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Home » Santiago and São Paulo Dominate Latin-American Ranking for Investment

Santiago and São Paulo Dominate Latin-American Ranking for Investment

María Gabriela Díaz by María Gabriela Díaz
July 17, 2013

Tags: investmentLatin Americastartup cities
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The Center for Studies in Competitive Strategies at Our Lady of the Rosary University in Colombia and the Business Intelligence Firm IdN from Chile have published their annual report on the top Latin-American cities for investment. What they seek to show with this ranking is which cities are more appealing for investors (or should be), based on each city’s efforts towards being more attractive, reliable, rentable, and less risky.

http://www.urosario.edu.co/urosario_files/9d/9d96f884-d433-45a8-947b-4e9877596f63.pdf

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The Index of Attraction of Urban Investments (INAI) analyzes forty-eight cities in Latin America, and their performance and expectations for growth for the following year. The formula takes into consideration variables at the national level, including the size of the internal market, access to external markets, the competitiveness of costs, and the political and economic risks — 35 percent of the final result. Local factors like buying power, expected economic performance, reputation, global presence, urban comfort, potential for financing new projects, and the quality of the higher education contribute the remaining 65 percent of the weighting.

This index follows the trend for cities to pursue strategies to catch investor attention and boost local development. However, their success or failure is highly influenced by how their national governments are generating policies that can either benefit or harm the local efforts.

In this year’s results from the INAI ranking, the city of Santiago de Chile leads the way, followed by São Paulo. These two cities have been swinging back and forth between first and second place in the last three years. Even though both cities have made enormous efforts to become more appealing to investors, the economic policies led by their national governments have had a multiplying effect.

Mexico City has remained in third since 2011, and Lima has remained in fourth since last year, after rising from ninth place in 2010. The city of Monterrey is in sixth place, behind Bogotá and ahead of Rio de Janeiro, dropping from fourth place in 2012. Panama’s City rises from thirteenth to eighth place, being the only Central American city in the top ten of the ranking. Valparaiso occupies ninth place, and Buenos Aires drops from fifth down to tenth place.

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According to this report, Mexico and Chile are “attractive” for investment, Colombia and Brazil are “friendly,” Paraguay and Ecuador are “neutral,” and Argentina, Bolivia, and Venezuela are “reluctant” — of the eighteen countries the report characterizes.

What the top cities in this ranking have in common is that the national and local governments are both aligned and headed towards the same target of economic growth. Moreover, they have realized that the only way to allow the economy advance is to enable more investment, which in turn creates more jobs, raises people’s incomes, and reduces poverty.

However, what the bottom cities have in common is that their local efforts are undermined by the populist policies of their national governments. These focus on winning more votes for the next election, even if that means obstructing the stability necessary for potential investments. Governments from Bolivia, Argentina, and Venezuela, in particular, have chosen populist measures as a way of bringing short term solutions to structural problems, without contemplating the long term negative consequences.

It isn’t surprising that Venezuela is seen as a negative place to invest and that Caracas occupies fortieth in this ranking, along with Maracaibo (forty-seventh) and Valencia (forty-eighth) performing even worse at the absolute bottom. High crime rates, sudden expropriations, very radical labor laws, strong price controls, increasing foreign currency limitations, weak legal institutions, and hyperinflation are just a few of the political and economic risks one can look forward to in the country.

While these governments have focused on showing themselves as infinitely generous with their people, their capacity to do so has already run out. The only way to come out of their economic downturns now is through an adjustment to a more investment-friendly environment. Nevertheless, earning trust with investors is something that will take hard work and a long time to achieve.

Tags: investmentLatin Americastartup cities
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María Gabriela Díaz

María Gabriela Díaz

María Gabriela Díaz reported from Caracas, Venezuela, and led the PanAm Post internship program. She has a Bachelor of Arts in political science with a focus in international affairs.

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