Advanced Manufacturing Plan for Argentina

THE POWER OF transformation Advanced Manufacturing Plan for Argentina

March 2017 Table of contents Tabla de Contenidos

Introduction Executive Summary p. 6 What is advanced manufacturing? p. 7 What is the Advanced Manufacturing Plan? p. 9 Strategic Priorities p. 10

Sectorial Axis Energy p. 12 Agriculture p. 23 Mining p. 28

Cross Axis Infrastructure & Transportartion p. 34 Trade p. 40 Innovation & Skills Development p. 47

Conclusions p. 52 What is advanced manufacturing?

In recent years, governments have shown a renewed interest in the value of industrialization and its potential for driving development.

This renewed focus on manufacturing recognizes the shortcomings of the previous phase of industrialization while acknowledging that all cases of sustainable and inclusive Introduction growth around the world have been associated with pro-manufacturing, pro-growth development policies.1

Executive summary Manufacturing is a key indicator of economic Economists have reported that, on average, USD 1 strength and resilience. This is due not only to its of manufacturing output creates USD 2.30 in total The outlook in Argentina is bright and replete with A new dawn is on the horizon and inherent capacity of high-value career creation output for the economy, a higher economic multiplier opportunities to address some of the country’s Argentina’s best days are ahead if the but also because it reduces vulnerability to price than any other sector.3 most pressing challenges. country adopts the right policies to variations that affect growth cycles. In addition, the European Union estimates that each As a result of Argentina’s policies, the country has harness the power of natural gas to fuel additional job in manufacturing creates 0.5-2 jobs experienced robust economic growth since 2003 a manufacturing renaissance. Studies show that the more advanced the type in other sectors, nearly one in four private sector jobs as it benefited from the effects of a major of manufacturing, the larger the multiplier is in industry. The economic importance of industrial devaluation in 2002 and a favorable global effect for both manufactured inputs and the activities is much greater than suggested by the economic environment, particularly high services sector.2 share of manufacturing in GDP. Industry accounts commodity prices. However, growth began to Argentina can once again rise to meet the challenge for over 80% of Europe’s exports and 80% of slow down in 2011. as it has continuously demonstrated throughout Industrial activities are integrated in increasingly private research and innovation. history to become a manufacturing powerhouse in rich and complex value chains, linking flagship The economic boom has benefited most sectors, the next great decade of growth in Argentina. Along corporations and small or medium enterprises We can also see this multiplier effect as a including the agricultural and manufacturing that journey, Dow is a committed partner in helping (SMEs) across sectors and countries. In addition, chemical company that converts natural gas sectors. The industrial sector accounts for 17 Argentina’s manufacturing sector grow and prosper the more a country’s manufacturing sector relies on into innovative down-stream products. For percent of GDP and approximately 17 percent of to the benefit of its people and generations to come. domestic supply chains, the greater the potential every dollar Dow spends on natural gas as a raw total registered employment. More than two-thirds multiplier impact. material, we can create an additional USD 20 of of Argentina’s exports include manufacturing and gross output. Every job inside a petrochemical manufactured agricultural products, the remaining This multiplier effect can be seen at the national facility creates five jobs outside of it. That value being agricultural products and energy. and regional level. chain alone creates tens of thousands of jobs.

1 Ernesto Stein, Eduardo Fernández-Arias and Eduardo Arias, Rethinking Productive Development, Washington D.C., IADB (2014) 2 See Keith Nosbusch and John Bernaden, “The Multiplier Effect,” Manufacturing Executive (March 2012): 2-9. 3 Ibid. 6 7 3 Manufacturing also plays a significant role in The path forward for Argentina is energy. It is the Manufacturing has substantially increased economies balance the flow of trade and meet the investment flows. According to the World Investment lifeblood of a strong economy. In the short-term, consumers’ standard of living abroad, and it will in needs of its citizens. A vibrant manufacturing base Report 2016, of the United Nations Conference it will create thousands of jobs and revenue in Argentina if thoughtful fiscal and energy policies should be Argentina’s goal. on Trade and Development (UNCTAD), the sector oil and gas- producing territories. For example, are enacted. Strong productivity gains, rapid Dow is leading the way in developing and promoting accounted for 27 percent of global Foreign Direct there is evidence that the energy sector has a advances in innovation, and international an innovative model that promises to revolutionize Investment (FDI) inward stock in 2014. particularly high employment multiplier effect; competition have led to overall deflation in Argentina’s industrial approach. This alternative the World Economic Forum (WEF) in 2012 manufactured goods worldwide. considers incorporating innovation from the private Therefore, the question is not whether countries reported that the energy sector was responsible High-tech manufacturing provides consumers with and public sector, and leveraging the country’s seeking to develop should pursue active pro- for creating 9 percent of new jobs in the U.S. that more goods at a lower cost, and is how developed rich natural resources. manufacturing policies but what kind of active year. This suggests that Argentina’s unconventional policies countries should introduce to create a energy sector could create powerful backward path to sustainable growth. linkages and jobs as it supports a strong, growing manufacturing base. The first step in this process is to link a country’s development strategy to its competitive advantage, It will also strengthen the country’s trade surplus by directing efforts to the country’s most abundant reducing energy imports, allow the Central Bank to resources in order to take advantage of its most grow its international U.S. dollar reserves, and lift the robust sectors. When governments organize and current foreign exchange barriers. prioritize policies in this way, the economy becomes more productive and competitive, and accumulates Longer-term, a sound, sustainable energy policy human and physical capital more quickly. will allow Argentina to fuel its economy and attract a vibrant and innovative manufacturing sector. In this model, the state should act as a facilitator What is the advanced manufacturing plan for Argentina? of the necessary structural change. For Argentina, As Argentina works to build its manufacturing those changes mean adding value to raw materials base, investments in the production of abundant, Dow’s Advanced Manufacturing Plan for The key is to devise a plan that focuses and natural resources as a way of avoiding a return affordable natural gas is the key to creating a Argentina outlines our views on how Argentina manufacturing efforts on adding value to those to the simple production of primary goods, enriching virtuous cycle. can build a stronger, more sustainable natural resources in which Argentina is rich, the country’s export profile, and avoiding losing high and more competitive economy through thereby ensuring that Argentina benefits from its quality jobs to countries where those raw materials Not only are jobs created, but with manufacturing the development of a robust advanced comparative advantages. This type of strategy are processed.4 operations comes research and innovation. manufacturing sector. requires joint efforts from the public, private and Improved profitability encourages further investment In particular, this plan focuses on the academic sector so as to identify the areas where Along with spurring foreign direct investment in in operations and in research, and tax revenue importance of creating and enabling innovative industrial policy solutions should be the country’s manufacturing sector, the Argentine increases. Communities are strengthened and environment for advanced manufacturing, implemented. government must continue to open up its massive schools are improved by the prosperity and which drives the production of high value- Dow believes that Argentina should promote shale gas reserves to outside operators with the commitment of manufacturers. The workforce of add goods, creates jobs and fosters overall industries that make extensive use of the country’s expertise to unlock the affordable energy that the future is inspired and ready to innovate. economic growth when innovative concepts, “abundance factor” (i.e. the primary factors with could launch a significant economic boom. processes and technologies are applied. which it is best endowed, relative to other factors and compared to other countries).

4 Justin Lin, op. cit.

8 9 In particular, Argentina should focus on optimizing In this sense, an appropriate framework could allow the value-add of three main resources: natural the country to move away from exporting raw materials energy – particularly untapped gas reserves, mineral to producing and exporting value-added products, resources and its productive agricultural sector. diversifying the Argentine economic matrix. Therefore, this AMP centers on six strategic priorities that will be crucial to the development of an advanced manufacturing sector in Argentina. These priorities are distinguished according to their For this to happen, it is necessary to scope, in sectorial and cross axes, understanding ensure an attractive fiscal and regulatory the latter as those that cut across all sectors of environment for local and foreign the economy and therefore affect the systemic investment in key development areas. competitiveness.

Dow identified 6 strategic priorities

Energy Agriculture Mining

Sectorial Axis

Advanced Manufacturing Cross Axis Plan for Argentina

Infrastructure Trade Innovation & & Transportation Skills Development Sectorial Axis

For each of these priorities, this AMP sets out a series of practical policy recommendations designed to advance a discussion among the public, private and economic sector aimed to develop a strategy to foster advanced manufacturing.

