Argentina, yes, yes Argentina, once again, is in the spotlight.
Honestly, I give you my word, it's not that we at VisualPolitik have it in for this country
or particularly mean to focus on it.
But what can I say? Argentina, the country that during the first half of the 20th century
was the great Latin American super power, just keeps giving us bad news.
For example, relatively recently we told you here, on this channel, about the havoc being
wrought by the world's longest quarantine.
At the time of making this video, even though it was no longer so strict, Argentines had
been in confinement or restricted activity for more than 250 days. As you can imagine,
this is something that is hitting the economy hard, an economy that had already been having
a lot of problems, even by Argentinian standards, since 2018.
So you could say that the coronavirus has been something like the nail in the coffin.
A very hard blow that is already having many consequences.
In particular, one of them is a wave of companies that are seriously considering leaving Argentina,
even though this could incur great financial losses. Of course, weighing up the situation,
many are thinking that staying could be much worse.
But... What companies are we referring to and why are they considering leaving Argentina?
What exactly is the current situation in this troubled country?
In this video we give
you all the details.
(A POTENTIAL POWER)
Friends, every time we talk about Argentina it is almost impossible for us to not be surprised
by its perpetual inability to escape from what we can now openly call the problem of
"the permanent crisis".
After all, if we think about it clinically, Argentina is a country with an enormous potential:
a qualified population, plenty of cultural activity, a reasonably good climate, a lot
of natural resources, a large territory, etc., etc. The list of positive attributes is very
long.
And, of course, this observation is not unique to us, nor are we the first ones to bring
it to light.
Way back in the 1960s, eventual Nobel Prize winner, Simon Kuznets, stated that there were
four types of countries according to their economic performance: the developed, the underdeveloped,
Argentina and Japan.
The economic evolution of the countries that were in the first two groups could be explained
without many problems, but in the case of Japan and Argentina, their evolution was exactly
the opposite of what could be expected: Japan for the better and Argentina for the worse.
Another Nobel Prize winner in Economics, Paul Samuelson, described Argentina's situation
in 1980 in this way. Take a look.
("If someone had asked me in 1945 what part of the world do you expect to experience the
most dramatic economic take-off in the next three decades, I would probably have given
a similar answer to the one below: Argentina is the wave of the future, it has a temperate
climate, its population density offers a favorable endowment of natural resources per employee.
By a historical accident, its current population constitutes the most homogeneous progeny of
the nations of Western Europe, and the Argentina of 1945 is that intermediate state of development
from which one can easily expect rapid growth". Paul Samuelson, "La Economía mundial a finales
del siglo XX", Comercio Exterior, vol. 30, nº 8, Mexico, August 1980, pp.821-829).
Friends, surely we could define Argentina as "a lost opportunity". And not just the
once but several times. For example, during the last 30 years the world has experienced
economic growth as never seen before.
However, Argentina has been underperforming since the 1940s. Since the emergence of Juan
Domingo Perón, they keep applying practically the same policies and getting the same results.
This is something we have already covered in several videos.
In fact, since the advent of democracy in 1983, Argentina has been ruled by Peronism
for 25 of the last 37 years. And if we only focus on the province of Buenos Aires, which
is the largest and most populated in the country, for 29 of those 37 years, Peronism has ruled.
That’s almost 80% of the time.
To make matters worse, the rest of the leaders have not distanced themselves much from policies
that we can almost consider as typical of Argentina as chimichurri or Maradona.
Well, the point is that now, in 2020, two elements have come together that are capable
of making even the hardiest investor nervous: the coronavirus and a new government.
Friends, on 10 December 2019, Alberto Fernandez took over the presidency, - although it is
not clear exactly how far his power extends and how far that of his vice president, the
powerful Mrs. Cristina Fernandez de Kirchner goes.
In any case, in all fairness, Alberto Fernandez came to the presidency of a badly damaged
country under very precarious conditions.
Because if the legacy that Mauricio Macri [mak REE] received in his day was not exactly
great, the one he left behind certainly didn’t have anything to envy. We have covered this
topic in detail in a previous video here on VisualPolitik:
high unemployment, high public spending, high inflation and a considerable drop in the Central
Bank's reserves. Practically all the indicators were in red, very red.
And to top it all off, two months after he came to office, the coronavirus crisis broke
out, turning the global economy upside down and leaving Argentina almost like a desert.
