Latin America is full of talented labor, exciting new markets, and unparalleled growth opportunities. However, it is also fraught with challenges and instability. Argentina is one such country. The second-largest economy in South America, the country has a wide spectrum of business activities. It also provides access to a highly qualified workforce. This means that there’s a sea of opportunities for foreign investors looking to expand their business.
Facts to consider before expanding your business
To truly understand this dynamic and complex country, and then to succeed there, requires years of experience and cultural understanding. Fortunately, SERVIAP has both. For our clients, here are some high-level facts on the opportunities and risks associated with Argentina.
Argentina is defined as an “emerging market” by the FTSE Global Equity Index. It is also one of the G-20 major economies. Argentina is the second-largest economy in South America after Brazil. The 20th Century saw uneven economic performance, with periods of high economic growth followed by severe recessions. Between 2003-15, Argentina saw a time of economic stagnation and isolation. Since 2015 however, political leaders of several parties are pursuing economic reform and international reintegration. Due to its large network of quality universities, Argentina boasts a highly qualified talent pool of young people, especially in the tech sector.
Argentina has a plethora of natural resources. It also has an export-centric agriculture sector(agricultural goods comprise over 50% of their foreign exchange) and a diversified industrial base.
The importance of small and medium-sized companies
Almost 90% of Argentina’s businesses are small and medium enterprises (SMEs) and represent 69% of employment in the country.SME activity is concentrated in the areas where there is an abundance of talent and capital — Buenos Aires, Santa Fe, Cordoba, and Mendoza.
The main sectors to run a successful business
- The Service Sector in Argentina comprises nearly 64% of GDP. Within this sector, the most promising industries include:
- Wholesale and retail trade which is 14% of the GDP
- Transport warehousing and communications at 12.2% of GDP
- Real estate at 12%
- Education health and social services at 7.2%
- Financial intermediation at 7%
- The Industrial Sector is the second largest comprising 25% of the GDP. Within this sector, the best areas for setting up a business are:
- Manufacturing at 15% of the total GDP
- Construction at 5%
Characteristics of the Argentinian population
- Argentina is the third most populous country in South America and 33rd in the world.
- The population density is only 15 people per square km, much below the world average of 50.
- The growth rate of the population is around 0.92% per year.
- Argentina has a fairly young population Over 64% of the population is between 15 to 64 years.
- However, the percentage of senior citizens (65+) is also quite high — 10.8%.
- The median age in Argentina is 30.
- Argentina is the second-largest country in South America and the 8th-largest in the world
- It is bordered by the Andes mountains in the west and the South Atlantic Ocean to the east
- It is surrounded by some of the strongest economies of Latin America — Chile to the west, and Brazil and Uruguay in the northeast.
- The consumer preferences in Argentina are closer to preferences in Europe rather than Latin America.
- In the past few decades, thanks to the economic turmoil, the population has become more value-conscious. They buy only when necessary and household spending has fallen.
- There is a clear preference for locally produced products, as opposed to imported ones.
- Younger consumers and the wealthier population are more brand conscious and willing to pay higher prices for better brands.
- Due to the value-conscious population, there is a huge market for repairs and spare parts.
Workforce and laws
Some of them are:
Argentina’s labor laws are generally pro-employee. They include:
- Stringent rules governing working hours and working conditions, providing salaries during illnesses, surcharge on overtime salaries, provision of annual vacations, and severance for unfair dismissal.
- Argentine labor law comprises public orders. This means it can’t be waived by any agreement.
- Employees in Argentina are entitled to a Statutory annual bonus. It’s payable in two semi-annual installments and is due on June 30 and December 18 of each year. Each installment is equal to 50% of the highest salary in the previous semester.
- Employers need to pay for compulsory life insurance for all employees.
The Argentine workforce is among the most qualified in the world. Here’s why:
- Argentina has a world-class education system that’s focused on technology skills. In fact, higher education in Argentina is free. Plus, a large percentage of the population speaks English (42.3%). Due to this, Argentina is emerging as a major outsourcing hub for software development. In fact, Coursera’s Global Skills Index ranked Argentina as the Number 1 country in terms of technology skills.
