January 23, 2018

Macri: 12 months on

Friday, December 9, 2016

Waiting for the flood of investment

President Mauricio Macri, pictured at the World Economic Forum event in Davos, Switzerland.
President Mauricio Macri, pictured at the World Economic Forum event in Davos, Switzerland.
President Mauricio Macri, pictured at the World Economic Forum event in Davos, Switzerland.
By Santiago Del Carril
Herald Staff

President Mauricio Macri’s prediction that foreign firms would invest as much as US$20 billion by the end of 2016 have come up short — but analysts believe things may turn a corner next year

When President Mauricio Macri was inaugurated a year ago, he told the public that only through foreign investment would the country finally be able to pull itself out of the stagnating economic situation. The next day he wasted no time in carrying out a series of business-friendly policies that he claimed were necessary in order for the country to start growing. By the year’s end, light would start to be seen at the end of the tunnel.

The president quickly eliminated capital controls. He cut export duties, subsidies, and price controls, and predicted that this would open the door to at least US$20 billion in foreign investment in 2016, rising to over US$100 billion by the end of his four-year term. “We are estimating to receive a bit more than 20 billion dollars, but remember that it is just a base for the next year,” said Macri during the World Economic Forum in Davos last January.

So far, those predictions have not met with reality. According to the Finance Ministry, led by Alfonso Prat-Gay, US$58 billion of investment via private and private-public partnerships has already been confirmed between 2016-2019. Yet only US$3.64 billion in private investment had been registered by the end of the fourth quarter neared, with only two months left until the end of the fiscal year, according to Central Bank statistics.

Although several companies have announced investment plans — Siemens Appliances Corporation committed itself to investing US$5.6 billion, the Telecom telecommunications company US$2.4 billion, and Santander Rio bank promised US$1.7 billion — very little has been distributed up until now.

“The investment that arrived was less than expected. It’s not that there wasn’t investment, but it is moving very slowly,” Miguel Kiguel, the executive director of the EconViews financial consultancy firm, told the Herald.

The specialist argued that most of investment that has been made so far is earmarked for the energy sector — especially renewable energy, and its transmission and distribution.

Despite the slow progress, Kiguel remains optimistic that things would improve next year, as long as the president’s Let’s Change (Cambiemos) administration is able to maintain control over the political situation.

Congressional questions

Recently, the Let’s Change ruling coalition faced a setback in Congress, after opposition Victory Front (FpV) and Renewal Front lawmakers joined forces to pass an income-tax reform bill through the Lower House. If the law is passed, the minimum income tax bracket would rise to 33,500 pesos, a move that changes the estimated amount of workers in the country who pay income taxes from two to one million — potentially a huge fiscal burden for the government. This could also prevent the Let’s Change (Cambiemos) administration from moving forward with other policies that would make the country more amiable to investors.

“As long as the political situation doesn’t become complicated, investment will continue, especially if the economy picks up from the recession its suffering,” said Kiguel.

The latest economic indicators from the Central Bank estimate that the 2016 fiscal year will post a two-percent decrease in GDP. According to the Argentina Industrial Union Centre for Economic Studies, industrial activity is due to fall by 5.1 percent from January up to last September, in comparison to the same period in 2015.

Many economists blame this decrease on the more than 100-percent increases in utilities such as electricity and gas, and transportation fees. These alterations, while benefitting energy companies, have forced workers to cut back costs and spend less.

“One of the motives that foreign businesses and investors invest in developing countries is to capture part of the domestic market, but the government’s economic policies have decreased internal demand, without giving them real incentives to invest,” said economist Pablo García, who served as a former director of investment projects and productive internationalisation with the Foreign Ministry, under the previous government.

Another factor García highlighted was the unfavourable external situation, with low global commodity prices also dampening investment.

“In this context, it isn’t easy for mining or oil companies, or basically any businesses involved in commodities — despite the incentives the government has given them. It’s not enough for new investments,” the economist argued.

One of the first measures that Macri implemented as president was the elimination of export duties for mining companies — as well as several agricultural products — via Decree 349/2016.

However, recently a new proposal by opposition lawmakers to reinstate the mining export tax is putting the export duty elimination at risk.

Despite the immediate conditions, the mining sector has still benefitted from promised private investment from foreign companies. Over US$14-billion worth of investments related to mining is slated to arrive between 2016-2019, according to Finance Ministry estimates. The leading investor is the Canadian First Quantum Minerals Metals and Mining company, which says it will invest US$3 billion in the country’s energy resource sector.

Such green shoots give pause for thought for some experts. Not all are pessimistic over the future, but many pointed out the economic distortions the Let’s Change government had to fix were considerable.


“It’s been a very intense year economically, the government faced a lot of challenges such as capital controls, recovering the Central Bank’s reserves, resolving the conflict with the holdout bondholders... so if you look at it from a distance many of these issues have been solved or are currently being so. We are on the path of reconstruction,” said Pablo Castagna, managing director of the country’s largest investment bank, Puente.

Castagna is confident that Argentina will continue to be seen as a major investment opportunity and the cash will start pouring into the country once the economy starts to grow again.

“Investors will have more confidence with the government fixing its finances (and) the record harvests agriculture producers are expected to get,” he added.

Economic consultancy agency BDO published a study last month, indicating that interest in investing in Argentina had fallen from 88 to 67 percent amongst business executives since the beginning of the year. The potential investors also responded that they were no longer ignoring the lingering recession. In January, 50.8 percent said it wasn’t a primary concern when deciding whether to invest in the country, but by October that figure had fallen to 40 percent.

Castagna recognised that investors weren’t fully committed yet, but said he believed that interest was growing, even just by looking at the increase in business meetings they are having with investment funds.

“In the last financial quarter of 2015, we would get around one visit per month, now its one or two per week,” he said. “Now they aren’t only analysing the country’s financial markets, but also real investment opportunities such as real estate projects or other alternatives.”


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