History and Investment Collides in Latin America

Brazil’s economy has slowed over the last year, but Brazil is still one of the strongest BRICS nations and is still considered in a virtual boom phase by many investors, even if the numbers do not accord with the zeal many have for a growing Brazil. One of the main goals of many BRICS nations is to move from the source of the boom, manufacturing in China and natural resources from Brazil, to a more technically savvy economy that produces local Research and Development to export abroad. The traditional method to create a healthy source of R+D is often based on funding research and university innovation as a long-term strategy for future investment in an economy. A quicker method, one that has been given a priority in Brazil’s investment strategy, is to bring in foreign intellectual property as a part of investments by foreign companies to Brazil. Companies like Brazil’s highly competitive aircraft manufacturer, Embraer, often benefit from not only an infusion of cash and investment in the company, but also by the implementation of new technologies towards Embraer and the Brazilian market.

Mexico’s return to a PRI presidency under Pena Nieto has lead to many reforms of Mexico’s economy and much criticism of Pena Nieto himself. One of the main points of contention is the sale of Mexico’s national oil company, PEMEX to foreign investors. While only parts of PEMEX might end up being sold, the strategy to increase the technical capabilities of PEMEX through the above R+D strategy is placed in competition with Mexican history, as PEMEX was once nationalised as a move to push Mexico into a more independent position in the past. The sale of PEMEX and the increase in personal tax is a move towards getting Mexico off the dependency of its national oil industry, modernise PEMEX and prohibit tax avoidance in Mexico’s tax system. While Mexico needs more investment and a modernisation of PEMEX, the roots PEMEX has had in the independence of Mexico and funding of its government goes well beyond a simple investment strategy. Pena Nieto has likely risked his political career, but since he only has his six years as President, it may be his party that pays for his policy decisions.

Argentina brought back memories of Latin America in the 1970s when Spanish oil company Repsol had their assets in Argentina expropriated in a popular move by President Kirchner to boost support for her government. While popular moves can often help a government retain power in the next election, the tougher choice might be ones that have a longer term benefit, even if reinvestment in a company like PEMEX might require R+D through foreign means. While the long legal battle over Repsol’s investment in Argentina is far from over, the stresses between political popularity and economic growth can often be in conflict when history and R+D collide in an uncomfortable relationship. It seems as if the three Latin American economic titans, Brazil, Mexico and Argentina, have all taken to vary their methods of economic growth through R+D and foreign investment. Only time will tell how each experiment will end, but surely a balance of investment and growth will have the best long term benefit. Whether investors will continue to invest in any of these economies will surely be linked to their returns on investment in their R+D that have been exported abroad.