ARGENTINAargentinatradenet.gov.ar/sitio/datos/material/adi2.pdf · ARGENTINA Advantages of Investing Today Secretariat of Industry, Commerce, and SMEs Ministry of Economy and Production

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Advantages of Investing Today

ARGENTINAAdvantages of Investing

Today

Secretariat of Industry, Commerce, andSMEsMinistry of Economy and Production


The Argentine Economy

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Argentina at a Glance

8.7%Growth (2003)

US$ 4,003Per Capita GDP(2004 est.)

US$ 145 billionGDP (2004 est.)

SpanishLanguage

Argentine Peso (Arg$)Currency

24 autonomous States with political, administrative andeconomic powers(23 provinces and the City of Buenos Aires)

Political Subdivisions

Republican, Representative, and FederalForm of Government

36,223,947Population

2.8 million km²Argentina is the 2nd largest country in Latin Americaand the 8th largest worldwide in terms of surface area

Surface Area


In terms of purchasing power, Argentina boasts the highest percapita income in Latin America.

Per capita GDP 2003(Purchasing Power Parity)

4,363

6,773

8,015

9,070

9,993

11,013

Venezuela Colombia Brazil Mexico Chile Argentina

Source: World Economic Outlook 2004 (IMF)

3


The Argentine economy is highly diversified …

Source: ADI based on National Accounts

GDP by Economic Sector, 2003

Construction; 7%

ManufacturingIndustry; 52%

Fisheries; 1%

Goods, 46%Services, 54%

Wholesale, Retail,and Repairs; 21%

Transport,Warehousing,andCommunications;16%

Education, Social,and HealthServices; 13%

Real Estate, Rental,and Other BusinessActivities, 22%

Other Services; 7%

FinancialIntermediation:7%

Hotels andRestaurants; 4%

Public Administration,Defense, andExtraterritorial Activities;10%

Mining andQuarrying; 13%

Agriculture,Fishing,Hunting, andSilviculture;23%

Electricity, Gas,and WaterSupply; 4%


with an ample supply of skilled labor …

• The illiteracy rate is the lowest in Latin America and compares with developed countries.

Illiteracy Rate 2002 Illiterate population over age 15 (%)

1.5%2.2%

3.0%4.0%

8.3%

12.3%

Italy Spain Argentina Chile Mexico BrazilSource: World Bank

Latin America and the Caribbean: 10.5%

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… high availability of natural resources …

• Argentina has just under 250,000 km² of arable land.

• This wealth of fertile land and a competitive industry makes Argentina:

⌦ The world’s leading producer and exporter of sunflower oil

⌦ The world’s leading exporter and third largest producer of soybean oil

⌦ The world’s leading exporter and second largest producer of honey

⌦ The world’s leading exporter of horse meat

⌦ The world’s second largest exporter of corn

⌦ The world’s third largest producer of soybeans

⌦ The world’s third largest producer and second largest exporter oflemons

⌦ The world’s third largest producer of beef

⌦ The world’s sixth largest producer of wine Source: FAO (2003)


… and considerable energy resource reserves.

Confirmed Probable Confirmed Probable

North West 25,326 7,880 129,481 44,524

Cuyo 31,097 6,713 545 183

Neuquen 179,546 67,145 344,567 97,180

San Jorge Gulf 188,040 75,519 40,289 25,833

Southern 24,416 22,430 148,641 138,398

NATIONAL TOTAL 448,425 179,687 663,523 306,118

Source: Energy Secretariat

Basin

Oil (Mm3) Gas (Mill m3)

CONFIRMED RESERVES AS AT 12/31/2002

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Domestic industry is modern and competitive …

• Argentine industrial structure is broad

and diversified.

• Highly competitive industrial sectors

boast world class enterprises.

• Companies including Shell, Exxon, Ford,

Coca-Cola, Fiat, Bayer, Renault,

Siemens, Nestlé, Firestone, BASF, Pirelli

and Abbot have been operating in

Argentina for over 50 years.

• Annual domestic industrial productionincludes:

– 6 million tons of oilseed oils– 12.3 million hectoliters of wine– 2 million tons of sugar– 300,000 tons of tanned leather– 1.2 million tons of paper– 170,000 tons of PVC and 545,000 tons of polyetyhlene– 48,000 tons of synthetic yarns– 275,000 tons of aluminium– 5 million tons of steel and 732,000 tons of seamless pipes– 5,000 harvesters– 260,000 automobiles


… with a highly developed infrastructure.

• A 38,744 km national roadnetwork

• This extends to 500,000 kms ifthe provincial and municipalnetworks are included

• A 35,753 km railway network

• 38 maritime ports and 25 riverports

• 52 airports, 21 of which areinternational

• Over 25 airlines operate flightsfrom Argentina to 40international destinations infive continents

• Installed electrical energy generating capacitytotals 21,300 MW, while annual production standsat 75,554 GWh (2,084 KWh/ inhabitant)

per 1000 inhabitants Argentina Brazil MexicoLatin Am. &

the CaribbeanTelephone Lines 220.2 182.1 124.7 145.9

Cellular Phones 168.8 136.6 142.4 70.5

PCs 91.1 62.9 68.7 59.3

TELECOMMUNICATIONS

Source: World Bank (2002)

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Social conditions in Argentina are above the regional average.

Socioeconomic Indicators 2002 Argentina Brazil MexicoLat. Am. &

Carib. Average

Life Expectancy at Birth (years) 74.3 68.6 73.6 70.7

Fertility Rate (births per female) 2.4 2.1 2.5 2.5

Infant Mortality Rate (0/00) 16 31 24 27.5

Hospital Beds per 1,000 Inhabitants 3.3 3.1 1.1 2.2

Doctors per 1,000 Inhabitants 2.7 1.3 1.6 1.6

Source: World Bank

Life Expectancy at Birth (years): Number of years a newborn infant will live if the mortality patterns at the time of birth remain constant throughout the entire lifespan .

Fertility Rate (births per female): Number of births per female, assuming a full fertile lifespan and births in line with age group-specific fertility rates.

Infant Mortality Rate (0/00): Number of infant deaths in the first year of life per1,000 live births.


As a MERCOSUR Member State, Argentina enjoys preferentialaccess to a market totalling 272 million consumers.

