October 20, 2014
Economists doubt Argentina’s drive to increase exports by 16 pct by 2015
Argentina has just launched a drive to revert a sharp fall in its trade surplus, by increasing exports 16 percent by 2015, but private pundits told the Herald that the programme is wishful thinking rather than realistic.
The nation said on Thursday that in 2013 it posted a trade surplus of US$9 billion as a result of exports growing three percent to US$83 billion and imports growing eight percent to US$74 billion. The surplus shrank 27 percent from 2012.
To buck the trend the administration now wants to boost exports to US$94 billion this year and US$101 billion in 2015. To this end Industry Minister Débora Georgi announced a plan which includes higher financial support, a larger supply of products with higher added value, and a diversification of destinations.
The opinions of four economists follow below.
On 2013 trade surplus and the government’s projections.
NICOLÁS DUJOVNE: The trade surplus was the result of an external deficit of the energy sector of US$6.2 billion (versus US$2.7 billion in 2012) and a surplus of US$15.5 billion in the remaining sectors, almost identical to a year ago. The small increase in exports resulted from the agricultural sector (up US$ 2.7 billion) and industry (up US$1.5 billion, mainly cars), while energy exports fell US$1.4 billion. It seems unlikely that exports will grow in 2014 as compared to those of 2013. While external energy sales will continue to fall, industrial exports will be conditioned by the evolution of the Brazilian auto market, which has cooled down in recent months. The only likely source of foreign sales expansion are agricultural exports. And it will be hard for them to grow in 2014, considering that current soybean prices are at least 10 percent below the average values fetched by the 2013 harvest. In contrast, soybean volumes retained by producers in 2013 stand above their historical average and, as a consequence, it is very likely that the soybean volumes exported compensate at least in part for the likely price decline, always providing that the government goes towards a more realistic official exchange rate that the one prevailing during the 2013 crop.
NÉSTOR ALEKSINK: While exports rose compared with 2012, that year total amounts are comparable to those of 2011, that is, growth is compared with a year (2012) in which total sales suffered a slight drop amid the sustained growth they had been experiencing since 2009, and returned to a similar level to that of two years ago.
GUSTAVO SEGRÉ: Considering that there are no public policies to boost exports, a four percent increase in foreign sales is highly encouraging. The same goes for the fact that — via the Advance Import Affidavits (DJAI) — imports rose above exports, something that shows that some government sectors were forced to relax import barriers as it is otherwise not possible that import prices have grown nine percent.
On the government plans that foreign sales grow to US$94 billion this year and to US$101 billion in 2015.
DUJOVNE: It is highly unlikely that exports will grow in 2014. As mentioned above, except for agricultural products, the rest of the sectors will show declining export volumes. And in the case of agriculture, even with a good harvest, at the current prices, it will be hard to beat the value exported in 2013.
RAÚL OCHOA: Given the circumstances amid which Argentine foreign trade develops, the goals seem very optimistic.
SEGRÉ: I think that it is a projection of wishful thinking, not a thorough analysis of how to achieve these figures.
ALEKSINK: To meet those goals, the export growth in 2014 should be around 10 percent compared to 2013. To be able to achieve the government’s goals, there should be two years of straight growth of about 10 percent.
On the government’s Programme to Increase and Diversify Exports (PADEx), which includes increased financial support, the supply of products with higher added value, and a diversification of destinations.
DUJOVNE: Argentine industrial exports today cannot compete seriously since the country is steadfastly becoming a more closed economy. To export more, you have to import more. And the government seems to ignore this equation.
OCHOA: The leading financial support — that of Central Bank for US$100 million — is earmarked for investment, not to finance foreign trade. There are no dollar-denominated plans to pre-finance and finance foreign trade. This is the problem of our economy.
SEGRÉ: The PADEx seems broad to the point that it does not clarify how this increase would be attained. Opening new markets takes six months to a year and adding value requires investment, often via technology imports, and there we find the DJAI and we know how the movie ends... The recent rise of the dollar can increase the competitiveness of Argentine products but we would not be working on the cause, but rather taking advantage of a context-bound situation.
ALEKSINK: I agree with the launch of a plan of this kind but the results will only become visible within 4-5 years, not in the terms the government says.