10 9 Conserve by Building codes aggressively pursuing energy efficiency Updated building codes do more than simply 1 increase energy efficiency – they drive structural, electrical and mechanical improvements across Energy efficiency enables us to do more with all sectors of the construction industry that less, and is the easiest and most affordable enhance safety and make buildings perform way to conserve energy while also reducing more effectively. Argentina should keep working carbon emissions. Numerous studies have made on raising awareness on the importance of being clear that the financial benefits of energy fuel energy efficient as well as provide information savings far exceed the upfront investment costs and train the value chain on the available Energy of energy efficiency. technologies for sustainable construction. Moreover, governments should encourage the Dow is in a unique position to help accelerate the adoption of technologies such as insulation development and deployment of energy efficiency by offering different incentive schemes and technology. Our products enable energy efficiency accelerating the adoption and implementation Overview by making vehicles lighter, and by using less energy of energy-efficient building codes. to keep buildings cooler in the summer and warmer Energy is at the core of Argentina’s long-term At Dow, we believe the future of energy is in the winter. economic competitiveness. The policy decisions connected to innovative technologies and that are made now regarding its energy resources materials from chemistry, and that energy policies In the last decade, companies and residential Increasing energy productivity will have real and lasting effects on manufacturers at all levels of government should focus on four users lacked economic incentives to increase and the economy. Argentina should capitalize on the fundamental principles to transition since low tariffs made the investment to reduce Energy productivity gains have proved to be abundance of energetic resources by developing to a sustainable energy future: consumption unprofitable. The expected increase cost-effective and can be achieved without a comprehensive energy plan that advances in energy tariffs could encourage the industry and burdensome mandates or excessive government development and growth. the domestic sector to adopt energy efficiency spending. Achieving large-scale energy productivity Conserve by aggressively measures. However, other incentives can be improvements would require investments Advanced manufacturers such as Dow operate at 1 pursuing energy efficiency implemented in order to achieve this goal. throughout the economy, modernization of the apex of energy and manufacturing. Therefore, regulations and infrastructure, and working on the a sound energy policy is essential to remain Optimize, increase, and diversify education and training of stakeholders on ways to domestic hydrocarbon resources globally competitive. This is critical when defining a 2 drive energy productivity gains. Achieving material strategy that provides the long-term certainty that gains in this area means powering our daily lives – Accelerate the development of is needed to create an economic climate conducive 3 cost-effective clean energy alternatives including our homes, transportation systems, and to investment. For manufacturers, energy cost and manufacturing facilities – using less energy. availability are two basic elements that are analyzed Transition to a sustainable Dow is committed to increasing the energy when deciding on an investment. 4 energy future productivity across our value chains by increasing the economic output from each unit of energy.

12 13 Building a robust petrochemical sector requires Argentina should foster the enhancement of its What Dow is doing access to reliable, efficient and cost-effective electricity production not only to respond to the energy supplies, both for fuel and feedstock. increasing needs of industries and population but • Inspired by more than 60 years of building science, • Incorporating technologies such as Manufacturers take these raw materials and also to spur the demand of gas and the consequent Dow Building Solutions delivers innovative polyurethanes, polyethylene, and special transform them into value-added products in investment in the development of these natural technologies that enhance energy efficiency for a coatings when building can significantly reduce critically important areas, such as agriculture, resources. The country needs to take a strategic building’s lifespan and significantly reduces their the energy consumption and increase the energy, water, and building solutions. design approach to natural gas demand growth impact on the environment. energy efficiency properties of the building. Encourage supply. Enhance long-term demand. with long-term infrastructure plans that provide Provide seasonal balance through gas storage. broad residential access where it is not available • Dow’s insulation products avert more than six times • Dow carries out several programs in its Regionally integrate. today as well as plans for future residential an our own carbon dioxide emissions from operations on Latin-American operations to reduce the industrial development. an annual basis. consumption of energy. While Argentina has an abundant supply of natural gas in the ground, production fell 19% from 2006 The increase of demand of natural gas will encourage Recommendations to 2013 before beginning to recover. new investments to develop unconventional Low production levels have generated shortages resources in areas like Vaca Muerta. As well, it will • Develop plans, programs, incentives and policies • Encourage the energy efficient building by for industrial production as the gas supply is drive capital into the manufacturing area since the that will promote energy efficiency and preservation, lowering the cost of capital through grants, usually interrupted to satisfy residential needs increase of availability of liquid components of gas, thereby reducing waste throughout all economic transferable investment tax credits, and low-cost during winter. Electricity cost is also affected, which is the main productive input, provides the basis sectors (electricity, transportation, residential and loan programs. since thermal generators (which represent more for the expansion of current petrochemical sites and industrial consumption). than 60% of the supply) are forced to replace the establishments of new ones. • Work along with the construction value chain natural gas which more expensive fuels such • Regularly update and implement building codes to train them on sustainable building. as gasoil or fuel oil. To achieve true economic development, to ensure large-scale energy savings through Argentina should incentivize local value-add efficiency in new building stock. • Introduce targeted incentives, tax credits, and processing of energy resources in-country, and rebates to encourage both homeowners not just raw state exports. Part of the country’s • Raise awareness on the importance and benefits and businesses to enhance the efficiency shale strategy must be to add value to the The great opportunity for reversing this trend of energy efficiency as well as the available of their buildings. local natural resources, transforming them is by continuing to develop Argentina’s shale technologies. into manufactured products and fostering resources (the country has the second largest job creation. For this to happen, the country shale gas resources in the world). The increase should also upgrade the regulation in order of gas production will not only result in more to guarantee the availability of ethane and The key for Argentina to build a stronger, more energy for domestic use but also, it will allow other natural gas liquids, prioritizing internal Optimize, increase, sustainable and more competitive economy is to industries to access the rich components of consumption for industrial use instead of and diversify domestic favoring the export of the resource in its primary devise a plan that focuses manufacturing efforts natural gas and transform them into high hydrocarbon resources state, leaving it contained in the natural gas. 2 on adding value to one of the natural resources in value goods. which it is rich: natural gas.

14 15 Finally, to leverage even more the potential of Many countries made the most out of their Going through each of these four stages requires hydrocarbons, there should be a clear strategy to potential, adding industrial value to its natural 1) Hydrocarbon production a coherent plan and policies that assure a continued encourage gas storage initiatives. This way, seasonal resources and enabling the development of the The most basic instance of resource gas supply and promote industrialization by swings could be better managed given that the manufacturing sector. reutilization is shale gas extraction and assuring natural gas is used to catalyze deep excess of production that occurs during summer production. This introduces large amounts industrial growth along while fulfilling the basic would be saved to supply the shortages that happen of raw material into the system. energy needs of Argentina. in winter, when domestic demand increases. This The addition of value to natural resources will would make gas production even more competitive 2) Petrochemical industry impact directly in the creation of employment, the and would contribute to guarantee long term supply development increase of exports of manufactured goods, a more of gas to manufacturing facilitates all year round. During the second stage, the extracted gas solid economic growth and the fostering of high Additionally, it would bring operational efficiency to is used to maximize basic industries, such technology industries. the industrial sector, which would no longer need as the petrochemical, which benefits from to import LNG to cover the lack of gas. the constant supply of raw materials used in production plants allowing it to generate By taking advantage of the potential of supplies used by other industries. unconventional reserves, increasing the production The four waves of investment of electricity and achieving a diversification of the and exporting value-added 3) Manufacturing byproducts matrix through renewable energies, Argentina has products The third stage involves an extra step in the capacity to meet its domestic energy demand, resource industrialization by engaging feed the regional energy market and produce Argentina’s natural resources represent a significant companies that invest in new energy plants the critical byproducts that are needed to attract opportunity for economic growth, similar to the and manufacturers of byproducts in the foreign direct investment (FDI) in downstream shale boom experienced by the United Stated, which primary sector, such as plastic transformers, manufacturing of derivatives. meant the rebirth of its manufacturing industry. The container producers, and other manufacturers. country could attain energy self-sufficiency in the This stage adds yet another layer of value to the Strategic energy development Dow has made a long-term commitment to drive medium term if investments in energy exploration raw material and contributes to the generation for MERCOSUR and promote industrial growth, relying on the huge and production are encouraged. of products for mass consumption. potential of energy assets in Argentina and the When defining a long term energy plan for Argentina, abilities of its local human resources. To achieve true economic development, Argentina 4) Research and development (R&D) the approach necessarily has to be regional. should establish policies that incentivize value-add The fourth stage focuses on establishing and The potential that the country holds in terms of As shown, Dow can clearly be the driver and leader processing and production of gas in-country. The strengthening R&D centers that can continue to unconventional resources will be reached to the of a new era for petrochemical industry, which adds multiplier effect of industrial resources added to explore new technologies and provide workforce fullest only if the whole MERCOSUR enters the value to the use of energy generating supplies to the production of unconventional hydrocarbons training. This stage will allow Argentina to achieve discussion. State members should get involved into a over 20 industries and multiplying employment up to may be represented by four waves of investment its full reindustrialization potential and make serious discussion to agree on the long-term energy 8 times. Not only increasing its productive presence and industrialization that expand through the the most of raw materials to the benefit of the strategy for the region, which would include the state but also working in partnership with authorities to petrochemical production value chain. production chain as a whole. to state linkage and the growth of interdependency define effective and efficient public policies based across the bloc. on successful international experiences.

