Argentina Country Report

Infortal Worldwide Geopolitical Risk Summary  

Argentina is one of Latin America’s largest economies and has long offered the promise of advanced economic development. While some have argued that Argentina has never lived up to this potential, it still offers a variety of business and investment opportunities, and the promise remains. 

The recent election of President Javier Milei has raised questions about Argentina’s future and whether or not it can emerge from the challenges that have constrained it for decades. Understanding the challenges and shifting economic and political landscape in Argentina is paramount to the success of your business and investments. In addition, managing economic risk will be crucial.  

Political Update 

In 2023 Javier Milei surprised Argentina and the international community alike by winning the presidential election by a significant margin over the incumbent Peronist candidate Sergio Massa. 

Milei describes himself as an anarcho-capitalist. He ran on a platform of economic reforms aimed at tackling some of Argentina’s largest challenges, such as runaway government spending and high inflation. 

Most of his proposed reforms have stalled in Congress due to his party (La Libertad Avanza) holding a minority of seats, although he has succeeded in slashing some government jobs. 

Milei’s proposals include economic deregulation, cutting state spending, dissolving the Central Bank, and currency devaluation. His more radical proposed reforms are likely to continue to face stringent opposition.

Economic Update 

Argentina’s economy has been mired by financial crises driven by exorbitant national debt and triple-digit inflation for decades. 

Past dysfunctional handling of the economy has led to uneven growth and periods of serious economic strain. This has created a state of ongoing political tensions and paved the way for the election of populist leaders. 

Despite this, Argentina is still a regional economic power, with the second-largest economy in South America. Below are some of the challenges facing Argentina’s economy: 

• Argentina is the International Monetary Fund’s biggest debtor, owing $43.3 billion. 
• Inflation was over 140% leading up to the 2023 presidential election. High inflation rates have negatively impacted domestic consumption and investment.
• GDP dropped nearly -10% during the pandemic, rebounding to +10% in 2021 but again dropping to 5% in 2022.
• Modest economic growth will likely slow due to the ongoing drought in the Pampas region, affecting some of Argentina’s main agricultural exports. 
• Argentina’s GDP has relied on state spending (up to 38%). Cuts to state spending proposed by Javier Milei may bring short-term economic contraction in the country.

Despite these challenges, Argentina’s vast reserves of natural resources and potential for renewable energy promise a healthier economic future. Already, President Milei's economic reforms have boosted investor confidence in Argentina and lowered its risk of defaulting on its debt. 

Key Investment Sectors 

Many hope that the current political and economic shifts in Argentina will have a positive impact on its economy and lead it to achieve the country’s high potential. Here are some of its key industries offering potential lucrative returns on investment:  

• Agriculture, Agro-processing, and Livestock: The agricultural sector accounts for over 10% of Argentina’s economy and a large proportion of its export revenue. Key exports include beef, soybeans, and maize. Although agricultural output has been strained in recent years due to an ongoing drought in the Pampas region, improved climatic conditions may help to see the industry rebound. 
• Mining/Energy: Argentina has significant oil, lithium, and natural gas deposits, along with other precious metals such as gold and silver. As the world moves towards more renewable energy sources, demand for Argentina’s lithium deposits will increase, however drought conditions may hamper lithium extraction operations. Government investment in other forms of renewable energy such as wind and solar farms provides additional opportunities in this sector. Argentina is still largely reliant on oil and natural gas products and investment. 
• Manufacturing: manufacturing is a key industry in the Argentine economy, accounting for over 16% of GDP. Major subindustries include agro-processing, automobile manufacturing, pharmaceuticals, petrochemicals, and biotechnology. 
• Infrastructure and Real Estate Development: The Argentine government has prioritized infrastructure development, receiving pledged funds from the Inter-American Development Bank and the World Bank. Growing demand for real estate development in Buenos Aires will lead to many investment opportunities. 
• Tourism: Tourism accounted for 9% of GDP before the COVID-19 pandemic. Although this industry suffered a disproportionate blow during the pandemic, it is rapidly growing back to pre-pandemic levels. 

Recommendations for Companies and Investors  

• Comply with local regulations: Foreign investment has been heavily regulated in the past. Shifting regulations due to administrative changes at the national level should be closely monitored. Partnering with locals who thoroughly understand Argentine regulations and law may be helpful. You should also consider testing your compliance programs against local standards.  
• Corruption and the FCPA: Corruption is a pervasive issue in Argentina. Companies and investors can avoid reputational damage and violations of the US Foreign Corrupt Practices Act (FCPA) and other laws by conducting deep due diligence on supply chains and local partners. Corruption is often more prevalent in the natural resource extraction industry, construction (especially public infrastructure projects), and transportation sectors. 
• Inflation: This has been a major problem in Argentina, including staggeringly high inflation rates. Your business and investment strategy should account for this significant risk. 
• Cybersecurity: Cybercrime is prevalent in Latin America, including Argentina. Companies and investors should ensure that employees and systems are trained to be aware of and avoid the risks associated with cybercrime. 
• Local culture and customs: Understanding local culture, politics, and customs is important in any country you do business in or invest in. This requires conducting in-depth geopolitical risk research before entering into the Argentine market. 

Want To Know More?

For a deeper review of political, economic, due diligence and security risks for Argentina, please contact us.