- Argentina is only 1-2 hours ahead of the Eastern Standard Time and around four hours ahead of Pacific Time. It’s also just four hours behind London. This makes it the perfect location to have a remote workforce.
- Argentina, especially Buenos Aires, has taken the lead in cutting-edge technology. This includes fintech(Mesfix, Afluenta, etc) and blockchain(Bitex, InvestoLand, etc).
There are three main areas in the Argentinian economy where technology is advancing rapidly:
- There is massive investment in telecom infrastructure. Successive spectrum auctions are increasing this investment rapidly. Foreign companies like China’s Huawei and Spain’s Telefonica SA play a big role in this sector.
- Information Technology and Software is also seeing massive growth. The sector has seen 20% annual growth since 2000.
- Oil and gas technology is also experiencing heightened demand. There’s a preference for US technology giants like Halliburton, Baker-Hughes, and Schlumberger among others
Facilities for foreign investment
Foreign investors are quite bullish about the medium to long term environment in Argentina. Here's why:
- The Latin American Integration Association aims to create a common market for its member countries. It was created by the Montevideo Treaty of 1980 and includes Mexico and all Latin American countries in South America. As part of the efforts of the LAIA, duty concessions have been extended to many products that are shipped by other LAIA countries.
- In March 1991 Argentina, Brazil, Paraguay, and Uruguay signed a treaty to create a common regional market (MERCOSUR). This way all the barriers between the countries in the exchange of assets, services, and factors are now gone. With the LAIA and the MERCOSUR, many of the disadvantages faced by the individual countries are now being removed. Instead of protectionism, a culture of competition and economies of scale is now developing.
- While trademark registration can be done for a maximum of 10 years, the trademark can now be renewed indefinitely which is great for R&D. Plus, Argentina has accepted the 1883 Paris Agreement for the Protection of Industrial Property. It protects trademarks that have been registered with the National Industrial Property Institute (INPI). Plus, case laws also give protection to de facto brands who have not registered but have built up customer loyalty to some extent.
It’s important to remember that business is usually conducted in a more formal way in Argentina when compared to the US and Western Europe. Having said that, these cultural norms do seem to be fading away slowly. The use of first names, for instance, is becoming more accepted. Like in other parts of the world, events like press conferences, product launches, business conferences, and cocktail parties are the keystone for business networking.
Argentine gastronomy: Global influence, local innovation
Argentine cuisine has always been a blend of global influences. This started with the Mediterranean influences from the Italian and Spanish immigrants during the colonial period. Then there’s the influence of Native American cuisine as well.
While the Asado (Argentine barbeque) is the one dish that represents Argentina’s gastronomy, most other dishes are influenced by global tastes. Global foods like patties, pasta, and french fries all have their own unique flavor as part of Argentine cuisine.
Argentinians are known for their love of food and an invitation to a meal is often a symbol of warmth and friendship. Homemade food is a way for people to express their affection. As far as restaurants are concerned, the big cities tend to have huge diversity — from traditional taverns (bodegones) to high-end international outlets to simple canteens.
Risks of investing in Argentina
Argentina has faced political and economic turmoil in the past which means that many businesses are averse to investing in the country. While the current government has made a lot of effort to change some of this, it is important to keep potential risks in mind. They are:
- The inflation rate is extremely high and has been a source of major economic turmoil
- There are four complex procedures to follow to get credit in Argentina. The cost of credit can be quite steep as well.
- Paying taxes is quite burdensome. The procedure is quite complicated — it requires 9 payments per year and 405 hours. The tax rates are quite high and there are multiple overlapping taxes.
- Filing for insolvency is quite difficult. It takes nearly 2.8 years from filing to resolution and can cost up to 12% of the estate.
Argentina has been through a turbulent time in the past few decades, seeing both strong growth and severe recessions. In the last few years though, the country has built a strong foundation for sustained economic development. With an abundance of natural resources, industrial diversity, and a world-class workforce, Argentina is an economy with massive potential. And for those looking to set up a business in the country, or hire talented employees, this is the most opportune time.