• The MERCOSUR (Southern Cone Common Market) is a common marketcomprising Argentina, Brazil, Paraguay and Uruguay.

• Bolivia, Chile and Peru are MERCOSUR Associate States.

MERCOSUR

GDP: US$ 558billion

Population:221 million

MERCOSUR +ASSOCIATES

GDP: US$ 687billion

Population: 272million

Source: IMF (2003)

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Since the creation of MERCOSUR, there has been strong growth intrade between Argentina and the other MERCOSUR MemberStates ...

• Argentine exports to the

bloc increased by 181%

between 1991 and 2003

( 30% more than sales

to the rest of the world).

• Imports from

MERCOSUR practically

tripled over the same

period.

In 2003, 6,500 companies registered exports to the valueof US$ 5,555 million to MERCOSUR.

Argentina-MERCOSUR Trade (in millions of US$)

-2,000

0

2,000

4,000

6,000

8,000

10,000

1991 1993 1995 1997 1999 2001 2003

Exports Imports Trade Balance

Source: INDEC.


… resulting in a higher value added export profile.

• 33% of total industrial manufacture exports go to MERCOSUR.• The export value per-ton to MERCOSUR is 25% higher than to other markets.

MERCOSUR 375

Other Markets 300

US$/ ton (2003)

PP: Primary ProductsAM: Agricultural ManufacturesIM: Industrial ManufacturesF&E: Fuel and Energy

Source: ADI based on INDEC

Exports to other markets

2003

F&E17%

PP23%

AM39%

IM21%

Exports to MERCOSUR

2003PP

21%

F&E20%

AM12%

IM 47%

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Argentina ranks as an integrated economy.

• Since the late 80s and as a result of a significant reduction in tariff and non-tariff

barriers, foreign trade has been particularly dynamic, a phenomenon that does notexclude trade with the region.

Non-MERCOSUR Trade (in millions of US$)

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Exports Imports Trade Balance

Source: ADI based on INDEC data


An integrated economy with its doors open to the world.

• The opening of the capital

market and solid economic

performance attracted

numerous foreign direct

investment projects in various

sectors of the economy.

1993 1999 2000 2001 2002 2003FDI 2,793 23,988 11,657 3,206 785 478GDP 236,505 278,369 276,173 263,997 235,236 255,751

FDI/GDP 1.2% 8.6% 4.2% 1.2% 0.3% 0.2%

Source: Ministry of Economy

FOREIGN DIRECT INVESTMENT FLOWS (FDI) TO ARGENTINA –IN MILLIONS OF US$-

Foreign Direct InvestmentBy Economic Sector (1992-2002)

Mining1%

Trade4%

Others8%

Transport and Communications

9%

Banks10%

Electricity, Gas, and Water14%

Manufacturing Industry34%

Oil20%

Source: ADI based on Ministry of Economy data

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Argentina in the

new economic context


The economy staged a gradual recovery following the crisis thatbegan in mid-1998 and ended with the abandonment of theConvertibility Regime in January 2002.

• 8 consecutive quarters ofgrowth were recorded asfrom 2Q 2002, a sequencethat had not beenwitnessed since 1997.

• The surge in growth is alsonoteworthy: Variation ratesreached 3% in the lastmonths of the series.

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The manufacturing industry led the recovery, reaching the 1998level in March 2004, only 4% below the historical record (June1998).


There was renewed growth in the construction industry,surpassing 2000 and 2001 levels.


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There has been a gradual recovery in investment as from 4Q2002.

• Following eight consecutive negative quarters, renewed growth in investmentrepresented a significant contribution to GDP.

Source: ADI based on National Accounts data

Gross Domestic Fixed Investment and Investment Rate (GDFI/GDP)

11.3%

15.6%

20,000

25,000

30,000

35,000

40,000

45,000

1Q-02 2Q-02 3Q-02 4Q-02 1Q-03 2Q-03 3Q-03 4Q-0310%

11%

12%

13%

14%

15%

16%GDFI (in millions of pesos) Investment Rate (%)


Following devaluation, consistent monetary and fiscal policy ledto price stability.

• 2002 inflation marked a breakwith the price stability of theprevious decade and was theresult of abandoning theConvertibility Regime,introduced in April 1991,establishing exchange rateparity at $ 1= US$ 1.

• Nevertheless, following theadjustment involving a minimalpass-through of devaluation toprices, a single-digit inflationrate was once again achievedin 2003.


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The recovery in economic activity led to a significant increase injobs.

• 1,096,000 new jobs were created between 4Q 2002 and 4Q 2003.

• The albeit still high unemployment levels began to drop following the recovery ineconomic activity.

è Employment Rate: Employed/ Total Population

è Unemployment Rate: Unemployed/ Economically Active Population


A robust trade surplus was maintained in 2003 despite therecovery of economic activity and a slight appreciation of thepeso in real terms.• Export performance is highly favorable and

the upward trend is expected to continue.• Imports have recovered strongly following

the drop in 2002.

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The Current Account Balance has turned positive following tenyears of deficits.

• The 2003 balance is slightly down on 2002 due to a 40% rise in imports following theeconomic recovery.


The trade surplus and the reduction in the financial account deficithave significantly boosted reserves

14


Fiscal accounts have improved substantially since May 2002, as aresult of stabilized public spending and higher tax revenues.


A favorable monetary trend was established throughout 2003.

• The expansion of the broad monetary base and the issue of Central Bank Bills (LEBACs)exemplified the continuity of a prudent and flexible monetary policy that accompanied economicgrowth at no cost in terms of inflation.

Source: ADI basedon Ministry ofEconomy data

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The drain on deposits was halted as from 2Q 2002 , with apositive trend from that point onwards, together with banksrecovering liquidity.



Why invest in Argentina?

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Why invest in Argentina?

ê Highly qualified population

ê Availability of natural resources

ê Modern diversified industry

ê Competitive costs and services

ê Developed infrastructure

ê Investment incentives

ê A legal framework that does not discriminate against foreign

investments


Illiteracy in the City of BuenosAires, with a population similarto Uruguay, is 0.5% and 1.3%in the metropolitan region, witha population similar to that ofChile.

Source: ADI based on UNESCO data

A comparison of the main education indicators reveals Argentina’s highranking at both regional and international level.

