Wednesday, 09 Jan 2013
Overseas Business Risk - Argentina
Political and Economic
Argentina is the largest country in South America after Brazil, stretching from north to south a distance equivalent to that between London and Baghdad. It benefits from rich natural resources, a highly literate population of 40.1m that identifies strongly with Europe, an export-oriented agricultural sector, and a diversified industrial base.
Democracy was restored to Argentina in 1983. The current President is Cristina Kirchner who was reelected for a further 4 years in office starting in December 2011. It is important to note she was elected with 55% of the votes, 10% more than in her earlier election four years before, and 35 points above the closest opposition candidate. She was elected on a programme of "continuity and change," of continuing Argentina’s strong economic growth of 7%+ since 2003, whilst increasing social justice and strengthening institutions and international relations. Her second mandate follows the death in October 2010 of Nestor Kirchner, former President and husband of the current President of an unexpected heart attack.
The early months of the 2011 administration, showed a reduction in subsidies to public services, energy and transport in line with the objective of curbing down public expenditure and reducing tax evasion. Imports continued to be restricted with an effective use of non automatic import licences and other para arancelary measures which reduced overall imports in the first nine months of 2012 by 8% (affecting UK Exports only by 1% in the same period). Finally, a new law limiting the foreign ownership of land has also been approved by Congress. The main objective of this law is largely to limit tax evasion.
In April 2012, President Fernandez de Kirchner announced the nationalisation of 51% of YPF, Argentina’s largest oil company. The shares to be nationalised are the ones that belonged to Repsol, the large Spanish concern that had control over the company, leaving the minority holdings untouched. The announcement was made through a Presidential national radio and television broadcast and whilst the announcement was taking place, the companies’ senior officials were escorted out of the company’s headquarters. Various voices in Argentina and abroad have voiced their concern over both the substance and the style behind the announcements.
There are two other cases of nationalisation in recent Argentine history, the first was that of Argentina’s flag carrier Aerolineas Argentinas in July 2008 when control was taken from the Spanish Marsans group. Since then, the national government has funded the acquisition and/or leasing of a new fleet and has incurred in losses estimated in excess of US$ one million a day.
The second was the nationalisation of Argentina’s private pension funds system in November 2008. Since then, capital from the nationalised funds has been used to invest in different companies and areas of government. While this was not market friendly, the nationalisation improved the short-term balance position of the government, reducing concerns of another debt default.
Argentina has long historic links with the UK. British companies played a vital role in Argentina's commercial development during the 19th century. The railways, food processing plants and many of the financial services were developed and managed by British firms. A wide range of UK manufactured goods was exported to Argentina and the UK in turn was a major destination for Argentine products.
The UK works closely with Argentina on the international stage on human rights, sustainable development, counter proliferation and trade as well as in the G20 where both countries contribute positively and jointly to the group’s agenda. Argentine troops have been deployed on UN peacekeeping operations in Cyprus, Kosovo, the Middle East and Haiti, amongst other regions and have in some cases served together with British troops.
Diplomatic relations between both countries were restored in 1990 after an 8-year gap following the Falklands conflict. Through the 1990’s, South Atlantic issues have been discussed with the Argentine Government under a “sovereignty umbrella” arrangement, which allowed the UK and Argentina to protect their respective positions on sovereignty while seeking to make progress on practical matters of common interest such as fisheries and de-mining. In practice, relations over South Atlantic issues are difficult, but have largely not impacted on business.
In 2003, the Argentine Government passed legislation aimed at preventing companies that operate in Argentina from fishing or exploring for hydrocarbons in Falklands waters without an Argentine licence. In March 2012, the Argentine Ministry of Foreign Affairs presented a list of companies exploring for hydrocarbons under Falkland Islands licences or supporting this activity through accounting, financial, insurance, legal or logistic services. The companies on this list are being approached by the Argentine government with notes expressing discomfort with their activities. Likewise, letters have been sent to the heads of the London and New York Stock Exchanges, suggesting that a note should be placed on the balance sheets of these companies reflecting Argentina’s dispute of the rightfulness of their South Atlantic operations.
There have been some recent protests against British interests in Argentina in the context of tensions over current hydrocarbon explorations off the Falkland Islands and Argentine sovereignty claims. In separate incidents in the first quarter of 2012, offices of the Argentine British Chamber of Commerce, GSK and HSBC in Buenos Aires suffered some damage when members of Quebracho, a radical left-wing activist group, protested against UK policies towards the Falklands. Various demonstrations have also taken place outside the British Embassy in Buenos Aires including a particularly violent one on 2 April that was effectively handled by the Federal Police and subsequently condemned by the Argentine President.
