Claudio Rois, group chairman of The Food, Water and Energy Company, looks at the case for investing in the country.
Argentina is unlikely to be first on anyone’s list when considering which countries are emerging as major world economies. The predominance of Brazil in the public mindset and the legacy of a disastrous economic fall-out have left it overlooked on the international stage.
In recent years, the nation has seen unparalleled expansion, while its commodities market remains a key strength. But a lack of understanding of the market has meant that many businesses in the UK and beyond are still failing to take advantage of the trade and investment opportunities it offers.
Clearly, there are some unique cultural and logistical challenges involved in dealing with Argentina, but with the right preparation and support, there is no reason why it cannot reap great rewards.
The Argentinean legacy
Britain has traditionally been a vital trade partner to Argentina, exporting new technology and manufacturing resources in exchange for raw commodities. Today, Argentina’s key commodities, especially oil and grain, remain a primary foundation of the country’s economy, but recent financial upheaval has wreaked lasting damage. The financial crisis the country experienced at the start of the decade has left a complex legacy of mistrust and suspicion from the international community on the one hand, but, on the other, an unequalled understanding of how to survive and thrive during economic meltdown.
Argentina has grown for five years at rates of over 8.5 per cent and though the expansion has slowed of late, the World Bank is forecasting growth of 1.9 per cent next year.
By wiping the economic slate completely clean, Argentina has been able to achieve genuine and sustainable economic growth as opposed to the financial smoke and mirrors currently being played out in the West. Undoubtedly the crisis of 1999 to 2002 resulted in the complete failure of the country’s economic system and a significant debt default, but it was the corrective nature of the collapse that ensured the economy was able to rebound so successfully.
Overcoming cultural barriers
There are many simple ways of making the right impression while working with Argentinean businesses. As with any international trade partner, understanding customs and etiquette is vital to building trust and securing the best deal.
Argentinean business tends to be completed through contacts rather than contracts. Establishing relationships based on mutual respect is a fundamental aspect of both the Argentinean culture and business place. If you spend time building relationships before going into business, then you stand a better chance of becoming a trusted business partner.
Timeframes in Argentina are also invariably longer. A simple, if slightly harsh, rule of thumb is that if it takes 24 hours in the UK, it will take 24 days in Spain and 24 weeks in Argentina. It is vitally important to factor this in, and make sure you pose realistic time scales for any business venture.
Doing your research
Argentina is a strong economy, with a wealth of opportunities for overseas investors, but that diversity can be daunting and you need to carefully navigate the market in order to determine which investments are right for you.
Exports from Argentina have doubled in the last five years, reaching US$65.8 billion in 2007, due in large part to rising international prices, an expanding export capacity and a highly competitive exchange rate. This has led to the traditional commodities markets expanding, but also emerging industries such as automotive, food and design manufacturing. With such a focus on these products, it is no surprise that exporting and importing goods in Argentina represents almost half of its GDP.
There are over 1,000 overseas companies operating in Argentina, with many having longstanding relationships that have been maintained since the end of the Second World War. Inevitably, it is the vast commodities market that accounts for the majority of the country’s trade, and with the ever-rising global demand for food its significance and importance to world trade is only set to grow further.
Argentina’s legal framework is similar to that of the UK in many ways and is positioned to help rather than hinder investors, with the same guidelines in place for domestic and foreign counterparts. However, red tape can be cumbersome and it is important to acquire the services of an accountant well-versed in Argentinean law to ensure all the necessary steps are taken.
Foreign investors can now access the domestic credit market with the same rights and conditions as domestic companies and as part of the APPRI (Agreements for the Promotion and Reciprocal Protection of Investment) Argentina has made agreements with many countries (though not all) to smooth their path. However, with a presidential election on the horizon, understanding and being prepared for the implications of any governmental changes, particularly any loosening of tax regulation, will be important to understand the environment you are working in.
It’s not only Argentina’s commodities market and proven economic resilience which makes it such an attractive investment destination. Climate change and environmental issues have pushed biofuels to the forefront of global consciousness and Argentina has been one of its leading pioneers.
The European demand for biofuels is vast with an expected 10 million tonnes to be required at the start of the next decade. The UK government’s strict carbon dioxide emissions targets should also see biofuels set to become a major investment opportunity and could see Argentina on the cusp of a major wave of foreign investment.
Dealing with Argentina does present some unique challenges, but they are not insurmountable. Doing business with the country can be both feasible and profitable for all parties involved, with research and market knowledge key to making the most of this untapped business opportunity.
Claudio Rois is a founding member and owner of family-run energy and renewable resources company, The Food Water and Energy Company, which is headquartered in Cambridge with operations in Argentina. He is also international project director for UK property specialists Movewithus.
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