A country with a highly skilled workforce

Illiteracy in Argentina (% of population over 15 years)

5.8

3.8

2.6

1980 1991 2001

Illiteracy (2001) (% of population over 15 years)

1.5

2.3

2.4

2.6

4.1

4.3

8.1

8.6

10.8

12.7

Italy

Spain

Uruguay

Argentina

Chile

Costa Rica

Colombia

Mexico

Latin Am.

Brazil

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Education is compulsory and free for the 5-14 year age group, thus ensuring highschool enrolment rates. In addition, attendance expectancy at educationalestablishments is the highest in Latin America and only one year less than thatobserved for developed countries such as Spain, Italy, and the United States.

Number of students enrolled in the correct age group level as apercentage of the total population eligible for this age group level.Source: ADI based on UNESCO

data

School attendance expectancy (years)

15

15

14

13

13

12

12

11

10

Italy

Spain

Argentina

Chile

Uruguay

Mexico

Brazil

Colombia

Costa Rica

Net secondary education enrolment rate(2001)

94

91

79

75

71

70

60

57

49

Spain

Italy

Argentina

Chile

Brazil

Uruguay

Mexico

Colombia

Costa Rica


• Argentina boasts a broadnetwork of public andprivate universities attendedby over one million students.

• The university student/

total population ratio is thehighest in Latin Americaand compares with the ratiofor several developedcountries.


The Argentine education system is also well developed at thehigher education level.

University Students (per 100,000 inhabitants)

3,582

3,123

3,022

2,400

2,100

1,540

1,490

1,068

Spain

Argentina

Italy

Uruguay

Chile

Colombia

Mexico

Brazil

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The strength of the education system is exemplified by thenumber of scientists and engineers working in research anddevelopment.

Scientists and Engineers working in R&D (per 1,000,000 inhabitants)

1,921

1,128

713533

370 323225 219

101

Spain Italy Argentina Costa Rica Chile Brazil Mexico Uruguay Colombia


Availability of Natural Resources

• Argentina is characterized by the abundance and quality of its naturalresources that provide competitive advantages in developing activitieslinked to these resources.

• Argentina is the eighth largest country in the world in terms of surfacearea and its relevance is even greater if factors relating to thepotential its surface area offers are considered (i.e. the proportion ofsurface area suitable for agriculture, mining resources, etc.).

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Agriculture: Argentina has some of the most suitableagricultural land worldwide.

Source: ADI based on FAO data

The relevance ofArgentina’sagricultural surfacearea is not only dueto its size but also tothe excellentagroecologicalconditions, resultingin high yields.


In Latin America, only Brazil has a greater surface area suitable foragricultural use. However, if the domestic market pressure on

production in these areas is considered, Argentina has a higherlevel of agricultural land available in relative terms.


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• In comparison with the major grain-producingcountries, Argentine yields are highlycompetitive at international level.

• Similar conclusions are obtained whencomparing yields for other crops such as apples,pears, lemons, beans, and garlic in whichArgentina also has a considerable global marketshare.


Soybean Productivity(Argentina =100)

0 50 100

India

Russia

China

Australia

USA

Brazil

Argentina

Corn Productivity(Argentina =100)

0 30 60 90 120 150

India

Russia

Brazil

China

Australia

Argentina

USA.

Wheat Productivity(Argentina =100)

0 50 100 150 200

Russia

Australia

Brazil

Argentina

India

USA

China


Agricultural production increased 105% in the period 1990-2003.Principal crops include soybean, wheat, sunflower, and corn.Cultivated surface area increased approximately 52% over the sameperiod, representing significant progress in terms of yields.

Source: ADI based on SAGPyA data

21


Silviculture: The availability of extensive areas promotes thedevelopment of other activities including silviculture.

• The main factors determining competitive advantages in this activity (soil types,climate, costs, human resources, etc.) are present in vast regions of Argentina.

• Of the 20 million hectares suitable for forestry, only 5% are currently used for thispurpose. Land suitable for forestry does not compete with other agriculturalactivities.

• The diversity of climates and soil types makes it possible to cultivate a wide varietyof species.

• In addition to tree growth rates, the relatively low land value compared to countriessuch as Brazil and Chile yields high rates of return and exceptional payback periods.

• High growth rates: 41 m3 / hectare/ year (Chile 35 m3) for eucalyptus and up to

32 m3 / hectare/ year for pine (three times the growth rate in Canada and twice thatof the United States).


High growth rates for conifers and eucalyptus

Source: Simpson Timber Co., Aracruz Cellulose, Jaako Powry Investments. CIEF.

Conifers

Eucalyptus

22


Fishery Resources: The length of its Atlantic coastline (4,725 km)

and the variety of species found in the fishing zone make

Argentina one of the best fishing areas worldwide.

Shellfish

Fish

Source: ADI based on SAGPyAdata


Mining in Argentina

⌦ The estimated surface area with mining potential totals approximately

750,000 km2, 75% of which has still to be exploited.

⌦ Argentina has considerable gold, copper, lead, zinc, natural borate,

bentonite, clay, and ornamental stone deposits.

⌦ The effective tax rate is 41%, 6 points below the average for the principal

Latin American mining nations and almost 20 points lower than that of the major

Canadian and Australian mining regions.

⌦ The regulatory framework and current mining incentive regime play a key role in

attracting investment to this sector.

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The Mining Investment Law provides the following incentives:

• Double deduction of prospecting, exploration, and technical/ economic feasibilitystudy expenses.

• Financing and reimbursement regime for VAT on capital goods and investments inphysical infrastructure projects.

• Accelerated depreciation of capital investments.

• Exemption from import duties on capital goods and equipment, spare parts, andaccessories.

• Exemption from assets tax.

• Provincial royalties are limited to 3% of the pit-head value of mineral extracted.

• An income tax deduction of up to 5% of extraction operating costs and a taxdeduction for environmental conservation allowances.


Notable growth in mineral exports

8 The transformation and integration of the Argentine mining industry intointernational markets is reflected in the tripling of exports over the last sevenyears.


24


Investment growth in the sector

⌦ The positive impact of the new legal framework on the sector can be observed

in recent investments that rose from practically zero to over US$ 1

billion in 2002.

⌦ Investment has remained robust despite the economic crisis.

Source: ADI based on CEP data

⌦ Leading global mining

companies including

Barrick, Homestake, BHP,

and Billiton have decided to

invest in Argentina.