16 17 • As an energy solutions provider, Dow offers • Promote the development of an efficient Accelerate the What Dow is doing innovative chemistry and technologies for improved supply chain in order to reduce cost of development of shale stabilization and well bore stability. In addition, hydrocarbons’ extraction. cost-effective clean • Dow is working toward the reactivation of Dow Biocides offers a wide range of products energy alternatives Argentina’s energy matrix through a long-term that will help meet the many different treatment 3 • Incentivize and support the construction and plan that is built on three pillars, one of which is the conditions of water for oil and gas stimulation and in improvement of energy infrastructure, including increase of hydrocarbon production. The other two the antimicrobial protection of end-use oil, gas and pipelines, storage caverns and roads, Any comprehensive energy plan must recognize the are the diversification of the matrix and the foster their derivatives. to efficiently move natural gas and natural gas critical role clean energy sources will play in a more of energy efficiency. liquids throughout the supply chain. sustainable energy future. A wide range of clean • Since 2001, Dow has worked with YPF and energy technology exists today, but the appropriate • Dow signed an agreement with YPF in 2013 Petrobras as part of Compañía Mega, a gas • Develop a strategic plan and adapt regulation mix depends on geography, power needs and to develop a pilot program to produce shale gas in separation joint venture that supplies feedstock to enable gas storage in order to better manage affordability. the area of El Orejano in Vaca Muerta to enable the to Bahía Blanca and many other industrial sectors seasonal demand allowing the system to development of unconventional shale gas resources. downstream. Through this venture, Dow operates a stabilize overtime, which would make the energy Developing renewable energies would reduce plant dedicated to separating and fracturing natural market more competitive and the manufacturing reliance on hydrocarbons. This would allow the • Dow renewed its commitment in 2015 by signing gas from Loma La Lata in the Province of Neuquén. sector more efficient. destination of these resources to the latest added- a commercial agreement with YPF through which value processing. Besides, modernizing the both companies advance in a new phase of the • Foster the enhancement of electricity nation’s electricity grid is critical to maintaining the massive development of “El Orejano” block, production based on the availability of natural gas competitiveness of manufacturers. Grid failures that the first shale gas project in the country. Recommendations to feed thermal generation. disrupt the power supply have a devastating effect on manufacturing operations. Investments in the • Avoid adopting policies that move the country • Both companies committed to an investment grid to ensure efficiency and reliability will ultimately • Develop an all-encompassing energy plan toward a single fuel source and excessive of USD 500 million for 2016, which adds to the expand the opportunity for clean energy deployment that leverages Argentina’s world-class natural restrictions on natural gas supply or measures USD 350 million that was already invested jointly. and save customers money. resources to promote advanced manufacturing that accelerate demand in an artificial way. and offer long-term predictability and certainty • For the full development of the block, the to attract investments. • Upgrade regulation in order to guarantee There are also emerging technologies that are companies estimate that the investment could the availability of ethane and other natural gas offering solutions for diverting difficult-to- reach USD 2.5 billion for the perforation of • Stabilize energy prices to achieve an economic liquids, prioritizing internal consumption for recycle plastics from landfills and “recycling” more than 180 wells and the associated return that will result in quality investments that industrial use instead of favoring the export them into feedstocks and valuable energy infrastructure works. are crucial to foster industrial production. of the resource in its primary state, leaving it resources. In the U.S., Dow has found great success in turning non-recycled plastics and • Take full advantage of conventional and contained in the natural gas. • “El Orejano” is today the largest shale gas effectively converting them into an energy unconventional energy resources as a production field in the world outside of North America. • Regulation should foster that exports of gas resource, all through an existing waste foundation to attract advantaged industrial liquids must be subject to interruption in order to management infrastructure. • The increase of availability of natural gas opens production. prioritize domestic industrial demand. a huge growth opportunity for the company in Argentina and could be a fundamental driver for • Lead MERCOSUR discussions on a the expansion of Dow’s productive capacity long-term regional energy plan. in the country.

18 19 Through a public-private partnership with • Recognize the need for reliability, the need for cost Dow has already committed to maintaining all local units of government and industry, competitiveness, and the fact that expansion of GHG emissions below 2006 levels and will use Argentina could pursue programs to convert renewables requires complementary conventional, 400 megawatts of clean energy by 2025. previously non-recycled plastics into a fuel hydroelectric or nuclear alternatives that can deliver Being a world leader in chemistry, we are also source. Energy recovery is becoming another power reliably. positioned to provide innovations that lead to source of renewable energy and has the energy alternatives and less carbon use. potential to significantly reduce waste that is sent to landfills. 4. La transición a un futuro Dow has prevented over 200 million metric tons of energético sustentable GHG emissions from entering the atmosphere since Transition to a 1990. Dow’s insulation products alone avert more What Dow is doing 4 sustainable energy future than six times our own carbon dioxide emissions from operations on an annual basis. • Dow signed an agreement with INVAP to Meeting the energy needs of a growing global develop wind energy. The project consists of the population will be one of the greatest challenges establishment of a wind park in the Province of Río facing humankind in the coming decades. Argentina 2025 Sustainability goals Negro, Patagonia. The investment could reach USD should commit to playing its role by slowing, 180 million for the establishment of 30-40 wind stopping, and eventually reversing the global turbines that will produce a total of 100 MW. Dow’s growth of greenhouse gas (GHG) emissions while In April 2015 Dow launched its 2025 Sustainability Goals, a strategic manufacturing operations in the region will be partly preserving economic growth. Emission pricing set of commitments designed to redefine the role of business in society. powered by this renewable source. policies that are pursued independent of the global community can have a reverse effect of hurting the The Goals use a global lens to magnify the Company’s impact around the world, driving • Dow has developed solutions for wind and solar economy and increasing global GHG emissions. unprecedented collaborations to develop a societal blueprint that will facilitate the transition energy. For instance, Dow provides solutions that to a sustainable planet and society. enable the design, fabrication, and use of longer, Dow supports science and technology solutions Through harnessing Dow’s innovation strengths, global reach, and dedicated employee population, lighter and stronger wind blades. to reduce global GHG emissions. Many of these the Company has set bold and aggressive sustainability targets designed to develop breakthrough solutions exist today, including energy-efficient product innovations, positively impact the lives of 1 billion people, and deliver $ 1 billion in cost building materials, energy-saving insulation and savings or new cash flow for the Company by valuing nature in business decisions. light weighting vehicle technology. To the extent Recommendations that policymakers pursue mechanisms to reduce GHG emissions, Dow favors the most cost-effective Dow’s 2025 Goals, the Company’s third set Dow’s 2015 Sustainability Goals provided • Diversify the country’s energy matrix by promoting market-based approaches, since such systems of sustainability-related Goals since 1995, more sustainable products and solutions build upon its previous decade-long the development of renewable energy technologies provide the most effective ways to drive innovation addressing global challenges in food, to ease the burden on hydrocarbons production. at the lowest economic cost. commitments. Dow’s 2005 Environment, Health & Safety Goals resulted in $ 5 billion in energy, sustainable water supplies and • The government should partner with companies Policymakers should support science and safety, waste, water and energy savings after improved personal health. to create market-based incentives to develop and technology solutions to reduce emissions. a $ 1 billion investment commercialize renewable technologies and develop At Dow, we are committed to growing our the necessary infrastructure. company without growing our GHG emissions.

20 21 What Dow is doing Recommendations

• At Dow, we are committed to growing our • Emissions reduction policies should be pursued company but not our GHG emissions. jointly with the global community. The very real and negative impact of carbon leakage underlines the • Dow has already committed to maintaining all necessity for global cooperation in achieving polices greenhouse gas emissions below 2006 levels and related to curbing emissions will use 750 megawatts of clean energy by 2025. • Energy efficiency is the cheapest alternative • Dow has prevented more than 200 million metric toward achieving GHG reductions. Any policy tons of greenhouse gas emissions from entering the targeting GHG reductions should consider the atmosphere since 1990. offsets that complimentary energy efficiency policy Agriculture can provide. • Through collaboration and innovation, Dow products are delivering. For every ton of carbon • GHG reduction targets should be realistically set Dow emits, our products reduce 3 tons in the for all of the major economies, recognizing that broader economy. no economy can afford to compromise growth. Overview These policies need to account for the reality that • As just one example, STYROFOAM™ Insulation developing countries need to pursue GHG The agricultural sector is crucially important to Total production of the country’s principal crops is installed in over 20 million buildings worldwide, reduction policies. Argentina’s economy, and should be one of the amounted to 105 million tons in FY 2015, compared insulating more than 20 billion square feet and pillars on which the country builds its advanced to 67 million tons in FY 2003. At present, Argentina saving more energy than Dow uses. • Whenever carbon policies are pursued, manufacturing capacity. is the world’s largest per capita agricultural coordinate all contributing factors including producer. • Dow has reduced 308 million metric tons of GHG renewable, efficiency initiatives, and carbon While primary agricultural production represents from operations since 1990, including a 112 trillion policies into a single policy framework that focuses only 5 percent of GDP, when taking into account Another factor that contributed to the growth of the Btu absolute energy reduction since 2005. on driving tangible GHG benefits at the lowest agro industries, the country’s sector GDP amounts sector is the significant technological changes that possible cost to society. to 20 percent. Despite past constraints, over the companies have made in the way they do business. • Dow Automotive’s structural adhesives help last decade the agricultural sector has become Argentina is the third largest producer of biotech improve vehicle strength and durability while one of the most dynamic segments of Argentina’s crops in the world – covering 24.4 million hectares reducing weight and improving manufacturing economy, partly due to an increase in international – and the leader in terms of total arable land. efficiencies. commodity prices. Farmers now sow about 32 million hectares of seed, 14% more than 10 years ago and 90% more than during the 1990s.

