Doing Business in Argentina (2013)

Argentina is an important regional export market with a population of 40 million people. It is the second largest economy in South America and the fourth most populous country in Latin America. Exports to Argentina are mostly industrial inputs, intermediate goods, and capital goods, destined for such industries as computers, industrial and agricultural chemicals, agricultural and transportation equipment, machine tools, parts for oil field rigs, and refined fuel oil. Argentine, in turn, enjoys a very strong surplus in terms of bilateral agricultural trade, along with goods such as wine, fruit juices, crude oil, and intermediate goods such as seamless pipes, tubes, and other iron and steel products. The population and economic activity are highly concentrated in the Greater Buenos Aires area. The population is of largely European descent and continues to have strong ethnic, cultural, and business ties with Europe. In some respects, consumer preferences resemble those of Europeans more than those of other Latin America nationals. However, revenues are highly dependent on MERCOSUR trade, especially with Brazil. The packaging equipment market in Argentina relies heavily on imports by large domestic food processing companies and food exporters. Market growth is largely tied to investment in technology and the expansion strategies of these companies. U.S. and European products are highly regarded, particularly in the higher-end technology segment. Scarce financing available at the local market is an issue. Market Challenges The primary market challenges arise from slowing economic growth, inflationary pressures, and a host of import and foreign exchange restrictions imposed by the Argentine Government in late 2011 and early 2012. The Argentine economy is expected to slow somewhat in 2013 compared with 2012, with GDP growth of 3% in 2013. This reduction in forecasted growth is due to lower growth in neighbouring Brazil which is Argentina’s primary trading partner, anticipated lower revenue from soybean exports, and disruptions to local production caused by import and foreign exchange restrictions. Strong commodity prices and automobile exports to Brazil have been key factors in Argentina’s rapid growth over the past several years as has growth in government spending. An increased focus on maintaining Central Bank reserves in the face of a diminishing trade surplus together with an import substitution model have led Argentina to increase its use of non-tariff trade barriers. The expansion of the list of items requiring non-automatic import licenses (NAILs) to import was expanded from 400 to 598 HS codes in 2011 and controls on access to foreign exchange were also implemented. The imposition of foreign exchange controls on October 28, 2011 added yet more complexity for both importers and exporters of goods to and from Argentine. Furthermore, the Argentine Government implemented a regime on February 1, 2012 whereby all importers are required to request approval from the Argentine Tax and Customs Authority (AFIP) prior to making purchases from abroad. Reports of production slow-downs and bottlenecks resulting from delays in the granting import licenses under the NAILs regime began to appear in the latter half of 2011. The addition of the pre-approval requirement for all imports from AFIP has added to the general level of uncertainty in the business community. As a result of the aforementioned government controls on trade and access to foreign exchange, and slower domestic growth, many firms in Argentina are putting on hold or delaying plans for expansion or the adoption of new product lines until both the economic climate and regulatory regime become clearer and more predictable.