Investing in Argentina Industry Approach Financial Advisory Services Argentina November 2017 Content • Argentina – Country’s Overview • Industry Snapshot • Consumer Goods & Retail: Food, Beverages & Tobacco • Financial Services • Agribusiness • Telecommunications, Media & Technology • Energy © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Country’s Overview Politic Regime Argentina Politic Regime Politics & Government System of Government: Federal republic with three branches of government. Executive (President), Legislative (Congress) and Judiciary (Supreme and Lower Courts). Federal Government:The country is divided into 23 provinces plus the autonomous city of Buenos Aires. Provinces have their own constitutions and executive, legislative and judicial branches of government. Congress: Divided into two houses: the Senate and the House of Representatives. Members are elected by popular vote. In the case of the Senate, members are elected for six-year terms. In the House, members are elected for four-year terms. Government Regime Executive Legislative Judiciary (President) (Congress) (Supreme & Lower Courts) Representatives President - Senate: 72 (3 per Supreme Court: 5 /Members Province + 3 for the members Buenos Aires City) - House of Representatives: 257 Elections Every four years - Senate: mandates Selected by the based on a two-round last 6 years. Elections president, with the system: the candidate are held every 2 years Senate approval, wins if he receives in which 1/3 of the and remain in either 45% of the vote Senate is voted. charge as long as or 40% and is 10% - House of they have the right ahead of the second Representatives: conduct. candidate. If not, a mandates last 4 years. When a member run-off takes place. Elections are held every turns 75 years old, 2 years in which half of his is re-named the chamber is voted. every 5 years, as long as his is able to comply with the charge’s responsibilities. Source: National Investment and Trade Promotion Agency information. © 2017 Deloitte & Co. S.A. All rights reserved. Macroeconomic Factors Argentina Macroeconomic Factors (1/2) GDP Real Growth (%) 3,3 3,4 4 2,4 2,6 2,7 2,7 2,7 2 0 -2 -1 -4 -2,5 -2,2 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Average Exchange Rate (AR$/US$) 30 22,22 23,6 19,07 20,81 20 14,76 16,6 8,08 9,23 10 4,54 5,46 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Inflation Index (%) 60 38,1 41,4 40 25,3 23,4 26,5 26,2 17 20 10,8 7,9 6,3 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F National Reserves (US$ Bn) 60 54,5 43,2 38,4 40 30,5 31,4 25,5 20 0 2012 2013 2014 2015 2016 2017F Source: EIU and BCRA (Central Bank). © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Macroeconomic Factors (2/2) Country Risk (%) 12 10,7 9,9 10 7,9 8 5,9 6 4,8 3,6 4 2 0 2012 2013 2014 2015 2016 2017 Trade Balance (US$) 20 15 15 10 5 6 5 5 0 0 -5 -5 -5 -10 -6 -7 -6 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Fiscal Deficit/GDP (% of GDP) 0 -1 -2,1 -1,9 -2 -2,7 -3,4 -3 -4 -4,8 -5,3 -5 -5,9 -6 -6,3 -6,4 -6 -7 2012 2013 2014 2015 2017 2017F 2018F 2019F 2020F 2021F Source: Deloitte’s analysis based on EIU, Ambito Financiero, INDEC. © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Macroeconomic Factors (2/2) Total Foreign Debt (US$ Bn) 300 256 233 245 250 210,0 222 190,0 201,4 200 160,0 147,0 145,0 150 137,0 100 50 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F Total Public Debt/GDP (% over GDP) 70 56 57,9 57,2 56,4 60 54,0 54,5 54,4 54,7 50 41,3 36,7 39,4 40 30 20 10 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F Debt Interest Payments/GDP (% of GDP) 4,0 3,7 3,7 3,2 3,0 2,5 1,9 2,1 2,1 2,0 1,6 1,6 1,3 1,0 0,0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Deloitte’s analysis based on EIU, Ambito Financiero, INDEC. © 2017 Deloitte & Co. S.A. All rights reserved. Economic Sectors Argentina Economic Sectors Regional Main Activities Argentina has a highly diversified economy. It's key sectors are: Northwest Agriculture agribusiness, pharmaceuticals, Mining automobiles, energy & resources Gas and biotechnology. Argentina is world leading producer of foodstuffs: third Northeast producer of soybean, fourth Agriculture producer of sunflower and Forestry Cuyo between the largest beef Mining producers. In addition, it has the Winery world’s fourth-biggest shale oil Pampas reserves and the second-biggest Agriculture shale gas reserves. It is very rich