THE RISE OF PROPERTY TRANSFERS IN ARGENTINA

In recent years, Argentina has received an important quantity of foreign direct investment (FDI). According to the 1998 edition of ECLAC’s annual report, Foreign Investment in Latin America and the Caribbean, such investment amounted to US$6,326 million in 1997 and this year will exceed US$5,800 million. Despite the effects of the international crisis, such figures make it evident that foreign companies have continued with their expansion plans, above all in energy, mining and the automotive industry.

ARGENTINA: FOREIGN DIRECT INVESTMENT FLOWS, 1990-1998
(In millions of dollars)

Source: ECLAC, Unit on Investment and Corporate Strategies, Division of Production, Productivity and Management

Since 1995, the purchase of local private companies by foreign investors has been the main form of FDI, accounting for 41% of the total and displacing privatizations. At the same time, capital contributions took on greater importance, both in founding new firms and modernizing those in existence. Capital inflows represented 33% of total FDI over this period.

The pattern of FDI in the Argentine economy has altered substantially in the 1990s. Investment modalities have changed, as have the types of investors and their origins, and the range of activities in which foreign capital is involved has expanded notably. Accustomed modalities of establishing companies have increasingly been complemented by the creation of consortia based on complex strategic alliances between firms of different nationalities, to which are added local business groups and financial institutions of various kinds. This is particularly the case in the new property structure of privatized companies.

As a result, a significant new phenomenon is taking place in Argentina which has little in common with developments in the rest of the region. As part of the globalization of capital markets and the consolidation of new financial instruments, new investment funds are being established which centralize the activities of firms by means of the purchase of existing assets. The result is the formation of veritable holding companies based in the financial sector. Examples are the Exxel Group, Inversiones and Representaciones (IRSA) - 30% of which belongs to the Hungarian investor, George Soros - and Citibank Equity Investment (CEI). These new "transnational groups" now have a considerable weight in the Argentine economy.

The past few years have seen ever more concentrated interest on the part of foreign investors in services, especially as a result of privatizations in the telecommunications and electricity (generation and distribution) sectors. The purchase of financial institutions is the most recent example of this interest, and there is also a growing involvement in activities concerned with access to, and exploitation of, natural resources (agriculture, mining, oil and natural gas).

As privatizations have slackened off, so the manufacturing sector has been growing in importance, especially as a result of the considerable boom of purchases, notably in the chemical, rubber, plastic, food product, beverage and tobacco industries. In the automotive industry, the largest share of FDI goes to assembling and finishing, although investment in auto parts has also begun to take on importance as part of a thoroughgoing restructuring arising from the establishment of Mercosur.

Within this framework, the strategic orientation of foreign investors in the Argentine economy begins to emerge, consisting of:

• Access to internal and regional markets (Mercosur) with great growth potential. This trend is especially apparent in certain service activities, such as banking and telecommunications, and in some manufacturing industries, such as food products, beverages, tobacco and, above all, the automotive sector.

• Access to natural resources which enjoy significant comparative advantages. As a result of liberalization, foreign investors have been able to enter once-restricted activities, notably mining and hydrocarbons (oil and natural gas).

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