Our comprehensive assessment of Argentina's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Argentina, as well as the latest industry developments that could impact Argentina's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Argentina before your competitors.

Country Risk

Argentina Country Risk

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The Argentine economy is reeling following the January 2014 currency devaluation. Economic growth has slowed markedly, prompting us to revise down our real GDP forecasts, as soaring inflation discourages investment and erodes purchasing power. Furthermore, the slowdown in economic activity has prompted a widening of the fiscal deficit, in line with our expectations, as government spending accelerates, and weak growth weighs on revenues. Moreover, we see further weakness for the Argentine peso, as the authorities allow for a gradual depreciation of the currency to address a widening spread between the black market and official exchange rates.

Politically, we are starting to see signs of strain. The perception of heightened street crime prompted incidents of vigilante justice in March and April, undermining the narrative that President Cristina Fernandez de Kirchner has presented, in which she, and her husband Nestor Kirchner before her,...

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Argentina Operational Risk Coverage (9)

Argentina Operational Risk

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BMI View: Argentina benefits from a well-diversified economy, extensive trade links and a well-regulated environment that all contribute towards its status as a near-developed economy. However, its levels of operational risk are increasing on the back of government intervention, industrial unrest and bureaucratic requirements for businesses. We have awarded Argentina an Operational Risk score of 52.3 out of 100, ranking it 10th in the region and 69th globally, but note that we expect risks to increase over the medium term.

Argentina has historically been an attractive destination for investors owing to its developed economy, with a broad agricultural and industrial base, relatively low rates of crime and a skilled workforce. Its transport links also provide adequate connections to major cities and...

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Argentina Crime & Security

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BMI View: Foreign workers and businesses in Argentina face a lower risk of crime and violence than in many Latin American countries, with the threat of terrorism and interstate conflict particularly low. These are the main factors behind Argentina's high regional ranking, in fifth place out of 28 Latin American countries, in the overall BMI Crime and Security Risk Index, with a score of 58.6 out of 100. Having said that, widespread rioting has occurred in recent years, causing considerable damage to business property. In addition, foreign workers will be at risk from petty street crime, while the public perceptions of criminal activity have reflected concerns about rising crime rates.

Argentina's main security risk is rising crime rates, which the public view as a major concern. Although the murder rate of 5.5 murders per 100,000 people is low...

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Argentina Labour Market

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BMI View: Argentina's labour market benefits from a well-trained and educated workforce, which is regulated by legislation compliant with international norms. Gender and racial equality are safeguarded by law and there is increasing female participation in the workforce. However, the country's strong unions are increasingly resorting to strike action to press their wage demands, raising labour costs. This results in Argentina having one of the best Labour Market Risks scores in the region. We give Argentina a score of 56.2 out of 100, which places it fourth in the region, behind the Bahamas and ahead of Uruguay.

The country's lowest risks stem from the Education category, for which its scores 64.3 out of 100. It ranks particularly well for secondary education, with 65.8 out...

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Argentina Logistics

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BMI View: Considerable logistics risks will serve to dampen investor sentiment towards Argentina over the medium term. The Argentinean economy is set for a period of more sluggish growth on the back of unsustainable economic policies, which will limit opportunities for investment. In addition, both the utilities and transport sectors suffer from a lack of investment. Consequently, poor quality infrastructure, combined with droughts, leads to electricity and water shortages, while the lack of development in alternative freight modes means that supply chains are overreliant on the road network, which is subject to disruption caused by fuel shortages. What's more, attempts to address economic imbalances have made the process of importing goods highly expensive and time consuming. However, Argentina continues to offer one of the largest markets in Latin America, with abundant natural resources and agricultural commodities,...

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Argentina Trade & Investment

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BMI View: Argentina has a diversified export base and strong trade links. However, these benefits to businesses are undermined by a deteriorating operating environment, characterised by increased government intervention in strategic sectors. We still see value for investors in Argentina, but would caution potential businesses of the volatility of government policy, particularly regarding potential investment disputes. Argentina scores 39.4 out of 100 for Trade and Investment in our Operational Risks Index. This places it 20th out of 28 countries regionally, ahead of the Dominican Republic. Given Argentina's historical status as a large and investment-friendly economy, this low score reflects the adverse effects of a more protectionist government policy over the last decade.

The main challenge to investors is Investment and Trade Openness, for...

