Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015

121 Pages·2015·1.22 MB·English

Handbook - 38/2015
Argentina, Chile, Colombia, Peru, Paraguay and Uruguay
Business Handbook 2015
Suhayl Abidi
GoG-AMA Centre for International Trade
Argentina, Chile, Colombia, Peru, Paraguay and
Uruguay Business Handbook 2015
Compiled by
Suhayl Abidi
For any queries, please contact: [email protected]
First Published: December 2015
Published by
GoG-AMA Centre for International Trade
Ahmedabad Management Association
Torrent-AMA Management Centre
Core-AMA Management House
ATIRA Campus, Dr. Vikram Sarabhai Marg
Ahmedabad 380 015
Phone: [phone] • Fax: [phone]
Email: [email protected] (cid:129) Website: www.amaindia.org
Contents
Click on country to view contents
Argentina 1
Chile 23
Colombia 41
Paraguay 65
Peru 79
Uruguay 101
ARGENTINA
Highlights 2
Introduction 2
Argentina — Key Economic Factsheet 2014 3
Economic Highlights and Forecast 3
Laws and Policies Relating to Foreign Investment 5
A Magnet for Investment 6
Focus Areas for Investment 7
Infrastructure 11
International Trade 13
Services Industry 15
Investment Risks, Barriers and Challenges 18
Indo-Argentinian Economic Relations 21
Highlights
(cid:129) Argentina is Latin America’s third-largest economy.
(cid:129) More than 2,000 multinational companies operating in diverse sectors
(cid:129) Vast extension of fertile land for agriculture
(cid:129) Ranked 3rd worldwide in shale oil and shale gas reserves.
(cid:129) Highest level of public investment in education in the region (equal to 6% of GDP).
(cid:129) GDP growth paltry 0.5% in 2014
Introduction
Argentina is a country in South America bordering the Southern Atlantic Ocean. Neighbouring
countries include Bolivia, Brazil, Chile, Paraguay, and Uruguay. Argentina’s continental area
is between the Andes mountain rage in the west and the Atlantic Ocean in the east. Diverse
geographical landscapes produce varying climates from tropical in the north to tundra in
the far south. The government system is a republic. The President is the chief of state and
head of government. Argentina has a mixed economic system in which the economy includes
a variety of private freedom, combined with centralized economic planning and government
regulation. Argentina is a member of the Latin American Integration Association (LAIA) and
Mercosur.
Argentina is one of Latin America’s largest and wealthiest countries, possessing abundant
human and natural resources, highly-diversified industries, and a 43 million person market.
It has been facing many economic and financial troubles these past few months. Future
predictions are now showing a poor outlook for its economy, as the country is struggling
with high inflation, a major decline in the value of the peso against the U.S. dollar, and
more trouble involving disputes with hedge fund and holdout creditors. For a country that
has had a history of economic troubles in this century, none of these things spell anything
good for Argentina’s future, and it only seems to be getting worse from here.
It’s an election year, Argentina will have a new president in December, and that creates
huge expectation among the investment community. Continuous high levels of inflation,
restriction on the foreign exchange market, import restrictions and the default generated
by the lack of agreement with the hold-outs, have all positioned Argentina among the Latin
American countries with lowest investment in terms of GDP. While countries like Brazil,
Chile, Uruguay, Paraguay and Colombia have benefited from the liquidity in the financial
markets due to low rates, Argentina has had to struggle on. Now this will change. The new
administration will have to solve these imbalances to attract local and foreign investment.
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — Introduction 2
Argentina — Key Economic Factsheet 2014
KEY ECONOMIC FACTS
Income Level (by per capita GNI) High Income
Level of Development Developing
GDP, PPP (current international $) 720.49 billion (2011)
GDP Growth (Annual %) 2.93% (2013)
GDP per capita, PPP (current international $) 17,674.37 (2011)
External debt stocks, total (DOD, current US$) 136,271,863,000.00 (2013)
Manufacturing, value added (% of GDP) 15.27% (2013)
Current account balance (BoP, current US$) -4.81 billion (2013)
Inflation, consumer prices (annual %) 10.03% (2012)
Labour force, total 19,092,526 (2013)
Unemployment, total (% of total labour force) modelled ILO estimate) 7.50% (2013)
Imports of goods and services (current US$) 90.47 billion (2013)
Exports of goods and services (current US$) 88.52 billion (2013)
Economic Highlights and Forecast
Argentina entered recession at the beginning of 2014, although activity had already started
to contract towards the end of 2013. Following a slowdown in 2013, household consumption
fell slightly at the beginning of 2014. Real wages are falling and confidence among the
population is declining. Exports have fallen steeply, with the reduction in sales of vehicles
to Brazil and new cereal export quotas. As occurred at the end of 2013, the drop in imports
was much less marked and the external sector posted a negative contribution to growth.