The most conservative forecasts point to a 12% fall in GDP in 2020, an unemployment rate
above 22%, a poverty rate close to 45% and inflation that could exceed the 50% barrier.
In other words, we could be talking about an economic tsunami rather than a perfect
storm. And remember that this is taking place in a country that has been going from bad
to worse since 2012.
We have already mentioned the baggage received from previous governments but the truth is
that the policies of the current government could make things even worse.
Listen up.
(TURNING THEIR BACKS ON THE WORLD)
The current Argentinian government has a unique plan to get out of the crisis, a plan as unique
as it is peculiar, insofar as it involves doing the opposite of what most countries
that have gone through a crisis have done in order to get out of it.
So... Do you want some examples? Well, let's take a look at two of President Alberto Fernandez's
policies that have the most impact on the Argentine economy.
First of all we have the exchange controls. You see, the Argentine government uses money
issuance, this is popularly known as the money-making machine, to finance a large part of public
expenditure.
This is something that the Argentine government has been doing for decades to the point that
the value of the local currency has practically disappeared.
This is the cause of the enormous inflation that year after year plagues the country and
also explains why Argentines always jump at the chance to switch to the dollar. Yes, Buenos
Aires is one of those places where you can get discounts if you pay in foreign currency.
Well, in an effort to stop the collapse of the Peso, the government applies exchange
controls. This way, if you want to buy dollars in the official market at about 80 pesos per
dollar you will have to meet a series of requirements, which is usually difficult. That's why the
alternative is the black market, where the dollar doesn't trade at 80 pesos but at around
145.
In addition, if you are a company that exports, the government will take away the dollars
you receive and change them into pesos at the official exchange rate, about 80 pesos.
But of course, if you want to buy dollars again, for example to pay for imports, and
you can't get them on the official market, you have to get them on the black market at
145 pesos each. That’s a loss of almost 40%.
In addition, foreign companies have a very, very difficult time getting their hands on
any benefits reaped from the country.
So you see that things aren’t easy for Argentine exporters… At least I wouldn’t like to
be one of them.
Then we have the labor regime, which was already costly in Argentina but during the pandemic
has even prohibited layoffs. As illustrated in this quote from Alberto Fernandez.
("As I said at the G20, no one is saved alone. You have to be supportive, put yourself in
the other's shoes and help them. Some miserable people forget those who work for them and
in the crisis they fire them. To those wretches, Pope Francis spoke. Now I tell them that I
will not let them do it," Alberto Fernandez on twitter)
Friends, all this may sound very good, but the reality is usually somewhat different.
Imagine that you have a company that, right now, because of the pandemic has low sales
or even no sales.
If you can't make staffing adjustments or resort to strategies to reduce losses even
temporarily, then the whole company may end up closing down and all the workers will be
out on the street. Reality is sometimes unpleasant but if you turn your back on it you have a
problem.
In any case, Fernandez’s messages don't seem to be the best for encouraging investment
in the country, do they?
But that's not all, it’s not just the current crisis the country is going through and the
kind of policies that have been put in place so far in 2020. If we also add those that
were already in place, such as Argentina being in the top three countries in the world for
imposing the highest taxes on businesses, then we can already understand why many companies
are starting to consider fleeing or, at least stopping any investment altogether.
In fact, according to a UN report, even before the coronavirus, Argentina was the second
country on the list for the worst evolution of foreign direct investment so far in the
21st century. Imagine their ranking now.
And take note because it's not just about companies.
According to a survey conducted by the consulting firm Taquión Research Strategy, in association
with the companies Inclusión and Gestión Aplicada, eight out of ten Argentineans who
are able to weigh up what their situation will be like in 10 years, would leave the
country if they had the conditions to do so. The bottom line is that Argentinians with
the capacity to think in the long term are thinking about leaving.
On the other hand, in September the Financial Times published a report in which it proposes
the exit of a growing number of foreign companies from the country.
For example, the Buenos Aires correspondent of this newspaper told how, at the same time
that the Minister of Economy, Martín Guzman, was presenting the 2021 budget with relatively
optimistic projections, the Chilean department store company, Falabella, announced its progressive
exit from Argentina.
It will start with the immediate closure of four of the 19 stores they have in the country
while they look for a buyer for the rest of the operations.