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Argentina Industry Coverage (22)

Agribusiness

Argentina Agribusiness

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BMI View:   With a deteriorating economic environment , the Argentine grain sector will continued play centre stage over the medium term. With foreign reserves under pressure, grain exports (particularly soybean) will remain vital , but there is increasing evidence of hoarding, which could lead to clashes with the government over policy . Nonetheless, s oybean will remain the pre-eminent crop in Argentina over the long term, and we expect the poultry production to show the most promise within the livestock complex. We see potential for a mild rebound in beef production, as sector fundamentals remain challenging despite a significant decrease in grain prices. The country's dairy sector shows...

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Autos

Argentina Autos

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Vehicle sales in Argentina declined 34.3% year-on-year (y-o-y) in the first nine months of 2014, to 472,044 units. BMI has become increasingly bearish on the outlook for the Argentine autos sector in 2014 on the back of a devaluation of the peso in January, the likelihood of further weakness in the unit going forward, a deteriorating macroeconomic environment, and new taxes on autos imports.

High inflation, slowing real wage growth, and increasing unemployment levels are likely to keep private consumption subdued in 2014 and 2015, weighing on consumers' appetite for big ticket purchases. While high base effects from strong sales growth in 2013 will worsen the y-o-y growth rate in 2014, the decline in sales and production will slow in 2015 as they fall from a lower base. Accordingly, we forecast a bearish 28.6% decline in total vehicle sales over 2014, followed by a further 4.2% decline in 2015.

...

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Commercial Banking

Argentina Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Argentina Consumer Electronics

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BMI View: Economic challenges such as rapid inflation, the January 2014 devaluation of the peso and technical debt default in Q214 negatively impact our outlook for the Argentinean consumer electronics market in 2014. In particular, high inflation, slowing real wage growth, and increasing unemployment levels are likely to keep private consumption subdued throughout the year and we forecast the consumer electronics market to detract in US dollar terms . Despite this bleak short-term outlook, w e believe Argentina has very strong potential for growth over the medium term with strong mobile handset demand matched by increased availability of devices, helping the markets for smartphones, as well as flat screen TVs...

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Defence & Security

Argentina Defence & Security

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BMI View: Argentina is facing into a period of political transition. President Cristina Fernández de Kirchner was forced to hand over to her vice president in October due to ill-health, amid mid-term elections and having replaced the heads of all of the country's armed services. However, despite ongoing economic difficulties - such as the costly loss of an international court case over so-called 'vulture funds' - Argentina is proceeding with defence reform and modernisation.

In BMI's view the combination of elections and ill-health could spell the beginning of the end of Fernández's premiership, which could see her Peronist movement failing to win a third term in office. On the international stage, Fernández's leadership was characterised by an increasingly fractious relationship with the United Kingdom over the Falkland Islands/Islas...

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Food & Drink

Argentina Food & Drink

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Argentina's struggling economy, plagued by high inflation and ongoing currency devaluation, will continue to have a negative impact on the country's food and drink sector. After considerable sales decline (in USD terms) in 2014, the industry is expected to enter the path of slow recovery throughout the rest of our forecast period to 2018. Nonetheless, the improvement will be negligible in 2015 with the risks lying firmly to the downside.

Headline Industry Data

  • Total food consumption (local currency) growth year-on-year (y-o-y) in 2014: +15.0%; compound annual growth rate (CAGR) to 2018: +9.5%

  • Total food consumption (USD) growth (y-o-y) in 2014: -7.2%; CAGR to 2018: +0.9%

  • Per capita food consumption (local currency) growth (y-o-y) in 2014: +14.1%; CAGR to 2018: +8.6%

  • Per capita food...

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Freight Transport

Argentina Freight Transport

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BMI maintains its cautious outlook for the Argentine freight transport sector. We forecast real GDP to expand by a revised 1.7% in 2015, down from our previous forecast of 3.1%, implying only a modest improvement from 2014's forecasted growth of 0.4%. Argentina's economic recovery will be muted in the coming quarters as currency weakness and high inflation weigh on private consumption, which will have a negative knock-on effect on freight transport volumes. The main driver of the slowdown is the impact of the country's January 2014 currency devaluation, which sent inflation expectations soaring. As a result, consumer confidence has plunged.

We acknowledge that some risks remain to the upside, as an improving business environment and more moderate economic policies could lead to a surge in inbound investment for the country's oil and gas sector. Nevertheless, we caution that on top of its internal economic difficulties...

