By H.E. Pablo Grinspun, Ambassador of Argentina to the Kingdom of Belgium.
Belgium is one of the most open economies in the world, but the benefits from international trade are being challenged by the new world context, especially the emerging protectionism from some countries and the consequences of the Brexit vote. Therefore, the current environment in key trading partners is asking for a growing diversification of Belgium’s economy.
Belgium’s economic missions chaired by HRH Princess Astrid are a unique opportunity to achieve this goal. This year, Argentina and Uruguay will be the destination of the first of the two missions that will be organized throughout the year. It will take place from 23 to 30 June and the delegation will be composed of around 200 people, including authorities and entrepreneurs.
We are pleased to see Argentina was chosen as an important partner and a growing market for Belgian businesses to explore. From our view, this decision was not random. It appears as an important milestone in a set of past actions aimed at strengthening the bilateral relationship. Namely, the missions led by the Antwerp Chamber of Commerce (VOKA) and the mission led by Walloon Agency for Export and Foreign Investment (AWEX)to Argentina during the last semester of 2017. Given the current context of closeness between Belgium and Argentina, the mission chaired by SAR Princess Astrid to our country seems relevant.
The reasons for investing and trading with Argentina are numerous. The country has one of the richest economies in Latin America. With a population of 44 million people, Argentina is the 3rd largest economy in the region (GDP of 913 Billion USD, in PPP terms) and has the 2nd highest GDP per capita (also in PPP terms), making our country the 3rd largest consumer market in Latin America. Also, it is important to consider Argentina as a member of MERCOSUR (which comprises a population of more than 295 million people), the 5th largest economy in the world and the 4th largest trading bloc after the EU, NAFTA and ASEAN.
Besides preferential access to a large market, Argentina stands out by the abundance and diversity of its natural resources: it is the 8th largest country in the world, with 2.8 million km2 and 53% of arable land.
In addition, its 4,700 km of coastline over the Atlantic Ocean is an important wealth in terms of fishery resources. The country has a tremendous natural potential that is still underexploited. The unused renewable energy resources are a clear example of this. Currently, hydropower is the main source of renewable energy in Argentina, but there is a very strong potential for solar and wind energies.
To take advantage of this, the current administration launched an ambitious program, RenovAr, endeavoring to grow renewables to 20% of the national energy matrix by 2025. In turn, mining activities could also be expanded as only 25% of the area with geological potential has been explored and more than 750,000 km2 still remain unexplored. Even so, Argentina is already the 2nd largest producer of lithium and 3rd largest producer of boron. Finally, Argentina stands out for its huge unexploited hydrocarbon reserves. The Vaca Muerta formation holds the 2nd largest shale gas and the 4th largest shale oil reserves in the world, but they still remain to be fully exploited.
An additional factor that makes Argentina a strategic location for investment is the availability of highly qualified human resources, renowned for its technical skills and creativity (the country ranks 2nd in Latin America in the Human Development Index and has a literacy rate of 98.1%). According to the latest “Higher Education System Strength” ranking made by the British consultancy agency QS, Argentina has the best university system in the region. The latest data available provided by the World Bank (from 1998 to 2014), also shows that the total investment in R&D expressed in USD dollars grew more than 300%, achieving the 2nd highest R&D expenditures (relative to GDP) in Latin America.This explains why Argentine institutes of science and technology have an increasing international recognition.
In addition to these structural reasons, the growing interest in Argentina certainly lies on a series ofeconomic and political changes that have been promotingthe country’s potential. Indeed, in December 2015, President Mauricio Macri’s government took office after having based his campaign on a promise of normalizing the economy and political institutions. Since the beginning of his mandate, significant progress has been made regarding the three main objectives of the program: macroeconomic stabilization, restoration of the rule of law, and reinsertion of Argentina into the world economy and the international community.
