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Argentina: Market Profile

Picture: Argentina factsheet
Picture: Argentina factsheet

1. Overview

Argentina, one of the largest economies in Latin America with vast natural resources in energy and agriculture, is a leading food producer with large-scale agricultural and livestock industries. The country also has significant opportunities in some manufacturing sub-sectors and innovative services in high-tech industries. In addition, Argentina has taken a very active role on the international stage as it assumed the presidency of the G20, expressed intention to join the OECD and became an observer in the Pacific Alliance.

Source: World Bank, BMI Research

2. Major Economic/Political Events and Upcoming Elections

July 2014
Argentina defaults on its international debt for the second time in 13 years, after failing to resolve its differences with US hedge funds that hold USD1.3 billion worth of bonds, bought at a discount after the country last defaulted.

November 2015
Mayor of Buenos Aires, Mauricio Macri, won the presidential election, taking office in December.

February 2016
Argentina agreed to settle multi-billion-dollar dispute with US hedge funds over bond repayments, which had restricted the country's access to international credit markets.

October 2017
Mr Macri's coalition won in the parliamentary election.

May 2018
Government raises interest rates dramatically in an effort to shore up the tumbling value of the peso currency.

October 2019
General elections will be held in Argentina on October 27, 2019, to elect the president of Argentina, members of the national congress and the governors of most provinces. Mauricio Macri, the sitting president, may run for re-election.

Source: BBC country profile – Timeline, BMI Research Political Risk Analysis

3. Major Economic Indicators

Graph: Argentina real GDP and inflation
Graph: Argentina real GDP and inflation
Graph: Argentina GDP by sector (2016)
Graph: Argentina GDP by sector (2016)
Graph: Argentina unemployment rate
Graph: Argentina unemployment rate
Graph: Argentina current account balance
Graph: Argentina current account balance

(e) estimate, (f) forecast
Source: IMF, The CIA World Factbook (2017)

4. External Trade

4.1 Merchandise Trade

Graph: Argentina merchandise trade
Graph: Argentina merchandise trade
Graph: Argentina major export commodities (2016)
Graph: Argentina major export commodities (2016)
Graph: Argentina major export markets (2016)
Graph: Argentina major export markets (2016)
Graph: Argentina major import commodities (2016)
Graph: Argentina major import commodities (2016)
Graph: Argentina major import markets (2016)
Graph: Argentina major import markets (2016)

