Business exodus: Argentina is the second worst performing country in the world in terms of foreign direct investment

The Covid-19 crisis caused a drastic drop in foreign direct investment (FDI) in 2020. According to the latest report from the United Nations Conference on Trade and Development (Unctad), global FDI flows have fallen by 35% to $ 1,000 billion, up from $ 1.5 trillion in 2019. This is almost 20% below the 2009 low after the financial crisis. In the case of Argentina, which was already on a downward trend, inflows of foreign dollars for real investment fell by 38% last year, up to $ 4.1 billion.

These data are becoming more and more relevant because since 2020 there are already several international companies that have decided to abandon their activities in the country. The pandemic was the last straw for many companies, but macroeconomic instability coupled with a lack of clear rules for investors was a big part of their decision.

This week, a Harvard University Business School research center was added to the list, which after 20 years in the country, will move to Uruguay due to the exodus of professionals and businesses, according to the report.

According to a report by First Capital Group, since August 2019, there have been at least 32 deals and / or announcements in which a multinational group decides to close and / or sell its operation or local business unit in Argentina. They are mainly concentrated in the aeronautics, textiles and retail sectors, activities which have been particularly affected by the pandemic and by the economic crisis in Argentina. Airlines Latam, Norwegian, Air New Zealand; the auto parts company Saint Gobain Sekurit; the Walmart supermarket chain and the Falabella retail chain; Nike; pharmacist Eli Lilly; among others.

Foreign direct investment is considered to be the capital that comes from abroad into the country, from companies that are in the country or new, added to the reinvestment of profits made by companies of foreign origin.

Foreign direct investment is considered to be the capital that comes from abroad into the country, from companies that are in the country or new, added to the reinvestment of profits

“In 2010, Argentina had a stock of foreign direct investment of about $ 85,000 million Yes by the end of 2019, it had fallen to the equivalent of $ 69,170 million. Foreign FDI in 10 years has increased in the world by 70%, while in Argentina they have fallen by more than 19% ”, he declared. Infobae the Economist Marcelo elizondo, who carried out a comprehensive study on the subject in which he concluded that since the beginning of the 21st century, the country is the second worst performer in terms of FDI in the world.

While between 2000 and 2019, FDI increased by 394% in the world – they went from a stock of $ 7.3 trillion to $ 36.4 trillion – in Argentina, they barely increased by 2 % in almost 20 years.

According to the report, the country “shows an almost zero evolution of the stock between 2000 and 2019 despite the global dynamics, which makes it one of the least performing planets ”. Moreover, among the ten worst performing countries – led by Venezuela – Argentina is the one with the highest nominal stock of FDI, making it the most relevant country among those with low developments in terms of foreign direct investment.

The 2020 data is recent and not part of this report, but it indicates that Argentina has received FDI for USD 4.1 billion, a very low figure compared to what the country has received in previous years – more of 6 billion USD. The year with the highest dollar revenues for investment was in 1998, when over $ 20,000 million entered.

“2020 figure only represents 1.1% of GDP, ranking among the countries that receive the least FDI in the region. Only Peru outperformed Argentina, with FDI of 0.5% of its GDP. At the other extreme, Uruguay is in the lead with a proportion of 4.7% of the GDP ”, indicates a report published by the Fundación Libertad y Progreso. And he adds that in the Argentinian analysis, the situation worsens compared to FDI in 2019, before the pandemic, since all countries in the region (including Peru) had much higher proportions of FDI compared to to GDP. In contrast, Argentina was located in only 1.5% of the product.

The year with the highest dollar income for investment was in 1998, when more than $ 20,000 million entered

“In other words, Argentina’s difficulties in receiving investments already existed even before the arrival of Covid-19, so it has a structural problem. The result is not surprising, taking into account that Argentina is not a very competitive country and that it does not show signs of correcting its course ”, he remarked to this regard. Ivan Cachanosky, chief economist of the entity.

The economist added that “there are other variables that threaten competitiveness such as high public spending, persistent budget deficit, record tax pressure, labor disputes, corruption, bureaucracy, among others. And he argued that for FDI to increase again in Argentina, it is necessary to regain competitiveness, and this will be achieved if the ongoing structural reforms are addressed ”.

In turn, Elizondo felt that “the main problem in Argentina is macroeconomic instability that no one can solve; institutional weakness; the closed economy; and the cumbersome regulatory environment, which also discourages, since FDI today seeks flexibility, rapid adaptation to problems ”.

“The main problem in Argentina is the macroeconomic instability that no one has been able to solve” (Elizondo)

In its 2020 report, Unctad said Argentina has experienced a prolonged shutdown of the industrial sector, causing a decline in fixed capital formation and a 10% drop in the economy. “These contractions have further complicated the financing conditions of the country, which finally defaulted on its external debt. The difficult environment had a major impact on FDI: new investments fell by 45% and reinvested profits fell by 22%. At the same time, mergers and acquisitions transactions saw a divestment of $ 290 million after the sale of their assets by large international investors”, Highlights the document.

According to the report by International Business Development (DNI), the consulting firm headed by Marcelo Elizondo, in Latin America, The country with the largest stock of FDI swallowed up until 2019 is Brazil, with 640,731 million USD, almost 10 times what Argentina captured; followed in importance by Mexico, with $ 628,460 million. They are followed by Chile, with 267,820 million USD; Colombia, with USD 205,890 million; and Peru, with $ 115,330 million. Over the past ten years, the stock of FDI in the region has increased by 42%, from 1.5 to 2.2 trillion dollars.

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