Doing Business in Argentina 2018
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www.pwc.com/ar Doing Business in Argentina 2018 Geographical and demographical 4 background Investment and Challenges in 10 Argentina Form of Foreign Investment / 14 Structuring the Deal Foreign Trade and 16 Customs Regulations 20 Tax system Reference 31 information 32 Contacts Geographical & demographical background 4 Location The Republic of Argentina1 is located in South America, between latitudes 23°S (Tropic of Capricorn) and 55°S (Cape Horn). The Andes separates the country from Chile to the west and Bolivia to the northwest; Paraguay lies directly to the north, with Brazil, Uruguay and the South Atlantic Ocean to the east. Brief history of the country The history of Argentina began in 1776 with the creation of the Virreinato del Río de la Plata, the name given to the colonial territories of Spain. In 1810, Argentina initiated a process that led to independence in 1816, although for over sixty years there were internal battles for control of income from Customs, monopolized by the Province of Buenos Aires. After this period of civil war, the country began a process of modernization in 1880, with the creation of new public institutions and efforts to build a foundation to incorporate the country into the international system of division of labor as an agricultural commodity producer. At the beginning of the twentieth century, Argentina followed an agro-export economic model which placed it as a leader in the world economy. This model was based on three pillars: a) high prices of commodities, b) incorporation of extensive croplands to the production process, c) and the incorporation of hundreds of thousands of relatively highly-skilled immigrants to the labor market. Between 1930 and 1983 there was a period of institutional instability, characterized by rotating civilian and military governments. The effects of the Great Depression severely affected the country in the thirties, essentially due to a drop in trade and export volumes. From the beginning of the fifties into the seventies, Argentina changed its economic model to substitute imports, in an attempt to create an industrialized economy. In the seventies, under a new military regime, the country adopted an open economic model, eliminating mechanisms to protect industry. 1Argentina has six major regions: the Northwest, Northeast, West (Cuyo), Central (Pampeana), South (Patagonia), and the Greater Buenos Aires metropolitan areas 5 Once democracy returned in the early eighties, the country faltered in finding a clear path to growth. GPD was stagnant, as in most Latin American countries, with episodes of hyperinflation toward the end of the decade. At the beginning of the nineties, Argentina adopted a convertibility plan with a pegged exchange rate. Many of the country’s public utility companies were privatized during this decade. After the 2001-2002 economic and social crisis, convertibility and the pegged exchange rate were abandoned and replaced with a controlled floating rate system. During the first decade of the twenty-first century, Argentina experienced rapid growth driven mainly by commodity exports. During the period 2003-2011, the country’s GDP grew at an average rate of almost 8%. As from 2012, the economy recorded a strong deceleration, with a 2012-2016 compound annual growth rate (CAGR) of 0.14%, always at constant prices. The main cause of this drop was the growing imbalances in both the internal and external sectors. With the new administration of President Mauricio Macri, the country returned to the international stage, and in 2018 Argentina chairs the G20, which is a key international forum with other countries for discussing and decision-making on adopting concrete solutions for the chief challenges of the global agenda. The climate Prominent industrial sectors in the major cities The climate varies from subtropical in the north to sub-Antarctic in the south, featuring a wide Petrochemicals, Steel, Foodstuffs, Textiles, temperate belt between these two extremes. The city Metalworking, Cement, other construction materials, of Buenos Aires and most of the other main cities and Printing and publishing, Glass, Pharmaceuticals, industrialized areas are situated in this temperate Industrial gases, Agrichemicals, Tires for vehicles, region, where maximum summer temperatures Basic chemical products and Sugar. Agriculture is the average between 27° C (81° F) and 32° C (90° F), with productive sector with the most important and temperatures occasionally exceeding 38° C (100° F). dynamic assets. Winters are relatively mild, with occasional frost. Snow and prolonged frost are rare except in the Population, major races, legal language, common western mountainous areas and in the south. languages/dialects used: Area2 2.78 million km2 Population 44.04 million Education in Argentina Population per km2 15.8 Population growth 1% Education access in Argentina is free; however, to per year encourage high attendance rates in school, it is Urban Population 91% mandatory from the age of 4 to 18. Over twelve Form of Republican, representative and federal million students attend public and private schools Government and universities. Language Spanish Currency Argentine peso ($) 24 autonomous provinces with their own political, administrative and economic Political division administrations (23 provinces and the Mineral and energy resources Autonomous City of Buenos Aires) Capital City Autonomous City of Buenos Aires Energy resources: oil, gas and electricity; mineral resources: gold, copper, lead, zinc, lithium, natural borates, bentonite, clays and construction stone. 