[co-authors: Ignacio Minorini Lima, Enrique Bruchou]*
1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in your country that could have a big impact on businesses?
The investment climate in Argentina faced several challenges in 2021. Its economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. Sustainable economic growth in Argentina is dependent on a variety of factors, including the international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors, a stable rate of inflation, national employment levels and the circumstances of Argentina’s regional trade partners.
Argentina shows investment and trade opportunities, particularly in agribusiness, power, oil & gas, infrastructure, information technology and mining (with particular focus on lithium in recent times). However, certain market regulations, including foreign exchange restrictions, trade regulations and price controls have a negative impact on Argentina developing its full potential.
Argentina is a party to more than 45 bilateral investment agreements and founding member of the Southern Common Market (MERCOSUR). Foreign and domestic investors are treated equally and may compete under the same footing. Some restrictions exist with respect to ownership of border areas, water bodies, and rural lands.
2. From what countries do you see the most inbound investment? What about outbound?
Foreign direct investment (“FDI”) flows to Argentina have been volatile for years.
Since 2002 many of the Spanish and American investors that took the lead in the investment wave of the 90s have totally or partially divested their interests. In their place, Argentine, and other Latin American business groups (mainly Brazilian) purchased controlling stakes in companies in the energy, banking, cement, steel, textile, meat packing and brewing, amongst other sectors. More recently, China became an important player in Latin America's acquisitions arena, with recent transactions in Argentina’s energy, home appliance, and other industries.
The United States, Spain, and the Netherlands account for more than half of inward FDI. Other major investor countries include Brazil, Chile, Switzerland, Uruguay, France, Germany, and Canada. These investments are mainly focused on manufacturing, mining and oil extraction, trade, banking and other financial institutions, information and communications, and agriculture. The Argentine government actively seeks FDI, but economic uncertainties and recurrent crises have negatively affected such inflows in the past years and the COVID-19 pandemic has aggravated an already difficult situation in the country. Still, Argentina has obvious advantages with its natural resources (copper, gas, oil) and a skilled and competitive labor force. Expectations for the development of the “Vaca Muerta” shale gas field, and the resulting export revenues still need to attract further foreign investment. Outbound investment is mainly registered in Uruguay, the United States, Mexico, and Chile.
3. In what industries/sectors are you seeing the most opportunity for foreign investment?
Despite some of its recent economic problems, Argentina offers - and is seeking to increase - many investment opportunities in the natural resources and infrastructure sectors. The renewables sector, which includes mining, agribusiness, energy, oil and gas, is one of the most active in attracting foreign investment. Additionally, there are also growing opportunities in the agribusiness, food processing, IT, communication technology and health sectors.
4. What advantages and pitfalls should others know about doing business in your country?
As a natural consequence of the vast experience accumulated in a rapidly changing market, the Argentine business and legal community of today provides world-class and extremely sophisticated advice, with a quality of service that matches that of top European businessmen and law firms. On the other hand, Argentina also offers a highly-skilled and competitive workforce and a developed industrial base.
However, Argentina is an emerging and developing market and investing in such markets generally entails additional risks. These risks include political, social, and economic instability that may affect Argentina’s economic results which can stem from many factors, including the following: high interest rates; abrupt changes in currency values; high levels of inflation; exchange controls; wage and price controls, changes in performing contracts; regulations on equipment imports and other operational relevant needs; limitations on its ability to obtain financing from international markets; changes in governmental economic, administrative or tax policies; and political and social tensions.
5. What is one cultural fact or custom about your country that others should know when doing business there?
Argentine businesspeople are unique. They have become accustomed to ever-changing rules and economic conditions, and consequently have developed a remarkable capacity to adapt, take risks and profit from such situations. In the last two decades they have been exposed to a major economic crisis in 2001/2002, the ensuing sovereign and private defaults, debt restructuring, divestments, increased government intervention and, lately, re-nationalizations.
They are also known for having developed a particular and local way of conducting interpersonal relationships that extends to business, which is the reflection of a tendency among them to, when engaging with other people, treat each other with familiarity.. This is shown through small and usual practices, such as face-to-face meetings rather than by telephone or in writing (they are seen as impersonal), some small talk before getting down to business, close physical contact when speaking to someone and reaching over and touching someone’s shoulder as a sign of friendship.
*Bruchou, Fernández Madero & Lombardi Abogados
