MercoPress. South Atlantic News Agency

Less Foreign Direct Investment forecasted for 2007

In a global context of weaker foreign direct investment, FDI, in emerging markets because of “structural weaknesses”, Latinamerica is also set to suffer, according to a report from the University of Columbia in New York and The Economist group.

The drop in capital inflow however will not reach critical levels and a rebound is expected beginning 2009, says the "World investment prospects to 2010: boom or backlash" report.

Brazil, Mexico and Chile will continue to be the most attractive countries for foreign investment in the region. Brazil is expected to displace Mexico, totalling 17.2% of the 72.1 billion US dollars the region will be receiving this year. Mexico falls to second place with 15% and Chile consolidates its third position with a 9.7% this year, an improvement from the 7.2% of 2005 when total FDI reached 75.2 billion US dollars.

Argentina is gradually recovering from the 2000/01 financial crisis and last year received 5 billion US dollars equivalent to 6.6% of the region's total, ranking fourth, a position the country will consolidate in the mid term. However the figure is considerably less than the annual ten billion US dollars of the nineties before the crisis.

The report indicates that in the next two years FDI going to developing countries will experiment a contraction basically because of structural weaknesses such as servicing the foreign debt; costs of making business with excessive bureaucracies; infrastructure deficiencies, lack of social investment and uncertainty with the rules of the game.

Karl P. Sauvant from Columbia University and one of the authors of the report says that the good performance of foreign capital in Latinamerica during 2005 can be attributed to "regional economic growth and investors looking for natural resources".

However Laza Kekic from The Economist believes that "structural weakness will be the main FDI contention factor in the region in the immediate future".

Sauvant and Kekic forecast that in 2007 the overall influx of capital to the developing world, compared to 2006, will drop to 407.7 billion US dollars, 0.7% less, and even further in 2008 with 404.7 billion US dollars, another 0.7% drop. Nevertheless by 2009 a 2.3% recovery is anticipated totalling 413 billion and 427.9 billion in 2010, up 3.4%.

However another report but from the International Finance Corporation, IFC, the private sector arm of the World Bank shows that doing business became easier worldwide in 2005/06. Two hundred and thirteen regulatory reforms?in 112 economies? reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements.

Doing Business 2007: How to Reform finds that the top-10 reformers on the ease of doing business, in order, are Georgia, Romania, Mexico, China, Peru, France, Croatia, Guatemala, Ghana, and Tanzania. Thirteen other economies?Armenia, Australia, Bulgaria, Czech Republic, El Salvador, India, Israel, Latvia, Lithuania, Morocco, Nicaragua, Nigeria and Rwanda?had three or more reforms. Reformers simplified business regulations, strengthened property rights, eased tax burdens, increased access to credit, and reduced the cost of exporting and importing.

Doing Business 2007 also ranks 175 economies on the ease of doing business?covering 20 more economies than last year's report. The top 30 economies in the world, in order, are Singapore, New Zealand, the United States, Canada, Hong Kong/China, the United Kingdom, Denmark, Australia, Norway, Ireland, Japan, Iceland, Sweden, Finland, Switzerland, Lithuania, Estonia, Thailand, Puerto Rico, Belgium, Germany, the Netherlands, Korea, Latvia, Malaysia, Israel, St. Lucia, Chile, South Africa and Austria.

The best ranked Latinamerican country is Chile, 28; Mexico 43; Uruguay 64; Peru 65, Argentina 101 and Brazil 121.

The rankings track indicators of the time and cost to meet government requirements in business startup, operation, trade, taxation, and closure. They do not track variables such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.