The Report: Argentina 2018

Economy

Following the inauguration of President Mauricio Macri’s centre-right government in December 2015, the Argentine economy has embarked on a period of structural change propelled by increasingly liberalised policies. Under this leadership, the authorities have been rolling out various reforms to bring the country back onto the global stage, step up international competitiveness and accelerate GDP growth. After the 1.8% contraction in 2016, Argentina’s GDP expanded by 2.9% in 2017. Growth continued to accelerate in the first quarter of 2018 at a rate of 3.6% year-on-year (y-o-y), according to the National Institute of Statistics and Census. This chapter contains interviews with Daniel Funes de Rioja, B20 Chair; Mariano Mayer, Secretary of Entrepreneurship and Small and Medium Enterprises; and Luis Pagani, CEO, Arcor.

See also:

Special Report: Argentina 2018 : Córdoba

Banking

After the adoption of more market-friendly policies, Argentina’s banking sector has gradually begun to show signs of a return to positive growth. Since 2015 the government has been undertaking a number of reforms aimed at boosting investor confidence in the sector, increasing financial intermediation and improving the overall health of the financial services industry. At the same time, banks have experienced strong loan portfolio increases within corporate and consumer segments, fees and procedures have been eased for users, and digital services are on the rise. While reforms engendered since 2015 are assumed to be paying off, the financial services industry and the entire Argentine economy are still enduring a period of structural reforms. This chapter contains interviews with Javier González Fraga, President, Banco Nación; and Eduardo Escasany, President, Grupo Financiero Galicia.

Capital Markets

Argentina’s historic issuance of $16.5bn worth of bonds in April 2016 marked the country’s return to the international capital markets after effectively being barred for 15 years. Argentina has had a troubling history in global markets, having defaulted on its sovereign debt eight times since 1816, the most significant being the 2001 default on more than $80bn. Since taking office, President Mauricio Macri’s administration has successfully reached an agreement with its holdout creditors and implemented a number of market-friendly reforms, ranging from lifting currency restrictions to abolishing export quotas. While this helped to significantly improve investor confidence in the nation, bolstering its performance across most metrics, some of these gains have been eroded in the early months of 2018, amid creeping inflation and a shift away from emerging market equities among investors. This chapter features an interview with Marcos Ayerra, President, Comisión Nacional de Valores.

Trade & Investment

After going through a period of recession in 2016, epitomised by a sharp drop in both trade and investment, the new administration’s market-friendly policies have begun to show positive results, with investment returning to 2015 levels, despite the liberalisation of capital controls. While stronger economic growth has seen imports increase, exports have not risen at a commensurate rate, widening the trade deficit. In this context, improving the country’s global competitiveness in exports remains one of the key challenges for the current administration. Argentina’s large internal market, availability of natural resources, agriculture and agro-industrial potential, and strong human capital – combined with market friendly policies and reforms at the administrative level – should provide the necessary impetus to reopen trade to the rest of the world. This chapter includes a dialogue with Daniel Herrero, CEO, Toyota Argentina and Hernán Vázquez, CEO, Volkswagen Argentina; and an interview with Juan Pablo Tripodi, Executive President, Argentina Investment and Trade Promotion Agency.

Insurance

Maintaining robust levels of profitability through the use of financial instruments rather than the development of core competencies, Argentina’s insurance industry has remained relatively stable since 2008. The introduction of more market-friendly regulations since 2015, coupled with improvements across a number of macroeconomic indicators, is expected to have a positive impact on the insurance industry, enabling it to focus more on developing the market as well as take on a more active role in the overall economy. Regulatory reforms are expected to lead to market consolidation as the government seeks to strengthen the industry and attract international players. While penetration rates remain low, the active role of the government in the development of the sector is an encouraging sign for both local and international insurers. This chapter features interviews with Juan Pazo, Superintendent, National Superintendence of Insurance; and Alejandro Simón, CEO, Grupo Sancor Seguros.

Energy

Over the last 20 years the fortune of the Argentine economy has been closely tied to one commodity: natural gas. In the 1990s, the construction of combined-cycle power stations allowed Argentina to produce plentiful and inexpensive energy from its conventional gas fields in the south and east. Industry forecasts were so optimistic that several trans-Andean pipelines to Chile were constructed, but after a brief period as an exporter in the early 2000s, Argentina returned to being a net importer of gas in 2008. Declining domestic production due to a lack of incentives, coupled with rising gas imports from neighbouring countries, placed the energy sector at the centre of Argentina’s economic woes throughout the 2010s; however, the sector could also hold the key to the country’s revival. A stable and attractive regulatory environment, combined with significant potential in the hydrocarbons, renewable energy, and thermal and hydroelectric generation segments, provide ample opportunities and security for global investors. This chapter contains interviews with Alejandro Sruoga, Secretary of Energy Policy, Maurizio Bezzeccheri, CEO, Enel Argentina; and Danny Massacese, Upstream Managing Director, Pan American Energy Group.

