Long one of Argentina’s most successful businessmen, Eduardo Elsztain presides over his diversified company at the nexus of three critical growth sectors of the Argentine economy: real estate development, agribusiness, and home mortgages. While his companies have invested and grown to become Argentine multinational companies over many decades, he sits down with Nicolas Carver of The Worldfolio to discuss the changes with his company to seize the opportunity of Argentina’s current return to international credit and bond market. The result is his prized IRSA company becoming a not-so-micro microcosm of the Argentine economy itself: poised to expand as Argentina’s economy does the same.
How has the international community's perception towards Argentina changed with the change in government and the initial reforms that the Macri administration has taken?
Argentina has been disconnected from the world for a very long time. I have attended the World Economic Forum for 21 years, and there were periods in which the country was very present and others—such as the last decade—in which we had no presence whatsoever with neither the President, Ministers, or even governors present; only a small group of three or four Argentines.
Now, I am happy to see both ministers and young Argentine entrepreneurs at this event. The new generation of businesspeople is making many changes occur, and I felt privileged to be with them.
The Argentine government is working hard to create an environment of reconnection with the rest of the world, and I am glad the WEF has its meeting in Argentina. Carlos Slim's 'Padres e Hijos' annual meeting is also being held here; and the G20 Summit in 2018 will also be held in Argentina.
The world is responding to the changes that the country is undergoing. We have already received Presidents and Prime Ministers from all over the world since Macri was elected. When President Obama visited, it was a landmark for the country, and our own company as well, as he even stayed at one of our hotels. Seeing him dancing tango was a gesture that Argentina was back in the world, after 14 years of default.
There is a connection between all these events, and it is a positive one. People like changes to happen fast, but relationships take time and Argentina is reconstructing its relationship with the world.
How will IRSA act in this new business environment for Argentina?
We believe this is a moment of opportunity. We have been more active this year than in any other year in the past decade. We are developing more real estate now than ever before.
We have just launched the project of our tower in Catalinas, Buenos Aires — a Triple A office tower that faces the riverfront. We are also developing a technological center, with Mercado Libre as our anchor tenant. It is an office complex that also has a shopping center—DOT Buenos Aires. We have also purchased the building Mercado del Plata, located in front of the Obelisk. This was our biggest acquisition in the last 25 years. We are also doubling Alto Palermo's rental size.
We were financing our projects with our capital, but we now have regained access to credit and to equity. This is very positive for our business, because it means we can grow faster. The occupancy level of our offices and shopping centers is very high—100% and 98.3%, respectively. We are working twice as fast now.
We also have Cresud in the agricultural sector, which has also been undergoing big changes. The elimination or reduction of export tariffs on wheat, maize and soybeans has made the sector much more dynamic. The crops have increased by more than 20% this past year, reaching 120 million tons.
In both sectors—real estate and agriculture—there will be more investment and more growth in 2017. On top of that, there will be an extra US$100 billion available, coming from the Argentines' savings that have been declared in the mainstream system via the government’s tax amnesty program, which will inject new capital into the real estate sector.
Do you believe Argentina is moving towards being able to set long-term policies to ensure the sustainability of growth?
We have tried so many shortcuts that even the opposition is acting more rationally now. All the laws that the ruling party passed this year were possible because of the acquiescence of the opposition. The country has been under stress, and it has learned from its many mistakes. Some want the corrections to take place fast, and others are for a more gradual approach, but the more we go down the right path, the better.
We have a President who is an engineer, a doer. His three advantages are that he was in business before being into politics, so he has experience in the private sector. He also successfully ran one of the most popular football teams for ten years, which means that he learnt to deal with people from different environments. Lastly, he lost when he first ran for office as a Mayor of Buenos Aires. I think it was the best thing that could have happened to him, because it taught him how to become a politician. He had no need to run for office, particularly not again after losing.
When it comes to agribusiness, Argentina currently produces enough food to feed 10 times as many people as it has. But it also has the potential to go even further and feed up to 600 million people. The critical element is the value-added product that Argentina is missing.
I fully agree with the necessity of exporting with value-added product, you create more employment, more investment and more wealth for the country. But investment comes with time and trust. We used to be in intensive care, and we are now in intermediary therapy. As we win back the markets we have lost, investors will want to come back again. We are going to be able to do this if Argentina regains competitiveness, if long-term inflation declines and if the rules of the free market are in act for a long time.
How is Cresud an example of what an Argentine agribusiness company can add to the world? What does it have that others do not?
Cresud is a very old traditional company. It has been listed in the Buenos Aires stock exchange market for more than 75 years. It was founded by a Belgian group that decided to create a portfolio with the best farms of Argentina. We took over about 25 years ago. We bought it when it had 7 seven farms, and we have added 33 more farms. We have increased the value of the land by investing in technology and irrigation.
Despite Cresud’s age, it has one of the best managing teams in the country. It has managers that have been in the firm for nearly 25 years. We have achieved great returns on operations and amazing returns on real estate operations—buying land, developing it, subdividing it and selling it.
We have exported our experience; we started with Argentina 25 years ago and then we moved into Brazil. We launched our company there by raising US$300 million on the stock market, we brought our professional team and we bought farms in Brazil. It has become one of the strongest Brazilian companies in the agricultural sector, because we entered the market at the right time. The company has no debt and a solid operational base. Now that Brazil has been undergoing a recession for the past two years, we are buying land. We did so ten years ago with the crisis, and we are doing it now.
