Thursday, August 02, 2007

My article on Argentina in today's Business Line

Advantage Argentina

While Indian companies in recent years have established their presence in Brazil, Mexico and other Latin American countries, Argentina, the third largest market, has missed their attention. The main reason is the negative perception after the Argentine economic crisis and debt default of 2001. However, in the last four years, the Argentine economy has recovered, stabilised and turned around remarkably. Remarkable recovery
The cumulative growth since 2003 has been over 40 per cent. The growth projection for 2007 is 7.5 per cent and for 2008 over six per cent. This growth is comprehensive and inclusive; unemployment and poverty rates have fallen.
External debt has been brought down to a manageable $113 billion in June 2007 from $171 billion in 2004. In January 2006, Argentina paid its entire $9 billion IMF debt ahead of schedule and freed itself of external policy prescriptions.
Exports have been booming, touching a record $46 billion in 2006, and are set to cross $50 billion in 2007. Since 2002, the country has been recording trade surpluses of over $10 billion annually. Foreign exchange reserves have been growing steadily; they touched $43 billionin July 2007.
The devaluation of the currency from one peso to a dollar in 2001 to 3.07 pesos to a dollar in July 2007 has made exports competitive and attracted more tourists. Inflation was contained at 9 per cent in 2006 and is likely to decline in 2007.Recovery after crisis?
This is not yet another cycle of recovery after crisis, as has happened many times in the past. This time around there seems to be a paradigm shift in mindset. Politicians, business leaders and the public seem determined to create a new future. This is evident from the new economic trends.
Since 2003, and for the first time in four decades, Argentina has posted current account and fiscal surpluses every year. Investment rate reached 23.5 per cent of GDP in 2006, a record in the country’s economic history. Also, the domestic savings rate of 26.5 per cent of GDP in 2006 was unprecedented. These are clear signs of the new discipline and determination, which have been complemented by an increasingly stable political set-up that is providing a conducive environment.Historic turning point
The 2001 crisis was a historic turning point for Argentina not only economically but also politically and culturally. It shook the fundamental psyche of the Argentines. They learnt an unforgettable lesson. No country or financial institution was willing to help them during their most difficult period. They saw the contrasting cases of Mexico, Thailand and Korea which were promptly rescued by the financial powers and institutions. The Argentines had to suffer and resolve the crisis on their own. Driven to the wall, they managed to settle the bond repayment of $80 billion , offering an audacious 30 cents to a dollar. No one expected this to succeed and many thought it was a bluff. But Argentina managed to pull it off. This has given the Argentines a new sense of achievement, pride and responsibility. And has established a solid foundation for a new future based on realism, pragmatism, discipline and self-reliance.
Indian businesses need to understand this paradigm shift and focus on the future. They should look at the opportunities offered by this large market, of 40 million people, a GDP of $290 billion and a land area of 2.7 million sq km, almost equivalent to that of India. It is an agricultural powerhouse and a large exporter of wheat, corn, soya, edible oils and meat.
Argentina is self-sufficient in energy. It has 31 billion barrels of oil reserves and produces 800,000 bpd (barrels per day), of which, 300,000 bpd is exported. It is the second largest gas producer in Latin America and exports to Chile. It is rich in mineral resources such as iron, bauxite, zinc, lead, copper, potassium, silver and gold. The manufacturing industry is relatively large and diversified and is strong in automobiles, auto parts, consumer goods, pharmaceuticals, paper, cosmetics and food processing. Besides its own market, Argentina has duty-free access to the larger market of Mercosur as a member of this customs union. India has concluded a PTA (Preferential Trade Agreement) with Mercosur for 450 items of exports and an equal number for imports.
In 2006, India’s trade with Argentina was $1,239 million, of which, $290 million constituted exports and $949 million imports. Argentina was the largest source of imports of India in Latin America in 2000, 2001 and 2003 and is now the second largest. India’s main exports are chemicals, vehicles, engineering products, textiles and traditional items. Edible oil accounts for 75 per cent of imports, and the others include paper pulp, leather, wool and minerals. Business deals
Indian companies have started exploring investment and joint venture opportunities. United Phosporous has acquired an agrochemical plant. Glenmark took over Argentine pharma company Servycal SA in November 2005. Tata Motors is in a joint venture with Fiat in Argentina for production of small cars. ICICI has a BPO in Buenos Aires and other Indian IT companies are looking at the possibility of BPO and ITES operations making use of the high literacy rate and low cost of operations.
Indian companies are pursuing mining and railway projects and are also looking at agribusiness. They can buy soya farms and produce soya oil to supply to India, which imports edible oils worth $12 billion annually. This is a good time to buy assets, factories and farms, as the prices now are half of what they were before the devaluation in 2002.


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