Argentina ranks high internationally in terms of available miningresources.

• The principal mining areas currently

in production include Bajo La

Alumbrera, El Salar del Hombre

Muerto, Farallón Negro, Mina Aguilar

and Cerro Vanguardia and important

projects involving significant

metalliferous mineral reserves in

various stages of exploration are

underway at locations including

Pirquitas, Agua Rica, Pascua Lama

and Pachón.

1.China2. Peru3. Philippines4. Brazil5. Chile

6. Argentina7. Mexico8. Bolivia9. Venezuela10. Burma

Source: ADI based on MiningJournal

25


Substantial oil and gas reserves

• Argentina boasts substantial oil and gas reserves. Despite increasedproduction in recent years, investment in exploration has made it possibleto maintain significant levels of reserves.

• CONFIRMED RESERVES (2002)

– Oil: 448.4 million m3

– Gas: 663.5 billion m3

• PROBABLE RESERVES (2002)

– Oil: 179.5 million m3

– Gas: 306.1 billion m3


• The oil reserves/ production ratio increased despite a 13% rise in production

during the period under review.

• Although the gas ratio decreased between 1994 and 2002, it should be pointedout that production rose by 65.2% during this period.

Source: ADI based on Energy Secretariat data

Oil and Gas

Gas: Reserves/ Production ratio(years)

19.319.8

17.8

14.8 14.5

1994 1996 1998 2000 2002

Oil: Reserves/ Production ratio(years)

9.2 9.1 8.9

10.610.2

1994 1996 1998 2000 2002

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• Gas production has increased constantly since the early 90s, doubling early 90s

levels in 2003.

Source: ADI based on Energy Secretariat data

Increased oil and gas production

Oil and gas production

(in million/ billion m³ respectively)

0

10

20

30

40

50

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03

Oil Gas

• Although oil

production has

fallen in recent

years, levels are

still 50% above the

levels recorded 12

years ago.


• The availability of vast areas with

optimal environmental conditions is

clearly a significant factor in attracting

investment.

• Argentina ranks 15 among 142

countries in the University of

Colombia environmental

sustainability rankings.

• Only Costa Rica and Uruguay rank

higher in Latin America. In terms of

surface area worldwide, Argentina

ranks second behind Canada.

A Sustainable Environment

Environmental Sustainability Index 2002

73.9

73.0

72.6

70.6

66.5

66.0

64.2

63.9

63.2

63.0

62.2

61.5

60.3

60.0

60.0

59.9

59.6

1 Finland

2 Norway

3 Sweden

4 Canada 5 Switzerland

6 Uruguay

7 Austria

8 Iceland

9 Costa Rica

10 Latvia

…

15 Argentina

16 Australia

17 Panama

18 Estonia

19 New Zealand

20 Brazil

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Modern diversified industry

• Argentina boasts a relatively modern anddiversified industrial structure. There has beensubstantial investment in machinery and

equipment in recent years and a nucleus ofstate of the art companies has emerged.

• In addition, Argentina’s industrial profile ischaracterized by:

– Pronounced alignment with Argentinefactor endowment

– High labor productivity indices

– High capital intensity

– Export-oriented production

– Increases of scale

– Transnational enterprises

Source: ADI based on CEP data

The recovery is currently being boosted bynew investment, with flows aimed atindustry and other tradable goods sectorsplaying a dominant role.

Capital Formation (2004)

Trade and Services

11%

Industry 42%

Financial Services

1%

Infrastructure 19%

Extractive Activities

27%


Relatively higher prices for domestic products favor the productionof tradable goods, resulting in a higher industrial sector share inGDP.

• The industrial sector is one of the pillars of the current economic recovery and growth in

production is the result of higher exports as well as import substitution.

• Sectors that were internationally competitive in the 90s (petrochemicals, iron and steel,

foodstuffs) reacted favorably, while other previously relegated industries (textiles,

metalworking) led the recovery in the industrial sector.

Sector Share in GDP at current prices

50.9%

63.5%

60.8%

62.3%

61.1%

65.1%

1993 1995 1997 1999 2001 2003

18.2%

17.0%

18.2%

17.2%

22.3%

16.1%

1993 1995 1997 1999 2001 2003

Manufacturing Industry Services

28


Economic opening has transformed the industrial sector, resulting in:

• A greater emphasis on exporting: Manufactured goods exports have increased their share

of industrial GDP.

• Increased international integration: Intermediate goods imports have increased their

share of industrial GDP.Intermediate Goods Imports/

Industrial GDP

Exports / Industrial GDP

Source: ADI based on INDEC and National Accounts data

A modern diversified industrial sector integrated into the globalmarket

21.6%

17.0%17.4%

18.9%

16.2%

11.8%10%

12%

14%

16%

18%

20%

22%

1993 1995 1997 1999 2001 2003

26.5%

34.2%8.5%

11.4%0%

10%

20%

30%

40%

50%

60%

70%

80%

1993 1995 1997 1999 2001 2003

AM

IM


• Argentina has recorded significant progress in human resource productivity with a

26% increase in labor producivity between 1995 and 2000.

The industrial sector displays continuous improvement in humanresource productivity.

The relative labor productivity

gap with the United States is thelowest in Latin America.According to ECLAC statistics,average Argentine industrialsector labor productivity is 67%of US levels, with Brazil at 37%,and no other Latin American

country higher than 40%.


Industrial sector hourly productivity (1997 =100)

80

85

90

95

100

105

110

115

120

1995

1996

1997

1998

1999

I-00

II-0

0

III-

00

IV-0

0

I-01

II-0

1

III-

01

IV-0

1

I-02

II-0

2

III-

02

IV-0

2

I-03

29


• Industrial production has developed favorably in recent months. The recovery in

domestic demand, the integration of Argentine world class producers of industrialinputs and primary commodities into external markets is intensifying, accompanied by a

new process of import substitution in specific branches.

The MIE is currently at its

highest level for the lastthree years.The cumulative increasefrom January 2002 toFebruary 2004 is 35%.