22 23 All soybeans and more than 90 percent of corn The cluster now directly and indirectly employs produced in Argentina are genetically modified.5 What more is needed? Downstream, Argentina needs to promote 80,000 people. In addition, about 90 percent of farmers use the development of related industries and the Argentina could focus on improving the added value inoculants and no-till technology, while 60 percent Argentina has a population of 40 million, yet transformation of vegetable protein – such of two additional industries: dairy production (which use fertilizers. Recent technologies such as “silo produces enough food for 400 million people. as that sourced from soybeans – into more has a multiplier effect of 6.1) and beef production bags” and precision agriculture, which Argentine Despite its impressive growth – and partly because high value products, including biofuels and (with a multiplier effect of 5.5). In the first case, it companies played a significant role in developing, of its efficiency – the agricultural sector is not elaborated food products. Soybeans and maize must be noted that Argentina’s dairy sector is now are used in more than 45 percent of farms. responsible for significant job creation. Agricultural industrialization have gained traction over the last going through a deep crisis caused by external Moreover, many farms have incorporated modern producers employ approximately 350,000 people, few years, but much more remains to be done. factors (weak foreign demand and low prices) and managerial practices, evolving from self-production a mere 5 percent of total registered workers; when For instance, Argentina still exports about 60 internal ones, mainly currency appreciation and bad or ownership agriculture to contract based agricultural related manufacturers are included, percent of its corn production, much more than weather damages. agricultural production. the total climbs up to 8 percent.6 As such, Argentina other agricultural powerhouses such as Brazil (50 must find ways to add value to its agricultural percent) and the United States (14 percent). To achieve a growth path again for dairy production, This growth has reaffirmed the agricultural sector’s production and therefore, increase job creation it is necessary for Argentina to gain access to new status as a key driver of exports. Between 2011 and capacity of the sector. One example of Argentina promoting the markets. In the second case, the country exported 2015, primary agriculture products and agriculture- transformation of its raw resources into more high only 7 percent of its total beef production in related manufacturing contributed an average of value products is the agricultural machinery cluster 2015, mainly driven by currency appreciation and Upstream, the country should continue USD 43 billion per year to Argentina’s economy, developed mainly in the provinces of Santa Fe and trade beef restrictions. However, the country has to develop and employ modern input or 59 percent of total exports. Soybeans and their Córdoba. Since 2003, total sales of machinery managed to maintain its international reputation as technologies. Argentina’s development of a byproducts represented more than 40% of these generated by the cluster have grown from USD a high-quality provider, and the re-opening of the US dynamic local seed industry is an example gains. In comparison, non agricultural manufactured 562.2 to USD 1,017 million in 2015 exports have market is highly expected. of what can be achieved in the fields of products (for example, chemicals, automobiles, increased by an impressive 2,405 percent until This would create jobs in the animal feeding industry biotechnology, agrochemicals and fertilizers machinery) generated exports of USD 24 billion 2012, and then declined (from USD 5.6 to USD and the meat processing industry. (34 percent of total export earnings), while energy 141,4 million in 2012, and 28,3 in 2015) and the earned USD 5 billon (7 percent). Furthermore, the In fact, the agricultural sector has already begun to number of total exporting companies has agricultural and agro-industrial sectors are the only make some headway. A number of public and private increased six-fold (from 15 to 94). net provider of foreign currency, boasting a 13:1 organizations are in the process of developing ratio of exports to imports, while the trade balances genetically modified organisms (GMOs) especially of all other sectors continue to register deficits. adapted to Argentina’s needs. The fertilizer industry is a case in point: Argentina has untapped reserves of phosphate and potassium, yet continues to rely on imported fertilizer. Making fertilizer more affordable could help farmers improve the nutrient levels in their soil, thereby increasing productivity.

5 See http://www.isaaa.org/resources/publications/biotech_country_facts_and_trends/download/Facts%20and%20Trends%20-%20Argentina.pdf 6 Llach et. al. have estimated that taking into account both direct and indirect jobs, agricultural producers account for 18 percent of employment.

24 25 • Dow expect to launch a wide variety of new Seeds, • Foster the local development of GMOs, taking into • Promote a clear mechanism of control to What Dow is doing herbicides and insecticides molecules and products account local agronomic conditions and ensuring guarantee the payment of new technologies for in the short and medium term for controlling weeds, access to all agricultural producers (including small autogamous crops. • Dow’s agribusiness unit – Dow AgroSciences – insects and diseases, helping growers get the farmers). Establish fiscal incentives to the use of is the third most important player in the most out of their land, considering the most major controlled seeds. • These measures will foster R&D investment in Argentine market. standards for preserve the quality of land, water the area, with the consequent job creation, greater and air, and producing real impact in employment • Improve the implementation of current added value and increase in farming production. • It provides solutions to customers to improve generation. agricultural biotechnology regulatory productivity up to the highest sustainable levels, framework in order to promote the • Promote field practices, such as the system of in order to satisfy the needs of a growing world synchronicity approvals with buyers (i.e.; China, integrated management of insects and weeds or population. E.U., Russia, etc.). proper crop rotation. This action must be necessarily Recommendations carried out between the State, the industry and • The company produces and commercializes • Strengthen the seeds cluster, a public-private growers. products that assist with the growth of Argentina’s • Review and update current legal framework initiative that includes INTA, INASE and ASA along agricultural sector, such as biotechnological events, on seeds and phytogenetic innovations in order with the Cities of Venado Tuerto and Pergamino. The • Proper product management for crop protection. crop protectors, seeds and healthy oils. to adjust it to the requirements of a more objective is to grow the volume of the seeds industry. To promote cooperation between the private and modern technological industry, protecting the public sector for training all agrochemical users • Dow has developed innovative solutions to intellectual property and boosting the • Establish a framework that facilitates hiring as regards best practices. produce silobags, which are elaborated as from development of biotech. temporary workers and that improves their labor special polyethylene resins designed by Dow. Its conditions. Performance & Specialty Plastics Unit provides • Promote an alliance with Brazil and other 100% of the polyethylene resins perfectly MERCOSUR members to transform the region into • Create tax incentives and subsidies for aligned to consumers’ needs. Resins such as a global center for food and sustainable energy entrepreneurs in agro-industries, small and medium DowLex, responsible for the bags mechanic production. An alliance of this sort would improve enterprises and start-ups. resistance, were generated as from a Solution the region’s negotiating capacity with its current technology registered and developed by Dow. and future trade partners, while at the same time • Promote the preservation of Argentina’s natural helping to promote industrialization of the country’s resources and the adoption of agricultural best • Dow has developed a weed control system agricultural production. practices. Elaborate an active public-private policy called Enlist, a new technology rooted in biotech aimed to communicate and educate on seeds, events of tolerance to herbicides and Conkesta • Promote investments in R&D in the agricultural vegetable improvement, biotechnology, among (Tolerance to herbicides + Bt products) that will sector, especially those related to biotechnology, other topics. Furthermore, promote an adequate trigger a real revolution in Argentina’s productive agrochemicals, seeds and fertilizers. This involves standard for a more balanced crop rotation, model. The new technology could prevent the forging stronger collaboration between universities, fundamentally in summer crops. loss of 2.8 million tons of production and USD 930 the private sector and national research institutions, million in revenue. as well as improving the regulatory framework for intellectual property.

26 27 • The new trade policy facilitates the import of capital The sector still has great potential to goods needed for the development of new projects, develop thanks to the abundance of high- while profit remission restrictions were removed. grade ore reserves and the existence of important first level projects already in • The elimination of export taxes and exchange advanced exploration stage. rate stability offer better predictability for the development of the sector -attracting new Argentina has many untapped resources. It is one investment- and reduce the risk of unemployment of the countries with the largest mineral reserves in a sector punished by international low prices. In globally: Argentina ranks fourth in lithium reserves particular, the elimination of export taxes has been (6.5%), seventh in silver reserves (6.8%) and copper an important step to restore the profitability of the (3.8%), and ninth in gold (7.4%). The mining tradition sector compared to the rest of the region (Chile, Peru Mining represents to some extent an advantage, because and Colombia) and in attracting investments, which while other countries must turn to the exploitation have been falling since its peak in 2012. of increasingly less profitable projects, in Argentina deposits that have a high mineral concentration Overview remain to be exploited. What more is needed?

