Is Argentina Poised for a Turnaround? A column by Jerry Haar.

During the Battle of Britain in the summer of 1940, the aerial conflict between the Royal Air Force (RAF) and the German Luftwaffe, reached its apex and resulted in a defensive victory for England. Praising the RAF, Prime Minister Winston Churchill proclaimed: “Never in the field of human conflict was so much been owed by so many to so few”.

Assessing Argentina’s economic achievements during the last century one could claim: “Never in the field of economic development have so many achieved so little with so much”.

In 1913, Argentina was among the worlds’ ten wealthiest economies, richer than France and Germany, twice as prosperous as Spain, and its per capita GDP almost as high as Canada. Today it is not even among the top 20 in size, and its public debt is 85% of GDP, the highest in Latin America, despite having participated in 21 IMF arrangements since joining the Fund in 1956.

The second round of the run-off presidential election, pitting conservative libertarian economist Javier Milei against Peronist economy minister Sergio Massa, is scheduled for November 19. Milei pledges to dollarize the economy, radically slash spending, close the environment and health ministries and abolish the public health and education systems. Massa, on the other hand, is positioning himself to be “Peronism light”—a consensus-building leader of a kleptocratic party that has dominated Argentine politics since 1946.

Despite Argentina’s current economic and political malaise there are four arenas of competitive advantage that encourage one to be cautiously optimistic about the country’s future, irrespective of who wins the upcoming election.

To begin with is agriculture and mining. Argentina remains a world leader in the agricultural sector, including the number one exporter of soy-derived products in the world and a top producer of wheat, maize, sugar cane, and sunflower seeds. In fact, approximately two-thirds of all exports from Argentina are from the agricultural sector and generate over half of Argentina’s foreign exchange. The sector is composed of approximately 730 companies – over 300 from the U.S. – and was one of the first industries to develop in the country. The nation also has a well-established local manufacturing industry that produces farm machinery and inputs.

As for mining, Argentina’s current top mineable ore minerals are gold, silver, and copper. Lithium is emerging as a key rare earth mineral, with Argentina home to the world’s third largest reserves after Chile and Australia and is the fourth largest producer.  Although over 70% of Argentina’s proven lithium resources have not yet been prospected, lithium mining is the industry’s fastest growing segment.

Science and technologyis another sphere in which Argentina continues to improve its competitiveness.  With scores of think tanks, the most Nobel Laureates, and the highest rate of university students in Latin America, Argentina has had a commitment to education and research since the late 19th century when President Domingo Faustino Sarmiento made learning and the sciences a national priority. Gross expenditure on research and development experienced an upward trend between 2020 and 2022, growing from $4.38 billion to a forecast $4.72 billion in PPP terms. In 2022, Argentina ranked a the second South American country with the largest expenditure on R&D, only surpassed by Brazil.

Biotechnology in Argentina is illustrative. The nation produces 14% of the world’s biotech crops, making it the third largest producer after the United States and Brazil. Its 200+ biotech firms earn well over $2 billion and cover sectors such as human health, animal health, food processing, and agriculture. Despite the economic and political volatility in Argentina in recent decades, biotech firms have suffered very few failures and have attracted interest from the leading investment groups in the country. Although Argentina has distinguished itself in medicine, nuclear physics, space technology along with biotechnology, the nation scores only in the middle on the Global Innovation Index—69 among 132 countries—meaning there is much room for improvement.

Entrepreneurship is another area where Argentina is expanding its competitive advantage. From software engineering to e-commerce and fintech, Argentina has been making significant strides in entrepreneurship with a heavy emphasis on technology. No latecomer to entrepreneurship, in 1895 Argentina became the first country in the world to establish identification by means of dactyloscopy, the system of fingerprint recognition.

Today Argentina is the fifth largest entrepreneurial ecosystem in Latin America with a value estimated at $12 billion, a 164% jump from 2020 to 2022. Leading tech-based entrepreneurial firms such as Mercado Libre, Globant, Despegar and Ualá have established Argentina as a highly competitive locale for start-ups and later stage companies, especially in fintech. Venture firms such as NXTP Ventures, Kaszek Ventures, Drapery Cygnus and Wayra are fueling this growth. It is no surprise then that in July 2022, the World Bank approved a $200 million loan to promote the country’s growth and support the creation of tech-based companies.

One could consider foreign trade a competitive advantage, although with certain shortcomings. With nearly $90 billion in exports and $82 billion in imports, Argentina’s prowess as a commodities exporter is remarkable, especially with respect to wheat, soybeans and cereals. Its main trading partner is Brazil, followed by China and the U.S.; and Mercosur and the European Union occupy significant importance in Argentina’s trade relations, as well.

Be that as it may, Argentina competitive advantage could be strengthened significantly if the nation  pursued two major policy changes. The first is for government—both federal and provincial—to more aggressively promote international trade and assist Argentine exporters to increase their trade and to help new-to-export enterprises to enter this arena in a bigger way. As exports account for only 33% of GDP—one of the world’s lowest (Mexico is 84%, Chile 64%)—there is a huge upside potential. The second policy change is for Argentina to diversity its exports. Among the country’s top 10 exports all but three comprise commodities, with companies such as Cargilll, ADM, Bunge, COFCO and Viterra accounting for over half of all exports.

It is a political fact of life that winning an election is one thing, but governing is quite another. Regardless of the outcome of the presidential election, Argentina’s dysfunctional political culture along with its feeble economic condition will pose serious challenges for the nation to advance its competitiveness. At present inflation is running at 136% and the IMF is the only major source of international finance. Add to that low productivity levels for the past three decades, bureaucratic inertia with a myriad of regulatory barriers, and a consistently poor ranking in Transparency International’s Corruption Perception Index.

Nevertheless,Argentina’s portfolio of competitive assets, notably the four cited above, along with diverse industries and a solid base of skilled human capital, can hopefully help put Argentina on a new course towards growth and development. In today’s increasingly competitive world, this is no longer a choice but a necessity.

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Jerry Haar is a business professor at Florida International University and a fellow of both the Woodrow Wilson Center and Council on Competitiveness. He is a board member of the World Trade Center Miami and co-author with Ricardo Ernst of Globalization Competitiveness and Governability.

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