A modern, diversified, and growing industrial sector

Non-seasonally adjusted Monthly Industrial Estimator (MIE) (Base Year 1997=100)

70

75

80

85

90

95

100

105

Jan-

02

Mar

-02

May

-02

Jul-02

Sep-

02

Nov

-02

Jan-

03

Mar

-03

May

-03

Jul-03

Sep-

03

Nov

-03

Jan-

04

Mar

-04


2003 average vs. 2002 average % variation

75

56

53

31

30

23

20

19

18

18

17

17

16

Textiles

Metalworking

Cotton yarn

Cement

Other construction materials

Editing and printing

Glass

Pharmaceuticals

Industrial gases

Agrochemicals

Tires

Basic chemical prods

Sugar

Source: CEP based on INDEC data

There has been growth in all industrial sectors in recent months.

• Of the industrial sectors currently

displaying increased growth, special attention

should be drawn to the metalworking

industry, textiles, editing and printing

products, agrochemicals, construction

materials, and other foodstuff and drinks

sub-sectors.

• Only one of the 30 categories comprising

the MIE recorded a lower performance vis-à-

vis the previous year.

• Industrial growth in recent months has

been generalized, irrespective of the various

branches’ specific orientation (domestic

market, import substitution, or exports).

30


Argentina is among the most competitive economies in theinternational market in terms of labor costs.

• Some of the basic costs investors must take into consideration if they wish toset up their business in Argentina are listed below.

Source: ADI based on Ministry of Economy and Production data

Gross annual wages/ salaries by sector (2003, in US$)

2,589

3,276

3,648

5,515

5,509

9,628

Hotels andRestaurants

Construction

Trade

Logistics andCommunications

ManufacturingIndustries

Financial Intermediation


Annual gross salary for engineers (2003, in U$S)

54,000

32,400

32,400

26,700

16,800

15,500

14,900

14,400

13,400

12,100

10,500

10,200

9,000

32,200

Miami (USA.)

Barcelona (Spain)

Sidney (Australia)

Milan (Italy)

Singapore

Lima (Peru)

Santiago (Chile)

Caracas (Venezuela)

Bogota (Colombia)

Sao Paolo (Brazil)

Shanghai (China)

Buenos Aires (Argentina)

Prague (Czech Rep)

Mexico City

Annual gross salary for industrial skilled workers (2003, in U$S)

40,900

18,400

17,700

17,000

16,100

10,700

8,300

6,800

6,800

6,500

5,100

4,600

4,100

3,600

Miami

Sidney

Barcelona

Singapore

Milan

Caracas

Santiago

Lima

Prague

Sao Paolo

Buenos Aires

Shanghai

Bogota

Mexico City

• Comparing City of Buenos Aires local labor costs with costs in other major urbancenters reveals that Argentine costs are highly competitive.

Skilled labor costs for Buenos Aires are competitive vis-à-visother cities worldwide.

Source: UBS

Annual gross salary for industrial skilled workers (2003, in US$)

40.900

18.400

17.700

17.000

16.100

10.700

8.300

6.800

6.800

6.500

5.100

4.600

4.100

3.600

Miami

Sidney

Barcelona

Singapore

Milan

Caracas

Santiago

Lima

Prague

Sao Paolo

Buenos Aires

Shanghai

Bogota

Mexico City

Annual gross salary for engineers (2003, in US$)

54.000

32.400

32.400

26.700

16.800

15.500

14.900

14.400

13.400

12.100

10.500

10.200

9.000

32.200

Miami (U.S.A.)

Barcelona (Spain)

Sidney (Australia)

Milan (Italy)

Singapore

Lima (Peru)

Santiago (Chile)

Caracas (Venezuela)

Bogota (Colombia)

Sao Paolo (Brazil)

Shanghai (China)

Buenos Aires (Argentina)

Prague (Czech Rep)

Mexico City

31


Source: UBS

A basket of 39 products with due considerationof the preferences of Western Europeanconsumers was taken as a reference.

A basket of 19 services including telephone, postoffice, hairdressing, cinema, restaurant dining, drycleaning, etc. was taken as a reference.

Buenos Aires also offers clear advantages over the rest of theworld in terms of cost of living.

Food basket(2003, in U$S)

422

417

377

351

349

276

246

230

228

207

186

164

153

359

Milan

Singapore

Miami

Shangai

Barcelona

Sidney

Caracas

Mexico City

Sao Paolo

Lima

Santiago

Bogota

Prague

Buenos Aires

Services basket(2003, in U$S)

355

348

327

248

208

207

206

202

183

165

164

162

136

270

Milan

Miami

Sidney

Barcelona

Singapore

Lima

Santiago

Shangai

Mexico City

Caracas

Bogota

Prague

Sao Paolo

Buenos Aires


Competitive costs for agricultural land combine with excellentagroecological conditions that ensure high yields in the widestvariety of crops.

0

2

4

6

8

10

12

Belg

ium

Ger

man

y

Hol

land

Spai

n

U.K

.

Arge

ntin

a

Cana

da

USA

Aust

ralia

New

Zea

land

Arg

en

tin

a =

1

Source: ADI

32


Source: ADI based on Colliers, Castro, Cranwell & Weiss data

Class A buildings:Buildings generally used for

rental purposes.

Located in easy access areas.Modern layouts with good

natural light and view. Wellfinished and maintained.Tenants are generally

multinational companies and/or tenants with a high

economic capacity.

Availability of office space at low rates

Monthly rental rates (Class A offices)(2003, in US$ per m²)

21.0

14.9

14.5

11.5

8.0

7.5

Mexico City

Montevideo(Uruguay)

Rio de Janeiro(Brazil)

Santiago (Chile)

Buenos Aires(Argentina)

Bogota(Colombia)


Source: Electricity Association

Low-cost electric power for industry

Electricity rates for industrial users (2002, in US$ per MWh)

98.7

59.1

57.6

55.0

36.9

31.2

19.3

36.8

Italy

U.K.

International average

Colombia

Brazil

Chile

Spain

Argentina

33


Source: ADIGAS

Low-cost gas for industry

Rates for major industrial users (2003, in US$ per m³)

0.45

0.31

0.29

0.28

0.25

0.11

0.02

0.22

Chile

Canada

Italy

USA


Mexico

Uruguay

Argentina


Source: International Telecommunication Union

Competitive telecommunications costs

Local call rates (2002, in US$/ 3 minutes)

0.21

0.17

0.14

0.12

0.12

0.03

0.03

0.09


Uruguay

Mexico

Chile

Italy

Spain

Brazil

Argentina

34


• Argentina boasts considerable development in terms of road, rail, port,

aeronautical, and telecommunications infrastructure.