Source: WTO, Trade Map, BMI Research

4.2 Trade in Services

Graph: Argentina trade in services
Graph: Argentina trade in services

Source: WTO

5. Trade Policies

  • The policies implemented by former President Cristina Fernández de Kirchner were aimed at promoting local production and reserving the benefits of natural resources for the domestic market. However, trade barriers are being gradually removed under the new administration. The lifting of capital controls and reduction of export taxes in December 2015 is making foreign currency more easily available and exporters face lower fiscal penalties. Businesses are able to freely access foreign currency on market terms, improving the ability to purchase imports, and can transfer dollar-denominated profits abroad without restrictions.
  • According to Argentina’s Customs Code, importers and exporters must be listed in the registry of importers and exporters at the Argentine Customs (Dirección General de Aduanas (DGA)). Argentina applies import duties and a range of indirect taxes on import and local transactions. Products imported for consumption are generally subject to import duties, statistical tax, value-added tax, excise duties and anticipated profits tax. As a member of the Southern Common Market (Mercosur) customs union, Argentina utilises the Mercosur Common Nomenclature (NCM) classification, which is consistent with the Harmonised System (HS) classification.
  • Argentina has been a WTO member since January 1, 1995 and a member of GATT since October 11, 1967. On January 1, 1995, Argentina, along with the other Mercosur members (Brazil, Paraguay and Uruguay), implemented the Common External Tariff (CET). Most imports from non-Mercosur members are then subject to CET which ranges from 0% to 35%. Argentina has adopted a July 2015 decision by the Common Market Council to extend the mechanism that allows Mercosur countries to have a national list of exceptions to the CET. In the case of Argentina, this exception will apply to up to 100 tariff lines through December 31, 2021. The average import tariff rate in Argentina stands at 6.6%, the sixth highest in the region, but tariffs on selected items can be much higher. For example, imported capital goods which are also produced domestically are subject to a rate of 14%. This increases costs for companies choosing to source capital goods and intermediate inputs from abroad.
  • Apart from free trade agreements with a range of countries, including Bolivia, Chile, Colombia, Ecuador, Mexico and Peru under Mercosur, Argentina also provides certain duty breaks to members of the Latin American Integration Association (ALADI) for goods not covered under the aforementioned agreements.
  • Argentina currently applies minimum specific import duties (DIEMs) on a range of imports from all destinations apart from Mercosur countries. DIEMs are applied only when the duty that results from their application is greater than that resulting from ad valorem tariff. Products currently subject to DIEMs include textile, apparel, footwear and certain toys.
  • Argentina has two types of import licences – automatic and non-automatic. On December 21, 2015 the Comprehensive Import Monitoring System (Sistema Integral de Monitoreo de Importaciones (SIMI)) replaced the DJAI (Declaración Jurada Anticipada de Importación, or sworn advance import declaration) system for managing and processing import licences in Argentina. The Argentine government is issuing automatic licences through SIMI for imports for consumption within Argentina of products under virtually all tariff lines. Non-automatic import licences are required for a range of goods due to their sensitive nature. These licences are typically issued within ten days unless the application is incomplete, in which case authorities have up to 30 days to complete their review and make a decision. The government also recently increased from 90 days to 180 days the period of validity of non-automatic licences and amended the list of items subject to non-automatic licencing.
  • In 2005, DGA established a system whereby imports of textiles, apparel, footwear and toys for consumption are processed by certain specialised customs ports in a push to enhance effective customs oversight and reduce contraband activities and tax evasion. The range of products covered by this system was expanded on August 24, 2007 per Resolution 50/2007, to include such items as tableware and kitchenware, luggage and bags, leather apparel, glassware, imitation jewellery, certain appliances, tools, electrical machinery and equipment, certain automotive parts, bicycles, motorcycles, watches and lamps. In addition, the number of customs ports authorised to process textile and apparel merchandise was reduced from 13 to 11, while the number of ports authorised to process footwear was cut from eight to seven. The DGA issued a resolution that, effective from February 5, 2010, amended the scope of products covered by this system and expanded the list of authorised ports.
  • In November 2004, Argentina signed an agreement with China where it committed to grant market economy status to mainland China for purposes of anti-dumping (AD) and countervailing (CV) duty investigations. However, at the time of writing, it appears that Argentina has not amended its legislation to treat the Chinese mainland as a full market economy country. AD duty investigations of mainland Chinese products are still conducted in accordance with Decree 1219/2006, which sets forth investigative procedures for non-market economy and transition economy countries and requires the use of cost and pricing structures from a surrogate market economy country. As it now stands, Argentina imposed a number of AD measures on imports from the Chinese mainland, including ceramic tiles, bicycle tyres, spanners and wrenches, pipe fittings, dishware, water pumps, porcelain insulators and microwave ovens, along with a number of investigations and expiry or changed circumstances reviews. However, Argentina did not apply any AD measures on imports from Hong Kong or CV measures on imports from both Hong Kong and the Chinese mainland.
  • Argentine authorities also implement, on an informal basis, a trade balancing/one-to-one matching requirement that, in many instances, requires importers to commit to export one dollar’s worth of merchandise for every dollar’s worth of merchandise they import into Argentina and/or make certain investment in the country. There is no formal legislation in Argentina governing these practices, however.

  • In May 2018, Argentina implemented new digital import certificate procedures for motor vehicles, trailers, semi-trailers, engine blocks, and self-propelled agricultural, road and industrial machinery that are expected to further facilitate the import process for these products. The digital certificates may be requested through the remote processing module (TAD) and will be issued electronically by the relevant body within the National Automotive Property Registries and Collateral Loans Directorate.

  • Separately, Argentina has banned the sale, importation and use in grains of the active principles Dichlorvos (DDVP) and Trichlorfon, as well as any formulated products containing those active principles. Slated to enter into force on November 4, 2018, the ban covers grain production as well as post-harvest, transportation, manipulation and storage activities.

  • In April 2018, Argentina issued an updated list of imported products subject to non-automatic licensing in order to correct certain inadvertent errors and further simplify and facilitate import operations. The updated list includes a broad range of products, such as textiles, apparel, footwear and various other consumer goods.

  • Export taxes affect traders from China, Vietnam, Indonesia, Iran, Philippines, US and the EU the most. The impact of export taxes varies by industry. Most export taxes on agricultural products, minerals and manufactured goods were lifted by the new government in 2016, but a levy of 30% for soybeans, which are a major agricultural commodity, remains in place. The government is gradually reducing export taxes on soybeans by 0.5% per month over 2018 and 2019, bringing the overall rate down to 18% by 2020. The tax on soybean meal and soybean oil remains at 27%. Export taxes on crude oil are indexed to the price per barrel of Brent crude, with a 1% tax levied if the price remains under USD70 per barrel.

