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Foreign investment in Argentina and the role of some key sectors

by | Jul 6, 2024

The UN trade division analyzed the dynamics of foreign direct investment during 2023. An examination of foreign investment in Argentina was included among the countries that, despite the global decline, saw an increase in capital inflows.

According to the Global Investment Report prepared by the UN, foreign direct investment in Argentina was US$23 billion in 2023. Argentina was thus among the countries that saw an increase in asset arrivals compared to the previous year when it was the destination of US $15 billion in investments. In addition, it was among the top 20 global recipients, with an average contraction of investments in the world and Latin America.

Growing demand for critical minerals, including lithium, rare earth or cobalt, and raw materials partly explains this increased foreign investment in Argentina.

Investments in the region: the weight of extractive industries

In 2023, Latin America and the Caribbean attracted 19 mega projects valued at more than US$ 1 billion each, 17 of which were led by investors outside the region, particularly from the United States, Spain, the Netherlands, and Luxembourg.

According to the report, large projects in Chile and Brazil boosted the region’s values, which channeled the increase in global demand for raw materials and minerals essential for the energy transition. The primary sector, strongly extractive, represented 23% of the value of new regional projects in the last two years.

The particularity of these industries is that they are subject to changes in commodity prices.

However, investments in renewable energies stood out: Four of the ten projects with the highest investment amounts were in this segment, particularly in green hydrogen and green ammonia.

When observing the evolution in the different sectors in the region, there were registered declines in areas such as infrastructure (-30%) and public services (-23%), as well as in renewable energies (-40%), followed by information technologies and chemical products. In the opposite direction, the increases were seen in the base metals and metal products industry.

The place of foreign investment in Argentina

Although foreign direct investments had a cut of 2% in South America and totaled 143 billion dollars, the acceleration of foreign investment inflows to Argentina, along with Chile and Guyana, compensated for the lower values registered in Brazil and Peru. Despite the decline, Brazil remained the most significant attractor of investments.

Argentina was ranked fifth as a destination for the highest-valued projects, which are estimated to exceed one billion dollars and are vectors of international financing, particularly in extractive sectors.

In a scenario of contraction of foreign investments globally, those made by multinationals from emerging countries chose to expand towards the financing of new projects over the purchase of assets. It is in that sense, and crossed with critical minerals, that Argentina was included in the investments of the Chinese Zijn Mining Group in mines and Kazakhstan.

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Disputes between investors and states

During 2023, UNCTAD reported 60 new investor-state dispute resolution processes, also known as arbitration processes.

The new cases in 2023 were initiated against 37 countries, 70% of which were against developing countries. Mexico alone had ten new cases. They were followed in the ranking by Honduras, with 5, Argentina, and Venezuela, with 3 each. Latin America and the Caribbean represented 50% of the claims. Most of the claims originated from actors from the United States, the United Kingdom, and Switzerland.

2023 was a good year for foreign investment in Argentina

In 2023, foreign investment in Argentina showcased a significant surge, positioning the country among the top global recipients of capital inflows. This notable increase, from US$15 billion in the previous year to US$23 billion, highlights Argentina’s growing attractiveness to international investors. A significant driver of this growth is the heightened demand for critical minerals such as lithium, rare earths, and cobalt, essential for the global energy transition. The extractive industries, prominently represented in Argentina’s investment portfolio, align with the broader regional trend in Latin America and the Caribbean, where extractive projects dominated the scene, particularly in countries like Chile and Brazil.

Despite a global contraction in foreign direct investment, Argentina’s robust performance, alongside Chile and Guyana, helped offset declines in Brazil and Peru. This resilience underscores Argentina’s strategic importance in the global investment landscape, particularly in sectors like mining and energy. The presence of large-scale projects exceeding one billion dollars further cements its position as a critical destination for international financing. The focus on new project financing over asset acquisition by multinationals from emerging economies, including significant investments from China’s Zijin Mining Group, highlights Argentina’s pivotal role in the critical minerals sector.

However, the investment landscape is challenging. Investor-state disputes remain contentious, with Argentina being one of the countries involved in arbitration processes in 2023. Such disputes underscore the complexities and risks associated with foreign investment in Argentina and other developing nations. Nevertheless, the country’s ability to attract substantial foreign direct investment amidst a global downturn reflects its potential and strategic significance. As global demand for essential raw materials continues to rise, Argentina’s position as a key player in the extractive and renewable energy sectors will likely strengthen, paving the way for sustained foreign investment in the coming years.

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