On Argentina’s claims that it has an excellent opportunity to increase exports, “as it can capture 20 percent of the US$600 billion which Latin America imports from extra-regional countries, 75 percent of which are Manufactures of Industrial Origin (MOI).”
ALEKSINK: It’s something I have been advocating for over 15 years. But we should also add a diversified supply of exports. Today, 65 percent of Argentine exports are accounted by products with low added value, 14 markets account for 80 percent of total exports and 120 items of the official tariff registry account for 70 percent of exports. To change this, more than two years are needed.
OCHOA: The problem is that it has not even reached five percent in recent years and our country does not have an exportable supply to attain that. There is no investment and, since 2008, there has been a strongly overvalued peso.
OCHOA: Contrary to what it should do, the state does not refund VAT payments and reimbursements. It continues to levy export duties on MOI and on Manufactures of Agricultural Origin (MOA) and, not the least important, Chile, Peru, Colombia and Mexico have free trade agreements with the US, the EU and China, with the exception of Colombia. All this makes competition complex.
SEGRÉ: I wonder why we have delayed almost three presidential terms to become aware of this, and I still wonder about the PADEx fine print.
On Argentina’s claim that higher exports will result from more MOI foreign sales.
OCHOA: That goal is based on the assumption that MOIs rose from 27 percent to 34 percent of total exports between 2003 and 2012, but that share is due primarily to a jump in auto exports to Brazil, so much so that that sector will account for 54 percent of our total exports to that country. The auto sector currently accounts for 11 percent of that 34 percent, that is, more than a third of the MOIs. The bilateral car agreement with Brazil has not been renewed and all indications are that this figure will decline in the future. Therefore the MOI goal in 2015 is unattainable.
ALEKSINK: Argentina’s primary products and MOAs go mainly to countries in the EU, ASEAN and NAFTA, whereas the MOIs go mostly to the rest of MERCOSUR and LAIA. The prospect of a MOI increase is interesting, but not with the “world” as a destination because this is not feasible in practical terms and normally those who can manufacture those MOIs are mainly medium-sized or medium-to-large companies which actually account for only eight percent of Argentina’s total exports.
On the government’s assertion that opportunities can be capitalized through partnerships between bi-national firms, technology transfer and production units abroad or in Argentina through joint ventures with Latin American partners.
OCHOA: It is true that a business relationship can be deepened through partnerships, joint ventures or production units in other countries. But none of these are fast developments, and they require a support from Argentina which currently is lacking: long-term financing and capital markets. In the past PROCHILE launched an action aimed at getting as many Argentine companies as possible to partner with Chilean companies or settle there taking advantage of free trade agreements but the response was weak.
SEGRÉ: The idea seems reasonable. We could add the possibility of creating distribution channels for Argentine manufacturers who export their own products and who, from the destination countries, sell their products once they are nationalized, but we have been trying since a year ago to get a permit so that an Argentine firm can send dollars to set up a production unit abroad, to no avail. And with the loss of Central Bank reserves, this will become more difficult to materialize.
ALEKSINK: This is possible with the signing of accords on economic co-operation, and also accessing loans from related entities, but to reach an agreement of this type, an analysis of target markets must be conducted. Argentina must also consider the need for the type of technology which can be transferred and thereby invite potential Argentine companies in a position to provide such technology transfer. Then comes the possibility whether or not to make a sale based on the Argentine price and technological competitiveness. It is very different from selling commodities. In MOA exports, what prevails is the purchase need over the sales effort. In MOIs it’s the other way around. So the process is more complex. Not only prices must be taken into consideration but also a very good after-sale service, and training, because if a company transfers technology, it is assumed that the destination market does not have it and, therefore, it needs training. For all these reasons, this (the government’s goal) is impossible to attain in the short term.
On a government’s list of 24 priority countries to boost exports, to where fairs and trade missions are scheduled, and that includes a higher participation of exporting SMEs and technology transfer.
OCHOA: The list of countries divided into 15 BRICs, major emerging markets and nine Latin American countries which in turn are divided into three groups, form an interesting target. It is remarkable that they do not include any developed country, considering that the US is the largest importer, Germany the third and Japan the fourth. With the US in particular, our market participation has been falling dramatically. In 2003 the US accounted for 10.7 percent of our exports and in 2012 it only accounted for 4.9 percent. It is a huge market which should have its own permanent programme.
