Macri pushes at Argentina’s closed door
At the end of the world, as Argentines call their southernmost province of Tierra del Fuego, a heavily subsidised industrial hub has managed to survive as what must be one of the most dysfunctional business models on the continent.
“In the assembly plants of Tierra del Fuego, often the only thing that is Argentine is the packaging, the manuals and perhaps the odd wire. Ninety per cent of the inputs come from abroad. That has to change,” says Miguel Ponce, a former undersecretary for industry and trade.
The tax-free zone on the desolate archipelago 500 miles from Antarctica, where goods cost two to three times what they do in neighbouring countries, is only the most egregious example of a business culture in Argentina that is often more reliant on protectionism than entrepreneurial vigour.
In a push to prove to the world that his country is “open for business”, Argentina’s investor-friendly president Mauricio Macri last week held a business forum that saw almost 2,000 international and local executives descend on Buenos Aires.
Offering them some $240bn of investment opportunities in sectors such as infrastructure, energy and mining, Mr Macri hopes that increased investment and competition will help to revitalise corporate culture in Argentina’s stagnant economy.
“We have to let some of the old business people die off so that new ones can emerge,” said Gustavo Grobocopatel, an Argentine farmer who reviles Argentina’s business class as a cadre of cliquey and oligopolistic companies that is more at home lobbying politicians than competing on an international stage.
In a country where populism has thrived in recent decades, the sweeping changes to Argentine politics represented by Mr Macri’s election last year contrasts starkly with ingrained business practices that Mr Ponce likens to “hunting in the zoo”.
“Argentina needs a new business class that is more conscious of its country, and which thinks about the long term,” says Martin Migoya, chief executive of software company Globant, one of Latin America’s six “unicorns”, tech start-ups now worth over $1bn, four of which are from Argentina.
“For 50 years Argentina did not create great companies,” he added, likening the traditional Argentine executive’s attitudes to those of a small-time street vendor.
Despite the emergence of innovative and fiercely competitive companies such as Globant, many local businesses remain hesitant to invest in the new Argentina. “Some patience is required . . . for mindsets to change,” said Peter Orszag, vice-chairman of investment banking at Lazard, who flew in from New York to attend Argentina’s “mini-Davos”.
Persistent economic crises have only worsened the problem posed by Argentina’s cosseted business class. “For decades many Argentine companies were more worried about immediate issues affecting them over the next two or three months, rather than years,” said Sergio Kaufman, who runs Accenture’s operations in Argentina. “Argentina has been stuck in a very closed model that looks more like something out of the 1950s or 1970s, when we really need to be thinking about 2050 or 2070,” he added.
But Argentina’s struggle to boost competitiveness and productivity are not just the fault of companies themselves, argues Ignacio Stegmann, the president of IDEA, a business forum. He points out that there are serious problems in the country’s infrastructure, tax system and bureaucracy that also pose problems.
For example, even though import restrictions on Argentine lemons were eased earlier this year in the US, the airport in the northwestern province Tucumán, one of the biggest producers of lemons in the world, does not have the capacity to transport enough of the fruit to capitalise on the regulatory change.
Even so, both business and union leaders in Argentina are “behind the times”, insists Mr Ponce. “There is still no understanding of the importance of integrating into value chains.
Often the world is seen as more of a threat than an opportunity,” he says.
Opposition lawmaker and presidential hopeful, Sergio Massa, even proposed suspending imports for four months to defend local producers and jobs that are suffering from an “uncontrolled” rise in imports since the new government took power — even though almost 90 per cent of imports are used as inputs. Some observers have interpreted the move by Mr Massa, who until now has been supportive of most government policies, as early manoeuvring ahead of midterm elections next year.
Nevertheless, Mr Kaufman is optimistic. While he argues that Mr Macri’s electoral term of four years will not be enough to ensure lasting change, he says there is now broad consensus among mainstream politicians about the direction the country must take, despite day-to-day bickering. “The waves may look big and choppy, but that’s just on the surface. The deeper currents are strong and more aligned.”