We repeated the same strategy when we went to Bolivia and Paraguay. Cresud is gradually becoming a regional company. The way we see the business is that, as the world is undergoing a phase in which the crisis of 2008-2009 was solved by printing money, if there is one thing that people cannot stop doing is eating. We have a sector in which our region has a tremendous advantage; we have good and extensive land, and great water. The more governments solve their crises by printing more money, the more we go to the agribusiness, which may have a low return but it is safe. Our products have been in demand regardless of the dollar's strength—or lack of it —or of the peso competitiveness.
People are demanding more processed food now. How are you moving forward to meet the changes in the global demand?
We have been profitable despite the value of the commodities. We saw a boom and a bust, but we managed to survive the crisis by keeping a low leverage. The farm business has such a low return, that if you are highly leveraged then you are in a very bad shape. The products we develop are commodities, and they sell all the time.
We could develop downstream, but I find that what we are competitive producing are meat, milk and grains. I do not see any decline in the demand for these products. If we had a stable economy, we would have more producers developing the whole product here.
The banking market is very dynamic. What is Banco Hipotecario's strategy?
Banco Hipotecario is a very special character bank, as it started privatization process about 17 years ago but it is not a fully private bank, it has mixed capitals. IRSA has a third of the bank's operations. Banco Hipotecario is 130 years old, and it is in the history of Argentina as the bank that has given millions of Argentines access to their first homes. In the past 15 years, we have been able to develop a full-service bank, from a bank that only offered mortgages. At the same time, we have been able to conduct the biggest housing program in the past 100 years, providing houses for 200,000 families. It has been a phenomenal project.
I think the banking sector is very dynamic at the moment. We have a low credit to GDP ratio when compared to our neighbors, but it will go up as inflation continues decelerating and confidence makes Argentines bring their savings back to the country. Banco Hipotecario has a tremendous opportunity to keep providing housing for low-income sectors, but being a full-service bank has given access to low middle-income sector to the banking systems. The more technological development, the more people will have access to the banking system.
What elements of IRSA's DNA did you bring from IRSA to Banco Hipotecario?
We brought so much. We have an entrepreneurial team of people who creatively came up with the idea of purchasing land that is not used for anything and get the financing and develop housing. This became the motor of the program called PROCREAR.
Can this be an example of a public-private partnership?
The idea was to fully privatize the bank, and because the government and the law changed, Banco Hipotecario became a mixed capital bank. But this was an accident, it was not on purpose.
However, the delivery of the solution of housing has been very positive. Argentines bestow great value on owning their homes, and the demand is still very large; many people want to have access to their first house. The access to financing will come when Argentines start trusting our own currency. People are still afraid to trust the peso, and we know that investing in real assets when there is high inflation is the best defense.
What is IRSA's contribution in terms of CSR to the long-term development of Argentina? How do you bring the values of the company into the foundation and its goals to bring the country forward?
The same eye I use to do a business is the same eye you need to use when you see the needs of your friends, family, neighbors and fellow Argentines. We started Fundación IRSA 22 years ago, at a time when it was not as common as it is now. We conducted a survey between 200 corporations to know how much the committed to other things that were not their business. It was the first poll on this topic.
We started doing things related to the business we do: we develop housing, so we started hosting an exhibition on art and architecture in every building we develop called Casa FOA. Then we realized we had a knack for creating things. One of the projects I am most happy about is a foundation called Endeavour, which was founded by Linda Rotenberg and which aimed at helping entrepreneurs.
I believe economies that are successful are those that move the capital faster. This does not mean that an entrepreneur will be successful in the first try, but it will make things easier for them. We donated money, Linda got sponsors to match these donations, and then we selected entrepreneurs. The people selected back then are now the Directors of the Fundación Endeavour today, and they are the founders of companies such as Mercado Libre and Globant.
The negative environment for business has created an adaptable, resilient, persistent and cheeky entrepreneur here in Argentina. When we chose the entrepreneurs, we valued the potential of the business, the quality of the product, the internationalization and the capacity of giving back. The entrepreneurs are now all giving back, not only money but their time by mentoring others. This has become a tremendous network of entrepreneurs, which is one of the things that I enjoy most every year. We all get together for three days in the South in Patagonia, and I find this is a unique gathering of young entrepreneurs.
We also launched a museum for kids in the Abasto Shopping Center. It is a favorite for kids to celebrate their birthdays, and we have replicated the museum in the city of Rosario. We have been very active in many projects.
The dire economic conditions have created a flexible and adaptable entrepreneur in Argentina. If things go well, Argentina will become a 'normal' country. How will the Argentine entrepreneur adapt to this new situation?
I am impressed with the capacities of the business people in Argentina, and they have been successful both here and abroad. I myself have used much of my experience with dealing with crises here to deal with crises in other countries. For example, we were in the US during the 2008/2009 crisis and in the last crisis of Israel as well. Globant is all over the world, and Mercado Libre is in all of Latin America.
When the country becomes stable, it is better for the population; good businesspeople will continue developing as in any normal economy. However, I think we need at least a decade of stability in order to say we have a 'normal' country. We have our own culture, and that does not change overnight. I would not say we are there, we are in the process.
Interview by Nicolas Carver, follow him on Twitter at @WorldTempo