After having liberalized the currency market, resolved the holdouts dispute, given the Central Bank complete independence, reduced a large part of the export taxes on agricultural products and removed non-tariff restrictions on imports, the Argentine economy is experiencing an expansion of its GDP and a reduction of its inflation. The forecasts for the year were overshadowed by the increase of the interest rate carried out by the United States. However, for 2019 they still confirm that Argentina is on the way towards sustainable growth (GDP growth rate of 1%). Even if the current international environment is challenging exchange rates stability and inflation targets, the government is striving to improve effective competitiveness to consolidate growth bases.
A series of legislative initiatives has been adopted to improve legal certainty, predictability and transparency (Public-Private Participation Law, which created a regime to encourage the investment of private companies in large-scale infrastructure works in partnership with the State; Entrepreneurs Law, to allow easier access to credit and to create companies in one day; and Small and Medium-Sized Enterprises Law, to relieve their fiscal burden). The institutional change characterized by the new relationship between the Executive Branch and Congress also plays an important role regarding the restoration of the rule of law.
Finally, Argentina’s strategy to be in the international spotlight included a more active participation in international high level meetings, signing an important amount of bilateral agreements, reopening free trade agreements negotiations (MERCOSUR-EU), and hosting multilateral forums (host of the 11th WTO Ministerial Meeting and Presidency of the G-20). Argentina also resumed consultations on Article IV of the IMF and made clear its intention to join the OECD.
Argentina has historically been a land of opportunities, but the combination of the great potential and the new political era of openness are offering an unprecedented environment for invest and trade.
The princely mission is perceived by our authorities as an excellent opportunity to enhance our economic relations. At the moment, Belgium is the 6th largest exporter to Argentina within the European Union (EU), and the 7th importer of Argentine products. The main products imported by Argentina from Belgium are chemical and mineral products (respectively, 40.4% and 21.6% of our total imports from Belgium in 2017), and the main products exported by Argentina to Belgium are food and chemical products (respectively, 36.3% and 19.0% of our total exports to Belgium in 2017).
Although the trade balance shows a growing deficit for Argentina since 2010, we believe that the recent evolutions will be able to curb this trend. In addition to the internal competitiveness policies implemented by Macri’s government, we are optimistic about signing the MERCOSUR-EU agreement towards the end of this year. Furthermore, the trade of services appears as a new driver of our economic relations. The services sector is under great development in our country: in the last 20 years, services exports quadrupled, reaching a value close to 15 billion USD. In addition to traditional services, Argentina stands out for its growing production of technological and differentiated services. As a result, Argentina has 4 out of 9 unicorns in Latin America.
There is also room for increasing exchanges in those sectors in which the Princely Mission will focus: agribusiness; infrastructure, transport and logistics; sustainable construction; green economy and green energy; health, biotechnology and medical science; aerospace sector; smart cities; and the audiovisual sector. Although Argentina and Belgium already have successful collaborations in many fields, there are new opportunities that could be further explored. We believe that the “transport and logistics” and the “renewables” sectors present a great opportunity for Belgian entrepreneurs, since they have a comparative advantage over other countries. Indeed, to improve our economy’s efficiency the current administration has launched the “biggest investment plan in transport infrastructure in the history of our country”. This plan includes ample opportunities for private sector involvement across several types of projects and partnerships.
The investment opportunity in transportation spans nationwide improvements in ground, air and maritime infrastructure, and is estimated in 95 billion USD. In addition, one of the country’s priorities is to secure sufficient power supply as demand grows, while lowering the cost of electricity and reducing CO2 emissions. Because of this, the current administration has put in place a tendering process to fulfill the need for Power Generation. In total, we estimate that there is a 23 billion USD investment opportunity in power generation towards installing an additional 21 GW of capacity by 2025.
In this scenario, we are confident that Belgium’s economic mission to Argentina will help to reinforce our commercial and political ties and ensure a fruitful cooperation in the future.
Photography by Stephanie Fraikin.