FDI and M&A activity in Latin America

While much of the global economy has experienced a sharp reduction in foreign direct investment and M&A deal-making as a result of the financial crisis, Chile and other Latin American countries are holding their own.

Alejandro Cerda Head of Advisory KPMG Chile

Alejandro Cerda
Head of Advisory
KPMG Chile

Latin America has shown great resilience in the face of the economic recession and presented the fastest-growing flows of both inward and outward foreign direct investment. The volume received in 2010 exceeded the average of previous years, reflecting the region as a new solid investment destination for transnational companies.

Also, it is important to highlight the rise of trans- Latins. A significant proportion of Latin American investments are made within the region. According to deals reported by Bloomberg, 47% of M&A concluded by Latin American companies in 2010 took place in a neighbor country. Moreover, as stated by the Economic Commission for Latin America (ECLAC), greenfield investments also are mainly directed to the region itself (59% of the total in 2010).

invest11Given this situation, the importance of trans-Latins as agents of regional integration is growing fast. Investments made by Chilean firms reached a record $8.7 billion, 58% of which was directed to other Latin American countries, mostly to financial, retail and manufacturing sectors. The most dynamic sectors for M&A activity in 2010 were basic materials, consumer goods and financial services, reaching a volume of $3.8 billion, according to Bloomberg information.

The reasons behind this increase in deal-making are the high economic growth of emerging economies, high commodity prices, lower costs of capital, restructuring and sale of distressed assets, and the overall trend towards consolidation.

In 2011, Latin American M&A activity has been mainly concentrated in such sectors as energy and natural resources, telecoms and materials. These sectors along with consumer goods and financial services will most likely dominate M&A activity specifically in Chile and in the region.

Due to reduced inflation levels, capital access and investment reforms, Latin American countries are becoming more hospitable to M&A especially in light of the current economic and political background in the US and debt crises in Europe. There is a reason to believe that this trend will continue in coming years, causing an increase in overall deals and in market confidence. ●

Benedicto Vasquez Head of Mining Industries, KPMG Chile

Benedicto Vasquez
Head of Mining
Industries, KPMG Chile

Trends in mining

Mining sector investment in 2011 is expected to exceed $460 million. Chile’s mining association (Sociedad Nacional de Minería) projected investment in the industry for 2011-2018 would reach $70 billion. The main source of investment is copper, for which production levels are expected to increase by 48% by 2018. Investment in gold mining is expected to triple the current level of production (from 40 to 120 tons by 2018). For its part, the Chilean Copper Commission (Cochilco) projects copper mining will be at a level close to $54 billion by 2020.