Argentina: Are investors ready to tango again?

I was recently in Buenos Aires on a business trip and, for over two weeks, I had the opportunity to meet with 22 country and regional managers from multinationals with presence in Argentina, two Central Bank executives, one multinational distributor and countless Argentines that provided me with a very down-to-earth economic and political analysis from the point of view of the average citizen.

The following are the key take-aways from my conversations:

  1. Argentines are still encouraged with President Macri despite austerity measures

After almost fifteen months of living the consequences of more than one decade of macroeconomic mismanagement, Argentines have begun to understand that there is only one way to get out of this painful transition – “aprender a trabajar nuevamente”, which in English would mean learn to work again. This is the slogan that President Macri has been hammering throughout 2016 to explain that only with hard work and unity, the Argentine economy will be able to fulfill its growth potential.

Despite the demonstrations that have become the rule in downtown Buenos Aires, there seems to be a strong alignment between what the government, investors and average Argentines want – lower prices and more investment to create more jobs and a more dynamic economy.

  1. The public sector is opening new business opportunities

Two of the current administration’s strongest attributes – not necessarily strengths of the previous administration – are transparency and compliance. For more than ten years, multinational companies had opted to minimize their exposure to public contracts and tender processes that, in most cases, were perceived as too opaque and prone to corruption. Under Macri´s administration, multinationals have started to think of the public sector as a key client to do business. This is an opportunity that is very likely to grow progressively as the Argentine government allocates more resources to sectors, such as healthcare, that had been mismanaged or neglected by the previous government.

  1. Reassessing client segmentation and subnational prioritization will be key to capture upside potential

The trade and capital restrictions put in place during the last years of Cristina Kirchner´s administration limited the ability of local and international companies to align their inventory levels with the domestic demand at that moment, feeding a vicious cycle that exacerbated the slowdown of the Argentine economy. With the full elimination of restrictions, which started in December 2015, and the emphasis of public and private investment in the northern and southern regions of the country, due to infrastructure and energy initiatives, Argentina is becoming a more dynamic economy once again. Also, demand for products and services in sectors such as healthcare, technology and telecommunications is significantly increasing, as the government and medium- to large-size private companies are now trying to prepare for Argentina’s economic revival.

  1. Reassessing current channel structures will be imperative

Years of government meddling and unfavorable operating conditions have also constrained the ability of local partners to invest in their business and develop certain capabilities that will be paramount to capture Argentina’s upside opportunity today. Only the most resilient distributors and the more open to adapt to the new market dynamics will be able to deliver the results that multinationals will expect in this market – and the good and bad news for Argentina GMs is that corporate expectations for this market are fairly high.

With 70% of multinationals´ revenues in Argentina being generated through distributors, multinationals will need to evaluate their local partners’ capabilities as they pertain to customer experience (e.g. sales effectiveness, demand generation, value-added services) and partnership quality (e.g. market growth strategy, financial stability, compliance). Some strategies that our clients are currently considering include reducing the number of distributors they work with, investing in training programs for them, or finding new partners, with very few multinationals planning to transition to direct sales only with key accounts.

  1. October’s legislative elections will be critical for investment decisions

The current administration is putting all the eggs in one basket – October’s legislative elections. President Macri knows very well that his political coalition – Cambiemos – needs to gain extra seats in the Argentine Congress to be able to move forward with his pro-business agenda. A potential reduction of his already limited political capital could not only jeopardize the government’s ability to pass much-needed policies and reforms in 2018, but could also affect the country’s ability to attract the investment needed to reach its current growth targets. As of today, President Macri has been very proactive supporting the political campaign of his candidates in the City of Buenos Aires, and in the provinces of Buenos Aires, Santa Fe, and Cordoba, as together they represent 132 out of the 257 seats at play in the chamber of deputies. Recent polls suggest a strong likelihood that Macri gains additional seats in these regions, but it will be critical to continue monitoring the market as we get closer to October.

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