After a period of calm, in November 2012, unidentified groups attacked the Buenos Aires office of a cruise line company as the last in a series of measures destined to try and encourage cruise ships not to visit the Falkland Islands. Official and unofficial pressures have resulted in a cancellation of five of the first 22 ships in the season due to visit Port Stanley. In December 2012, two cruise ships operators, Carnival and Holland America, have announced they will cease to call on Argentine ports as they were not able to obtain assurances from the Argentine Federal and Provincial Governments that their ships would not be delayed either in accessing or leaving ports. The reasons for these delays that have affected both cargo and cruise ships, is not always clear. In some cases, these problems can be traced to a protest by the Argentine Maritime Workers Union (SOMU) who have carried out industrial action against a number of convenience flagged vessels as part of a mandate from the International Transport Workers’ Federation (ITF) against countries that do not accept collective bargaining for their employees. To assess the likelihood that you may be affected by these protests, companies and individuals should make contact with their agent or local authorities before travelling or shipping cargo on the above mentioned vessels.
In spite of this, some contact and co-operation continues, e.g. visits to the Falklands by Argentine veterans and families of Argentine servicemen who died in the conflict. The UK continues to look for areas of co-operation for the benefit of all parties. The UK has no doubt about its sovereignty over the Falkland Islands. The British Government supports the Falkland Islanders' right of self determination and will not discuss sovereignty unless and until they so wish.
UK companies will need to factor in these variables when engaging in the market. The UKTI team in Buenos Aires will be glad to receive enquiries and examine if any of these possible restrictions affect specific cases as all situations will not be the same.
From 2002 to 2011, real GDP growth averaged 7.7%, bolstering revenues and keeping the budget in surplus. Growth in 2011 was 8% and estimates for 2012 place this figure at 3%.
The Government renegotiated its public debt in 2005 and paid off its remaining obligations to the IMF in early 2006. In June 2010, a second offer to debtors was accepted by a remaining 70% leaving approximately 7% of original debt holders as hold outs. Argentina still owes an approximate US$ 6 billion plus interests and penalties to the Paris club and although it has expressed a political will to pay, negotiations have not started.
The fall in the quality of official statistics remains a concern. Initial worries were expressed in 2008 over inflation figures, which were officially 10%, but with most analysts agreeing on an annual figure of over 20%. From 2010 onwards, inflation as reported by the Argentine Congress was close to 25% whereas official records were roughly half that figure.
In 2012 The World Bank’s Doing Business project ranked Argentine 124 out of 185 countries, after rating regulatory costs and analysing specific regulations that enhance or constrain investment, productivity and growth. This places Argentina well below Peru (43), Colombia (45), and Chile (37) but above Brazil (130) in the region.
Despite problems the sector has faced, Argentina remains an agricultural powerhouse and one of the world’s top ten producers of 26 agricultural commodities. It is also a major exporter of biodiesel, and well placed to become a key player in the world's biofuels sector in the medium term.
With over 120 companies, Argentina has the highest amount of biotech companies in Latin America. Reflecting Argentina’s position as one of the world’s leading agricultural producers, many of these are involved in “green” biotech such as inoculants, seed and plant genetics, animal health products and food ingredients. Argentina has been in the lead in adopting GM plants, having 65% of its arable land planted with GM crops and producing 17% of the world’s total. It also is a high-tech centre for animal cloning (cows, pigs, sheep, horses and goats), being one of only nine countries to successfully clone animals.
More information on political risk, including political demonstrations is available in FCO Travel Advice.
Argentina is a founding member of the ILO and active in its various committees including as an elected member of its Administrative Council (until 2014). Argentina has ratified a number of ILO agreements and conventions on workers’ rights, banning child labour and on equality for women in the workplace.
Argentina has a very active trade union movement whose leading role in Argentine politics started with the first Presidency of Juan Peron in 1946 following his stint as Minister for Labour from 1943 onwards. During this period, Argentina’s first labour laws were approved. Although the involvement of trade unions in intra party politics sometimes means a bumpy ride, it is fair to say that workers can freely express their opinions and protest in different ways including strikes. Party politics has created a split of the top level trade union organisations with the now in the opposition CGT, having called for a national strike on 20 November 2012, the first such strike in 12 years.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
In 2012 Argentina is ranked 102nd of 174 countries in Transparency International’s corruption perception index. It is in a similar position to Mexico (105) behind Chile (20), Uruguay (20) and Brazil (69) while ahead of Ecuador (118), Paraguay (150) and Venezuela (165).
Although the Argentine legal system can be lengthy, costly and cumbersome, Argentine courts have investigated a number of public officials on corruption charges and have imposed some prison sentences as well as fines
Likewise, the Argentine press has investigated corruption allegations and reported on its findings in many cases generating the public condemnation of public figures and officials even before the courts have concluded on the cases.
Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in China and some basic effective procedures you can establish to protect your company from them.
Read the information provided on our Bribery and corruption page.
There is an underlying threat from terrorism. Attacks, although unlikely, could be indiscriminate, including in places frequented by expatriates and foreign travellers. In 1992 and 1994 there were terrorist acts against the Israeli Embassy and an Argentine Jewish Centre which resulted in many deaths and injuries.
Since 2004 there have been a number of much smaller explosions in Buenos Aires and the surrounding provinces which are believed to have been the work of local anti-globalisation groups. The targets have mostly been banks. One person was killed and another injured in one explosion in November 2004, but most attacks have caused damage to the targeted building rather than casualties.