Source: WTO - Trade Policy Review, BMI Research

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. Southern Common Market (MERCOSUR) - Regional Customs Union with Brazil, Argentina, Paraguay, Bolivia and Uruguay (Venezuela was suspended in 2016). This agreement facilitates trade with these neighbouring countries through the removal of tariff and non-tariff barriers. In particular, Argentina and Uruguay are key trade partners. The customs union is still in the process of being fully implemented, however, with some significant exceptions to the common external tariff in individual countries and double-application of import tariffs on goods imported to one member and consequently moved into another. Bolivia was made a full member of the Latin American free trade bloc MERCOSUR on July 17, 2015. Investors benefit from customs free access to a wider market in South America.

  2. The FTA between MERCOSUR and associate members facilitates regional trade and is especially beneficial for trade with Chile. However, Mercosur's five associate members - Chile, Colombia, Ecuador, and Peru - do not enjoy full voting rights or complete access to markets.

  3. MERCOSUR and India - India is an important trade partner for the bloc and is expected to grow faster than top trade partner China over the medium term, creating opportunities for exporters.

  4. MERCOSUR and Israel - In December 2007, after almost two years of negotiations, MERCOSUR Member States and Israel signed an agreement that establishes a free trade area. This agreement reduces barriers to foster trade, but the impact is limited given the small trade volume between the two countries.

Under Negotiation

  1. MERCOSUR and the EU are negotiating a trade pact, which will provide a boost to trade flows with important export markets in the EU and help to stimulate new trade and investment opportunities. Talks between the two blocs are moving forward and an agreement over remaining issues is expected in 2018, allowing the deal to be finalised.

  2. Caribbean Community (CARICOM) - MERCOSUR trade pact is under negotiation; however, progress has been slow. This agreement is set to ease the trade process and help Argentina diversify trade partners, but trade flows with Caribbean countries are limited and there is little potential for significant expansion.

Source: WTO Regional Trade Agreements database, BMI Research

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Argentina FDI stock
Graph: Argentina FDI stock
Graph: Argentina FDI flow
Graph: Argentina FDI flow

Source: UNCTAD

7.2 Foreign Direct Investment Policy

  1. Argentina offers investors a large and diversified market based on commodities exports and the services industry, with the oil and gas and agricultural sectors, as well as consumer demand, driving international trade and economic growth over the medium term. There are no regulatory barriers on foreign investment in Argentina, and the government continues to express its desire to increase FDI inflows.

  2. Under the country’s Investment Development Strategy, industries such as food and beverages, renewable energies, biotechnology, software and IT, creative industries, wine industry, automotive industry, technical and professional services and capital goods are the key priority sectors.

  3. While some restrictions on FDI will remain in place, particularly over the short term, many restrictive policies have been reversed with the election of President Mauricio Macri in November 2015, such as the removal of capital controls. The new administration has moved to improve relations with states such as the US and the UK, reached an agreement with holdout investors that has allowed it to return to international capital markets, and actively sought FDI into industries such as hydrocarbons and power, which have suffered from years of underinvestment.

  4. The Argentine government offers a number of incentives in order to attract FDI, some of which apply to all industries, and some of which are sector specific. The free trade zones (FTZs) and special customs area of Tierra del Fuego offer a number of tax breaks and customs duties exemptions for all export-oriented industries located within them.

  5. The lifting of capital controls in December 2015 and the deal agreed with Argentina's holdout investors in March 2016 have considerably improved the outlook for the banking sector and the availability of credit for businesses. Banks can now access hard currency without restrictions for the first time since 2011, paving the way for more expansionary lending policies. This will also be encouraged by falling inflation and a more stable economy, which will allow interest rates to come down. Consequently, businesses will be able to obtain credit at more affordable market rates, promoting new ventures and the expansion of existing projects. Loan demand is expected to grow robustly in line with improving business and consumer confidence, while banks will be increasingly willing to lend as inflation tempers.

  6. State Owned Enterprises are present in a number of sectors in Argentina, including transportation, banking, utilities and energy. Most provide public services and face the same tax and regulatory obligations as private businesses.

  7. To attract productive foreign direct investment that leads to job creation and to promote the development and diversification of domestic exports, Argentina has established numerous incentive programmes which have been designed to facilitate domestic and foreign investment in the country. These programmes are implemented by the national, provincial and municipal authorities and include sector incentives as well as relocation, innovation, technological development, employment, investment financing and export promotion incentives.