A particular case is that of lithium, a strategic activity Despite improvements evidenced last year, there The mining sector has been one of the fastest Metalliferous mining is concentrated in three for its use in the manufacture of rechargeable are still opportunities to improve. In particular, growing in the last decade. It is estimated that mine regions (Patagonia, Northwest and Cuyo), where it batteries, due to its high efficiency for energy various regulatory barriers persist, especially production has shown an increase of 53% between constitutes one of the major drivers of activity, and storage beyond its generating source. Lithium has from environmental and provincial regulations 2005 and 2015. However, beyond the growth of has an important role in employment. Considering a great potential of growth with demand projected that must be properly designed to promote both the sector, the share of mining in Argentina’s GDP is both payroll and contractors, the sector employs over to double to 400 thousand tons by 2025, driven economic development and environmental care. still around 0.6%, well below other countries in the 16% of workers in the private sector registered in the by the manufacture of batteries for automobiles The lack of unified criteria, changes in the rules and region, such as Chile, where it represents 11.2% province of Santa Cruz, about 9% in Catamarca and and electronics. Additionally, currently there are delays when regulating legal decisions increase of the product. San Juan, and almost 5% in Jujuy. investment projects in advanced exploration stage the uncertainty for investors and undermine the The share in terms of foreign trade is more important: in the sector by USD 20 billion. development of the activity. total exports of minerals reached USD 3,750 million Metalliferous mining is developed by large There are several attractive projects from the in 2015, representing 5.8% of total foreign sales.This companies operating internationally, which have geological point of view, whose exploitation would In environmental matters, Argentina has made makes the mining complex the fourth largest exporter extensive experience in the sector and allocate their boost exports and value mining resources. progress in protecting its glaciers with the in the country, even surpassing traditional activities entire production to foreign markets. In turn, the country has shown a renewed interest enactment of Law 26,639 in 2010, which such as the bovine chain. Among the main products exploited stands gold, to promote the sector. determines budgets to preserve them and As a whole, mining companies employ more than and secondly silver and copper. In addition, there is In this regard, the regulatory and macroeconomic limit economic activities such as mining in the 25,000 people directly, and another 15,500 great potential for the exploitation of lithium in the changes implemented in 2016, aimed at exploiting surrounding areas. However, as the inventory of contractors working at the mines. north of the country, but so far, this metal represents comparative advantages by directing efforts glaciers has not been yet finalized, the law is still not a small proportion of exports. toward the most abundant resources, offers new regulated. This creates great uncertainty about the opportunities for activity takeoff: exclusion areas, affecting large projects.

28 29 Meanwhile, there are large differences in the mining • Dow enables highly sophisticated hydrometallurgy Dow’s membrane technology has intrinsic regulation at the provincial level. In fact, opencast What Dow is doing operations and processes – from in-situ leaching advantages versus alternative separation mining is banned in seven provinces (Mendoza, (ISL) to selective recovery and purification. Through technologies to meet broader purification and San Luis, La Pampa, Tucumán, Córdoba, Chubut • From increasing cost pressures, to more the development of metal selective media and ion separation challenges for these drainage waters. and Tierra del Fuego). In this regard, although stringent environmental and safety regulations, exchange (IX) process expertise, Dow products Dow technologies deliver a reduced sulfate, the provinces are autonomous on their natural to declining ore grades, the mining industry and technologies have helped the mining industry manganese, heavy metal and fluorine concentration resources and therefore have the power to authorize faces numerous challenges impacting recover valuable metals in the most efficient and to generate permeate flows that meet local or not the realization of the activity, the lack of profitability. Dow is helping to address these environmentally sustainable manner for decades. regulatory levels for disposal and/or reuse. clear and uniform regulation on environmental challenges through the ORE approach: impact assessment for the authorization of mining Operational efficiency, Recovery enhancement, • Mining is ranked as the second largest • Elastomers are suitable for both manufacturing operations adds a level of uncertainty about the time and Environmental protection. industrial use of water globally, and managing components and providing wear protection. In mining of implementation of the projects. this use is critical to sustainable operation. Dow applications, Dow’s DIPRANE™ and HYPERLAST™ Constant changes in the regulations by some • In this sense, Dow has developed the most is the largest global supplier of advanced water polyurethane systems have been proven to extend jurisdictions (both in tax matters as regards innovative technologies, a wide range of products treatment components, providing integrated the life of metal components by providing a durable, authorizations to operate) also hinders the and expertise to address a broad spectrum of solutions designed to deliver the right water protective coating. Using a polyurethane coating has development of the sector. mining and mineral processing needs while quality from any natural water source that the added benefit of reducing noise in the maintaining and improving the environmental is locally available. Dow’s water treatment working environment. In the future, the challenge is to create footprint of these operations. technology helps ensure a secure, safe and legislation that balance environmental reliable water supply and enables beneficial protection and the possibility of exploiting • Dow provides a range of choices to help our water reuse to local mining operations. Recommendations natural resources to achieve economic customers tackle their dust emission challenges. development. From dust suppressants to soil stabilization • Proper treating of mine tailings and waste • Ensure greater legal certainty and the compliance solutions, Dow technology can help control dust streams enables miners to meet more stringent of fiscal stability agreements in force. Both the national and provincial governments agree emission from mine roads, tailings, impoundments, discharge requirements and to recover water on the need to raise standards of mining to the levels waste rock dumps, stock piles and other exposed and additional metals. Dow technologies provide • Seek agreements between provinces with respect of the developed countries, which would increase surfaces. the ability to selectively remove suspended solids, to environmental legislation setting a minimum productivity in the sector with certain responsibility precipitated salts, heavy metals and metal oxides. level of environmental standards and transparent to the environment and society. • Efficient and effective separation of metals and This enables miners around the world to choose the processes for evaluating impact. minerals is essential in recovering the most value right solutions to meet their local treatment needs. from mining operations. Dow provides a wide range • Ensure compliance with the rules by of solutions to help our customers optimize their • Acid mine drainage (AMD) waters with high strengthening the role of the Ministry of Environment grinding and milling processes. contamination can be cost-effectively treated and Sustainable Development in coordination with tailored nanofiltration (NF) membranes, with the provinces. • Dow provides a wide range of solutions to help our optimized operation protocols and appropriate customers optimize slurry management, including system designs. • Regulate at the national level the Glaciers National acrylic polymers that disperse and stabilize mineral Law (“Ley Nacional de Glaciares”) passed in 2010. slurries, and biocides that protect against microbial To that end, it will be necessary to complete the induced corrosion (MIC). inventory of glaciers.

30 31 Cross Axis Argentina has an extensive network compared Moreover, opportunities lie in the promotion of to others in Latin America, comprising 37,000 regional integration. Connectivity with Chile through kilometer of rail lines throughout the country, more the Andes would create a critically important than two-thirds of which is broad gauge. Like the transport corridor from Brazil through Argentina to country’s road system, years of neglect have left Chile’s ports on the Pacific Ocean, helping boost the country’s railroads in a poor state. The current regional trade. Projects to achieve this connection state of the rail network, along with the fact that a remain in their early stages. considerable part of Argentina’s most productive lands are located fairly close (i.e. less than 400 In terms of energy infrastructure, Argentina has a kilometers) to the country’s ports promote the use of well-developed gas transportation system, which trucks as the most efficient means of transport for includes over 18,000 miles of natural gas pipelines. many products. These connect production in Argentina’s west and Infrastructure & Transportation south regions with Buenos Aires and other hubs, Manufacturers also rely on marine transport for as well as Brazil, Uruguay and Chile. They are also imports and exports. Therefore, a country’s port used to inject foreign natural gas into the network. capacity can help lower costs and significantly The pipelines serve to supply both domestic contribute to attracting foreign investment. consumption and industrial demand without being at Overview their full capacity. Argentina has a number of key ports, including Infrastructure is a critical element for encouraging The significant use of trucks as transportation – Buenos Aires, Bahía Blanca, La Plata, Rosario, A key connection in the existing network is manufacturing investment, both by ensuring the partly due to an inadequate rail network – has put Quequén and Zárate. The latter is one of the between the Neuquina and Austral basins, and efficient and sustainable movement of products a strain on the country’s roads, leaving them in country’s leading grain export sites and is Bahía Blanca City. Bahia Blanca City is one and by guaranteeing a sufficient and reliable poor condition. Carrying out improvements could undergoing a series of works to adapt itself to the of the most important petrochemical export supply of energy to industry. cost up to USD 1.5 billion per year, according to a expansion of the Panama Canal, which is expected hubs in Latin-America, given its proximity to recent estimate by the Inter-American Development to help Argentine exports in the medium-term. the main deep-water port of the region as well Argentina has a well-developed transport Bank (IDB). While expensive, upgrades are Similar to its South American neighbors, Argentina’s as the developed infrastructure and high-level infrastructure compared to its neighbors. According necessary to help support the economy, increase ports have recently struggled with the increasing technical universities that surround it. to the World Bank, the country ranks second competitiveness and provide the necessary size of container ships. in South America in 2015, after Brazil. More logistical support for manufacturing specifically, one-third of Argentina’s roads are Argentine authorities must ensure that they have paved, as opposed to 23 percent in Chile and only In addition, an efficient, modern and integrated a long-term modernization plan to correct the 13 percent in Brazil. rail system is imperative for ensuring the mismatch between vessel sizes and port capacity. competitiveness of manufacturers. Despite the existing investments being made in infrastructure, the road network needs significant investment, particularly given that approximately 90 percent of all cargo is transported by trucks.

