With the first annual Argentina Business & Investment Forum wrapping up a couple of days ago, the event has been declared a success by the Macri administration, as several thousand attendees from around the world turned up to discuss a range of business opportunities, foreign investment, and the hope that Argentina can become the Latin American hub for start-ups.
The two sectors noted as top priorities for the Macri government in terms of foreign investment are Energy and Infrastructure. OK, energy makes sense, and is dramatically need to develop Argentina's tremendous oil and gas reserves, and to refine and store and distribute the products efficiently. Just look at the current gas pricing crisis, which is crazy, considering Argentina has the third largest gas reserves in the world. So how does it make sense that Argentina IMPORTS natural gas, and the the Macri government says it has to raise natural gas prices about over 200% to make up for ex-president Cristina's absurd decade long subsidies? It doesn't make sense, and neither does nafta (gasoline) and diesel prices three times what they are in the U.S. It's beyond crazy, and the only way to fix this is with foreign investment. For that to happen the Macri government will have to offer fair free-market contracts to large companies (France's Total would be great) to develop oil and gas the way we do it in Texas....with the best people and the best equipment using cutting-edge technology. That will mean allowing foreign workers also, not just foreign capital, and it will mean no import duty on any equipment imported into the country to develop oil and gas. I can hear many Argentine politicians crying foul already, but if Macri doesn't do it this way, it won't happen in any meaningful way, and Argentina will just continue to suffer. So we'll see how serious Macris is about really solving this problem. Easy to solve if Macri has the will and enough juice to keep his opponents from screwing it up. Note to President Macri: If you need help with this, let me know, as oil and gas development, done well and efficiently, is my specialty.
But Macri doesn't just want fossil fuels, he wants renewable energy, which is commendable. And his focus is on hydroelectric as well as wind and solar
Now on to the start-up situation. OK, so there are three things really needed. First, you need the human resources, so that means entrepreneurs. Argentine's believe they have this in spades, lots of smart people with the entrepreneurial spirit. I'm not sure I agree, as most Argentine's want a guaranteed paycheck whether they earn it or not, but ok, I'll stipulate that this is available. Second you need less regulation and more incentive to start new businesses, so less time to set up a corporation, less red tape to open bank accounts, etc. This is being addressed by proposed legislation in congress and is a Macri priority, but so far the legislation hasn't passed, so we'll see. And third, you need the actual capital, the foreign investment. Show me the money. And for that to actually happen, the government needs to be completely transparent regarding the rules of the game, and the government cannot change those rules at their whim as the Christina government often did. So this third one is hard, and it will take some time. "Poco a poco", we say in Spanish, little by little, and "veremos", we'll see.
The atmosphere is good, the attitude is good, people are encouraged, there is optimism in the air.....now lets see some action. Note to Macri: you really want to stimulate the economy, create competition, bring down inflation, and engage the entrepreneurial spirit.....just eliminate all import duties and stand aside. The Argentine consumer will be able to buy the highest quality goods and the best world market prices, and Argentine businesses will be able to do the same to create competitive companies, and those that don't can shut down and go home because they don't deserve to be in business anyway.
It's going to be an interesting year ahead, and we'll be keeping score in a number of sectors and placing our own bets on the sectors we see with the most potential.....bets meaning our own investments. Suerte!
Stephen F. Vletas - Founder of Southern Cross Advisors.