Argentina – Economic Overview

Argentina has a highly diversified economy. The primary sector has a very positive reputation worlwide for its high productivity levels. The country’s well-developed industrial base showcases key sectors such as agriculture, automotive, pharmaceuticals and biotechnology industries, as well as the chemical and petrochemical industries, and design, manufacturing and software.

The services sector is gradually developing niche expertise in the more sophisticated segments of the value chain, with a notable growth in software and IT services as well as wide variety of high added-value professional services.

Key sectors

Primary sector
The primary sector—agriculture, animal husbandry, fishing and mining—today represents 11% of the local economy.
The country is a leading producer and exporter of commodities and raw materials, with over 60% of its 280 million hectares dedicated to agricultural production. Worldwide, Argentina is the second-largest producer of honey and mate tea leaf and the third largest of sunflower seeds, lemons and limes. It is also a leading producer of beef, wheat, corn and pears, and it is ranked among the top five exporting countries for honey, pears and soybeans, among others.
The agricultural sector consistently achieves extremely high levels of productivity, reaching higher yields per hectare of soybean and wheat than other major world producers such as Brazil, the United States and Canada.
Argentina also possesses a wealth of mineral resources, mostly concentrated along the Andes mountain range, including significant lead, zinc, tin, silver, potassium, copper and gold deposits. The province of San Juan is home to one of the most important reservoirs of gold and silver on the planet, while to the east of the Cuyo region, with its chalky lime soil, there are major gold, silver, lead and zinc deposits and further to the southeast, copper and molybdenum reserves. The country also has some of the largest lithium deposits in the world, a metal increasingly in demand due to its low environmental impact and utility for cellular phone and car batteries.

Industrial sector
The manufacturing industry continues to represent over 21% of the domestic economy.
Agri-business is a major industry in Argentina, food and beverages in particular. Argentina is the world’s top soybean oil producer and second sunflower oil producer: it also places fifth as a wine producer and is the seventh largest wine exporter. There is a correspondingly greater development of sector-specific technological and biotechnological applications, with over 50 bio-technology companies working for national industries.
The production of clean renewable energies, which shows great potential, is undergoing a period of significant expansion. The country is a contender for third place in the world ranking of biodiesel producers, and aims to be the leading biodiesel exporter by 2010. The capacity to generate wind energy is under development by local companies which have achieved an international reputation among their peers for their activities.
Argentina is one of the main automotive producers in the region. The business is well integrated with a specialized auto parts industry of considerable magnitude. Automotive companies located in Brazil and Argentina have developed a reciprocal manufacturing strategy with the objective of supplying the Latin American market as a whole.

Services
Representing nearly 60% of the economy, the services sector has experienced a period of dynamic expansion over the last few years.
Utilities (electricity, gas and water) and transport services are largely in the hands of private companies and offer highly competitive costs compared with other countries in the region, in particular developed countries.
Argentina is a growing producer of differentiated technological goods and services. It is ranked fourth among global exporters of television content and is well placed as a destination for the outsourcing of professional services with added value, including business process outsourcing (BPO), knowledge process outsourcing (KPO), financial services, design and advertising.

Foreign Trade

Argentine foreign trade has expanded significantly over the last six years. From 2003 to 2008, exports grew at an average annual rate of 18% while imports doubled this figure. The trade balance remained positive throughout. However, due to the drop in global trade resulting from the international economic and financial crisis, both exports and imports experienced a downturn during 2009.In 2009, manufactured goods represented 73% of the country’s total exports. Top of the list were manufactured products of industrial and agricultural origin, between them representing 70% of total exports, followed by raw materials, fuels and energy.Exports
The country’s main export products are soybean derivatives: flour, pellets, oil, and beans. Corn, wheat, transport and cargo vehicles, crude oil and petroleum, sunflower seed oil, ship and airplane fuels and lubricants follow in terms of sales.
Argentina has a diversified export structure: according to the World Bank’s World Trade Indicators for 2008, it places just below Canada and the United Kingdom on the trade concentration index, above countries such as New Zealand, India, Mexico, South Africa and Australia.
Brazil is the country’s leading export partner and receives over 20% of Argentine exports, followed by Chile, China and the U.S.

Imports
Argentina mostly imports capital and intermediate goods which make up 23% and 32% of its foreign purchases, respectively. This is followed, in order of priority, by parts and accessories for capital goods and consumer goods.
The main products imported include transport vehicles and their accessories, diesel fuel, mobile telephones, airplanes and iron ore.
As with exports, Argentina’s main trading partner for imports is Brazil, the source of 31% of domestic purchases. This figure is well ahead of the U.S. and China, a country which has actually doubled its share of the Argentine import market since 2003.
Major recovery is forecast for 2010 in the export and import of goods which is expected to keep the trade balance high. The excellent 2009-2010 harvest means a sharp increase in the shipments of primary and manufactured agricultural products, bolstered by increased industrial exports, particularly from the automotive sector. On the imports side, growth is linked to the increase in domestic demand for consumer goods, industrial supplies and energy.

