Mercosur IFCs take bulk of Latam FDI over Pacific Alliance hubs

Mercosur and the Pacific Alliance are Latin America’s most prominent attempts at regional integration. However, their accomplishments are uneven. Mercosur, a customs union between Brazil, Argentina, Uruguay and Paraguay, has often been criticised for its inefficiencies. The more recently launched Pacific Alliance, a more ambitious trade bloc between Chile, Peru, Colombia and Mexico, has been hailed as an example of how to put pragmatism and economic sense above politics and protectionism.

In terms of attractiveness to international investors, however, Mercosur countries continue to lead thanks to the overwhelming size of Brazil – in terms of both trade and financial services.

The vast majority of the $1.52bn foreign direct investment (FDI) directed at Mercosur’s top financial hubs in 2018 flowed into the main Brazilian centres, according to estimates by database fDi Intelligence. São Paulo attracted more than one-third of the total.

Pacific Alliance centres, on the other hand, attracted less than half of the FDI brought in by their Mercosur peers. Mexico City and Santiago were the largest recipients in the bloc, with more than $130m each.

New York was the largest single source of financial services FDI for both Mercosur and Pacific Alliance hubs, directing $323.5m at the former and $201.6m at the latter. The remaining outflows were split between other North American, European and Asian centres. China, an important trade and investment partner for Latin America, and Brazil in particular, features in the list of international financial centres investing in Mercosur. The Shanghai-based New Development Bank, previously known as the Brics Development Bank, announced plans to open a new office in Brasilia, while Beijing-based cryptocurrency trading platform OKCoin is investing in Buenos Aires.

There have been ongoing talks about establishing stronger links between the Mercosur and Pacific Alliance countries. An advancement here would undoubtedly benefit both trade and financial services investment flows into the region.