An increasingly successful financial sector has meant that in the past five years, Latin America has been able to bolster both its foreign direct investment inflows and outflows.
Thanks to its fast-growing economies, sought-after raw materials and improved macroeconomic conditions, Latin America has been the object of large capital inflows in recent years. Some was part of short-term speculative bets – which, in some cases in Brazil, caused as much trouble as it did success – contributing to the strong value of the real and diminished competitiveness of Brazilian exporters. Many investments, however, were long term and went beyond the highly priced commodity and oil and energy sectors.
Between 2005 and 2010, Latin America’s financial services industry has attracted a total in excess of $7bn through 416 greenfield foreign direct investment (FDI) projects – which excludes mergers and acquisitions. Brazil is the leading destination for financial services FDI, some distance ahead of followers Mexico, Colombia, Chile and Argentina.
Spanish expansion
Spain’s Santander Group made the largest single investment in the region over that period, with a $1.2bn project in Brazil to open 400 new branches in the country in 2008, ahead of the initial public offering on the Brazilian stock market of Santander Brasil in 2009. It is estimated that the new branches created 1970 new jobs.
Another Spanish banking group, BBVA, directed the region’s second largest FDI project to Mexico in 2009, with a $907.94m investment in the building of a new headquarter for BBVA Bancomer, Mexico’s largest bank by assets and Tier 1 capital. The project is centralising bank’s operations, which are currently divided between various buildings across Mexico City. An estimated 2620 jobs are being created.
Not all large financial sector FDI projects are about office space. In 2008, Santander invested $187.9m in an IT support centre in the city of Queretaro, Mexico, and in 2010 the bank invested $249.86m in an IT centre in the city of Campinas, São Paulo. The centre is due to be completed by the first quarter of 2012 and is the third largest FDI deal in the region. Other projects included that of Irish-based financial analysis services Experian, which set up a subsidiary in Santiago, Chile, in 2008, with an investment of $181.2m.
The growing financial services sector in Latin America means that the region is not only increasing its FDI inflows but also its outflows, having invested an aggregate $2.58bn on 270 projects between 2005 and 2010. The largest source of outbound FDI is not Brazil, but an offshore financial centre, Bermuda, which generated 111 FDI projects (probably with origins elsewhere) with a total value of $823.5m – three times the number and twice the value of Brazil's investments.
