Energy move could dampen investment

Date: 11/05/06

EU investment in Latin America rises and falls with the region's economic and political events. And for the moment, EU investment to Latin America is on the rise.

"The EU is an important economic and political partner for Latin America," said one EU trade official. "It is the first foreign investor."

The official said that total investments in Latin America stood at EUR 287 billion in 2004, the latest available data.

Although foreign direct investment (FDI) in Latin America has steadily increased since 2003 lows, the move by Bolivia to nationalise the natural gas industry could dampen interest in the region.

"Investment in the oil sector was increasing in 2004 and 2005," said Masataka Fujita, from the United Nations Conference on Trade and Development (UNCTAD). "But now with the move by Bolivia to nationalise, it might be impacted."

That sentiment was echoed by a European Commission trade official.

"Any sudden nationalisation can clearly raise concerns for potential investors," he said.

In the past ten years, European corporate investors have seen the emerging markets in Latin America and the Caribbean as attractive locations for potential returns. But the climate had wavered with the fluctuating economic situation.

Stabilising economies and open markets were credited with drawing foreign funds to Latin America in 1995-99.

Spain quickly adapted, expanding its telecommunications and banking operations in Latin America. In 1990-94, Spain invested about $733 million, according to a 2004 IADB report. In 1995-99, it averaged $9.5 billion.

Other countries were slower to invest but EU member states including France, Germany and the Netherlands did expand in Latin America in sectors such as copper and textiles.

In 2000 and 2001, however, things began to change. Privatisation in Brazil levelled off, slowing the flow of money to the region. At the same time, the technology sector, whose stocks boosted international markets in the late 1990s, crashed. And the terrorist attacks in America in 2001 slowed economic activity even further. The region saw progressive declines in worldwide incoming funds in 2003 where it reached a low of EUR 42bn, according to a January 2006 UNCTAD study.

In 2004, FDI flows into Latin America and the Caribbean increased to EUR 55.2bn. And preliminary figures show a 5% increase in 2005 to EUR 57.9bn.

Opportunities to expand operations in Latin America continue, according to UNCTAD. Following the slow years in 1999-2003, "investments will be needed to modernise and expand production capacity and remove infrastructure bottlenecks, mainly in energy, roads and ports to meet growing internal and external demands", the report points out.

But whether these investments will flow into Latin America or not will depend, to a certain extent, on the politics of the region. With moves such as the Bolivian President Evo Morales's decision to renationalise the gas industry, Latin America is unlikely to lure investors.

Article takes a look at EU investment in Latin America, which the author suggests, rises and falls with the region's economic and political events.
Article is part of a European Voice Special Report, 'EU-Latin America'.

BBC News: Bolivia gas under state control, 2.5.06 http://news.bbc.co.uk/1/hi/world/americas/4963348.stm

---