34 35 What more is needed? Expanding and modernizing the country’s ports What Dow is doing would also help increase the amount of goods that can move in and out of the country. Argentina has underdeveloped infrastructure in both • Dow is committed to make the world’s the energy and transportation sectors, which affects infrastructure both sustainable and durable. The most significant energy infrastructure issue industrial consumers. According to accountancy With the world’s largest and broadest supply is long-term maintenance of the network, not and consultancy firmPricewaterhouseCoopers , of raw materials across all categories, necessarily its expansion. An adequate tariff Argentina will need to invest USD 290 billion over Dow lives by a steadfast commitment to scheme is needed for companies to cover the the next 10 years in order to finance the myriad constant R&D that ultimately developments costs of proper maintenance of the pipelines. large-scale infrastructure projects the country robust and dependable infrastructures that In a scenario of increased gas production, needs to promote advanced manufacturing. stand the test of time. taking into account the potential of Vaca Muerta, the network will need to be operational Accessing international credit markets is a • Business units such as Dow Coatings Materials at its full capacity, making proper pipeline traditional source of financing for infrastructure have come up with solutions for infrastructure maintenance essential. projects made difficult by the current business through the development of the largest portfolio climate, however recent successes point to the of technologies and services for formulators of positive impact of these foreign markets.7 Finally, it is a well-known fact that a growing Migratory movements, limited scope of social industrial coatings. The industrial offering helps economy needs infrastructure that boosts country’s housing programs and mortgage credit shortage provide excellent adhesion to substrates and Another positive trend is towards private financing of potential. However, Argentina should take into are factors that influence the problem of housing exceptional resistance, along with waterborne public works. These private-sector led infrastructure account other social demands that arise from a shortage in Argentina, which is compounded by solutions for reduced environmental impact. Among projects are a necessary development given the flourishing economy. For instance, there is a need the significant increase in land prices in recent its applications we can mention the maintenance current economic and financial environment where to consult with towns and cities to make sure they years. Without access to safe land, communities and protection of rails and bridges, concrete and traditional funding sources like governments and are ready to hold a growing population by providing that self-constructed their homes as part of the metal finishing among others. banks are unwilling or unable to provide the capital housing and proper services to assure sustainable social production of a habitat are forced to populate necessary for these long-term, expensive projects. social development. the few lots they have, creating great density in • Answering the growing demand for energy- emerging neighborhoods and transforming them efficient roofs Dow Construction Chemicals In addition to the attraction of foreign state In Argentina, the situation is challenging. According into urban spaces that will be difficult to legalize has developed a variety of roof coating binders and private capital, a comprehensive plan to Habitat for Humanity, the country’s housing in the future. which were specifically designed to enhance should be designed to direct those investments deficit has reached about 3 million homes and the performance properties critical for a long into key areas for the country’s development. increases at a rate of approximately 36,000 Understanding the importance of the access to lasting roof coating: high elasticity, reliable For instance, regarding the current transport homes per year. In addition, out of the 12,200,000 safe land for housing construction, and suitable adhesion, durability, UV resistance and dirt- scenario, a plan should be designed focused on households, 16% are rental units; this is equivalent neighborhoods is very important.8 In addition, it pick up resistance. Besides, Dow has created both the freight rail system and the country’s to housing for 2 million families. brings new business opportunities to the private different technologies based on polyurethanes network of roads. A well balanced, efficient sector since the housing situation challenges and polyethylene to be applied in construction transportation infrastructure system will companies to supply innovative solutions. to improve the energetic efficiency of buildings allow a more efficient raw material and reducing consumption and carbon emissions. finished goods transport.

7 http://www.bloomberg.com/news/2014-07-18/xi-flies-to-argentina-with-7-5-billion-in-tow.html 8 Habitat for Humanity: http://www.habitat.org/where-we-build/argentina

36 37 • Innovation towards the update of the original • Dow is working with different players in FastTrack™ road marking technology was the value chain to develop solutions for the Recommendations introduced recently. FastTrack HD 21A Binder housing deficit through the incorporation of produces an even brighter, reflective line on roads technology that allows faster, more economic • Establish a prioritization process for infrastructure • Incorporate state of the art technology to develop while leaving a smaller environmental footprint. and more sustainable construction. This projects based on their return on investment to the sustainable infrastructure. includes, for instance, the development of the economy, particularly those that support the energy • Dow along with Ferrosur Roca, Celsur Logística, sandwich panel market. Metal panels insulated sector and manufacturing projects identified as • Increase the number of public-private partnerships Terminales Río de la Plata and the Port General with Dow VORATHERM™ polyisocyanurate having a comparative advantage. to ensure the availability of adequate funds and the Administration Office established a cargo and VORACOR™ polyurethane systems for implementation of innovative solutions. transference center in Abbott, Province of Buenos insulated panels and boards bring excellent • Search for external financing for large investment Aires where goods that come from the Bahía Blanca performance and light weight properties projects, which requires guaranteeing good returns • Continue investing in expanding Argentina’s productive hub by train are separated into those that can meet the most demanding industry on investments. ports in order to increase capacity and modernize that are destined to the local market (transported requirements, improve longevity and increase operations. in trucks) and those aimed for export (that continue energy efficiency • Encourage improvement of existing and their path to the Port of Buenos Aires). This public- development of new transport networks, especially • Continue with the proper maintenance of private initiative allowed a 4% growth in the total • Dow and Habitat for Humanity recognize that railroads, which would increase efficiency of pipelines and prepare them to be used at their full volume of the port with the entering of 20,000 extra affordable housing is one of the world’s most industrial sector, especially if they lead to better capacity considering a potential increase in national containers without increasing the road traffic and pressing challenges, and together have been access to ports, which would increase productivity gas production. with a reduction of 6,000 tons of carbon dioxide building comfortable, affordable homes and in the foreign commerce. changing lives together. A partner since 1983, • In Venado Tuerto, Province of Santa Fe, Dow Dow has supported the construction of more than • Develop a trustworthy fluvial corridor with has partnered up with Cooperativa de Obras 45,000 homes – helping families live in decent, barges for containers that links Buenos Aires with Sanitarias of Venado Tuerto and Men-Tec SRL affordable housing in 30 countries worldwide Paraguay in order to balance the current pure-road to develop new modules in the local Water Plant. including Africa, Latin America, Asia, the Middle logistic network. The modules include the new membrane Dow East and Europe, as well as North America. Film-Tec which allow the separation of the arsenic that comes with the water maintaining the salts needed for human consumption. This technological innovation improves processes productivity and timings reducing the amount of water discarded and the electrical energy required by the plant to work.

38 39 Trade

Overview However, there are signs of progress in the A number of the Pacific Alliance countries integration into the world economy after the renewal (Chile, Peru and Mexico) are also involved in the Trade, the ability to access necessary imported inputs and to export to consumers around of authorities in the two main partners of the bloc, Transpacific Partnership (TPP) negotiations, which the world, is a critical element of Argentina’s growth strategy. including recent renewal of discussions with the would create preferential trade alliances with Asia. EU (with new exchanges of offers in this more than A strategic long term external commerce policy The trade surplus has been growing in 2016 as decade-old negotiation) and the fact that Argentina Finally, Argentina has been an active partner in that guarantees access to markets is essential a result of a rise in exports of the soybean became an observer party of Pacific Alliance, formed different international commerce forums such 9 to the development of advanced manufacturing. complex and a drop in imports. by Chile, Peru, Colombia and Mexico in 2011. as the G-20, WTO, United Nations Food and Driving investment and exports, the ability to tap Agriculture Organization, United Nations Industrial into regional and global supply chains and sell Argentina’s benchmark trade agreement is In fact, Mercosur is facing increasing competition for Development Organization, World Intellectual products into larger markets beyond just domestic Mercosur, which currently accounts for 23 percent proactive economic reform and trade liberalization Property Organization, United Nations Conference consumers is essential. Working to ensure a closely of the country’s imports and exports. across Latin America. The Pacific Alliance is on Trade and Development, among others such as linked and efficient trade-related regulatory system In the last years, defining an agenda that would experiencing faster economic growth with more the Organization for Economic Co‑operation and will create a more investor-friendly environment. ensure effective enforcement of existing open economies and market-friendly policies that Development.10 commitments and meaningful proactive have bolstered foreign investment, so it seems Although exports are down 1.6 percent through negotiations has been difficult. possible that both Argentina and Brazil seek to move 2016, Argentina posted a $ 361 million trade in this direction in the coming years. surplus in September due in part to an almost ten percent drop in imports on the year.

