MercoPress. South Atlantic News Agency

Argentina second worst Latam country in terms of foreign direct investment

Air New Zealand and Norwegian are among the companies which have lifted their operations in Argentina

Argentina's poor performance in the 21st century when it comes down to direct foreign investment is only surpassed by that of Venezuela; it was reported Sunday by Infobae.

According to the latest data from the United Nations Conference for Trade and Development (UNCTAD), inflows of cash from abroad into Argentina plummeted 38% in 2020 to barely US $ 4.1 billion.

Globally, FDI flows fell 35% to $ 1 trillion, up from $ 1.5 trillion in 2019.

Since 2020, many foreign companies have already left Argentina, some of them after the restrictions from the coronavirus pandemic coupled with macroeconomic instability and a total lack of clear rules. But many of them had already been harboring the thought for quite a while.

A Harvard University Business School study released last week showed that after 20 years in the country many businesses have chosen to move to Uruguay due to the exodus of professionals and companies.

According to a report by First Capital Group quoted by Infobae, there have been at least 32 operations and/or announcements in which a multinational group decides to close and/or sell its operation or local business unit in Argentina since August 2019. Among those who have left the country for good are the airlines LATAM, Norwegian and Air New Zealand; the auto part company Saint Gobain Sekurit; the Walmart supermarket chain and the Falabella retail chain; in addition to the sportswear Nike brand, among others.

“In 2010, Argentina had a stock of foreign direct investment of around USD 85,000 million and at the end of 2019 it had dropped to the equivalent of USD 69,170 million. Foreign FDI in 10 years grew 70% in the world, while in Argentina it fell by more than 19%,” economist Marcelo Elizondo told Infobae.

While between 2000 and 2019 FDI grew 394% worldwide - it went from a stock of USD 7.3 trillion to USD 36.4 trillion - in Argentina it barely grew 2% in almost 20 years.

According to the UNCTAD report, Argentina “shows an almost zero evolution in the stock between 2000 and 2019 despite world dynamics.”

Furthermore, among the ten countries with the worst performance - led by Venezuela - Argentina is the one with the highest nominal stock of FDI, making it the most relevant country among those that have seen poor developments in terms of foreign direct investment.

The 2020 data are recent and are not part of this report, but they indicate that Argentina received FDI for US $ 4.1 billion. In 1998, investments worth over US $ 20 billion were welcomed.

”The 2020 figure represents only 1.1% of GDP, ranking among the countries that receive the least FDI in the region. Only Peru performed worse than Argentina, with a FDI of 0.5% of its GDP. On the other end, Uruguay leads with a proportion of 4.7% of GDP,“ states a report published by the Fundación Libertad y Progreso, which also highlights that the situation gets worse when compared with the FDI of 2019, prior to the pandemic, since all the countries of the region, including Peru, had much higher proportions of FDI in relation to GDP, against Argentina's meager 1.5%.

”Argentina's difficulties receiving investments already existed even before the arrival of Covid-19,” said economist Iván Cachanosky. “Argentina is a not very competitive country and that it does not show signs of correcting its course,“ he added.

In its 2020 report, UNCTAD stated that Argentina experienced a prolonged shutdown of the industrial sector, causing a drop in fixed capital formation and a 10% decline in the economy. ”These contractions further complicated financing conditions for the country, which eventually defaulted on its external debt. The challenging environment had a major impact on FDI: new investments retracted 45% and reinvested earnings fell 22%. In turn, mergers and acquisitions operations recorded a divestment of US $ 290 million after major international investors sold their assets.” (Source: Infobae)