Mining

In 2016 the mining sector contributed 1% of Argentina’s GDP, or around $5.9bn. Of this total, 40% came from the sale of industrial rocks and minerals containing calcium, salt and dolomite. The main export destinations are Argentina’s southern cone neighbours, with Chile accounting for 68% of exports, followed by Brazil (19%) and Uruguay (6%). Nearly two-thirds of the area in Argentina with mining potential remain unstaked, leaving investment opportunities in a number of provinces. While private sector spending on exploration more than doubled from $140m in 2016 to $300m in 2017, around $400m of annual investment is expected to be required to fully explore these six mining regions in the coming years. This chapter contains an interview with David Guerrero, CEO, Galaxy Lithium.

Industry & Retail

Accounting for roughly 16.7% of Argentina’s GDP, manufacturing was the largest contributor to the economy in 2017. Industrial output is highly diversified within the sector. In 2017 food and beverage processing comprised 30.9% of gross production value. This was followed by chemicals manufacturing (13.6%); motor vehicle and auto parts manufacturing (7.4%); petroleum refining and nuclear fuel (6.4%); and base metals production (5.7%). While estimates vary, the government predicts that construction, agriculture and energy production, along with the continuation of liberalising reforms, will encourage economic growth in 2018. After the manufacturing industry, the wholesale, retail and repairs sector is the second-largest component of Argentine GDP, contributing 13% in 2017. Looking forward, retail will witness a moderate growth tied to the improving performance of the economy and the reconfiguration of financial policies. This chapter includes interviews with Dante Sica, Minister of Production; and Miguel Acevedo, President, Argentine Industrial Union.

Córdoba

Located in the centre of the country and imbued with a rich history and the benefits of a productive climate and soil, the province of Córdoba has developed a multi-pronged economy that is resilient to external shocks. This includes an agriculture sector undergoing modernisation, a value-added food industry and an automotive manufacturing segment that significantly contributes to economic growth and local employment. Posting a GDP per capita of $9288 in 2017, Córdoba is among the top provincial contributors to national GDP, at 7.9%. Córdoba has the challenge of remaining one of the most competitive regions in South America. Doing so will necessitate developing infrastructure for further expansion, sustaining business conditions so companies can thrive, empowering the workforce to support future growth and providing good social conditions for inhabitants of the province. This chapter features an interview with Juan Schiaretti, Governor of Córdoba.

See also:

Special Report: Argentina 2018 : Córdoba

Agriculture & Fisheries

No area of the economy has felt the turnaround from the election of President Mauricio Macri more sharply than the agriculture sector. The country’s vast agricultural plains, known as the pampa húmeda, are one of the world’s great breadbaskets, but years of state intervention in the sector have diminished crop diversity and led to falling exports. However, the new government’s pro-market stance opens the door for Argentina to again be a major grain exporter. Major infrastructure upgrades will help to expand the agricultural frontier and cut transport costs, while an eventual decline in inflation and stabilisation of the exchange rate could allow farmers to deploy capital where it is needed most. Just as Argentine agriculture proved it was at the cutting edge of technology in the 1990s, it is now showing potential to lead the way in the 2020s. This chapter features interviews with Luis Miguel Etchevehere, Minister of Agro-industry; and Gustavo Grobocopatel, Chairman, Grupo Los Grobo.

Innovation & Technology

Investments in R&D and innovation have been on the rise in Argentina, driven largely by greater government commitment to sector development. It was to this end that the Ministry of Science, Technology and Productive Innovation was created in 2007. Public investment growth has been repaid in terms of institutional strengthening and increased private sector interest, resulting in improved innovation and global competitiveness rankings. Between 2006 and 2015 spending on public research and development increased by some 279% at current prices, from roughly $1.1m to $4m. As Argentina’s economy continues to open up, greater international exposure will require commensurately increasing levels of R&D and innovation in order to achieve a greater degree of competitiveness. This chapter contains interviews with Hugo Sigman, CEO, Grupo Insud; and Martín Migoya, CEO, Globant.