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Information Technology

Argentina Information Technology

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BMI View: Economic troubles have dominated the discussion of Argentina in 2014, with the devaluation of the peso, import restrictions, skyrocketing inflation, capital controls, shortage of credit and government debt default have seen the country enter a recession . The IT market will likely be hit by lower consumer confidence, higher import costs of components and problems of inflation affecting employee wages. However, potential investors do not seem to have been put off, as devaluation will help make IT exports abroad more competitive. The July 2014 IPO of Argentine tech company Globant demonstrates this and many investors still see the strong sector potential in Argentina. The scope for large increases in PC penetration, second...

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Infrastructure

Argentina Infrastructure

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BMI View:   We forecast a return to growth for Argentina's construction industry at 1.1% in 2015 after an estimated contraction of 2% in 2014. Growth will be driven by energy and transport infrastructure projects - sectors which have struggled due to severe underinvestment for decades.

Key Trends And Developments

  • Our  Country Risk team estimates that Argentina's economy contracted in 2014, with real GDP growth of -0.2% and they forecast low growth at 1% for 2015 as currency devaluation pushes inflation higher, weighing on consumer and government spending. Despite government efforts to halt the rapid price growth, our country risk team estimates that consumer price inflation will average 30.0% year-on-year (y-o-y) in 2015.

  • Argentina'...

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Insurance

Argentina Insurance

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BMI View: BMI's Argentina insurance report examines a range of key market indicators, including the potential for growth in both the life and non-life segments. Limited by a fragile domestic economy, we expect to see very little growth in life products, with high inflation limiting the provision of long-term savings products in particular. Prospects for growth are slightly more positive in the non-life segment, driven primarily by several key compulsory insurance lines. Any growth is dependent upon the renewed confidence of both market operators and customers in the Argentine economy.

The non-life segment is dominated by motor vehicle insurance (which is compulsory in Argentina and subject to prescribed minimum cover limits), a trend which we expect to continue throughout the five-year forecast period. While auto sales are declining (falling by some 33.8% in the first six months of 2014), the major insurers have...

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Medical Devices

Argentina Medical Devices

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Espicom Industry View: The Argentine medical device market ranks sixth in Latin America . Espicom forecas ts a low 2013-2018 CAGR of 4.8 % in U S dollar terms, affected by the projected depreciation of the local currency . Medical device imports are very high , although a relatively large domestic medical device sector is operational . The country has recovered from a severe economic crisis in 2002 but has not resolved its long-standing macroeconomic imbalances, which will affect the medical device...

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Mining

Argentina Mining

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BMI View: Though Argentina possesses significant natural resources and has a relatively underdeveloped mining sector, we expect modest industry growth of just 0.5% on average per annum through 2018 . A combination of weakening metals prices and a difficult operating environment will lead to low production growth in the country and likely lead to subdued mining exploration and development. We point out though that recent indicators suggest the central government is seeking to increase foreign investment into the country, providing potential upside to the mining sector in the coming quarters.

While Argentina has significant mineral reserves, we expect that the country's mining sector will remain small compared with other Latin American mining destinations...

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Oil & Gas

Argentina Oil & Gas

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BMI View : We have grown increasingly bullish on Argentina's upstream this quarter. Formal resolution to the Repsol-YPF dispute has removed a major barrier to international oil companies looking to enter the Argentine oil and gas sector. Increased investment and a growing exploration drive point to a marked improvement in investor sentiment, and we expect this trend to continue in the coming quarters.

Headline Forecasts (Argentina 2012-2018)
  2012 2013 2014f ...

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Petrochemicals

Argentina Petrochemicals

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With gas on the decline and a cautious approach to investment in the country's shale potential, Argentina's petrochemicals industry is unlikely to see growth over the next five years, according to BMI's latest Argentina Petrochemicals Report.

The Argentine petrochemicals industry faced a major challenge in 2014 when growth from the previous year was wiped out by a contraction in plastics and rubber production. This coincided with a downturn in the economy. Tepid private consumption growth is expected to continue into 2015, leading to further pressure on local producers.

Gains reported in ethylene and polyethylene (PE) in 2013 were reversed in 2014 with the downturn likely to have undermined that recovery with the total cracker utilisation rate at around 15% below full capacity. At the same time, PE was also under pressure, partly as a result of market dynamics with the influx of lower priced PE...

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Pharmaceuticals & Healthcare

Argentina Pharmaceuticals & Healthcare

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BMI View:   We expect increasing competitive pressure in the A rgentine pharmaceutical sector as South-South relations continue to develop. This is illustrated by the Argentine government recent authorization for Indian pharmaceutical firms to export finished formulations to Argentina. Argentina's debt default poses downside risk to economic activity in the next quarters, while we expect inflation and drug pricing controls to continue hampering the pharmaceutical market potential. The challenging business environment in the country will push more local pharmaceutical companies to continue seeking expansion, especially in other Latin American countries . In turn, undervalued local drugmakers could be acquisition targets for multinationals to enhance their footprint in the region, as illustrated by the...

