While Foreign Investment Decreases Worldwide Brazil Grows Its Share by 20%

Brazilian industry Brazil, swimming upstream against the global trend, saw its inflow of foreign direct investment (FDI) grow 20.6% to reach the record-high figure of US$ 41.7 billion last year, according to preliminary data disclosed January 19 by the United Nations Conference on Trade and Development (Unctad).

Worldwide flow, according to estimates by the organization, decreased 21% and totaled US$ 1.4 trillion in 2008.

The international crisis that originated in developed countries was the main cause for that reduction, and even though it has also affected emerging nations, wealthy countries were the ones that suffered the greatest impact in terms of investment attraction. The Unctad estimates that foreign capital inflow to developed countries decreased 33% in 2008.

In the developing world, foreign capital inflow grew 4% last year, according to estimates by the Unctad. To the organization, emerging nations are proving more resistant to the effects of the crisis. In that respect, the highlights were Africa and Latin America, to where capital inflow rose 16.8% and 20.6% in 2008, respectively.

"This trend started some years ago, a greater volume of investment in developing countries," said the president at the Brazilian Society of Studies on Transnational Corporations and Economic Globalization (Sobeet), LuΓ­Β­s Afonso Lima.

Even though developed nations receive more foreign funds in absolute terms, their share as destinations has decreased in recent years. According to the latest Sobeet Bulletin, published last December, the share of wealthy countries as targets for direct investment went from 81.1% of the global total in 2000 to 68.1% in 2007. In turn, the share of developing economies increased from 18.4% to 27.3% during the same period.

Rising investment in Latin America, according to the Unctad, was mainly driven by South America. Brazil was the country that received the most foreign funds in the region, but other Latin American nations recorded even higher growth rates in investment attraction.

Such was the case with Chile, growth of 23.2% to total US$ 17.8 billion; Peru, growth of 38.9% to total US$ 7.4 billion; and Argentina, growth of 27.9% to total US$ 7.3 billion.

Of the 37 countries listed by the Unctad, Brazil ranked eighth among the leading targets for FDI, losing only to the United States, France, the United Kingdom, China, Russia, Hong Kong and Spain, and ahead of important economies such as Japan, Germany, Italy and India.

According to Lima, two determining factors in FDI attraction are market size and economic growth. Several emerging countries, among them Brazil, have large potential markets, still partly untapped, and have expanded fast over the last few years.

According to him, in Brazil, industry has been a strong focus among investors, contrary to other countries, where the services sector prevails. Two areas that have been receiving relevant investment are the mineral extraction and oil industries.

In 2009, the Unctad believes that the effects of the crisis will be broader and that the flow of capital into emerging economies should decrease as well. In the case of Brazil, Lima says that there should be a reduction, but not a very strong one.

He believes that the volume of foreign investment should remain at similar levels to those recorded in 2007, when the total figure was US$ 34.6 billion, which is still considered a fairly representative value.

To the president at the Sobeet, the flow of capital into Brazil should be influenced by two factors: firstly, the retraction of the world economy, which reduces international demand for goods, and therefore the impetus of companies for investing; and secondly, the investment grade attained by the country last year, which historically leads to increased interest from investors. The figure for 2009 is going to be the result of the sum of these factors, one of which drives the flow down, whereas the other drives it up.

The crisis, according to the Unctad, has interrupted a trend of rising FDI flow that had been going on since 2003. It is difficult to foretell when there will be a resumption of growth, but the organization asserts that it should happen sooner or later, especially because international recession should lower the prices of assets in general, thus creating investment opportunities.

Furthermore, the organization underscores that, despite restricted credit, emerging nations and the large petroleum exporting countries still have a reasonable volume of capital for investing.

The Unctad also states that large emerging economies such as Brazil, China, India and Russia have maintained themselves attractive to investors even after the worsening of the crisis, and that investors should continue to favor nations such a these in their quest for more profitable options.

Anba

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  • Show Comments (2)

  • ch.c.

    Bo ” The IBOVESPA fell by more than 50% from it’s high and that is principally because of foreign investors running for the door.”
    You are right !
    Partially only !

    But….but…but…..
    1) the FDI is not what you or me or whoever invest IN OR OUT of the BOVESPA-Not even IN OR OUT OF BRAZILIAN GOVERNMENT DEBTS !
    2) The FDI is for Foreign Enterprises investing, lets say in Brazil, and buy or build something. Also If foreign individuals would buy Brazilian real estate ( for example) in houses, condos, lands, hotels, that would become an FDI.
    3) In equities and debts, the only FDI is for NEW OR SECONDARY ISSUES, where the involved companies or government effectively RECEIVED CASH, but as said not after it trades at the exchange or…. off exchange (mainly debts.)

    Easy confusion and mixed up !

    Also Believing as you said “principally because of foreign investors running for the door” is certainly right to some extend but no
    one knows for how much.
    Dont you think that Brazilians have not also sold the IBOVESPA, such as Brazilians pensions funds or individuals ?
    And why do you think some Brazilians having a hidden account at the 2 Brazilians Banking Capitals…..namely MIAMI AND NEW YORK….were lining up in May/June/July 2008 ?????? Ohhh true…also elsewhere….LONDON AND ZURICH !!!!

    To buy more Brl and equities in IBOVESPA in your view ?

    Hmmmmmmm !
    πŸ˜€ πŸ˜‰ πŸ˜€ πŸ˜‰ πŸ˜‰

  • bo

    The IBOVESPA fell by more than 50% from it’s high and that is principally because of foreign investors running for the door. Things didn’t start getting bad until the last quarter of last year so let’s wait and see what 2009 brings before making any speculations.

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