But having said that, I'm sure many of you are thinking... But let's see, [presenter],
isn't this an isolated case, something specific? Are there really more companies that want
to bail out on a market of 45 million people?
Well, yes, the truth is that there are. More and more companies are starting to propose
this strategy.
This is the case with airlines. For example, in June the Chilean airline, Latam, confirmed
its departure from the country and began to negotiate with its 1,700 employees. It had
been in Argentina for 15 years, maintained flights to 12 local destinations and held
a 16% market share.
Latam was followed by Air New Zealand, which has confirmed that even once normal air travel
is restored it will no longer provide connecting services between New Zealand and the Land
of Tango. Exactly the same news was announced by Qatar Airways.
In August, Emirates announced the suspension of its operations for an indefinite period
and Norwegian has sold its domestic operations in
the country.
But it's not just the airlines and Farabella. Many other companies from very different sectors
are considering following the same steps, of course most of them are very cautious because
they obviously want to reduce the conflict and at the same time try to sell their businesses.
("We see that Chilean companies are leaving because there is a clear anti-market, anti-business
bias. So it is worrisome that Alberto Fernandez's administration continues in that line". Juan
Sutil, President of the Confederation of Production and Consumption)
Between 1990 and 2016, Chile has certainly been the second largest investor in Argentina
after Brazil.
In any case, some companies have already announced their intentions, that is, they are going
to leave or at least reduce their presence considerably. Do you want to know which ones?
Then let's start with the list:
The German chemical company, Basf, has announced the transfer of a large part of its operations
to Brazil. The same has been done by the French company, Saint-Gobain, which has moved its
windshield production to Brazil and has closed its factory in the town of Campana, in the
province of Buenos Aires.
During the month of July, the French laboratory company, Pierre Fabre, sold its installations
and concluded its activity in the country. The same was done by the German packaging
and pharmaceutical supplies company, Gerresheimer.
And the list goes on. Brightstar, a manufacturer of cell phones for brands such as Samsung
and LG that has a plant in Rio Grande with 500 employees has finalised the sale of its
production facilities in the country in exchange for the symbolic figure of $1. Let's just
say that their priority was to leave at any price.
For its part, a better-known company, Nike, announced at the beginning of the year that
it was transferring its operations in the country along with those in Brazil, Chile
and Uruguay to the Mexican company Axo.
Then there’s also the North American giant, Walmart, that has 92 establishments distributed
in 21 provinces and that employs more than 10,000 people. They have also confirmed that
they are seeking to leave completely. They are looking for a buyer for its Argentine
activities.
[Of course, the problem they have is exactly that – finding a buyer. A mission that is
becoming more and more complicated. In fact, this seems to be the biggest obstacle that
foreign multinationals face.
Everything indicates that, in addition to those we have mentioned, companies such as
Sodimac, Burger King and Starbucks would also leave Argentina if they found someone to take
over their business.
Friends, this trend seems to be the last stage of a long process that has seen Argentina
become a country allergic to Foreign Investment. To put this in perspective, the Land of Tango
has gone from representing around 20% of all foreign investment coming into Latin America
to less than 5%.
Obviously, any foreign company leaving the country is bad news. Large international groups
have a greater capacity to invest, more know-how, more modern management systems and usually
more technology.
At the same time, the great economic success stories of the world earned their success
by attracting investment, and in many other places we find news stories like this:
(A Swiss canton will soon surpass Hong Kong as the best tax haven in the world for companies.
Hong Kong will soon lose its status as the place with the lowest corporate tax in the
world, and will be replaced by the small mountainous canton of Nidwalden in Switzerland. Bloomberg)
(Greece to offer 50% tax break for returning professionals and 'digital migrants'. Reuters)
(Greece will offer a 50% tax exemption for returning professionals and 'digital migrants'.
Reuters)
The case of Argentina is unique because this country aspires to get out of its endless
crises by doing exactly the opposite. By scaring off foreign investment, imposing more taxes,
more currency exchange controls and much, much more regulation. Perhaps that is precisely
why it is in an eternal crisis, what do you think?
But at this point, it's your turn. What future do you think awaits Argentina? Will it manage
to overcome the crisis? And if you are watching us from that country, as we know many of you
are, how do you rate Alberto Fernandez's management? What do you think should change?
Leave your answer in the comments.
So I really hope you enjoyed this video, please hit like if you did, and don't forget to subscribe
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I'll see you in the next video.