Session 6. The Analysis of BRICS Business in Latin America FDI from the BRICS This collection was collated by Yuriy Zaytsev as teaching material on the FDI from the BRICS course at the Institute of Development Studies.

Questions of the session The factors, which determine international business modes of engagement for development in Latin America; To what extent do the BRICS (as a group) differ in their approach to investment compared with investors from industrial countries in Latin America? The volumes of FDI among investors, the regions, sectors and markets of engagement and concentration in Latin American countries; The determinants of BRICS business modes of engagement and market accession, and mechanisms to overcome capital market imperfections in Latin American countries; BRICS business influence on the socioeconomic development of the poorest nations in Africa.

Investment flows in countries of Latin America (1) Latin America and the Caribbean: foreign direct investment flows, (Millions of current dollars and percentages of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of estimates and official figures as of 29 April Latin America and the Caribbean (selected countries): inward foreign direct investment, (Billions of dollars) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of preliminary figures and official estimates at 25 April March 2013.

Investment flows in countries of Latin America (2) Note: The company sizes are those defined by each country for their surveys. Capital flows to Latin America and the Caribbean Source: Based on the IMF’s IFS data and national sources, with data obtained in August Source: National Business Survey on Innovation, R&D and ICTs ( ) Argentina, Survey of Innovation Technology in Brazil (IBGE, 2010), (Gutiérrez, 2011), 3rd Uruguayan Industry Innovation Survey ( ) (ANII, 2008a) and 1st Uruguayan Services Innovation Survey ( ) (ANII, 2008b) Investment in capital goods and R&D according to company size and sector (percentage of innovative companies)

Investment Climate in countries of Latin America Source: 3rd Uruguayan Industry Innovation Survey ( ), 1st Uruguayan Services Innovation Survey ( ), Brazilian Technology Innovation Survey (2008), 5th Chilean Innovation Survey, Innovación y sus determinantes en la pequeñay mediana empresa: el sector manufacturero colombiano (Gutiérrez, 2011) and La conducta innovativa de las pymes industriales y deservicios argentinas (Barletta et al. 2011). Note: The company sizes are those defined by each country for their surveys. For Chile, “Limited co- operation with other institutions/companies” is calculated as the simple average of limited co-operation with institutions and limited co-operation with companies. In the Uruguayan services sector, “Macroeconomic instability” was replaced by “Level of economic uncertainty”. Major obstacles to business innovation, by country and sector

Value Added Chains Selected experiences of clusters integrating in global value chains Note: Scale: 0-absent to 3-high. Source: Pietrobelli, C. et al. (2005).

Transnational Business profiles in developing countries The profits made by transnational corporations operating in Latin America and the Caribbean have increased by a factor of 5.5 in nine years, swelling from USD billion in 2002 to USD billion in This surge in profits —also known as FDI income— tends to cancel out the positive impacts of FDI inflows on the balance of payments. The evidence for Latin America and the Caribbean shows, in fact, that in the past few years outflows registered as FDI income were almost as high (92%) as inflows in the form of FDI; Latin America and the Caribbean: ten largest cross-border mergers or acquisitions, 2012 (Millions of US dollars) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from Thomson Reuters. Notes: Cross-border mergers and acquisitions targeting Latin America and the Caribbean totalled USD57.70 billion in 2012, 34% lower than the previous year. This decline is due primarily to the 12% decrease in the number of deals and, especially, to the 65.7% drop in the value of acquisitions by multinationals from European Union countries. The value of mergers and acquisitions by United States companies also fell (by 18.4%), as did transactions by companies in other regions of the world (60.1% decrease). The value of mergers and acquisitions in the region carried out by trans-Latin companies jumped 139.3%, from US$ 8.90 billion in 2011 to US$ billion in Such companies thus became the main source of mergers and acquisitions in Latin America and the Caribbean, although this increase did not offset the fall in the value of transactions originating in other countries of the world.

Sector Concerns Latin America and the Caribbean: return on assets of the top 500 companies, by industry, 2010 (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from América Economía [online] Latin America and the Caribbean: average income from natural resources, (Percentages of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank, World Development Indicators [online database].

The key challenges 1.Transnational corporations and tax revenues 2. Transnational enterprises and balance-of-payments sustainability 3.Agricultural FDI from Asia, especially China, is of particular note. – some Brazilian companies in the meat sector (Marfrig and BRF) seeking to venture into the Chinese market have partnered with Chinese enterprises (COFCO, Chinwiz and Dah Chong Hong Holdings Limited). – FDI flows from China could surge in the coming years, as seen in State- owned Heilongjiang Beidahuang Nongken Group Company’s plans to lease 300,000 hectares of land in Argentina’s Rнo Negro province. – This limited but growing trend can also be inferred from official Chinese government figures, which show that Chinese agricultural FDI worldwide increased from US$ 834 million in 2008 to a cumulative US$ 2.61 billion in – This figure contrasts with the cumulative US$ billion in FDI in the mining sector as of 2010 (Ministry of Commerce of China, 2011).