"Brazil is the source of between 35 and 40% of FDI (foreign direct investment) in Argentina," said Fernando Porta, one of the authors of the study published by the Buenos Aires office of the Economic Commission for Latin America and the Caribbean, Cepal.
Argentina has been receiving an average of US$ 4 billion a year in FDI since 2003, nearly 40% of which comes from Brazil. Of that Brazilian capital, 55% went into mergers and acquisitions, 25% into expansion of existing investment and the remaining 20% into installing new capacity.
Official figures from Brazilian capital Brasília indicate that 2.9% of Brazilian capital invested abroad between 2001 and 2009 went to Argentina, but Porta said that if tax havens are excluded, the proportion that flows into Argentina rises to 10%, making it "a significant market."
Luis Alfonso Lima. the head of the Brazilian Society for the Study of Transnational Corporations and Economic Globalization. said Argentina has become the main destination for Brazilian investment in Latin America "as part of a global trend of intra-regional investment between similar countries, such as those of South America or emerging countries in Asia."
Lima, said cultural factors are decisive. "It's easier for Brazilian companies to establish themselves in Latin America than in Asia, where communications would be difficult," he said.
Porta concurred that the internationalization of companies in developing countries "tends to begin in neighboring countries which share similar patterns of consumption and production processes." Favorable investment conditions in the recipient countries also have contributed to the trend.
Petrobras, Brazil's state-run oil giant, bought the private Argentine firm Pecom from the Perez Companc family in 2002, which became the second largest oil company in Argentina after Repsol-YPF, formerly the state-owned Yacimientos Petroliferos Fiscales.
The Camargo Correa group bought the Argentine cement firm Loma Negra in 2005, which then doubled its production capacity.
The beer and soft drinks company AmBev took over the Quilmes brewery, the sponsor of the Argentine national football team, and is currently the market leader for beverages in the Southern Cone region of South America.
Brazilian slaughterhouse and meat packer Friboi also bought Swift Armour, a large beef processing company. Belgo Mineira of Brazil purchased the private Argentine steel mill Acindar, "a fundamental step toward strategic control of the region's steel sector," according to the Cepal report.
Other companies simply established themselves, such as the cosmetic vendor Natura, the Itaú Bank and the Santana textile firm, which will manufacture denim for jeans in the northeastern Argentine province of Chaco.
According to the study, Argentine companies adopted a "defensive" strategy in the financial crisis of the late 1990s, while Brazilian firms opted for "an aggressive internationalization policy on a regional scale," in order to spread domestic market risks and acquire experience of investment abroad in countries they knew well.
Brazil and Argentina are the largest members of the Mercosur trade bloc, to which Paraguay and Uruguay also belong. Venezuela is in the process of joining the bloc.
"Capital movement is facilitated in the context of the trade bloc, but less so than might be supposed" in the case of Argentina and Brazil, Porta said.
"The Brazilian government has a proactive policy of assisting its companies to branch out internationally by providing credit, because this boosts its foreign trade prospects," he continued, adding that the country thereby gains control of oil and gas reserves as well as sources of other commodities.
The study indicates that among the main motives for internationalizing Brazilian companies is their need to produce on a larger scale, the opportunity to enter a relatively protected market like Argentina's, and their access to plenty of high-quality raw materials.
Argentina's early 2002 currency devaluation, after more than 10 years of a fixed exchange rate at one peso to the dollar, is another advantage that has attracted and accelerated investment. According to Lima, Argentina "is a good market, with a relatively highly paid population and empty market sectors to be exploited, which are already exploited in Brazil."
So just as capital flowed into Argentina from the United States, Spain, Italy, France and other European countries in the 1990s, attracted by the sell-off of state companies, since 2004 it has been the Brazilians who have come seeking business opportunities.
However Lima admits that uncertainty is a standing factor in Argentina limiting growth potential. "FDI growth depends on a country's stability and predictability," he said. "Long term planning horizons of, say, 20 years, aren't possible yet in Argentina."
Mercopress