Are the US and EU Losing Their Positions as Investment Hubs to the BRICS?

As one of the bloggers for the Latin America blog and the European Union blog, I often have to divide my attention between the two regions and the political and economic events between them that almost always involve one of the BRICS nations or possible future BRICS. Despite some of these BRICS not being located in Latin America or Europe, the effect of India, China, Russia and others often have a great influence on Europe and Latin America. Today the fallout of the recent debates and disagreements on how to avoid a second recession in the EU and US sent investors looking for other places to move their money to despite the main hubs for investment being the US and EU for generations. Swiss Francs and Canadian Dollars get a great deal of attention in the current global markets as stable “Western” currencies, but markets and opportunities that once were seen as awkward, if not plausible, are now starting to take shape. To keep my focus I often read the FT.com beyondbrics section. According to them the BRICS markets have lost today as well, but despite this they might become the main investment hub for many future West weary investors.

One of these unique new investments comes from Cuba. When I toured Cuba years back it was very clear that all land ownership on the island had to be owned in part by Cuban nationals. Even though a Castro still controls the government in Cuba, non-nationals did not have the legal right to own Cuban property or benefit from Cuba without having the legal obligation of giving back to the community or having ties with Cuba or its citizens. The staff at beyondbrics published an interesting article recently detailing how swaps and the online marketplace are pushing foreigners into the position of property ownership on the island through a legal loophole and that to some degree, the Raul Castro government is permitting such transactions. Any move towards the past where American investors and organised crime made Havana into a little Miami, owned and paid for, was thought to be an impossible situation in any form under a Castro government in Cuba. This is not longer the case to my surprise as high tech capitalists and Cubans willing to speak to those entrepreneurs in Miami and globally might bring back an open Cuban market in some form.

Colombia for generations was hurt by its internal drug war which not only placed Colombians in constant fear, but neutralised Colombia’s economy as investors feared losing money, or worse, becoming a victim themselves of Colombia’s drug violence. Mexico has been plagued over the last few years with intense drug battles but investments seem to be growing in Mexico despite the violence. Mexico’s economy faced many challenges due to drug violence and its main trading partner facing economic turmoil in 2008 and the US’ ongoing economic issues since that time, but over the past few months investors are looking at Mexico in a new light. Many economic publications have taken to seeing the second largest economy in Latin America as having the potential of being another Brazil and possible future BRICS nation. An example of how despite the violence, foreign investors are willing to put their money into Mexico is seen in Lego’s investment in America’s southern neighbour. By 2012, Lego is expected to produce 45% of its global production out of Mexico due to high input, high efficiency and low costs of producing their world famous toy line in Mexico. This Danish toy giant that also has production in Denmark and Hungary claims its Mexican plants as one of its most valuable assets and will increase production in Mexico for its global market as soon as next year.

During last fall’s LASA 2010 I was one of the few people who attended a lecture on Indian investment in Brazil and Latin America. The one expert on this issue made the point that Latin America and India often did not see each other as an opportunity and had no natural ties beyond some slight immigration from India to the Southern Cone. Over the last few months India and Latin America have started to notice each other and trade has grown from almost nothing to a respectable trend. Factors that might have contributed to this engagement might be India and Brazil being noted in many discussions as countries that are good growth opportunities. A declining interest in Western investments tied in with a desire for investors to move their money to places that are not traditional investment hubs are a major concern for investors after seeing this week’s economic problems in the US and EU. With Western investors taking a trend to investing in Latin America, other BRICS such as China and India have caught its own BRICS investment fever through intra-regional trade beyond the US and Europe.

While wealth and investment will have a difficult times leaving its traditional hubs, even with current economic issues in those hubs, the natural tendency to diversify investments is starting to become a long term strategy for many liquid asset investors. This is also becoming a trend for investors of capital and chattels into BRICS nations and upcoming future BRICS countries. The move to put production in Mexico and “purchase” property in Cuba is married to liquid investment in countries that can claim to be economically stable and not the US or Europe. This trend will likely not be a constant one, but for the time being BRICS are taking advantage of their ability to source investment from abroad in large numbers.