Formed by the Production and Foreign Ministries, the fledgling Argentina Investment & Trade Promotion Agency aims to be the Macri administration’s one-stop shop both for foreign companies coming to invest in Argentina, and for Argentine SMEs to access foreign markets, both through direct exports and insertion in the global value chain. The new agency was one of the prime organizers of 2016’s noted Argentina Business & Investment Forum, which attracted investors from 67 countries and aimed to officially position the nation on the global investment map. Plucked from the private sector to run the government’s investment agenda, the Agency’s Executive President Juan Procaccini discusses with The Worldfolio his plans for the Argentine economy, and his fledgling agency itself.
Foreign investment worth $30 billion has been pledged since the Macri administration took office, which is significant for the first year in power. How will you work to sustain this level of investment over time?
When Mauricio Macri took office, he quickly showed the world that he had a very clear vision of the country we have, totally different than the previous government’s vision. Argentina has very strong fundamentals as a market, with its population of 43 million, which are integrated with Mercosur’s 300 million people. We have great natural resources, from mining and energy to agribusiness and water. We also have great talent, with strong human capital, particularly when you compare the average education level to that of the region. However, we have been out of the investment market for more than 10 years, mostly due to political reasons. This created an underinvested economy in nearly all sectors. All of these elements combined make it very clear to the world of Argentina’s strong opportunities right now.
What investors were waiting for was a new government that would be open to the world, which would be transparent and would convey confidence, trust and predictability for the future. This is what led to $30 billion in investment in the first six months of the Macri administration.
In the 1990s, Argentina’s FDI made up 16% of that of the region as a whole; today it is 4%. Since the 1990s, however, FDI in the region has multiplied by five. In absolute terms, our investment has remained the same, yet our share has decreased. We therefore clearly have the opportunity and the objective to obtain $25 billion per year of investment. This is roughly the investment in Chile, which is a much smaller economy.
Argentina is a small business economy, with up to 90% of businesses being SMEs. Only 1.5% of them, however, export. How do you integrate these companies in the global value chain?
Our agency has the dual role of promoting and facilitating investment and the role of promoting trade. The latter involves giving the tools and capacities to our SMEs to export. In 2011, Argentina had 15,000 SMEs that exported – around 3% of the total – and since then we the number has decreased by 6,000 due to many reasons, from taxes and foreign currency restrictions to bureaucracy and corruption.
We have an Exporters Recovery program underway, which starts with a database of the 6,000 companies that no longer export. Our first phase is to consult with them, assess why they no longer export, and to give them the tools and capacities they need in order to re-enter the export market. This involves training – not only in how to export but also in efficiency in export procedures. We are also working with the Secretary of Commerce on the My First Export program to facilitate the process. We are doing the Export Pioneers program, which encourages and incentivizes exporters, who open up new markets.
We work with the SMEs through these various programs and in turn we work with the Argentine embassies abroad to assess the market opportunities for our companies – with both supply and demand markets.
The Agency also aims to be the one-stop shop for foreign investors coming to Argentina. Doing so gives you a unique viewpoint on their requests. How do you work with the Argentine government to improve the investment mechanism?
We want to be the one-stop shop for the foreign investor, saving them the trouble of having to go through the tax agency, customs, the Secretary of Commerce – we do it for them.
We have a policy advocacy role as part of a mandate. We must identify the bottlenecks and obstacles Argentina creates regarding areas that include redundant taxes or policies or red tape, and later go to the proper stakeholders and resolve problems. We are working in collaboration with the Ministry of Finance, the Secretary of Commerce and all necessary entities to work out the problems in each area.
We have a role that we should lead or participate in the different decisions the government takes that will have an impact on invest. Because of the interaction we have with the companies, we use that expertise and work with the government entities accordingly. We are invited by the government to participate in the decision-making process because of the investor perspective we have.
What concerns remain for investors?
Large investments take time. For example, to build a $600 million plant, companies need the appropriate contractors, registrations, and approvals. This is done in a staggered process. The investment is underway – many investors are not playing "wait and see". As long as Argentina follows through with its promises and commitment, foreign investment in the country will continue to grow.
In the second semester this year we hope to see inflation come under control, and the reactivation of the economy in the third or fourth quarter, with different sectors activating and investing more, such as in the agribusiness sector.
People who will start realizing this will continue with gain confidence in Argentina and follow through on investment. Such additional pledges in investment will hopefully create a domino effect. When Siemens declared their investment of $5 billion, for example, GE later pledged an investment of $10 billion. Those who make these decisions first are the ones who will get the best returns. When Argentina's investment landscape is clear, most investors will already be here, making the market much more competitive.
How would you describe the human capital potential of the Argentine economy?
Regionally, Argentina is known for providing an excellent education to both Argentine and foreign students, however most of the professionals of this good system are age 35 and above. Education over the past 10 years has not been of the best quality, and the government must work hard right now to improve education. There is much we could do to recruit the Argentine talent we have from around the world. Much of the management in companies around the world contains Argentine talent, and particularly in the region.
We must communicate Argentina's competitive talent, not only at the boardroom level but also in labor. Argentine workers in factories and in the fields exhibit better-trained talent than the regional average.
Now that Argentina has captivated the world’s attention in major events such as the Business & Investment Forum, what’s next?
Much of this first year has been focused on reviving the economy and getting things moving again. In the new phase, we must focus on our plan. The government is releasing its National Production Plan to the country and the world for long-term changes to make the economy more competitive. Within this plan are key elements to improve: lowering the capital cost, improving logistical transport infrastructure, making cost of labor more competitive, and integrating Argentina into global value chains.
Argentina has undergone a first wave of $42 billion of foreign investment since the Macri administration has taken office. What is your evaluation of the progress?
Investors see that Argentina is delivering on what it promised. Inflation has begun to decrease, and sectors are becoming productive again. Investors know that the government is changing the rules of the game. Institutionally, the world sees that Argentina is going through its own necessary due diligence and dialogue to make necessary reforms, such as the final approval of the public-private partnership law. The executive knows that they need to come to a consensus with the opposition (which has a majority in the Congress) in order to pass reforms, resulting in a better dialogue between the two powers.
Investors today face a palette of opportunities, some of which are better logistically placed than Argentina with access to Asian markets, and with better labor costs. Why should they choose Argentina?
Argentina boasts very strong natural resources across various sectors – from mining to agribusiness to energy – but it has been very under-penetrated in terms of investment over the past 10 years. The result is a relatively new market, which at the moment has less competition. Very few countries can compete with such bullet points for investment.
What future do you see for the agency?
We will always have our core role of facilitation for foreign companies coming to invest here in Argentina and who want a strategic partner in the national government. For exports, we need to work with the SMEs to assist them in their endeavors. There is also the promotional element, where we will appear at global events and road shows to spread the message of the Argentine opportunity. A future role of the Agency could be better participation in the National Production Plan.
Interview by Nicolas Carver, follow him on Twitter at @WorldTempo