Foreign Direct Investment

Honduras’ City-State Experiment

September 11, 2012

by Sabrina Karim

In what is perhaps a dream come true for political science researchers, Honduras has agreed to let investors build three private cities inside its territory. In about six months the investors—business consortium NKG and the South Korean government—will supposedly begin to construct the first of three private city-states complete with their own police, government, legal parameters, and tax systems. The cities will be empowered to sign international agreements on trade and investment and set their own immigration policy. Honduran president Porfirio Lobo has given his full backing to the plan and the government signed the memorandum of agreement approving the project earlier this month.  Envisioned to be like other city-states such as Hong Kong and Singapore, the idea is a clear example of a neo-liberal experiment. 

Honduran Congress President Juan Hernandez said that NKG will invest $15 million to begin building basic infrastructure for the first model city and South Korea has given Honduras $4 million to conduct a feasibility study. The first city will be built in Puerto Castilla on the Caribbean coast and that the other two would be built in the Sula Valley and an area in southern Honduras. Hernandez added that the project in Puerto Castilla would create 5,000 jobs over the next six months and up to 200,000 jobs in the future.

These investments will provide a boost for the economy and give Honduras a much needed facelift for investors. The project’s aim is also to strengthen Honduras’ weak government and withering infrastructure.

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Tags: Honduras, Development, Foreign Direct Investment

Li Jinzhang Appointed China’s Ambassador to Brazil

January 30, 2012

by AQ Online

Chinese President Hu Jintao made seven ambassadorial appointments yesterday, according to a statement from the Standing Committee of the National People’s Congress—with Vice Minister of Foreign Affairs Li Jinzhang filling the post of ambassador to Brazil. Jinzhang, who spoke with AQ for the Spring 2011 issue, said at the time that “the potential for growth in cooperation and trade is huge” with Latin America.   

The choice of Li Jinzhang is significant to Brazil, China’s fellow BRIC country, as Jinzhang has occupied many diplomatic posts related to South America, and was also director of the Latin American Affairs Department at China’s foreign ministry. In his AQ interview, Jinzhang highlighted three policy goals for the People’s Republic in Latin America: promoting mutual respect and trust to expand common ground; deepening cooperation and achieving “win-win” results; and boosting common progress and intensifying exchanges.

The newest issue of Americas Quarterly shows that China has supplanted the United States as Brazil’s largest export destination. As ambassador, Li Jinzhang will oversee a growing Brazil–China relationship. In 2010, Chinese state-owned enterprises made significant investment in Brazilian firms, acquiring a 40 percent stake of oil giant Repsol YPF Brasil S.A. and a 100 percent stake of electricity company Expansión Transmissão Itumbiara.

Tags: trade, Brazil, China, Foreign Direct Investment, Li Jinzhang, Hu Jintao

El Salvador’s Urgent Need for Foreign Direct Investment

May 12, 2011

by Julio Rank Wright

El Salvador is the country with the least foreign direct investment (FDI) in Latin America according to a report released last week by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The country experienced a 79 percent decline in investment compared to the previous year, with total investment amounting to a meager $89 million.

As the report was being quoted in local media outlets an avalanche of political opportunism ensued. For one, members of the private sector—citing recent rifts between the judicial and legislative branches over some controversial decisions related to electoral reform—cited judicial security as the source of lagging investment. Alternatively, President Funes blamed the private sector for not investing in El Salvador. This criticism was reinforced in the report’s analysis, which noted that Salvadoran businesses were the largest investors in Central America with a capital outflow greater than those of their regional competitors.

The ghosts of political instability and public insecurity in a country with endemic homicide rates resonated widely. But while we become entrenched in politically charged bouts, we fail to evaluate information for what it is.

Why is El Salvador posting such low numbers? Part of it is due to changes in the formal accounting principles used to aggregate foreign direct investment, according to ECLAC. Then they cite “endogenous factors like citizen insecurity, increasing operation costs of foreign businesses and the erosion of certain incentives associated to special sectors.”

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Tags: El Salvador, United Nations Economic Commission for Latin America and the Caribbean, Foreign Direct Investment