Argentina: Foreign direct investment drops 100%

Argentina: Foreign direct investment drops 100%

Country sees decline in first semester of 2014 because of payment to Repsol for YPF

Argentina received less foreign direct investment than any other country in the region in the first half of the year. In fact, the country’s net foreign direct investment (FDI) was not just low — it was negative.

In the first half of the year Argentina registered a negative US$55 million dollars — drastically down on the US$5.88 billion that it received in the same period of 2013, according to a report published yesterday by the Economic Commission for Latin America and the Caribbean (ECLAC).

Yet there is an explanation for much of the plunge. The negative result is due to the billions that left the country as part of the divestment of energy firm Repsol from its holdings that followed the 2012 expropriation of a majority stake in oil firm YPF.

The country’s net negative foreign direct investment means that Argentina placed last in the region in terms of variation with regard to the previous years, reported by the ECLAC to be a negative 101 percent. However, once the whole Repsol issue is taken out of the equation, net foreign direct investment in the country in the first semester totalled US$4.29 billion — a 20 percent drop when compared to the first six months of 2013.

That means Argentina was slightly better off than the average for Latin America, which clocked in at a negative 23 percent when compared to the corresponding period in 2013.

Difficult year

The figures were published by the Economic Commission for Latin America and the Caribbean (ECLAC), which calculated the total net foreign direct investment for Latin America in the first semester of 2014 as US$ 84.07 billion.

In a May report, the ECLAC had anticipated a “minor” drop in the FDI for the region in 2014, but also noted that the relative importance of investment as part of Gross Domestic Product (GDP) has remained relatively flat for the region since 2011 as the economies have grown based on increased domestic demand and commodities exports.

Nonetheless, a 23 percent reduction following on from the five percent growth suggests the original predictions were too optimistic.

An ECLAC press release suggested that reduction in investment in mining as a result of declining international prices had been the cause of the slowdown in the region. Global foreign direct investment has been forecast to grow by 10 percent 2014 on the back of investments received by developed countries.

Best-in-class in terms of year-on-year variation was the Dominican Republic, which reported a 20 percent increase in foreign direct investment for a total of US$1.18 billion. However, FDI to Brazil (totalling US$42 billion and up eight percent on the year) and Chile (US$10.37 billion, but down 16 percent) dwarfed the FDI to Argentina in the same period.

The US$4.29 billion and 20 percent growth placed Argentina in the middle of the pack in terms of performance this semester.

Bucking the trend of a difficult year, net outward direct foreign investment from Argentine sources grew by 105 percent in the period under the review — jumping from US$701 million dollars to US$1.44 billion, a figure that has already surpassed the total outward FDI for 2013, which was recorded at US$1.09 billion.