• In addition, modern regulatory frameworks ensure a high level of

competition.

• Appropriate infrastructure provides a platform to boost production sector

competitiveness and ensure territorial and social integration.

Developed infrastructure


• The National Airports System comprises 52 airports, 35

of which are managed by the private sector in

conjunction with recognized international operators.

• Argentina has 21 airports equipped for international

traffic (see map).

Commercial Aviation infrastructure

35


• Argentina has 38 maritime ports along the Atlantic

coastline and 25 river ports.

• Recognized international maritime cargo operators

operate out of Argentina.

• The Port of Buenos Aires is the main container port in

Latin America and the Caribbean.

• Argentina’s principal maritime and river ports are featured

on the map.

Port infrastructure


• Argentina’s main port has achieved considerable progress in recent years in

terms of operability.

Port Infrastructure

General cargo (thousands of tons) 4,000 6,957

Containers (thousands of TEUs) 300 650

Operating area (hectares) 65 92

Average lay days 6.2 1.0

Productivity tons/ personnel/ year 800 5,984

CATEGORY 1991 2001

Source: Port of Buenos Aires

36


• The Paraguay-Paraná Waterway is the main river transport lane along the Paraguay-

Paraná water system and measures 3,302 km in length.

• The importance of this project lies in the lower river navigation costs (the approximate

freight cost is US$ 0.010 per ton/ km) and the lower environmental impact.

• Hidrovía S.A. is responsible for dredging to a draft depth of 32 feet, seamarking, and

maintaining the main access channel to the River Plate and the River Paraná for the 779

km stretch to the port of Santa Fe.

• The waterway is navigated by tug-propelled barge convoys, each barge with a loading

capacity of 1,500 tons. Currently, the maximum convoy is generally 20 barges (30,000

tons) measuring approximately 300 meters between perpendiculars with a 48 meter beam.

Paraguay - Paraná Waterway


• The National Road Network spans 38,632 km,

81% of which are paved (see map).

• A further 180,000 km of roads are under

provincial and 280,000 km under municipal

jurisdiction.

Road Infrastructure

37


• The Argentine railway network is one of the most

extensive worldwide, covering a distance of 35,753 km.

• The federal government has decided to promote regional

integration though the railway system and consequently

decreed the reopening of branch lines such as the

Central Trans-Andean Railway via tender and the

rehabilitation and transformation of the Belgrano Cargas

freight line.

Railway Infrastructure


Argentina began developing telecommunications 123 ago, only 4 years following the

launch of the Bell Telephone Company.

Over the last 10 years, investments totalling more than 20 billion dollars have

increased the number of telephone lines in service by 74%, total digitalization of the

network has been achieved, and the mobile telephone service has grown from less

than half a million to 8 million phones in service.

Telecommunications

PER 100 INHABITANTS Argentina Brazil Mexico

Latin Am. & Carib.

Telephone lines 22.0 18.2 12.5 14.8 Cellular phones 16.9 13.7 14.2 12.2 PCs 9.1 6.3 6.9 5.9

Internet users 8.8 4.6 3.7 5.0

Source: World Bank (2001)

38


• Various indicators give an overview of improvements in the telecommunications

sector in recent years.

Telecommunications

Lines installed (thousands) 3,097 7,894

Cellular phones (thousands) 15 6,380

Digitalization of network 13% 100%

Lines in service per 100 inhabitants 11.9 20.6

Public telephones (thousands) 22.5 150.7

Lines in service per employee 76.1 406.9

Investment in the sector 1991-2000

Source: National Communications Commission

CATEGORY 1990 2000

US$ 21,150 million



Telecommunications

Telephone lines in service (in millions)

5.05.7

6.36.8 7.1 7.2

7.98.5 8.6 8.7

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03

39



Telecommunications

Cellular telephone lines (in millions)

0.2 0.30.7

2.02.7

3.9

6.46.7 6.6

7.8

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03


Investment Incentives

• Argentina has a number of regimes designed to promote investments by bothdomestic and foreign investors alike:

– General incentives: Instruments and measures aimed at promoting

investment in any region or economic activity

– Sectoral incentives: Promotion regimes aimed at a particular economic

sector

– Regional incentives: Provincial investment promotion regimes and

investment support infrastructure

40


General Incentives

• Export promotion incentives including drawback, temporary admission, turnkeyplant exports, and customs-at-factory regimes.

• Instruments and regulations aimed at reducing initial investment costs: investmentVAT financing; reduced VAT tax rate on capital goods, IT, and telecommunications;zero import tariff on capital goods; zero tariff on all goods destined for use inmajor investment projects.

• Measures that boost competitiveness by reducing operating costs, such asderegulation of the electricity market, air freight transport, etc.


General Incentives

• The Executive Branch has proposed new mechanisms designed to promote

investment and these mechanisms are currenly being analyzed by Congress:

– Accelerated depreciation for machinery, equipment, and infrastructure worksdestined for investment projects. Capital goods purchases may be depreciated inthe balance sheets for the three years subsequent to purchase and infrastructureproject depreciation will be reduced by 50% vis-à-vis the usual depreciation period.

– Refund of VAT paid on the purchase of goods destined for use in investmentprojects. All VAT not offset will be refunded in cash three months after purchase.

– The regime will remain in effect for 36 months.

41


Sectoral Incentives

• Certain sectors including mining, forestry, tourism, and the automotive industry havespecific investment promotion regimes.

• Some of these regimes include the following incentives inter alia:

– Fiscal stability for 30 years (forestry, mining)

– Special depreciation regime for income tax purposes (forestry, mining)

– Tax exemptions (forestry, mining, tourism, automotive industry)

– Compensated trade regime (automotive industry)


Regional Incentives

• Various provinces in Argentina have investment promotion regimes that generallyinclude the following incentives:

– Exemption from provincial taxes such as turnover tax, stamp duty, real estatetax, etc.

– Reduced public utility rates

– Support for infrastructure and equipment projects

– Facilities for the purchase, rental, or lease without charge of public property

• Most provinces have business support infrastructure such as industrial parks andfree zones.

