Foreign Direct Investment in Argentina

By: EconomyWatch   Date: 30 June 2010

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      


As per an ECLAC report, Argentina was the recipient of the third biggest amount of FDI inflow among the Latin American and the Caribbean nations in 1997. The first and second places in this regard were held by Brazil and Mexico respectively.

Argentina's foreign direct investment flow recorded a substantial increment in the 1990 to 1996 time period. The annual average for this period stood at US$2.8 billion. This was 4 times greater than the comparable figure for the 1980s.

In 1996 the FDI net inflow into Argentina climbed to US$4.2 billion. Compared to 1990 this was a yearly average growth of 15.2%. As per estimates by Argentine authorities, the value of FDI assets between 1990 and 1996 stood at around US$23.6 billion.

Some factors contributed to the rapid increase in FDI inflows into Argentina in the 1990s. They are stated below.

  • Mercosur membership
  • Macroeconomic stability
  • A rapid re-entry into international capital markets facilitated by proper policies on conversion of foreign debt into capital
  • Special incentive scheme for foreign investment
  • Incentives for the automotive sector

    In 1990, Argentina's FDI inflow accounted for 22% of Latin America's foreign investment inflow. The figure subsequently hovered at around 9.8% to 13.9% in the following 6 to 7 years. Notwithstanding the large absolute value, Argentina's share in Latin America's FDI flow declined in the later half of the 1990s. This may be accounted to certain factors, which are stated below.
  • Completion of the first round of privatization for Argentinean public companies
  • A host of transnational companies were interested to operate in Mercosur market but Argentina faced stiff competition from Brazil in luring these investment companies
  • The advancement of alternative options of external financing in ArgentinaAs per reports from UNCTAD, FDI inflows to the Latin American region and the Caribbean nations increased by 44% in 2004. The figure stood at US$ 68 billion. This increase in FDI flow for the region was registered after a 4 year sequel of decline. These figures were released by UNCTAD in its “World Investment Report 2005: Transnational Corporations and the Internationalization of R&D (1)”. The report observed that, the biggest increment in FDI inflows in this region were accounted for by nations with MERCOSUR membership or associate membership.

    Argentina leads the pack with a 125% increase. Brazil and Chile followed suit with 79% and 73% increase respectively.

    2004 was a watershed year regarding policy changes in the Latin American nations. The policy changes primarily revolved round the participation of private investment in an economy's natural resource sector. This sector normally attracts huge inflows from foreign business firms.

    The massive upsurge in commodity prices led some Latin American governments to go in for a modification of their prevalent tax regimes. Some concerned legislations were also changed. The idea behind these government regulations was to secure the lion's share of the rent accruing from the natural resources sector for the state.

    These kinds of developments were observed in countries like Argentina, Venezuela, Chile and Peru. These policy measures discouraged FDI inflow to some extent. So the governments of the concerned countries made some other policy changes with an eye to attract foreign investments. They formulated newly devised investment promotion regimes in countries like Argentina and Brazil targeted at attracting investments for industrial activities.

    Galloping inflation in 2007 threatened to derail Argentina's road to economic recovery. Rising prices lead to apprehensions of a decline in net profit on goods for export. FDI figures for Argentina were already on the decline from 2006.

    Average yearly rate of growth of FDI in Argentina was 11.2% in first quarter of the year 2006. It was lower than the comparable 26% growth it recorded in the time period from 2002 to 2006. From January 2007 to March 2007, it declined by 56.1% and stood at 624 million dollars. This contraction was due to the effect of a 374 million dollars worth of negative reinvested earnings.


    • Dot Div
    •      

    Most Popular in Argentina Economy

    Related Links
    blog comments powered by Disqus