10 9 ABECEB. Argentina’s Ministry of External Relations and Cult – www.mrecic.gov.ar

40 41 Meanwhile, trade with the EU totaled $ 16.6 billion U.S. direct investment in Argentina is mostly in Trade partners (exports to the EU of $ 6.3 billion and imports industry/agriculture, natural resources, finance, and of $ 7.3 billion), showing greater balance. The services. In 2007, the U.S. and Argentina modernized Currently, Argentina is heavily reliant composition of trade also reflects the pattern of a bilateral civil aviation agreement to update safety and on Brazil as a market for its products, exports concentrated in commodities and imports security and provide for more-frequent flights between making up 15.1 percent of its accumulated of industrial nature, although the disparity is lower the two countries, allowing for increased volumes of 2016 exports. The consulting firm ABECEB and Argentinean sales are more diversified and tourism and business travel. noted that “the economic recession in higher value-added. However, trade dynamics has both countries” were the primary factors in not been significant in recent years. explaining the 7.5 percent drop in bilateral trade in September 2016 (year over year), The countries with which trade has shown the greatest with Argentina recording a $ 3.7 billion deficit. dynamism have been China, its neighbors in Asia What more is needed? Pacific and India, although industrial competitiveness gaps with them limit possibilities to take greater A comprehensive international trade policy In recent years, China consolidated Bilateral goods trade between the U.S. commercial integration. should be based on Argentina’s comparative its position as the second foreign and Argentina summed to $ 8 billion in advantages and it should consider a balance market for Argentinean exports with 9%, from the first nine months of 2016 ($ 5 billion in U.S. between the diversification of relationships, purchases of staple foods such as soya and exports to Argentina, $ 3 billion in Argentine Foreign direct investment reestablishing dialogue with the USA and cereals. The Asian country surpassed the United exports to the U.S.), and has been roughly flat Europe, without losing focus on key markets, like States, which currently ranks third (7%), and since 2011 ($14.5 billion). Combined goods and Foreign direct investment in Argentina is divided Brazil or China, as well as on working on opening then appear India and Vietnam (both with 4%). services bilateral trade totaled $ 22.4 billion in nearly evenly between manufacturing (36%), new ones. In other words, Argentina should work The remaining countries represent 60% 2015 (latest figures on services trade available). natural resources (34%), and services (30%). towards strengthening relationships with its of total exports. U.S. exports to Argentina include machinery, The chemical and plastics sector (10%) and the most valuable commercial partners, boosting, oil, organic chemicals, and plastic. U.S. imports automotive sector (6%) lead foreign investment for instance, MERCOSUR’s potential, without China has become a highly relevant partner for from Argentina include mineral fuel and oil, in local manufacturing; oil and gas (22%) relying on a single ally. Argentina in the last decade. As of September aluminum, wine, iron and steel products, and and mining (5%), in natural resources; Diversification should be considered in a long 2016, total trade amounted to $ 12 billion, preserved foods. The two countries have signed telecommunications (6%), finance (5%), term foreign commerce policy. explained by $ 8 billion of imports from a bilateral investment treaty, and more than 500 and retail trade (4%), in services. Argentina and $ 4 billion of exports to China. U.S. companies are among the top investors in Having said that, Argentina must take advantage Trade deficit has grown in recent years, and the country with nearly $ 20 billion invested in Spain was the leading source of foreign direct of the opportunities provided by regional blocs. there is a qualitative imbalance since China’s Argentina as of 2013. investment in Argentina, accounting for US$ 22 Greater regional cooperation with neighbors exports are concentrated in industrial products billion (28%) in 2009; the U.S. was the second is an important component in maintaining and with high added value, while Argentine external leading source, with $ 13 billion (17%). developing Argentina’s position as a regional hub. sales are almost all commodities, with a very It can be a catalyst for greater regional growth and high concentration in soybeans. Moreover, economic prosperity, as well as create enhanced the importance of the Asian countries has access to regional markets for Argentinean goods. increased as it financed major public projects.

42 43 By advocating greater cooperation among the In this context, the government must avoid Other factors to consider are controlling region, Argentina can be a leader in creating greater drastic measures towards either liberalization macroeconomic instability, which is an endemic What Dow is doing efficiencies and attracting investment. or protectionism but instead, create a balanced feature of Argentina, guiding resources obtained by environment that encourages profitable local external investment or borrowing to increase and • As key industrial partner of Argentina and leader Argentina have already clearly prioritized global production without excessive barriers to trade. improve of the country’s reproductive infrastructure. of the petrochemical industry, Dow is deeply engagement, market access and trade as critical committed into participating in different public- elements of the country’s growth program. On the one hand, the government should adopt Finally, by aligning with Argentina’s growth markets private forums to collaborate in the definition of a Aggressively seeking new markets through trade sensible measures that allow companies to access and local producers, the government can incentivize business environment that would boost Argentina’s agreements is a positive step in the right direction the required supplies without forcing an uneven efforts on regulatory cooperation. At a horizontal potential. and will help unlock Argentina’s manufacturing competition with foreign products. Moreover, level, regulatory cooperation promotes business potential in the future. the destination of the final products should be engagement in reviewing and commenting on draft • As one of the 20 most important exporters, in 2015 addressed. The success of locally producing regulation; ensures transparency of the regulatory Dow Argentina exported goods for over U$S 400 To date, the government has: added value goods is directly linked not only to the process and enables public-private sector million including specialty plastics, polyurethanes, satisfaction of domestic demand but also to the consultation to ensure effective, sound regulation. crop protection products, seeds and technologies • Secured observer status with the possibility of allocating competitively production At a sector level, regulatory cooperation can for the oil and gas and mining industry, among others. Pacific Alliance surplus into other countries. This will result in an highlight critical elements of industry regulation and increase of the production, employment, fiscal encourage dialogue with major trading partners to • Currently, Dow Argentina keeps strong • Re-engaged with the EU-Mercosur negotiations contributions and exports of manufactured goods, prevent costly or inefficient regulatory divergences. commercial relationships with Brazil, main export including developing new offers injecting foreign currency into the country. destination. However, it holds a diversified strategy For the chemical industry, this approach is one with markets that include the United Stated, Asia, • Established a strategic partnership with the US, where government regulators could meet the Chile, Paraguay, Peru, Uruguay, among others. including regulatory dialogues to promote greater A commercial strategy based on the export of high standards of protecting health and human efficiency and growth added value goods instead of primary materials safety but also move more efficiently to approve • The untapped potential in non-conventional allows a long-term industrialization plan since chemical products, bring innovative chemical inputs gas could be the key to the rebirth of Argentina • Submitted their category A commitments to the economy becomes less vulnerable to the to market and encourage growth in downstream manufacturing industry and opens the possibility for implement the WTO Trade Facilitation Agreement fluctuations of international prices. Therefore, manufacturing. the country to become an industrial hub, increasing (TFA) the government should provide a clear, stable the sourcing for value chains throughout Latin trustworthy regulatory framework which America and even the world, especially considering Increasing the alignment of business and enables local production and guarantees the South-North and South-South relationships. government is a critical element to ensure a allocation of the industrialized goods. Creating proactive and strategic path forward on trade a business friendly environment is fundamental • Dow is a key chemical player in Argentina, and a liberalization. For example, business can provide to make Argentina an appealing destination for thought leader in the chemical industry. In that role, critical expertise in the establishment of the TFA national and foreign investments. we are actively working with ICCA, which includes national action plan. our Argentinian partners, as well as Peru, Mexico, and Brazil to bring together a sectoral approach to regulatory cooperation. This would be based on sound science, risk assessment and transparency in the regulatory decision making process.

44 45 Recommendations

• Establish a proactive, strategic trade • Promote adoption of new technologies; including agenda aligned with industry priorities to ensure bio-technology for Argentina’s extensive farming effective access to necessary imports and to build community; and ensure effective market access export markets. with major trading partners such as China.

• Work with private sector input to advance trade • Advocate for regulatory cooperation in Latin liberalization efforts with Mercosur (especially the America, at horizontal and sectoral level; with bilateral negotiation with the EU); engage the Pacific chemical regulation based on sound science and Alliance; and make meaningful progress in the US- risk as a priority. Innovation & Argentina strategic commercial dialogue. Establish effective national implementation plan for the WTO Skills Development Trade Facilitation Agreement, prioritizing customs inefficiencies and de facto trade barriers. Overview

Innovation and skills development, two interrelated and mutually supporting elements, are crucial to improve a country’s productivity and economic growth. More specifically, both are essential for a robust and sustainable manufacturing base, and therefore the development of a successful advanced manufacturing sector.

