This 2020 is a difficult year for investments in emerging markets. The global economy is contracting and with it, investors prefer to bet on more developed economies, becoming more conservative when deciding where to place their assets.
This loss of confidence in emerging markets is reflected in the 2020 Foreign Direct Investment Confidence Index, prepared by the consultancy firm AT Kearney, where only three emerging economies appeared among the 25 most attractive economies for foreign investment: China, Arab Emirates United, and Brazil.
Investor optimism fell
The survey conducted for this index was conducted between January 27 and March 3, 2020, just as the COVID-19 pandemic was alerting markets worldwide.
This fact allowed to see a clear change in the opinion of investors, who at first were sure that 2020 was going to be a better year than the previous one in the first months. However, when they began to realize the severity of the pandemic, the consultant noticed a clear change in the opinion of the respondents. Investors noted that they were entering a storm.
This change of opinion affected emerging markets. Investors chose to bet again on the largest and most stable markets, with more predictable policies and regulatory structures, which ended up benefiting the most developed economies.
Mexico leaves the list of the 25 most attractive economies for foreign investment
Already in the 2019 edition, Mexico had dropped eight positions in the index, barely ranking among the 25 most attractive economies. This year ended up destroying the confidence of FDI in the country.
The change in strategy by investors particularly affected Mexico, which had already sent bad signals to foreign investment with the cancellation of investments such as the New International Airport in Mexico City or the brewery Constellation Brands.
In addition to the cancellation of these projects, the prioritization of low impact investments has not helped to improve the opinion of investors, such as the Dos Bocas refinery and the Maya Train.
The confirmation of the Treaty between Mexico, the United States and Canada (T-MEC) and the nearshoring effect were not enough for investors to bet on the country. According to consultancy firm AT Kearney, Mexico should focus its efforts with the aim of strengthening the macroeconomic environment and its regulatory and governance factors.
In the 22 years that AT Kearney has been publishing this ranking, Mexico was out of it only in 2011.
Brazil enters the list again
Among the economies of Latin America, Brazil is the only country that has managed to re-enter the list of the most reliable economies, occupying the 22nd place, after being out of the ranking in 2019.
According to the AT Kearney report, among the factors that fueled investment sentiment for Brazil are the approval of the pension reform and the government’s efforts to expand privatizations, which should stimulate growth in the economy.
This news is also a good sign for the capital funds that have been betting in the country in recent years. In the early 2020s, startups in Brazil saw growth opportunities, which can continue despite the pandemic, and VC becoming pickies.
What is the confidence index on foreign direct investment?
The AT Kearney Index was produced after surveying 500 top executives from the world’s top corporations between January and March 2020.
The consultant defines foreign direct investment as the capital investment of a foreign company in a company in a different country.