Investment is also falling because of strict import controls and restrictions on foreign
currencies operations. Inflation is moving upwards, partly because of the devaluation of
the peso: on the basis of the price index as calculated by university institutions, it is likely to
exceed 30% in 2014.
Fragile External Accounts, Loose Budgetary and Monetary Policies
The current deficit, which increased in 2013 as a result of rising energy costs, continued to
worsen into 2014 because of the weakening of the surplus in merchandise trade. This
surplus can no longer offset the deficit in services and income (debt service and repatriation
of profits by foreign owned companies), limited in the latter case by foreign exchange
controls.
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — Economic Highlights and Forecast 3
Monetary policy has tightened since the beginning of 2013 in an attempt to counter
inflationary pressures arising from the sharp depreciation of the peso in January (-15%).
The government used its foreign currency reserves to try to limit the fall of the peso and
these dropped from US$43 billion in January 2013 to US$26 billion by the end of May
2014. The decline of the peso on the black market in recent months points however to
expectations of further depreciation among many Argentines. The exchange rate risk
therefore looks substantial, connected with a possible new Argentinean debt default (see
below) and the worsening of the current balance.
The fiscal balance has also declined at the beginning of 2014: the budget deficit has worsened
as a result of wage increases granted to some government employees at the end of 2013.
The reduction in the scale of subsidies (5% of GDP) benefiting the energy and transport
sectors is hypothetical. The budget deficit is largely financed through money creation because
the government cannot access international financial markets. It is also financed through
borrowings on the domestic market: as a result, public debt will exceed 50% of GDP at the
end of 2014. The government has been attempting to regain access to the international
financial markets since the end of 2013: an agreement was signed with the public creditors
of the Paris Club and the government compensated Spanish oil and gas company Repsol
following the nationalisation of YPF (national oil and gas operator).
Gross Domestic Product (GDP)
Economic Indicators
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — Economic Highlights and Forecast 4
Laws and Policies Relating to Foreign Investment
The GOA has signalled its desire to see continued foreign direct investment (FDI) flows to
enhance the nation’s productive capacity and GDP growth potential, and it took actions in
the past year to improve the investment climate in Argentina. To regain investor confidence,
the GOA settled several outstanding international arbitral awards, engaged with the IMF to
improve economic reporting data, and compensated the Spanish-firm Repsol for the partial
expropriation of YPF in 2012. Argentina also reached agreements with the Paris Club group
of creditors to repay US$9.7 billion in arrears over the next five years, including US$642
million owed to the United States. Argentina has already made two payments in the first
year. The GOA revamped its hydrocarbon regulations in 2014 with the aim of attracting
new investments to develop Argentina’s world class oil and gas resources.
According to a Presidential decree governing foreign investment in Argentina, foreign
companies may invest in Argentina without registration or prior government approval, and
on the same terms as investors domiciled in Argentina. Investors are free to enter into
mergers, acquisitions, green-field investments, or joint ventures. Foreign firms may also
participate in publicly-financed research and development programs on a national treatment
basis. Central Bank restrictions (both formal and de facto) on the purchase of foreign
currency limit the ability of a company or investor to remit profits, dividends, or investments
out of the country.
Government incentives apply to both foreign and domestic firms alike. The federal
government, as well as provincial and municipal, offers several incentives to attract
investment to specific economic sectors such as capital assets and infrastructure, innovation
and technological development and energy. More details of these programs can be found
here: www.inversiones.gov.ar/es/incentivos-la-inversion or www.prosperar. gov.ar/
The GOA has established a number of investment promotion programs. These programs
allow for Value-Added Tax (VAT) refunds and accelerated depreciation of capital goods for
investors and offer tariff incentives for local production of capital goods. They also include
sectorial programs, free trade zones, and a Special Customs Area in Tierra del Fuego Province,
among other benefits. A complete description of the scope and scale of Argentina’s
investment promotion programs and regimes can be found at www.industria.gob.ar,
www.inversiones. gob.ar and www.mecon.gob.ar/. Information about programs that
specifically apply to small and medium businesses may be found at www. industria.gob.ar/
secretaria-pyme.
The Argentine Ministry of Economy (www.mecon.gov.ar), the Investor’s Information Service
for Argentina (www.infoarg.org), the Undersecretariat of Investment Development and Trade
Promotion (www.inversiones.gov.ar), the Embassy of the Argentine Republic in the United
States of America (www.embassyofargentina.us/en/invest-in-argentina.html), and the
Central Bank of Argentina (www.bcra.gov.ar) have additional detailed information on
investment policies in Argentina.