Similar to other countries with economies based Argentina has recently sought to develop a on traditionally low-tech extractive industries, number of strategies to help diversify its economy Argentina has low levels of investment in R&D, often and mobilize innovation in order to improve its viewed as an indicator of a country’s capacity for competitiveness, move up the global value chain innovation. However, while low compared to the and escape the so-called “middle income trap”. developed world, Argentina’s R&D as a share of More significantly, in 2007, the government created GDP ranks second highest in South America and is the Ministry of Science, Technology and Productive trending upwards. Spending rose to 0.59 percent Innovation (MINCYT) to act as the coordinator of GDP in 2014 and the total number of personnel of the National Innovation System as well as the devoted to R&D increase 37% over the period technology efforts of other ministries. 2008-2014, to almost 110 thousands in 2014. This Ministry was maintain in Cabinet by current government.

46 47 In addition, the government has developed a The main challenge for the educational system, number of specific programs and funds to support despite high graduation rates at the primary level, is What more is needed? What Dow is doing innovation. One of the most successful of these to improve student learning at both the elementary programs is RAICES (“Roots”), which targets and high school level.11 Rising inequality in Argentina’s Wide-ranging improvements in education as well as • Dow has developed a series of programs to Argentina’s diaspora by allowing for the re- educational system has also led to major disparities a strategy that highlights the importance of STEM increase community interest in science and expatriation of scientists who are working overseas between public schools in different regions especially education and careers will be critical if Argentina is technology and improve the engineering talent due to the lack of professional opportunities in the across the urban-rural divide.12 ever to establish a robust manufacturing economy. pipeline. The multi-award winning Buen Trabajo country. The program – which also promotes links Imbalances in the quality of education at schools (Good Job) Program, introduced in 2007, delivers between scientists abroad and offers information across the country should be addressed to Argentina needs to produce and support the training to unemployed young men and women about local job opportunities – has resulted in the improve educational outcomes, and for development of a larger pool of engineers and in Argentina. The program addresses the nation- return of more than 1,000 scientists to Argentina the country to experience the downstream benefits scientists – as well as build expertise in data wide issue of youth unemployment by giving young and an increased supply of younger researchers. that come with a more highly educated workforce, analytics and product design – in order to face people skills related to the industrial service market, such as innovation. new economic challenges and advance its such as welding, scaffolding, industrial painting and Despite the country’s efforts to count with highly budding shale industry. pipe maintenance. educated specialists, a comprehensive plan is Though Argentina has made progress in recent needed not only to develop talent but also to years, many systematic challenges remain, however The basis of competition in most manufacturing • In order to help develop Argentina’s base of allocate it to key areas aligned to the pillars of there exists real opportunity to make meaningful sectors is shifting and access to diverse talent pools qualified engineers,Dow offers a joint course the industrialization strategy aimed to economic advances given the foundation of high literacy is critically important. To capitalize on its human at the Bahía Blanca Regional Faculty in the development. R&D energies should be focused rates, high graduation rates in primary education, resources, Argentina must focus on addressing National Technological University (Universidad on areas in which the country has a comparative and a legal framework that must now be properly rising inequality in its educational system, which Tecnológica Nacional) called Cátedra Dow (Dow advantage: engineers in oil and gas, civil engineers, implemented. has led to major disparities, especially between the Chair). The program aims to help undergraduates agricultural engineers, biotechnology scientists (for urban and the rural population. Imbalances in the gain technological and professional skills that assist plants and medicines) and electronic and mechanical quality of education at schools across the country with their rapid integration into the workforce. engineers for nanotechnology and satellites should be addressed to improve educational outcomes and for Argentina to enjoy • Dow takes a solutions-oriented approach to To do so, the country will need to improve the quality the downstream benefits that come innovation, working alongside with customers in key of education in mathematics and science at both from a more highly educated workforce. end-markets to address their product challenges the primary and secondary level, promote college and enhance productivity. As a result, in 2014 CNBC and tertiary education, offer incentives to start- named Dow one of the top 50 innovation companies ups, promote local suppliers of capital goods and in the United States, particularly based on its ability encourage collaboration between universities, to increase revenue from R&D. private sector and research institutions. This recognition reflectsDow’ s “Human Element Argentina ranks among the biggest investors in at Work” advertising campaign, which highlights education in Latin America, allocating more than 6 how Dow employees work together to develop percent of GDP to education, according to a recent advanced solutions based in science and improve report by the Economic Commission for Latin the human condition. American and the Caribbean.

11 http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37331863 12 http://www.argentinaindependent.com/socialissues/development/argentinas-education-dilemma-the-best-educated-with-the-weakest-system

48 49 • Dow has developed a series of “technology • Dow participates in Cadena Productiva connection” conferences together with certain (Productive Chain), an educational program run Recommendations pre-selected universities, including the University by all the corporate members of the Chamber of Buenos Aires, National University of Mar del of Commerce, Industry and Services of San • Continue efforts to improve public education, • Strengthen the links between government, Plata, the National University of the Littoral and Lorenzo and the surrounding region, to educate particularly in the teaching of STEM subjects. industry and academia, partly by improving the the Buenos Aires Institute of Technology. primary students about the importance of the connection and continuous collaboration between industrial belt and its value to the community. • Improve teacher’s development, training and the local research system and manufacturing • At Dow’s request, Fundación Leer designed evaluation, as well as the quality education companies. a program to foster training in sciences among • Dow works together with Pescar Foundation in materials, and increase the hours of instruction. teachers of the General Basic Education (EGB) level an educational program aimed to prepare teenagers • Create tax incentives for the development of while stimulating scientific thinking among children to enter the working world by developing their • Generate mechanisms to ensure a minimum technology companies in sectors in which Argentina through experiments and related lectures. The employability skills and strengthening their personal “knowledge basis” for mathematics and science, and has a comparative advantage, such as oil and gas, program teaches 1,000 students each year across abilities. The program takes place in Venado Tuerto, create coordination schemes between the federal biotechnology and nanotechnology. 10 schools. Province of Santa Fe, were Dow has one of its government and the provinces in order to reduce agribusiness plants. Over 300 children have already educational inequalities across the country. • Grant tax reductions to companies that rely on • In the context of the 2011 International Year been through the program. local providers of high-tech inputs. of Chemistry, Dow Argentina supported • Work together with the industry and educational the production of the book Química Hasta en • Dow leads a joint initiative with the National institutions to ensure that skills learned in school • Improve incentives for students that choose la Sopa (Chemistry Even in Soup). The book, Technological University and the National fit the needs of employers. This could be achieved engineering and science degrees. which demonstrates how chemistry is present University of the South as well as CONICET through cooperation between companies and in everyday life, was presented in 2012 at the called Dow Education Movement with the objective universities in the definition of the study programs • Promote educational exchanges and scholarships 38th International Book Festival of Buenos of developing two technical undergraduate courses, and creating internship programs in advanced for students willing to specialize in those areas that Aires where 90 children participated in science one in Maintenance and the other in Industrial manufacturing and high-tech companies for are key to the country’s development. workshops. Process. Both courses look for the generation of promising students. highly educated talent in technical areas. • Establish measures to develop service industries • Dow provides support to the National University to support productive clusters of the South and the National Technological University (Bahía Blanca Regional Faculty) to contribute to the training of engineers through master degrees and doctorates.

50 51 This AMP sought to provide guidelines on the areas that Dow believe are the best opportunities on which to build a new advanced manufacturing economy:

• Energy: driven by the reactivation of the • Infrastructure & Transportation: key to hydrocarbons market, both conventional and foster new investments and allow efficient and non-conventional, boosted by the rebirth of profitable operations. the petrochemical industry through the four waves of development. • Trade: opening markets and enabling the free Conclusions flow of goods across boarders. • Agriculture: benefiting from the country’s capacity to produce primary goods but • Innovation & Skills Development: complementing it with research and essential to guarantee a sustainable development towards new technologies and the talent pipeline Dow is convinced that Argentina faces an historical opportunity to redefine its long term addition of value to the industry. development strategy by taking advantage of advanced manufacturing industries. Argentina can achieve its maximum potential if thoughtful, long-term policies are enacted to support smart • Mining: a sector that holds great potential natural resource use and downstream, value-adding advanced manufacturing. considering Argentina’s mineral resources.

In order to do this, cooperation between Dow is prepared to support a public-private Dow reinforces its commitment to the economic public, private and academic sectors is crucial partnership that brings together thought leaders and social development of Argentina in order to to identify and agree on the areas where the in economics, manufacturing, innovation and adopt a leading role in the industrial rebirth of adoption of innovative policies could help to education, and public policy to identify and the country based on the potential of advanced improve competitiveness and attain sustainable prioritize key recommendations that will drive an manufacturing. development. advanced manufacturing economy in Argentina.

This dialogue forum can adopt the form of an Advanced Manufacturing Council, which would carry out discussions and define a strategy to help Argentina develop advanced manufacturing based on its key growth platforms.

52 53 dowargentina.com.ar

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