Investor confidence in Latin America tanks; Mexico, Argentina are making things worse
The newly released 2020 World Competitiveness Ranking, compiled by the Switzerland-based IMD business school, includes 63 countries, led by Singapore, Denmark and the Netherlands. Farther down are the United States in 10th place, China (20), Chile (38), Peru (52), Mexico (53), Colombia (54), Brazil (56), Argentina (62) and Venezuela at the bottom, in the 63rd place.
Some, such as Mexico and Argentina, have been declining steadily in this index during the past five years. Mexico has fallen eight places in the index; Argentina has dropped seven places over the same period.
A separate ranking, the 2020 Foreign Direct Investment Confidence Index, put together by the Kearney global consulting group, includes 25 countries. On that list, the United States, Canada and Germany are in the lead. Brazil is the only Latin American country on the list, in 22nd place.
There is no big mystery as to why the region has become less attractive to foreign and domestic investors: Polls showing that leftist populist leaders would win elections in Mexico and Argentina scared away potential investors even before Andres Manuel Lopez Obrador won Mexico’s presidential elections in 2018, or Alberto Fernandez won in Argentina last year.
Now, with the COVID-19 pandemic’s economic crisis, the region’s ability to draw much-needed investments will become even harder. In times of economic trouble, investors tend to flee from emerging markets and seek refuge in the world’s richest economies.
The Kearney study says that, as the pandemic broke out during the last two weeks of its survey of investors, “There appeared to be a return to the fundamentals — to large, more-stable markets with more predictable political and regulatory structures.”
In addition, much like rich countries, most Latin American countries have had to bail out major companies and give massive social subsidies to the poor during the pandemic. That’s raising investors’ fears that populist governments will end up grabbing a majority stake in major corporations and expropriate them.
Argentina’s President Fernandez announced this month that his government will take over the bankrupt agricultural giant Vicentin to protect jobs and guarantee the country’s “food sovereignty.”
Fernandez said that Vicentin’s takeover should not be seen as a Venezuelan-styled expropriation based on ideological grounds, but anxious investors are wondering what’s next on the government’s takeover list. In the past, Argentina’s expropriations of the YPF oil production company and the Aerolineas Argentinas have produced massive debt for the state.
In Mexico, Lopez Obrador has been scaring away investors since the beginning of his presidency, when he canceled an ongoing $13 billion Mexico City airport-expansion project. That forced the government to pay billions in reparations to contractors.
His daily tirades against “neo-liberalism” and his outdated belief that Mexico can grow by investing more in its state-run oil industry — at a time when oil prices are plummeting and even Saudi Arabia is diversifying away from oil — have produced a major economic crisis.
Lopez Obrador had promised economic growth rates of 4 percent a year, but the economy shrank by 0.1 percent in 2019, and the International Monetary Fund predicts that it will collapse by 10.5 percent this year. Mexico’s Center of Education and Social Studies projects that there may be about 12.2 million new poor by the end of Lopez Obrador’s term in 2024.
The giant Spanish energy firm Iberdrola has canceled a $1.2 billion plan to build an electricity plant in Mexico earlier this week, the weekly Reforma reported Wednesday.
There is no question that Latin American countries must increase their social spending and give financial help to companies to help them save jobs during the ongoing pandemic.
But expropriating firms or making populist speeches against “neo-liberalism” will only help postpone investments, reduce growth even further and increase poverty.
The world economy probably will recover late this year, perhaps even sharply if a COVID-19 vaccine is found. But barring a change in policies and rhetoric, Latin America may sink even further in next year’s competitiveness rankings.