Argentina's FDI: Impact on Its Economic Growth - Essay Sample

Introduction

Developing an economic profile of a country requires consideration of factors such as the gross domestic product of the country, the unemployment rates, dollar value, and another economic factor. This paper discusses the Bi-directional foreign and direct investments, portfolio investment flows and multi-national company activity in Argentina

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Foreign Direct Investments (FDI)

Investments influence the rate at which the economy of any country grows, as it is considered as a component of aggregate demand of an economy. Argentina has many foreign investments which are placed in terms of foreign direct investments (FDI) (Benkendorfer, Hsu, Malthouse, & Oosthuizen, 2019). Foreign Direct Investment, are investments specifically made by a firm operating a business in one country, into businesses in other nations. Argentina's government has established many international businesses and is funding thousands of Argentinian firms that are located all over the globe. The government has also acquired business assets from international businesses which includes a deal, which allowed American companies to be established in the country. An example of a foreign direct investment made by Argentina is the establishment of the giant Technit conglomerate's company with its headquarters in Italy (Benkendorfer.etal, 2019). There are other assets and businesses owned by the government including the airlines and rail companies which often hire their services to other countries. The FDI involves major companies with the leading ones being the manufacturing, mining, telecommunications, and retail traders companies. The automotive, chemical and service industries, rapidly growing in Argentina, with an average percentage of 46% according to the economic reviews. Apart from the US, Spain and China are among the leaders in the foreign direct investments in Argentina's economy, with direct investments of over USD112billion.

The overseas private investment Corporation (OPIC), is an important agency established by Argentina, to sign bilateral agreements with multinational companies. A 1994 treaty between the USA and Argentina, has ensured that the investors from the USA are free to trade without over taxation and hindrance by government policies, with an exception of activities such as the building of ships and investment in nuclear energy (Edwards, 2002).FDI had an average of USD5.7 billion within the years 1992 and 1998(Benkendorfer.etal, 2019). There are however moderate growths that have been witnessed in the country, with blames being directed to the economy crash witnessed in the year 2009 and the Kitchener's weak administration that could not enforce contractual obligations. There is a strained business relationship between Argentina and the USA after the trade policies set by Argentina to grow its FDI by 27%, which led to USD12.5 billion in profits in the year 2012(Benkendorfer.etal,2019). The reinvestment of the profits resulted in the international businesses in Argentina, finding it hard to repatriate profits, control of the dollar and strict terms to import goods

Portfolio Investment

Portfolio investment flows in Argentina takes many forms in the market. Argentina's portfolio investments range from, market stocks, bonds from the government, exchange-traded funds and corporate bonds. There are other indicators related to the portfolio investment flows including the internal and external debts. They are either owned by foreign institutions or by non-resident institutions. Buenos Aires Stock Exchange is the leading organization in Argentina controlling the country's stock exchange. It is a self-regulated association, which operates on a non-profit basis, with representatives from all sectors of the economy in the country(Edwards,2002). It is reported that Argentina's Foreign portfolio Investments dropped by USD 484.66 towards the end of the ear 2019 as which was a bigger drop as compared to other years(Benkendorfer.etal,2019). The quarterly updates are provided by the national statistics and census Institute(NSCI)basing their results on BPM6. Exchange-traded funds are a secure investment that entails the piling of securities and is tracked by the index associated with them. It is used in Argentina's economy to invest in several importation and export sectors, although their shares are similar to the common stock and are listed daily and are prone to fluctuations. The index records indicate 14.7% nominal GDP resulting from investments in the year2019. It recorded the highest of 22.8% in the year 1998 and the lowest in 2012% due to global fluctuations in the markets. There are contractions of the economy, making the GDP deflate drastically.

Multinational Companies Activities

Argentina has many multinational corporations operating in the country including companies from China, the USA, Canada, and Spain. The main activities done by the companies are classified into three, namely; Importation and exportation of goods and services, significant investments in for their countries and trading in licenses. Firms such as Embotelladora Adina, which deals in the bottling Coca-Cola brand began its operations in Argentina in the year 1995, and has greatly benefited from Argentina's 30% increased spending, with sales rising over 11% in a single year(Benkendorfer.etal,2019). The international company's activities in Argentina are experiencing sales growth because of Argentina's absence of incentives to save. There is increased inflation in the country prompting people to spend money to save them. There have been sticker measures imposed by the government because of some unlawful acts associated with some companies in the country, such as evasions of tax payment and the absence of ethical standards of operation, creating an unfair competitive environment. The operations of the multinational companies in Argentina are affected by the inequality of income and payments. When it is compared to the other countries in Latin America, Argentina has at least 10% more poor people in the population, a figure that has increased from the 1990s. The inequality development index ranges at 0.707, which is higher than brazil's 0.578, a confirmation of a 2010 census report which indicated that at least 1 in every 8 citizens lived below 1USD per day. The purchasing power is low making the multinational companies limited to the urban areas with more wealthy people.

Conclusion

The foreign direct investment and portfolio investment of a country are important aspects to consider when drawing an economic profile of a country. The two aspects are different, given that FDI is an investor's move to build or purchase a business infrastructure in a foreign nation, while portfolio investment is a country's short term investment to make money quickly. Argentina has signed several bilateral agreements to enable it to trade with several nations that have set their companies in the country despite the strict terms set in the country in the middle of inflation.

References

Benkendorfer, K., Hsu, A., Malthouse, T., & Oosthuizen, E. (2019). The Macroeconomy of Argentina: Problems and Solutions. https://www.reed.edu/economics/parker/341/proj/Argentina.pdf

Edwards, S. (2002). The great exchange rate debate after Argentina. The North American Journal of Economics and Finance, 13(3), 237-252. https://www.sciencedirect.com/science/article/pii/S1062940802000931