Investment

The sharp rise in investment from 2003 to 2008 was mirrored by the significant increase in employment, both critical factors required to ensure competitiveness. Growth in Gross Domestic Fixed Investment (GDFI) was driven in particular by productive investment in infrastructure, machinery and equipment. By 2008, investment rates had reached the highest levels recorded in the last 30 years (23.1%).Foreign Direct Investment (FDI) also recovered after 2003, growing uninterruptedly until 2008 at an annual average rate of 43%. In 2008, USD 9,726 million of FDI flowed into Argentina, a year-on-year increase of 50%, contrasting significantly with the downturn of 15% in global FDI flows during this period. This placed Argentina among those countries with the greatest growth in FDI figures in 2008. The composition of FDI also showed improvements, with an increase in the share of greenfield investments (new production plants and expansion of existing capacity).

Both GDFI and FDI suffered from the impact of the international economic and financial crisis in the fourth quarter of 2008 and during 2009. In Argentina, both variables contracted

In 2009, GDFI in Argentina fell by 10.2% year-on-year, although the investment rate represented 20.6% of GDP in constant terms, a similar level to the historical average experienced from 1950 to 2008 and above levels registered during other recent periods of crisis. At world level, investment contracted by 9.8% in 2009 while in Latin America this figure reached 13.6% (World Bank estimates for 2010).

FDI flows to Argentina in 2009 fell by 50% while global FDI flows in the same period experienced a downturn of 39% according to the United Nations Conference on Trade and Development (UNCTAD).

Fiscal policy

After an impressive recovery following the 2001 local economic crisis, the public sector consolidated a strong primary fiscal surplus, averaging 3.3% of GDP from 2003 to 2008 and a financial surplus of approximately 1.5% of GDP, an unprecedented phenomenon in recent fiscal history. The international crisis and the economic slowdown in 2009 impacted on tax accounts, although the primary result remained positive.

Fiscal results of the Public Sector as a percentage of GDP

Period Primary Result
1980 – 1989
-3.9
1990 – 2001
0.2
2002
0.7
2003-2008
3.3
2009
1.5

National debt

At the end of 2001, Argentina declared a default of its sovereign debt payments. In 2005, it carried out a debt swap with an adhesion rate of almost 80%. In the last quarter of 2009, the Argentine Government approved a series of measures linked to the restructuring of the debt (the bondholders which did not enter the 2005 swap known as the holdouts), taking additional steps to normalize its relationship with the international community.
Argentina has followed a debt restructuring policy since 2003. National public debt stood at USD 141.665 billion by the third quarter of 2009, representing 49% of GDP. Total foreign debt, both public and private, stood at 41% of GDP, reflecting a marked drop in external obligations on the part of both the public and private sectors.

Capital Markets

The Argentinecapital markets came into existence almost a century ago, but are still smallin relation to the size of the economy. Stock Exchange operations are overseen by the Securities and ExchangeCommission (Comisión Nacional de Valores – CNV), an independententity with national jurisdiction.The CNV supervises eleven stock exchanges and ninemarkets. The most important include the Buenos Aires Stock Exchange (Bolsa deComercio de Buenos Aires – BCBA), Córdoba, Mendoza, Santa Fe, La Plataand Rosario, the Buenos Aires Stock Market (Mercado de Valores de Buenos Aires – MVBA) andthe Open Electronic Market (Mercado Abierto Electrónico – MAE). Founded in1854, the Buenos Aires Stock Exchange is the oldest of these institutions.

Monetary policy

The Argentine Central Bank is responsible for drawing up and implementing a coherent monetary policy to guarantee a positive balance in the money markets and also encourage savings and investment.
Argentina’s exchange rate is both stable and competitive, with a floating currency managed bilaterally against the dollar as well as against a basket of currencies from its main trading partners. The managed float approach will continue to be one of the pillars of monetary policy designed to diminish the impact of an excessively volatile exchange rate and thus contribute to strengthening the demand for money.
The stock of international reserves has increased steadily over the last seven years, growing from USD 10 billion in 2002 to USD 48 billion in 2010.

Financial system

The financial system possesses adequate levels of liquidity and solvency and is taking steps to reduce market gaps. At the same time, the geographical coverage of the financial services infrastructure in the different jurisdictions throughout the country continues to improve, particularly in the numbers of automatic teller machines (ATM) per capita in the more remote districts.
The Central Bank is responsible for regulating and supervising the financial system in order to guarantee it operates correctly.

Make-up of the Financial System  
Number of Financial Entities 83
Banks 66
Public 12
Private 54
National capital 32
Cooperatives 1
Foreign capital 12
Branches of foreign financial entities 9
Non-banking entities 17
Financial companies 15
Loan companies 2

If you want to invest in Argentina, Uruguay, Chile or Brazil contact us at:

felipegonzalezvergara@gmail.com

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