peru, Colombia, Chile, Paraguay, the Dominican Republic, Panama, Guatemala, Trinidad and Tobago and Guyana. In other words, the decade closed with a better profile to receive FDI in Central America and the Caribbean than in South America.

Of course, and although there is still a lack of data to process for 2020, last year, pandemic Through, everything collapsed and FDI fell an average of 36 percent annually, with Peru, Colombia and Brazil leading the way (72, 50 and 45 percent, respectively), while Argentina had a 35 percent decline and Chile, of 33 percent. Mexico was able to surf the crisis quite well with a drop of just 6 percent.

Engines

Beyond the parenthesis that covid-19 implies, ECLAC identifies two engines of origin for FDI in the region, United States and China, the largest economies in the world.

Regarding the first, it points out that its links with the South of the continent deepened “South America’s specialization in primary products and manufactures based on natural resources,” meanwhile, “thanks to its proximity to the United States and relative low wages, in Central America increased the export of manufactured products, mainly low technology, and the relative importance of primary products decreased ”.

In the case of Mexico, the North American Free Trade Agreement, renovated two years ago, transformed it into “a very important link in North America’s regional value chains and progressively increased the technological intensity of its exports, especially those destined for the United States.”

Regarding China, ECLAC argues that its global development and expansion model generated strong deficits in several countries, especially in the United States, and that this raised “worldwide protectionist policies (tariff and non-tariff measures in trade and restrictive measures on foreign investment) that have contributed to the slowdown in international production in the last decade, although they have not yet resulted in a major reconfiguration of global value chains ”.

China has become a determining foreign investor in Latin America, although this destination has always been lower than its capital placements in Europe and Asia and in North America, although in 2019 Latin America surpassed the latter within the framework of a general retraction of Chinese-origin FDI. The peak of arrival of Chinese capital to the region occurred in 2017, with some 20,000 million dollars in purchases and mergers.

In that general fall, precisely in 2019 China was the fourth largest generator of global FDI, after Japan, the United States and European countries, after having been second until 2018. For ECLAC, this phenomenon, which also partially reduced the arrival of its capital to Latin America, had to do with two of its “national priorities, the Belt and Road initiative and the strategy industrial development Made in China 2025”, Which reoriented their external strategy.

In this sense, it should be noted that although the majority of Latin American nations entered the the Strip and the Road, the three with the largest economy (Brazil, Mexico and Argentina) have not yet done so. In the Argentine case, it would take place when President Alberto Fernández can travel to Beijing. These accessions would make China return with larger volumes of FDI to the region, since a central chapter of that initiative of the Xi Jinping government is connectivity and large public works that are needed for her.

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