42


Legal Framework

• Removal of barriers to foreign investor acess to specific economic sectors

• The main aspects of the current legal framework with regard to FDI are based on:

– National treatment for foreign investors

– No prior approval or registration requirement for investments

– Access to all economic sectors

– Access to domestic incentive programs

– Unimpeded transfer of profits and repatriation of capital

• Protection and arbitration of disputes between Argentina and foreign investors

• Argentina maintains bilateral agreements for the promotion and protection of

investments (BITs) and is a member of MIGA, OPIC and ICSID.


Attractive Sectors forInvestment

43


Attractive sectors for investment

• The following include some of the most attractive sectors for investment:

n Mining

n Forest industry

n Leather and leather products

n Petrochemical industry

n Agricultural machinery

n Vegetable oils

n Grape growing and wine

making

n Cultural industries

n Software

n Outsourcing

n Tourism


Mining

4Strong increase in production

4Exports tripled in the last 7 years (US$ 996

millon in 2003)

4Strong foreign investment in the last 6 years

(US$ 3 billion)

4Favorable legal framework

4Geological potential: rich in mining resources

(ranked sixth worldwide)

475% territory with potential still unexplored

4Mining Integration Treaty with Chile

4High profitability in copper and gold mines

4Availability of production resources:

infrastructure, skilled labor and a growing

supply of local suppliers

Rates of return after taxes (gold mine)

0 5 10 15 20

China

Mexico

Canada

Bolivia

Peru

USA

Australia

Argentina

Chile

S. Africa

Rates of return after taxes(copper mine)

0 5 10 15 20

Canada

Mexico

Bolivia

China

Peru

Australia

USA

S. Africa

Argentina

Chile

Source: Colorado School of Mines è

44


Forest Industry

• The Forestry Law provides an attractive legalframework for investments

• Fiscal and economic incentives for the

development of the sector

• High growth rates and lower harvestingmaturities

• Abundant supply of suitable low-cost landand extensive tracts available

• 20 million hectares of suitable virgin land,

only 5% of which is currently beingcultivated

• High potential for industrial development

• PULP INDUSTRY

• Abundant supply of forest raw material

• Extensive use of recycled fibers with definitegrowth potential

PAPER INDUSTRY

• Unmet domestic demand

• Growing per capita consumption

WOOD INDUSTRY

• New project potential

• Cost of wood lower than in Nordic countries

• High expansion potential due to relatively lowconsumption

Productivity per worker in paper and paper product production

(1993=100)

0

50

100

150

200

93 94 95 96 97 98 99 00 01 02

Source: CEP


The sector produces tanned leather, semi-finished and finished leather, and upholsterycovers with an annual turnover of US$ 1billion.

Argentina is the world’s fourth largest producerand exporter of leather goods and claims 9%of the global leather market.

80% of total production is exported and 50%of these exports go to the USA, China, andBrazil.

Production has increased notably in recentyears.

The largest firms produce up to 5,000/6,000pelts per day (in Italy average-sized companiesproduce approximately 200/300 pelts per day).

The industry is moving forward in terms ofupstream integration, basically by producingupholstery covers for the automotive industry(US$ 200 million in exports).

Leather and leatherproducts

Productivity per worker (1993=100)

30

80

130

180

93 94 95 96 97 98 99 00 01 02

Productivity per man hour (1993=100)

30

80

130

180

93 94 95 96 97 98 99 00 01 02

Source: CEP

45


Petrochemical IndustryThe petrochemical industry has been operating for more than fifty years in Argentina andpetrochemical plants process and add value to raw materials in the form of locally extracted

hydrocarbons (oil derivatives and natural gas compounds).

43 plants with installed capacity on an international scaleproduce primary, intermediate, and final products, and inthe five-year period 1996-2000, the petrochemical industry

invested approximately US$ 3 billion and doubled itsinstalled capacity to 6.2 million tons per annum.

Demanding domestic market: one of the most notableexamples is the increase in apparent consumption in theagricultural sector.

The industry has the potential to become a productionplatform to supply MERCOSUR markets.

Human resource productivity in the manufacture of

chemical products for agricultural use has practically tripledin 10 years.

Urea production (in thousands of tons)

0

200

400

600

800

1,000

1,200

92 93 94 95 96 97 98 99 00 01 02

Productivity per worker (1993=100)

0

50

100

150

200

250

300

93 94 95 96 97 98 99 00 01 02


Agricultural Machinery

This sector has been industrially active for over 100 years and has the capacity to adapt

to changes in agricultural practices (e.g. the adaptation of seeders to the direct seeding

system).

Argentine seeder production statistics

3,278

2,562

2,080

3,100

3,600

3,400

5,880

4,740

4,640

4,178

3,894

3,420

5,100

5,350

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

n An ever-expanding and important domestic

market: Agricultural production is displaying marked

growth, while current profitability allows producers

to procure suitable equipment.

n The industry is able to support domestic

purchasers in the post-sales phase.

n National equipment can be adapted perfectly to

Argentine soil characteristics.

n Applied knowledge export potential.

46


Vegetable Oils

• Argentina’s prominence in the global market:

è 12% of global soybean production

è 30% of vegetable oil exports and 10% of

seed exports

è 22% of global sunflower production

è Leading exporter of sunflower oil

• GPV: US$ 4.2 billion

• Low cost of arable land

• High geographic concentration of primary and

industrial production

• Availability of futures markets for agricultural

producers

• Growing global demand for vegetable oils and

vegetable oil by-products

• SOYBEANS:

èAverage production unit capacity: 5,000 tons

Principal global producers: USA (1,500 tons),

Brazil (2,500 tons)

èCrush cost US$ 4/ ton (USA –US$ 10-, Brazil

-US$ 14-)

• A high incidence of leading-edge technology in use

in the industrial sector

• Capacity to produce bio-fuels from vegetable oils

Soybean oil exports(in millions of US$)

0

500

1000

1500

2000

92 93 94 95 96 97 98 99 00 01 02 03Source: INDEC


Grape Growing and WineMaking

• Argentina is the world’s fifth largest producer of

wine

• High domestic consumption (world’s sixth largest

consumer of wine)

• Argentine wine exports have risen by more than

400% in the last ten years

• High quality wines account for over 80% of

exports in this sector

• High availability of raw materials: eighth

largest global producer of fresh grapes

• High competitiveness of Argentine wine

producers: excellent price/quality ratio

• Low cost of land in the context of a global

reduction in planted area

• Available technology similar to that used by

the major producing countries

• Capacity to export high-value wines amid

growing foreign demand

• Capacity to produce organic products

• Ongoing improvement in the quality of grape

and wine products

Argentine wine exports(in millions of US$)

0

30

60

90

120

150

180

92 93 94 95 96 97 98 99 00 01 02 03Source: INDEC

47


Cultural Industries

• The book industry was one of the first to develop in Latin America, while there is also a long history

of film production.