2 Argentina is 2nd in territorial size in Latin America and 8th in the world 3 The President is both the Chief of State and Head of Government 4 One-third of the members are elected every two years for a six-year term to the Senate, and one half of the members are elected every two years for a four-year term to the Chamber of Deputies. 6 Political and legal system Major government authorities since December 10, 2015: President3 Mauricio Macri Vice President Gabriela Michetti Cabinet Cabinet appointed by the President Brief description of the legal framework Argentina is a federal republic. The federal government consists of an Executive branch, headed by the President; a Legislative branch in the form of a Congress, which is divided into two chambers: the Senate and the Chamber of Deputies; and a Judicial branch. Provincial governments are generally organized along similar lines. Legislative Branch The Bicameral National Congress (Congreso Nacional) is made up of 72 seats in the Senate and 257 seats in the Chamber of Deputies. All members are elected by direct vote4. Currently the governing Party has no majority in either Chamber, a situation that has never happened in the modern history of the Country. 7 The economy 2017 was a year of consolidation of the economic activity and continuity in the normalization of macroeconomic variables. At the end of his second year in office, President Mauricio Macri has strengthened his position: with firm leadership after the congressional elections of October 22, 2017, at the local level, and receiving support from world leaders, at the international level. According to official figures, GDP grew by 2.9% in 2017 compared with 2016. Investment was the main driver of this recovery, with 11.3% year-on-year growth and a 20.5% GDP share (the highest figures since 2011), followed by a 3.6% increase in private consumption. Further, with sector activity under analysis, 13 of the 16 economic sectors grew in 2017 compared with the previous year. The most prominent were construction (+10.4%); financial intermediation (+5.1%); and rental, real estate and business activities (+3.19%). As for inflation, prices rose by 24.8% in 2017. There was a strong increase in regulated prices, which increased by 38.7% due to the adjustment of rates implemented by the current The commercial channel of Foreign Trade has left a negative administration in 2016. Despite this number, the consumer balance in 2017, which rose to U$ 8.515 billion, after showing price index (CPI) dropped 16 percentage points in relation to a rise in 2016. Exports grew 0.9% affected by a slowdown in the prior year, although it was outside the 17% target initially the Brazilian economy, Argentina’s main business partner, established by the Central Bank (BCRA). and a decline in soy exports due primarily to a fall in production, (as well as a high comparison base in 2016 due to Measures taken by the BCRA to reduce inflation involved the strong liquidation of stocks as a result of the lifting of the maintaining positive real interest rates, which encouraged “currency clamp” and the elimination of restrictions on income from foreign currency with financial objectives. withholdings). Recovery of economic activity helped increase imports to 19.7%, with 68% of imports linked to the In 2017, the government surpassed the primary deficit target productive process and to investment (work in process, of 4.2% of GDP, as in 2016. The public sector has significantly capital goods and components and accessories for capital modified its pattern of financing: up to 2015, its main source goods). Meanwhile, the balance of services had a deficit of U$ was through the Central Bank; whereas from 2016, funding 9,778 billion. has come mainly through borrowing in the capital markets. As a result, having obtained part of the necessary financing in The government’s tax strategy involves a gradual decrease in dollars at the beginning of 2018 to cover the fiscal deficit in the fiscal deficit, using indebtedness to finance this transition, the current year, which limits the need to return to the including an IMF supporting line of credit, while the economy international market, the economy could be expected to grow grows and allows for the reversal of the deficit through higher in 2018 although still at moderate rates. tax revenues and lower GDP expenditures. However, this strategy faces a challenging international situation, where increases in interest rates could make financing more expensive and reduce the availability of funds for emerging countries such as Argentina.