Cattle Raising in terms of mining resources: Industry gold, cooper, silver and lithium – world’s third largest reserves, behind Bolivia and Chile. GDP by Activity (2015) 17% 20% Patagonia Oil & Gas Fish 2% Fruits 2% 13% 3% 3% 3% 10% The leading industrial sectors 4% are: food processing, 4% 4% 8% beverages, chemicals & 7% pharmaceuticals, oil refining, Manufacturing Wholesale, Reatail & Repairs motor vehicles and auto parts. Real Estate Logistics Regarding services, the main Agriculture Financial Services sectors are wholesale, retail, Public Administration & Defense Education transport and communications. Health Services Mining The service sector is the largest Construction Leisure job creator. Electricity, Gas & Water Other Source: Deloitte’s analysis based on EIU, INDEC. © 2017 Deloitte & Co. S.A. All rights reserved. Investment Activity & Foreign Trade Argentina Investment Activity Foreign Direct Investment Stock (US$ B) 160 137,00 140 123,00 120 109,00 99,00 95,00 100 88,00 90,00 80,00 83,00 80 72,00 60 40 20 - 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Identified Investment Opportunities (US$ B) The National Government has identified investment opportunities for approximately US$ 240B across multiple sectors as described below: Transportation & Federal Power & Infrastructure Infrastructure & Renewable Energy + US$ 80B Public Works + US$ 35B + US$ 60B RE & Urban Mining Oil & Gas Development + US$ 30B + US$ 25B + US$ 5B Telecom & High Agribusiness Tourism Technology + US$ 2B + US$ 1B + US$ 2B Source: INDEC and National Investment & Trade Promotion Agency. © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Recent M&A Activity Deal Volume 100 91 78 68 77 71 56 50 0 2012 2013 2014 2015 2016 2017YTD Acquirer’s Origin – 2016 (Volume) North America Europe 12% 12% Asia & Oceania 6% Latin America 70% Recent Deals Year Target Acquirer Acquirer Deal Ticket Origin (US$ M) 2016 Petrobras Pampa Energía Argentina 897 Argentina 2016 Telecom Fintech Group Mexico 812 Argentina 2016 Grupo Mabe Ontex Group Belgium 444 2016 Nextel Grupo Clarín Argentina 178 Comunicaciones 2016 Campo Austral BRF Brazil 85 Source: Deloitte’s analysis based on Mergermarket & Thompson Reuters information. © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Foreign Trade Imports FOB (US$ B) 100 78 83 71 70 74 65 62 62 66 57 53 50 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F Imports Ranking Imports by Partner 2014 2015 2016 Brazil China Brazil 1° 1° 1° 24% 26% US China 2° 2° 2° Germany Mexico US 3° 3° 3° 2% 2% France Germany 4° 4° 4° 3% Italy 3% 19% 3% Japan Mexico 6° 5° 5° 5% 13% Spain Rest Exports FOB (US$ B) 100 80 76 80 68 68 73 57 58 57 60 63 50 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F Exports Ranking Exports by Partner 2014 2015 2016 Brazil 16% China Brazil 1° 1° 1° US China 2° 2° 2° 8% Chile Spain US 3° 3° 3° 53% 8% Germany Chile 4° 4° 4° 4% Netherlands 3% Canada Spain 6° 6° 5° 2% 2%2%2% Uruguay Rest Source: EIU, INDEC. © 2017 Deloitte & Co. S.A. All rights reserved. Demographics Argentina Population Characteristics & Age Distribution Population Characteristics Population density: Age distribution: 10.7 persons/km2 25.5% under 15 64.3% between 15-65 10.2% over 65 Population: English proficiency: High th 43.6M inhabitants (19 in the World – Education First English Proficiency Index) Literacy rate: 98% GDP per capita: US$ 21,430 Official Language: Spanish Age Distribution (in Millions) 65+ 2,431,674 15-65 13,135 12,654 0-14 5,027 5,195 -15 -10 -5 0 5 10 15 Millions Men Women Source: Deloitte analysis based on INDEC information. © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Employment Unemployment (%) 10 8,5 8,6 9 8,1 7,8 7,5 7,4 8 7,2 7,1 7,3 7,2 7 6,5 6 5 4 3 2 1 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F Average Wage (US$ per month) 1.200 978 992 938 957 955 1.000 902 931 842 868 777 800 600 400 200 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: EIU, INDEC © 2017 Deloitte & Co. S.A. All rights reserved. Argentina Education Analphabetic Index – 2010 Social Census (%) 5 4,7 4 4,2 3,1 3 % 2,8 1,6 2 1,4 1,2 1,2 1,3 1 1,3 1 0,8 0,8 0,9 0 10-14 15-17 18-24 25-29 30-49 50-64 65 + Male Female English Level (EF EPI over 72 countries) 20 19 19 19 18 16 15 15 14 12 10 8 6 4 2 0 2012 2013 2014 2015 2016 #1 in 9,8 average Expense in LATAM (14 years of Education: countries) education 15% of GDP Source: INDEC, EF EPI © 2017 Deloitte & Co.