• Cultural industry professionals and technicians are high-quality, and human resources working in

these industries display a high degree of flexibility in adapting to work-related developments and

adverse scenarios.

• A large number of training centers are available for professionals in the various specialist fields

covered by these industries.

• Argentina boasts talented writers, musicians, actors, authors, scriptwriters, directors, and advertisers

of world renown.

• High-level equipment in graphic design, film studios, television and music production ensures high-

quality productions.

• Argentine cinema is always represented and performs well at international film festivals, and

Argentina was among the top five creative leaders worldwide in advertising in the 90s.

• Argentina has a wide variety of landscapes and locations suitable for filmmaking, and a good tourist

infrastructure and transport system makes it easy for television, cinema, and advertising production

teams to stay in and move around the country.


Software

• Human Capital: highly trained, specialized

in technology and IT solutions at competitivecosts, with socioeconomic and culturalcharacteristics similar to those in the most

highly developed countries

è 3,500 computer and IT graduates/ year

è 20,000 AMBA professionals

• Potentially significant domestic marketsfor specific applications:

è Agribusiness, industrial automation,

educational and entertainment software(edutainment)

• Exportable software developmentcapability

• Low production costs: the cost structure forthis sector is highly competitive internationally

• Argentina: A highly competitive base for

producing and exporting software and ITservices to Latin America and the Spanish-speaking world

• Legal framework: Software Development Bill:

è Fiscal stability

è Extrazone import duty exemption for

hardware imports

è Income tax reduction in the amount of

a percentage to be investe in R&D

è VAT credit

48


Outsourcing

• Argentina is in a position to become one of the main beneficiaries of this growing corporate

trend. Various multinational companies (HP, IBM, Teleperfomance, SAP, Motorola, Accenture)

have selected Argentina as their base for operations ranging from basic services (such as

telemarketing or call-centers) to software development, engineering, financial analysis, design,

and R&D.

• The main reasons for Argentina’s attractiveness are the level of qualification of the population,

the critical mass of professionals and university students, labor cost levels, and

telecommunications infrastructure availability.

“Proficiency in English” examination" (% of successful candidates)

0

10

20

30

40

50

60

70

Chile Brazil Uruguay Argentina Italy Spain

global average: 46%

No dataavailable: lessthan 40candidates

• Potential to provide the US market with

call center services. A growing number of

Argentines are training and qualifying in

English. Qualifications obtained abroad

by Argentine students are among the

highest.

Source: University of Cambridge, EFL


Tourism

• The number of foreign tourists visiting Argentina rose

by 27% in 2003 compared to a 15% increase in

2002.

• Foreign tourism displays a high degree of diversity in

terms of countries of origin and average spending,

accompanied by longer average stays.

• There has been strong investment in hotel

infrastructure in recent years, although there are still

a considerable number of locations available for

developing tourist services.

• Skilled labor is low-cost and tourist tariffs are

attractive.

• The diversity of Argentine landscapes makes it

possible to tailor products to international demand

(ecotourism, rural tourism, cultural tourism, sport

tourism, etc.).

Hotel supply: Number of establishments

6,300

6,600

6,900

7,200

7,500

7,800

1998 1999 2000 2001 2002

Tourist countries of origin2003

Brazil17%

Chile17%

Europe17%

Uruguay26%

Others13%

USA & Canada

10%

Source: INDEC

49


Perspectives and Challenges


Market expectations consensus: improved Argentine economicperformance

Market Expectations Survey

This survey is conducted by the Central Bank of Argentina to obtain a systematic follow-up of theprincipal short- and medium-term macroeconomic projections made by Argentine and foreign analystsand academics on Argentine economic performance.

Source: BCRA

GDP 2004 7.2%

(Interannual variation) 2005 4.8%

Nominal Exchange Rate End 2004 2.97

($/US$) End 2005 3.00

Consumer Prices Dec 04 6.9%

(Interannual variation) Dec 05 6.0%

Average Salary 2004 10.5%


Unemployment Rate 2004 13.5%

(% of Workforce) 2005 12.4%

Industrial Activity 2004 11.0%


Investment 2004 23.0%


Trade Balance 2004 13.0

(US$ billion) 2005 12.3

Current Account Balance 2004 5.1

(US$ billion) 2005 4.1

International Reserves 2004 17.1

(US$ billion) 2005 18.8

50


Argentina will be among the leading countries in Latin Americain 2004/ 2005 in terms of growth.

• Argentina recorded the highest growth in Latin America in 2003 and is expected to continue tobe among the leaders in the years to come.

Source: World Economic Outlook (IMF)


On the domestic front, Argentina aims to intensify the currenteconomic growth process

• To achieve this goal, Argentina must ensure continuity in the

processes already underway:

– Lowering unemployment

– Boosting investment flows

– Strengthening the financial system

– Fiscal consolidation

– Restructuring the social security system

– Stabilizing prices

51


While on the international front, the main objective is to intensifyArgentina’s quantitative and qualitative international integrationby ...

• Deepening regional integration schemes and moving

forward in the foreign trade negotiations agenda (WTO,

FTAA, MERCOSUR, etc.)

• Ensuring the ordered and sustainable restructuring of

public and private debt with a view to achieving a

solution in accordance with Argentina’s payment

capacity.


Secretariat of Industry, Commerce, and SMEs

Ministry of Economy and Production

Av. Julio A. Roca 651 – 5th Floor, Office 22

(C1067AAB) Buenos Aires

Republic of Argentina

Tel. (+54 11) 4349-3442 / 3313 / 3315

Fax (+54 11) 4349-3453

E-mail: [email protected]

http://www.inversiones.gov.ar

Documents

ARGENTINAargentinatradenet.gov.ar/sitio/datos/material/adi2.pdf · ARGENTINA Advantages of Investing Today Secretariat of Industry, Commerce, and SMEs Ministry of Economy and Production