ARGENTINA:
The Brazilian Investment
Invasion
By Marcela Valente*
BUENOS AIRES (IPS) -
Heavily invested in the
oil and cement
industries, as well as
mining and steel,
textiles, cosmetics,
banks, food and
beverages, Brazilian
capital is edging Europe
out of pole position in
foreign direct
investment (FDI) within
Argentina.
Its expansion is part of
a general upward trend
in foreign investment
originating from
developing countries.
Within the global
context, the surge of
private investment from
Brazil into Argentina,
its largest neighbour,
is seen by experts as
one of the most dynamic
regional examples of the
phenomenon.
"Brazil is the source of
between 35 and 40
percent of FDI in
Argentina," said
Fernando Porta, one of
the authors of a study
titled "La
internacionalización de
las empresas brasileñas
en Argentina" (Internationalisation
of Brazilian Companies
in Argentina), published
by the Buenos Aires
office of the Economic
Commission for Latin
America and the
Caribbean (ECLAC).
Argentina has been
receiving an average of
four billion dollars a
year in FDI since 2003,
nearly 40 percent of
which comes from Brazil.
Of that Brazilian
capital, 55 percent went
into mergers and
acquisitions, 25 percent
into expansion of
existing investment and
the remaining 20 percent
into installing new
capacity.
Deloitte, a consulting
firm, estimates that
Brazilian companies
invested approximately
eight billion dollars in
Argentina between 2002
and 2007.
Official figures from
Brasilia indicate that
2.9 percent of Brazilian
capital invested abroad
between 2001 and 2009
went to Argentina, but
Porta said that if tax
havens are excluded, the
proportion that flows
into Argentina rises to
10 percent, making it "a
significant market," he
explained to IPS.
Luis Alfonso Lima told
IPS that Argentina has
become the main
destination for
Brazilian investment in
Latin America "as part
of a global trend of
intra-regional
investment between
similar countries, such
as those of South
America or emerging
countries in Asia."
Lima, head of the
Brazilian Society for
the Study of
Transnational
Corporations and
Economic Globalisation (SOBEET),
said that cultural
factors are decisive.
"It’s easier for
Brazilian companies to
establish themselves in
Latin America than in
Asia, where
communications would be
difficult."
Porta concurred that the
internationalisation of
companies in developing
countries "tends to
begin in neighbouring
countries which share
similar patterns of
consumption and
production processes."
Favourable investment
conditions in the
recipient countries also
contribute.
After the recession in
Argentina in the late
1990s, many heavily
indebted companies were
put up for sale.
Petrobras, Brazil’s
state-run oil giant,
bought the private
Argentine firm Pecom
from the Pérez Companc
family in 2002, which
became the second
largest oil company in
Argentina after
Repsol-YPF, formerly the
state-owned Yacimientos
Petrolíferos Fiscales (YPF).
The Camargo Correa group
bought the Argentine
cement firm Loma Negra
in 2005, which then
doubled its production
capacity.
Beer and soft drinks
company AmBev took over
the Quilmes brewery,
sponsor of the Argentine
national football team,
and is currently the
market leader for
beverages in the
Southern Cone region of
South America.
Brazilian slaughterhouse
and meat packers Friboi
also bought Swift Armour,
a large beef processing
company. Belgo Mineira
of Brazil purchased the
private Argentine steel
mill Acindar, "a
fundamental step towards
strategic control of the
region’s steel sector,"
according to the ECLAC
study.
Other companies simply
established themselves,
like cosmetic vendors
Natura, the Itaú Bank
and the Santana textile
firm, which will
manufacture denim for
jeans in the
northeastern Argentine
province of Chaco.
Apart from the big
transactions, a number
of smaller operations
are not recorded in the
statistics but
contribute to the trend,
Porta said.
According to the study,
Argentine companies
adopted a "defensive"
strategy in the
financial crisis of the
late 1990s, while
Brazilian firms opted
for "an aggressive
internationalisation
policy on a regional
scale," in order to
spread domestic market
risks and acquire
experience of investment
abroad in countries they
knew well.
Brazil and Argentina are
the largest members of
the Mercosur (Southern
Common Market) trade
bloc, to which Paraguay
and Uruguay also belong
and which Venezuela is
in the process of
joining. "Capital
movement is facilitated
in the context of the
trade bloc, but less so
than might be supposed"
in the case of Argentina
and Brazil, said Porta.
"The Brazilian
government has a
proactive policy of
assisting its companies
to branch out
internationally by
providing credit,
because this boosts its
foreign trade
prospects," he said,
adding that the country
thereby gains control of
oil and gas reserves as
well as sources of other
commodities.
The ECLAC study
indicates that among the
main motives for
internationalising
Brazilian companies are
their need to produce on
a larger scale, the
opportunity to enter a
relatively protected
market like Argentina’s,
and access to plenty of
good quality raw
materials.
Argentina’s early 2002
currency devaluation,
after more than 10 years
of a fixed exchange rate
at one peso to the
dollar, is another
advantage that has
attracted and
accelerated investment.
According to Lima,
Argentina "is a good
market, with a
relatively highly paid
population and empty
market sectors to be
exploited, which are
already exploited in
Brazil."
One example is the Itaú
Bank, which is expanding
more rapidly in
Argentina than in
Brazil, he said.
So just as in the 1990s,
capital flowed into
Argentina from the
United States, Spain,
Italy, France and other
European countries,
attracted by the
sell-off of state
companies, since 2004 it
has been the Brazilians
who have come seeking
business opportunities.
Concerns arising from
the conflict between the
Argentine government and
farmers, who have
blocked roads and been
on strike intermittently
for three months, might
slow the flow of
capital, although
experts think this will
only be transitory.
"Brazilians are willing
to operate more boldly
than Europeans in less
stable markets, and that
gives them an
advantage," Porta said.
Lima, for his part, said
that the uncertainty
created by the farm
conflict could slow down
investment growth to
below its potential. "FDI
growth depends on a
country’s stability and
predictability," he
said. "Long term
planning horizons of,
say, 20 years, aren’t
possible yet in
Argentina."
However, "it’s a
question of time:
Brazilian investment
abroad will increase,
and the share coming to
Argentina will, sooner
or later, also expand,"
he predicted.
* With additional
reporting from Mario
Osava in Brazil.
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