FDI’s Forgotten Near-Frenzy
UNCTAD’s January update hailed a 15 percent global FDI rise to $1.5 trillion, half going to developing and transition economies in a record high. Developed world performance was mixed with Greece and Germany down, but Italy and France receiving a boost. Latin America outstripped Asia’s total by $10 billion at $215 billion as flows increased at 4 times China’s pace. Indonesia, Malaysia, Thailand, Brazil and Colombia experienced spikes in their respective regions. Natural resources drove the Latin story with continental reach achieved with large market establishment and expansion. Offshore Caribbean centers also benefited from safe haven wealth allocation over the crisis period, which diverted interest from Europe outside big energy cross-border deals in Russia, according to the Geneva-based UN agency. The Middle East-Africa continued to fall on political and social unrest, although Saudi Arabia and South Africa hosted new projects. M&A has surpassed greenfield activity as the major catalyst, and 2012’s picture is of “cautious optimism” looking at underlying GDP growth and multinational company cash flows. About a dozen transactions in the $5-10 billion range were completed in emerging markets, and the pattern should continue and deepen over the medium term, the review predicts.
Colombia’s oil boom has coincided with President Santos’ entry into office and restoration of the sovereign investment grade rating which recently enabled 30-year bond reopening at an unprecedented 6 percent yield. Three-quarters of buyers were from the US, as European and Asian investors also focus on portfolio and mining investment potential. GDP growth is officially set near 5 percent, although inflation has also slipped to the upper-end target prompting another 25 basis point central bank rate bump. A minimum wage hike will soon kick in to maintain price pressure, but is part of labor reforms slowly eroding traditional double-digit unemployment which fueled crime and security problems. The free trade agreement finally approved in Washington late last year should favor fresh participation, and stands in stark contrast to the stance in adjoining Venezuela, where President Chavez has reacted angrily to international arbitration awards with plans to exit the World Bank’s dedicated tribunal. Exxon won a near $1 billion judgment over seized property as one of numerous petroleum company claims against the government, despite the original demand running 5 times that amount. The pullback was widely seen as a pre-election gesture as he also reshuffled the cabinet to tilt toward military and ideological loyalists. For the first time the opposition appears to be unifying around a candidate to be formally tapped in February primaries with Miranda governor Capriles in the lead. Bond prices rallied on the prospect of a credible Chavez alternative, although he still wields the administrative and budget tools to ensure powerful direct investment in his voting future.
