Foreign corporations cautious about investing in Latin America

Foreign investors have held back in the latest infrastructure tenders in Brazil. The political uncertainty and the mixed growth expectations in the region are the reason – this currently affects almost all countries.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The Brazilian government celebrated the Congonhas airport tender as a success last week. Spanish airport operator Aena was awarded the contract with double the minimum bid. Congonhas in São Paulo is Brazil’s second busiest airport and one of the most important in Latin America.

Nevertheless, the auction performed below expectations: Aena was the only interested company. All other potential competitors did not participate. In recent years, Zurich Airport, Fraport from Germany and Vinci from France had repeatedly stated that they were interested in expanding their existing portfolio in Brazil.

The restrained interest of foreign companies in investing is also evident in neighboring countries: Argentina, Chile, Peru or Colombia are also recording declining investments by foreign corporations.

There are different local reasons for this – but some trends can be identified. For example, in a survey of ten Latin American economies, the Brazilian Instituto Brasileiro de Economia da Fundação Getulio Vargas (FGV Ibre) found that sentiment about the economic outlook for the coming months has deteriorated massively. At present, growth prospects are worse than market participants saw them in the midst of the global financial crisis in 2009.

In fact, most investment banks expect the Latin American economy to stagnate in 2023. Inflationary pressures will persist. As a result, the cost of investment is rising. At the same time, central banks are raising interest rates, which is restricting consumption.

But there are also political reasons that are currently deterring investors from investing in Latin America. This applies to countries such as Argentina, which are in the midst of severe crises. There, it is unclear whether the government will still manage to govern until the end of the legislative period. At the same time, it massively controls capital movements, so that investors cannot estimate how and when they will be able to withdraw their capital or receive dividends.

In Chile, on the other hand, mining companies in particular have put their investments on hold. They want to know what framework conditions will allow them to invest in the future. This is because the new constitution, which will be voted on September 4, provides for significant restrictions on concessions and tax increases. However, these have yet to be implemented in any case by simple legislation. According to the mining association, investments worth $30 billion are currently blocked.

In Brazil, on the other hand, investors are waiting to see whether there will be a change in the October elections. Brazil’s bad reputation, especially in Europe, because of the environmental and Amazon policies of the current government of President Jair Bolsonaro is discouraging investors from making a major commitment.

The last infrastructure tenders for trunk roads in 2021 already showed that new investors are shying away from coming to Brazil at present. Only companies that have already invested in Brazil are expanding their involvement.

Plane
© Unsplash/Lukas Souza

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