Friday, May 21, 2010
Foreign Direct Investment in Latin America : 2009 and beyond(II)
FDI flows are important because of its impact on new technology, management models and employment . All of these are the social benefit of fostering FDI. With low social cost, FDI flows requires clear rules and stable institutional framework. Environment ,taxes , ideology are among the main reason for those conditions to change. The expected impact is not just lower FDI flows ,bvariAut a weaker prospect for growth. Although Latin America countries are these day better prepared to cope with FDI fluctuations, this does not means it is within the category of secondary importance for Latin America economies.-
What are FDI flows the most sensible to ?.The Asian economic crisis made it clear. With loses for more than U$$50.000 mill at that time, the worst for FDI are those cases with expenditure levels either whether private or public away from their fundamental, with inflationary expectations getting higher, and depreciation currency making what it is left to be done .Most of those losses ,were because of the depreciation currency which followed the misalignment of key variables from their fundamental ,and institutional disarray.
Despite the widespread drop in FDI flows in Latin America, the 2009 year flows, are among the highest in history(fifth place).Most of the investment activity is concentrated in commodity sector (Mining), low and medium- low technology manufacturing sector, with few project related to R&D.
The financial crisis of 2008 affected every one, but mainly to developed countries. This time, Developing countries did better. As a consequence, the FDI world share of developed countries fell from 69% in 2007, to 57% in 2007, and 54% in 2009.By contrast, emerging and transition economies , climbed from 32% in 2007, to 44% in 2008, and 46% in 2009.Among the most important recipients of FDI are the BRIC countries(Brazil, Russia, India and China),which have made them a new source of global economic growth, and political influence. On the other side, developing Asia on its own, has also climbed since 2007 ,from 17% up to 25% in 2009.-
On the Overall view, merger and acquisitions are strongly correlated with FDI (94% for the period 1987-2009),although in the period of 2000-2009 decreased to 90%. It follows that there is a lot of opportunities for Latin America economies, to counterbalance the ideology winds and its negative impact on FDI flows, to pursue instead an higher level of FDI with a second wave of privatizations as a target, which can be fostered further by the next round of talks between the EU and Latin American economies, to get a Free Trade agreement with all of its positive impact on economic growth , trade and development .