Construction & Real Estate

An increasingly open market and policies to boost inclusivity are benefitting construction in Argentina. For example, a more transparent measure to subsidise mortgages for homebuyers has replaced supply-side stimulus packages, which should help disadvantaged populations. Meanwhile, efforts are being made to bridge the infrastructure gap and formalise labour. Public works and other construction projects are expected to continue throughout 2018 and gather pace in 2019, with government investment in infrastructure reaching $709m in 2018. Meanwhile, the real estate market in Argentina has been undergoing a transformation as a result of the measures taken by President Mauricio Macri’s administration. The Greater Buenos Aires region, for example, is home to a wide variety of residential, retail, office and industrial offers that make up a diversified property market. The sector accounted for 10.2% of GDP in 2017. This chapter features an interview with Gonzalo Monarca, President, Grupo Monarca.

Transport & Infrastructure

Investing in transport infrastructure could boost Argentina’s overall economy, given the sector’s growing contribution to GDP. In 2017 the transport and communications sector represented 8.1% of GDP compared to 7.3% in 2016, according to the National Institute of Statistics and Census. The government has demonstrated its intent on improving the transport sector, with ample investment and PPP opportunities present. Enhancing the connectivity of local industries to principal logistical hubs by road, railway, river and/or air will inevitably improve regional economies and stimulate Argentina’s overall economic and social development. This chapter features interviews with Guillermo Dietrich, Minister of Transport; and Ezequiel Lemos, President, Trenes Argentinos Cargas.

Telecoms & IT

Although Argentina has some of the most advanced telecoms infrastructure in Latin America, scarce competition in broadband and mobile services has restricted sector dynamism. Since assuming office in 2015, President Mauricio Macri has introduced several laws enabling licensed operators to provide multiple services as part of efforts to attract investment, increase competition and enhance connectivity. At the same time, the regulatory framework is being revised to allow for sector consolidation, which should bring down prices and step up the quality of service. In line with global trends, IT development in Argentina has accelerated in recent years, improving connectivity, productivity and social inclusion. Since the introduction of the Promotion of the Software Industry Law in 2004, Argentina has developed its software and information services. As one of the most dynamic sectors of the economy, IT will be of high strategic importance in the government’s goals to develop the country, bridge the digital gap and reduce poverty.

Tourism

Home to a wide variety of attractions ranging from the Iguazú Falls in the north-east of the country, wine tasting around Mendoza and the gastronomic night life of Buenos Aires, Argentina has much to offer visitors. Furthermore, with 11 natural and cultural sites included in UNESCO’s World Heritage List, the country presents a varied offering. Building upon these assets, the government has set the goal of boosting both tourism figures and expenditure, with Gustavo Santos, minister of tourism, announcing in January 2018 that the country aims to attract 9m tourists by the end of 2019. In order to meet these objectives, the state has increased public funding and put in place financial incentives to support investment, while reforming the aviation framework. This chapter includes an interview with Silvia Tenazinha, Country Manager, Almundo.

Health & Education

With the introduction of the Universal Health Plan, Argentina has gone some way to addressing the low-hanging fruit with regard to improving Argentina’s health care system. Inefficiencies and bureaucratic blocks in the sector can be improved by the introduction of new technologies, appointment scheduling systems and the harmonization of data across the fragmented model. The unification of health care provision looks set to continue, but the biggest challenge will be to provide quality treatment to provinces in the country’s more remote areas. Argentina boasts one of the best education systems in Latin America, in terms of both attainment and funding of institutions. More than 98% of citizens over the age of 15 are literate, and public and private universities frequently perform well – along with Chilean and Brazilian institutions – in global rankings systems. The opening of the economy puts new onus on schools and universities to provide their students with the skills necessary to compete in the global market place. The results of the first batch of students to graduate from the Schools of the Future programme will be eagerly anticipated by progressive innovators and could set the tone for deeper reform in the coming years. This chapter includes interviews with Florencia Davel, CEO, Bristol-Myers Squibb Argentina; Alberto Álvarez Saavedra, President, Laboratorios Gador; and Alberto Edgardo Barbieri, Dean, University of Buenos Aires.

Tax

This chapter provides an overview of Argentina’s tax regime, covering areas of particular interest to investors such as tax on gross income, real estate tax, stamp tax, and other investor considerations. This chapter contains an interview with César Litvin, CEO, Lisicki, Litvin & Asociados.

Legal Framework

This chapter provides an overview of Argentina’s legal framework, covering a range of topics from corporate considerations to foreign investments law. In addition, it features an interview by Jorge Pérez Alati, President, Pérez Alati, Grondona, Benites & Arntsen.

The Guide

This chapter contains information on hotels, government agencies and other listings, as well as useful tips for visitors on a range of topics such as visa requirements, currency and transportation, among others.

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