On 1 May 2012 a small explosive device was detonated outside the office of the EU Delegation in Buenos Aires. There were no casualties.
Read the information provided on our Terrorism threat page.
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
Buenos Aires is Argentina’s main city and entry point. Greater Buenos Aires has 12.6 million inhabitants and in many ways resembles Madrid or Paris which can give visitors a false sense of security. To avoid disappointment, it is important to leave these first impressions behind and be aware of the risks.
Traffic is probably the greatest danger to life and limb in Argentina. In 2011, more than 7,500 people were killed in traffic accidents in Argentina (compared to 1,901 in the UK in the same year). Road signs, traffic lights, even one-way-street signs, are commonly ignored, and cars often go far too fast. Seatbelts and (on motorbikes) crash helmets are widely unused. The authorities of the Greater Buenos Aires area have campaigns to improve road safety, increase the use of motorcycle crash helmets and reduce drink driving. These campaigns have been successful in reducing the number of deaths in traffic accidents by an annual 5% since 2010.
The most frequent incidents of crime involve distraction theft, bag snatching and armed robberies in the street, in taxis and in restaurants. Distraction thefts commonly occur in public areas such as internet cafes, train and bus stations. You should keep a close eye on your personal possessions and bags at all times. Con-men have been known to rob tourists while an accomplice pretends to help remove ketchup or mustard that has been 'accidentally' sprayed on them. Another common occurrence is the slitting of handbags in crowded places as well as mobile phones being snatched from the owner when using it in the street. Be particularly attentive in popular tourist areas, such as San Telmo, La Boca and Retiro. You should avoid carrying large amounts of cash or wearing ostentatious jewellery.
Passport thefts are common especially in Buenos Aires and Mendoza. Passports should be left in a hotel safe or security box except when being used for identification purposes such as purchasing expensive items or cashing travellers’ cheques. Keep a photocopy of the details page of your passport with you at all times. Passports are required as identification for internal flights.
Kidnappings and so called 'express kidnappings' - short-term, opportunistic abductions, aimed at extracting cash from the victim - do occur in Argentina. Victims of express kidnapping are normally selected at random and held while criminals empty their bank accounts with their cash cards. Once the ransom is paid the victim is usually quickly released. It is also common for thefts to take place when withdrawing cash from ATMs. You should be alert at all times. Avoid isolated or poorly lit areas at night.
When travelling by taxi we advise that, whenever possible, you book in advance. If it is not possible to book in advance and you need to hail a taxi, you should take care only to hail a 'radio taxi'. The only noticeable difference between radio taxis and others is that they have a clearly visible company logo on the rear passenger doors of the vehicle. We advise against hailing any taxi that does not display a logo. If you are being met at the airport and you do not know your greeter, ensure you confirm their identity before accepting a lift. Alternatively use a "remise" service from the official stand in the centre of the arrivals concourse.
When travelling on local buses and trains, remain alert at all times. Pickpockets are rife. If you are robbed, you should inform the local police – a police report will be required by your insurers and by the Embassy if you need a new passport.
In Buenos Aires, a 24-hour police helpline in English is available on telephone number 101, to help victims. There is also a new multi-lingual free phone number for tourist assistance: 0800 999 5000. This goes through to the Tourist Police Station at Corrientes 346, email: email@example.com. In Mendoza, contact the Tourist Police at San Martin 1143, tel: (0261) 413 2135, email: firstname.lastname@example.org.
Demonstrations are common in metropolitan Buenos Aires and occur in other major cities as well. Protests can block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually not violent, they are loud and hooligans in some of the groups sometimes seek confrontation with the police and vandalise private property. Visitors should take common-sense precautions and avoid gatherings or any other event where crowds have congregated to protest. Information about the location of possible demonstrations is available from a variety of sources, including the local media.
The departure of flights from airports in Argentina can be unreliable and susceptible to delays and cancellations. Following cancellations it can take some time for flight schedules to return to normal. Before travelling to the airport you should consult your airline or travel agent for information about flight timings
Read the information provided on our Protective security advice page
Argentina faces a serious problem with patent and copyright protection. The US Trade Representative in its 2012 Special 301 Report on the Adequacy and Effectiveness of US Trade Partners’ Protection and Enforcement of IP Rights has placed Argentina on a priority watchlist alongside 12 other countries including Chile and Venezuela.
The 2012 International Property Rights Index prepared by the Property Rights Alliance, a US based thinktank, positions Argentina 68 out of 130 in the world and below Chile (44), Brazil (53) or Colombia (53).
An example of this illegal activity is the “La Salada” market where 30,000 stands sell legal and illegal goods side by side. The market is a cash only site in the Greater Buenos Aires area and according to argentine press sources (La Nación) is reported to attract 20,000 people per opening and is estimated to turnover over US$9m per week.
Read the information provided on our Intellectual Property page.
Argentina is a transit country for drugs, especially cocaine from Colombia destined for the European market. Cocaine use among affluent young people is growing inside Argentina itself.
Read the information provided on our Organised crime page.
More information is available on overseas business risk in a range of markets.