Argentina: Foreign investment plunges

In Argentina, figure for 2014 would be flat if it weren’t for the nationalization of YPF

Flows of foreign direct investment (FDI) toward Argentina declined 41 percent in 2014 to total US$6.61 billion — the smallest amount the country has received since 2009, the Economic Commission for Latin America and the Caribbean (ECLAC) revealed yesterday, linking the drop to the nationalization of YPF energy company.

The FDI index measures the funds used to nationalize the company as a divestment, cancelling out some of the inflows. Without the decline that was caused by YPF, FDI to Argentina would have been flat.

Argentina was hardly alone in seeing a drop in FDI last year as Latin America and the Caribbean as a whole saw a decrease of 16 percent, which totalled US$158.80 billion.

The decline in foreign direct investment for the region reversed the growing trend of the last decade — with the exception of declines in 2006 and 2009 — and with further reductions forecast for this year.

“The main reason for Argentina’s decline was the nationalization of YPF, which took place in 2012 but wasn’t settled until 2014. If it were not for this transaction, inflows into Argentina would have remained at a similar level to previous years,” ECLAC said. “The sectoral distribution of FDI in Argentina seems balanced between natural resources, manufacturing and services. The share of services has increased in recent years.”

Several major divestments took place last year in the region but the largest was in Argentina with YPF, according to the report. Argentina passed a law to partially renationalize YPF, which was owned by Spain’s Repsol. The compensation was decided only in 2014, with Argentina paying US$5 billion for Repsol’s 51 percent share. Repsol later sold a further 12 percent for US$1.311 billion.

ECLAC highlighted the increase in mining investments in the country, including US$450 million to be spent by Canada’s Yamana in the Cerro Moro project near Puerto Deseado. At the same time, the report mentioned the expansion plans of several auto manufacturers in Argentina such as Toyota (US$800 million), General Motors (U$720 million) and Fiat (US$300 million) and the “great potential” of oil exploration thanks to Vaca Muerta shale area.

“Argentina has great potential for oil exploration, with the Vaca Muerta formation touted as a particularly abundant source of both shale gas and shale oil,” ECLAC said. “Since then, United States-based Chevron signed an agreement with YPF to invest US$1.6 billion to explore Vaca Muerta and Russia’s Gazprom is rumoured to have offered investments up to US$1 billion. Vaca Muerta exploration is expected to require a total investment of some US$ 15 billion. ”

Regional factors

Foreign direct investment inflows were affected last year by the region’s economic slowdown and lower prices for its raw material exports, according to ECLAC.

Brazil continued to be the biggest recipient of FDI in Latin America and the Caribbean, with no figures provided for the country due to a change in its methodology. After Brazil, Mexico was the second-largest recipient of FDI, with inflows of US$22.795 billion dollars in 2014, down 49 percent from 2013. The drop was explained by the purchase of Modelo brewery and the divestment of AT&T.

Europe (mainly the Netherlands) and the United States continue to be the main investors in the region. Meanwhile, FDI from China reached US$10 billion annually between 2010 and 2013, a figure that probably rose last year according to ECLAC due to the fact that Chinese companies participated in some of the biggest acquisitions in the region.

“ECLAC believes that Latin American and Caribbean countries’ policies should not be oriented toward recovering the amounts of FDI achieved in the last decade, but rather toward attracting the FDI that contributes to productive diversification,” ECLAC’s Executive Secretary Alicia Bárcena said. “This means articulating FDI with industrial policies and national development strategies based on equality and environmental sustainability.”

Date: May 28, 2015



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