  8. Foreign ownership of rural land in Argentina is restricted to 15% of the entire productive area.

  9. Mining companies are required to use Argentine-flagged ships to export minerals and must purchase capital goods, spare parts, inputs and services domestically.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce, BMI Research

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Free trade zones have been established in Argentina since 2004, and there are 11 in existence. However, most of them only carry out storage and service activities. So far, the main free trade zone is located in Rio Grande, Province of Tierra del Fuego.Against the Free Trade Zone standing, imports of parts and components into Tierra del Fuego Free Trade Zone are free of import duties, while goods produced in the Free Trade Zone can be imported duty-free into the rest of the Argentine territory. By receiving the “Made in Argentina” origin qualification, goods produced in the Tierra del Fuego Free Trade Zone will also be granted a preference margin within MERCOSUR. Generally investors located in FTZs benefit from customs duties exemption, removal of non-tariff trade barriers and 100% foreign ownership permission.
Special Customs Area - Tierra del FluegoBenefits available include:
- Customs duties exemption
- Removal of non-tariff trade barriers
- 100% foreign ownership permitted
- Lower taxes on electronic goods
- Profit tax exemption
Sector-specific incentivesSome sector specific incentives for the software development, biotechnology, forestry, hydrocarbon exploration and mining industries include guaranteed fiscal stability for a set period of time (no increase in income tax liabilities), tax exemptions on imports of capital goods, and early VAT reimbursement. For micro-, small- and medium-sized businesses, government subsidised loans and credit from the National Development Fund are available. In 2014, the government also introduced more favourable terms for investment in the hydrocarbons industry, including the lengthening of exploitation concessions from 10 to 35 years for non-conventional production and 30 years for offshore fields, in order to attract more funds to develop this vital sector.

Source: Government Sources, BMI Research

8. Taxation – 2017

  • Value added tax: 21%
  • Corporate income tax: 30%

Source: PwC Taxes at a Glance 2017

8.1 Important Updates to Taxation Information

  • Comprehensive tax reforms were passed in Argentina in late December 2017, which will ease the fiscal and administrative burden on businesses over the coming years. The most beneficial measure is a reduction in corporate income tax from 35% to 30% for fiscal years starting between January 1, 2018 and December 31, 2019, and to 25% for fiscal years beginning after January 1, 2020. Though this will be somewhat offset by new withholding taxes on dividends, it will nonetheless reduce the tax burden on businesses and generate greater investor confidence. In addition, over the longer term social security payments by employers will be simplified by the unification of contributions into a single rate of 19.5% on gross salaries by January 1, 2022.
  • Personal income tax is also levied on a sliding scale from 5% to 35%, as below. The top rate of personal income tax is the second-highest regionally, indicating that the tax burden is equally high for individuals as it is for corporate entities.

  • There is also a personal assets (wealth) tax, which is levied on an individual's worldwide assets, if that individual is a resident in Argentina. This is payable on assets over ARS305,000, on a sliding scale of 0.50 - 1.25%.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax
30% on profits (for fiscal years beginning after January 1, 2018)
Withholding Tax7% on dividends (for fiscal years beginning after January 1, 2018)
35% on interest
35% on royalties
Social Security Contributions23% on gross salaries
Value Added Tax0.6% on any payment debited or credited to bank accounts
Financial Transactions Tax17% on sale of goods and services
Export Tax on soybeans30% on export earnings

9. Foreign Worker Requirements

9.1 Localisation Requirements

There are generally few barriers to employing foreign workers in Argentina, though the process of obtaining work and residence permits is arduous and bureaucratic. Nevertheless, there are no minimum thresholds for the number of local workers, quotas for employment of expatriates, or requirements for training or knowledge transfer for Argentine nationals. Consequently, businesses are free to hire as many foreign staff as necessary.

9.2 Work Permit

There are various forms of work and residence visas available to foreign workers. Technical residence visas are issued to foreign workers engaging in specific technical or professional activities over the short term. Permits are valid for between 30 and 90 days, and may only be issued to the same worker twice in one year. A labour contract visa applies to workers employed by a local company for an extended period, and is initially valid for one year but may be extended indefinitely.

9.3 Other Requirements

In addition to working visas, foreigners must apply for an entry permit and a national identity card, which requires documents including the employment contract, birth certificate, criminal record and qualifications certificates, all of which must be officially translated into Spanish and legalised. These obligations are greatly reduced for MERCOSUR citizens, who do not require entry permits.