ALEKSINK: It is always good to have an “aggressive” export policy but to be successful, it must also be sustainable. Otherwise, it is useless. An example of this is the trade mission Argentina sent two years ago to Angola, a country with much potential to develop the government goals. But it was a bombastic trade mission with business representatives bordering on the absurd, and whose lack of continuity resulted in that that investment failed to lead Argentina to sell a single nail. We have also lost a privileged position as global beef exporters at the hands of Paraguay. I’m not saying that in a derogatory way, but exporting quality beef has been an Argentine tradition and, yet we are losing presence permanently.
On Giorgi’s announcement that there will be export financing, compensations, reimbursements and enhancement plans for high value-added products.
OCHOA: The incentives are very feeble, and unclear, besides also being unfair, because instead of refunding exporters, the VAT payments the government actually owes to them average a year and they condition repayments on an increase in shipments. Besides, the government maintains export duties on MOAs and MOIs and regional products even 11 years after they expire.
ALEKSINK: Export duties are still in force, companies do not get their due reimbursements and access to financing is impossible.
On the official plan to explore first Colombia, Ecuador and Peru, where Argentina does not have a strong trade presence, and then point to a second group, formed by Chile, Bolivia and Paraguay, with whom there is more trade.
OCHOA: The countries chosen are interesting. One point that is particularly remarkable is the “disappearance” of Venezuela as a priority, given that it is the seventh destination of our exports, made up of both MOAs and MOIs.
ALEKSINK: The first group forms an axis of integration (the Andean Community of Nations) and also an economic and trading hub (the so-called “Pacific axis”) which is markedly oriented to the US and to Southeast Asia and with which — with the exception of Peru — trade is negligible. I do not think that this will change in the short term. The second group is more “permeable” to our sales, due to agreements within the MERCOSUR bloc, but Argentina’s presence in these markets is already there and strengthening its presence there requires a stronger effort which will surely bear satisfactory results, but not in the short term. It has been a real shame not to include Central American countries which, together, are tantamount to another “Argentina,” with a strong demand for these products, with real chances to obtain financing and to create joint ventures, which are easier to attain in the short term.
Argentina says another cluster is composed of 15 countries, especially large extra-regional nations, and emerging countries with high importing potential such as Brazil, Mexico, Nigeria, Angola, South Africa, Turkey, China, Indonesia, India, Vietnam, Russia, Kazakhstan, Qatar, Saudi Arabia and the United Arab Emirates.
ALEKSINK: Save for the fact that they are not extra-regional, Brazil (MERCOSUR), Mexico (LAIA and MERCOSUR) and South Africa (MERCOSUR-South African Countries Convention), the rest of the countries are emerging ones and non-traditional markets for Argentina, but not all entrepreneurs are fit for those markets since their economic size and potential demand for Argentine products can only be met by a handful of local companies, in this case, for example, Russia, China and India (and the rest is not very far) with markets exceeding one billion people in some cases, with a very strong barrier regarding language and business customs, and, in some cases, with a poor debt-honouring record. I don’t think anyone in Argentina can define clearly what kind of products those markets need. If Argentina continues to look to the MOIs, this decision is far from being reasonable.
OCHOA: Brazil, like the US, although for different reasons, requires a special commercial and productive complementation policy. Something similar could be said about China. Regarding the African countries, the approach must be via agro-based technology services and working together with Brazil for a better penetration. For Arab countries with high purchasing power Argentina should think of services. Finally, although fairs and exhibitions continue to be a good tool, nowadays the promotional tools are much more sophisticated and include business intelligence.
SEGRÉ: Considering the foreign exchange restrictions in force, it is difficult to believe that dollars will be allocated to promote exports. I continue to wonder why this has not been done before. This is not an innovative programme but simple common sense. Some 36 percent of our total exports go to Brazil, and if we consider the auto sector, 80 percent of our exports go to that market. However, the government has no structure to take care of our “best customer.” I’m a little distrustful of PADEx considering they include nothing new and indicators (availability of resources for credits, and dollar reserves earmarked for the promotion of exports) much worse than a few years ago. But it is never too late for good intentions. Time will tell (and hopefully confirm) that I am wrong.