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Power

Argentina Power

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BMI View:   Argentina's power generation grew by 5.3% in 2014 , as the Atucha II nuclear plant went online after years of delays - a crucial step in the government's ambitious nuclear expansion plan. Nevertheless, the country continues to suffer from poor power infrastructure and insufficient installed capacity, as highligh ted by an agreement to start import ing Bolivian power by the end of 2015.   The recen t sovereign default has further damaged   the...

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Real Estate

Argentina Real Estate

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BMI View:   Argentina's commercial real estate sector has been largely resilient to ongoing chaos in the country's economic and political environment over the past few years, having enjoyed a prolonged period of growing demand and low vacancy rates across much of the market. However, there are now increasing signs that weakening private and consumer sentiment are making their way into the sector, as businesses adopt a more conservative outlook and households find themselves hit by rising inflation and falling wages. While the real estate sector holds strong long-term potential, we caution that it will find itself having to weather a storm over the next two years , with risks weighted firmly to the downside.

Negative GDP growth, rising inflation and a restrictive investment environment are just some of...

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Renewables

Argentina Renewables

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BMI View:   Despite an attractive regulatory framework and ambitious government plans for expansion, we maintain a relatively bearish outlook towards the Argentine renewables industry. An unappealing business environment   and limited project financ ing opportunities will continue to limit the sector's growth potential over the forecast period.

Argentina's positive regulatory framework for renewables on the surface looks appealing to investors. For example, the country has adopted an ambitious target of sourcing 8% of its electricity demand from renewables by 2016,...

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Retail

Argentina Retail

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BMI View: The Argentine retail sector looks set to become a more attractive investment option for foreign players as the prospect of the October 2015 election will bring a boost to the economy by removing trading restrictions. The population will grow steadily, we expect to see an increase in the middle-class portion, and consumer confidence is on the rise. This supports our four year forecast that total household spending will increase by an annual average of 8.5%.

Although consumer confidence remains below the optimistic boundary, it is rising, and will have a positive impact on household spending. In October 2014 consumer confidence reached a 10-month high, with consumers viewing themselves in a more positive position and expecting the economic situation to improve in the long-term. Consumer confidence will be a key driver behind the rise in household spending over the next four years, aided by rising household...

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Shipping

Argentina Shipping

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BMI maintains its cautiously optimistic view on the Argentine port sector. The country enjoys a good commodities mix, but it continues to struggle with external headwinds, as well as internal difficulties in the form of rising inflation and labour unrest. Real GDP growth in Argentina will remain weak in 2015, following a notable slowdown in the economy in 2014 due to the impacts of the country's January 23 currency devaluation. We forecast real GDP to expand by 1.7% in 2015, a downward revision from our previous forecast of 3.1%.

We forecast net exports to subtract 0.2percentage points (pp) from headline growth in 2015, an improvement from the forecasted 0.6pp drag on growth in 2014. Weaker private consumption will dampen imports, while a weaker exchange rate will marginally improve the competitiveness of exports, with knock on effects for port volumes.

Headline Industry Data...

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Telecommunications

Argentina Telecommunications

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BMI View : A f ragile Argentine economy will have a hugely negative impact on the telecoms sector in 2014, as high inflation and concerns about currency stability will affect the purchasing power of Argentine people .   A s inflation is expected to move above 30%, the mobile market has shed nearly 1.5mn customers in H114. However, BMI suspects that this is partly due to discounting inactive mobile customers. A f altering economy may impact the upcoming October 2014 auction of 3G and 3G spectrum, however , four companies have already pre-qualified. There are also several bright spots, including growing interest in pay-TV as operators increase...

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Water

Argentina Water

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BMI View:   This quarter we have expanded our forecasts to include new projections for water extraction by source, and treated wastewater. These additions have provided extra data to be incorporated into our existing forecasts, resulting in their revisions also. Overall, we expect investment to continue to trickle into the sector over the short term, constraining expansion and modernisation projects, with the majority of funds centred o n hydropower and water storage.

Public expenditures tick up in the coming quarters, and infrastructure is commonly one of the main beneficiaries of this pre-election expenditure. Along with transport projects, construction industry growth will be driven by a number of infrastructure projects in the power and oil and gas sectors. Given Argentina's precarious external...

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