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — Laws and Policies Relating to Foreign Investment 5
FOREIGN DIRECT INVESTMENT (FDI)
The IMF does not have recent direct investment data on Argentina. Argentina was censured
by the IMF in February 2013 for reporting unreliable economic data.
According to the United Nations Conference on Trade and Development (UNCTAD) World
Investment Report 2012, the latest information for Argentina, the total stock of FDI in
Argentina at the end of 2012 was estimated at US$110.7 billion. The stock of U.S. FDI in
Argentina in 2012 was estimated at US$14.4 billion by the U.S. Bureau of Economic Analysis.
In 2012, according to UNCTAD, total FDI inflows were estimated at US$12.5 billion and
outward FDI flows amounted to US$1.1 billion.
A Magnet for Investment
After several years of mismanaged economic and monetary policies that drove investment
away from the country, the situation is changing. There are several things that make investors
very optimistic.
Argentina has a highly diversified economy. The primary sector is internationally renowned
for its high productivity levels and use of advanced technologies. The country’s well-
developed industrial base showcases key sectors such as agribusiness, automotive,
pharmaceuticals, chemicals and petrochemicals, biotechnology and design manufacturing.
The traditional service sectors are well established in the country, gradually developing
niche expertise in the most sophisticated segments of the value chain, with notable growth
in software and IT services as well as a wide variety of high added-value professional
services.
Investor confidence remains low in the short-term and is more optimistic with regards to
the medium- and long-term. Argentina’s investment climate is dampened by concerns
with Argentina’s currency controls, deteriorating macroeconomic conditions, and unresolved
sovereign debt dispute with litigating U.S. hedge funds. Many established companies in
Argentina reported that they are planning to expand investment in Argentina in the
immediate or near future, with more economic stability and policy certainty. Sectors of
heightened interest are energy, mining, agribusiness, telecommunications, technology,
financial and infrastructure development. In early 2015, the City of Buenos Aires and national
oil company YPF raised about US$500 million each through bond issuances, demonstrating
significant investor demand for Argentine bonds. The bonds were bought mostly by European
and U.S. fund managers and hedge funds.
Argentina has a managed float exchange rate policy. Conversion of the peso into foreign
currency is limited.
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — A Magnet for Investment 6
Focus Areas for Investment
MANUFACTURING
One of the main drivers of Argentina’s growth over the past ten years. One sector that has
transformed as a result of this productive wager on the country´s future is capital goods. In
addition, the sector´s export performance, which has accompanied output, indicates great
potential moving forward.
Argentina is undergoing the most important economic growth cycle in its history, concurrent
with a strong increase in investment (22.8% of GDP in 2012). Agriculture, manufacturing,
infrastructure development and a wide array of services constitute dynamic economic hubs
that demand increasing quantities of goods and durable equipment items to sustain
productive growth.
A highly qualified workforce is the foundation for growth in the industrial sector. Argentine
workers have the highest educational level and labour productivity in Latin America
(according to data provided by ECLAC - United Nations). Trained in the 119 universities and
higher-education institutes throughout the country, Argentine technicians and engineers
are recognized worldwide for their creativity, versatility and quality skills.
In 2012, the manufacturing industry contributed almost US$85 billion to Argentina’s GDP,
or 18% of the country’s total. The annual accumulated growth for the sector over 2003-
2012 was above 6%. Several public policies have fostered the expansion of industries that
have become increasingly strategic to Argentina in recent years, which will allow further
diversification of the productive matrix and significant competitive advantages. These activities
include chemistry and petrochemicals, plastic, pharmaceutics, aviation, naval and forestry
industries.
FOOD AND BEVERAGES
Argentina is a world leading producer and exporter of foodstuffs. Argentine products, which
are in markets on six continents, continue to earn the country the highest accolades based
on a wide range of attributes, including innovation and quality, and bring in annual export
sales of over US$25 billion. The sector is in full compliance with the highest international
health and environmental standards, positioned to meet the most sophisticated demands
from the worldwide consumers.
A Global Opportunity
Today’s global food market plays a role of paramount importance in world economies. The
demand for foodstuffs is expanding swiftly spurred by the increase in the global population,
the economic growth in emerging markets and the emergence of new high-end consumers.
In developed countries, the demand for specialty foods, including organic and gourmet
products, continues to grow. These structural trends guarantee both an expanding market
Argentina, Chile, Colombia, Peru, Paraguay
and Uruguay Business Handbook 2015 Argentina — Focus Areas for Investment 7