Source: Argentine Ministry of Interior, BMI Research

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B2 (stable)29/11/2017
Standard & Poor'sB+ (stable)30/10/2017
FitchB (stable)04/05/2018

Source: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
118/189116/190117/190
Ease of Paying Taxes Index
170/189173/190169/190
Logistics Performance Index
66/160N/AN/A
Corruption Perception Index
95/17685/180N/A
IMD World Competitiveness55/6158/63N/A

Source: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank76/202
Short-Term Economic Risk Score37.956.755.4
Long-Term Economic Risk Score45.95757
Political Risk Index Rank105/202
Short-Term Political Risk Score61.965.865.8
Long-Term Political Risk Score63.461.661.6
Operational Risk Index Rank112/201
Operational Risk Index Score46.446.646.5

Source: BMI Research

10.4 BMI Risk Summary

ECONOMIC RISK
Argentina's short term economic risk outlook is expected to improve substantially as its growth outlook improves. Significant economic reforms and improving investor sentiment will drive a surge of investment over the coming quarters. Nonetheless, inflation is elevated and the fiscal deficit will remain wide over the coming year, lifting risks.

OPERATIONAL RISK
Argentina's operating environment has seen a steady improvement following the election of the moderate president, Mauricio Macri, in November 2015. The reforms implemented by the Macri administration are allowing foreign investors greater opportunities to take advantage of Argentina's developed economy, with a broad agricultural and industrial base, regionally low crime rates, adequate transport connections to major cities and ports, and a skilled workforce. However, obstacles such as underinvestment in logistics infrastructure and poorly implemented education reforms still exist.

Source: BMI Research

Graph: Argentina short term political risk index
Graph: Argentina short term political risk index
Graph: Argentina long term political risk index
Graph: Argentina long term political risk index
Graph: Argentina short term economic risk index
Graph: Argentina short term economic risk index
Graph: Argentina long term economic risk index
Graph: Argentina long term economic risk index


10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Argentina Score46.551.439.050.245.5
Central and South America Average45.248.245.547.839.4
Central and South America Position (out of 20)971596
Latin America Average48.450.249.447.046.9
Latin America Position (out of 42)2719351523
Global Average49.849.850.049.349.9
Global Position (out of 201)1129113894111

100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Argentina vs global and regional averages
Graph: Argentina vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
Chile65.261.367.765.466.6
Uruguay53.748.751.153.861.2
Panama55.547.160.069.345.6
Peru50.559.752.951.338.2
Mexico51.658.658.658.930.2
Costa Rica53.749.860.255.149.7
Colombia49.054.456.950.234.5
Brazil46.346.746.349.243.1
Argentina46.551.439.050.245.5
Ecuador47.154.036.554.843.0
Paraguay39.641.845.734.436.5
El Salvador42.342.045.351.530.5
Bolivia35.842.429.539.032.4
Guatemala37.741.845.539.523.9
Nicaragua40.340.637.041.042.7
Honduras37.638.047.141.024.2
Venezuela29.544.119.934.019.8
Regional Averages46.048.447.049.339.3
Emerging Markets Averages46.848.047.545.846.1
Global Markets Averages49.849.850.049.349.9

Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Argentina


2017
Growth rate (%)
Number of Argentine residents visiting Hong Kong18,34910.4
Number of Argentines residing in Hong Kong220
N/A

Source: Hong Kong Immigration Department, Hong Kong Tourism Board


2017
Growth rate (%)
Number of Latin American residents visiting Hong Kong195,8551.8
Number of Latin Americans residing in Hong KongN/A
N/A

Source: Hong Kong Tourism Board

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Argentine companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Chamber of Commerce (or Related Organisations) in Hong Kong

Argentina Chamber of Commerce (ARCHAM)
Address: 9A, 9/F, Hilltop Plaza, 49 Hollywood Road, Central, Hong Kong
Email: info@argentinahk.com
Tel: (852) 9197 7683

Source: Directory of Hong Kong Trade and Industrial Organisations, Hong Kong Trade and Industry Department

Consulate General of the Argentine Republic in the Hong Kong SAR
Address: Room 1517 / 1519, Jardine House, 1 Connaught Place, Central, Hong Kong
Email: consarhk@netvigator.com
Tel: (852) 2523 3208
Fax: (852) 2877 0906

Source: Visa on Demand

11.5 Visa Requirements for Hong Kong Residents

A visa is not required for citizens of Hong Kong for stay up to 90 days.

Source: Visa on Demand

Content provided by Picture: BMI Research