Argentina
More investment needed to realize the country's potential
If doing business in Latin America feels like a marathon, then in Argentina, it is more like a rollercoaster. Perhaps one of the main differences between a rollercoaster and Argentina’s economy is that, with the former, your body anticipates an inevitable drop following the climb. In Argentina, however, you never know if the wagon will continue climbing or how steep and fast the drop will be.
Adding the peso-US dollar dynamic to the equation makes the ride even more intense. The US dollar is not just a foreign currency for Argentinians, it appears in various forms of exchange rates (at least six, each with its own role and significance). Javier Milei, who has been Argentina’s president since December 10, 2023, made dollarization a major part of his electoral campaign, claiming it would be an “easy solution” to end Argentina’s inflation problem.
Indeed, Argentina has been grappling with soaring inflation for the past few years. In 2020, the annual inflation rate stood at 50.93%. From 2021 to 2022, it surged to 94.79%, only to skyrocket further to 211.41% in 2023, marking the highest level in 32 years. As Javier Sato, CEO of Petroquímica Cuyo (Petrocuyo), put it, this long-standing issue has earned Argentina the title of the “world champion in inflation rates.” Sato added: “This battle has led to a contraction in the local market, but we remain hopeful for an economic rebound. One of Argentina’s main challenges is that it is one of the few countries that taxes exports simply because they generate wealth. If the government lifts these restrictions and focuses on making some investments viable, among others on energy developments like Vaca Muerta, it could significantly boost our economy.”
According to a recent survey conducted by Argentina’s Chamber of Exporters, the primary local regulatory factors most detrimental to export activity are difficulties in making payments abroad, lack of tax recovery, multiple exchange rates, foreign exchange settlement obligations, and restrictions on freight payments.
Federico Alonso-Hidalgo, general manager at Gleba, discussed the role of the agro-industry in Argentina. Like many others, he hopes that the agro-industry will continue to grow under the new government model while sectors such as energy and mining also gain momentum. He emphasized that diversification is crucial for reducing Argentina’s dependency on agro-industrial exports, which are also subject to taxes: “The agricultural sector currently faces high tax rates due to export tariffs, and we hope Milei’s administration will revert this. The biggest expectation lies in this virtuous cycle: lower taxes attract more investments, increasing productivity, exports, and foreign currency reserves—a crucial driver for sustained economic growth and stability.”
Just like Alonso-Hidalgo explained, Argentina needs US dollars. “Over the past four years, Argentina’s populist government has implemented policies to protect national industries, leading to severe import restrictions and a depletion of the central bank’s foreign currency reserves. This made importing goods nearly impossible and deterred suppliers,” commented Adrián Schwartz, president of the plastic distributor Grupo Simpa.
President Milei has been focused on increasing reserves in the year’s first half, having accumulated around US$12 billion. However, in July 2023, Argentina’s gross reserves decreased from US$30 billion to US$27.4 billion.
Ariel Stolar, commercial manager for petrochemicals at Pampa Energía, noted that the country is currently facing a significant recession, which has particularly affected Pampa Energía’s styrene segment: “Construction, a major demand driver, is currently at a standstill due to consumers’ limited purchasing power for new apartments or homes. We hope the economic situation will improve positively by the end of the year,” he said.
The lack of US dollar reserves prevents companies and people in general from accessing foreign currency, affecting the whole industry: “The challenge for us was securing production. With limited access to dollars, importing was difficult, mainly during 2022 and 2023, and many of our products rely on imported supplies and raw materials. Consequently, one of our team’s main tasks was to source raw materials to ensure production and supply for the local and regional markets,” commented Stolar.
Jorge de Zavaleta, executive director of the Argentina Chamber of the Chemical and Petrochemical Industry (CIQYP), noted that since our last publication in 2023, Argentina’s socio-economic and political landscape—marked by Milei’s election and the economic policies—has made it challenging to acquire raw materials, software, and spare parts, despite robust demand. However, he emphasized that the chemical and petrochemical sector has performed well given the circumstances: “Nevertheless, the sector managed to export US$4.5 billion while importing US$10.7 billion, resulting in a deficit of US$6.2 billion,” adding: “In the first half of 2024, the domestic chemical and petrochemical sectors saw reduced volumes in the local market, partly offset by exports. The domestic market is somewhat subdued, awaiting macroeconomic stabilization to kickstart a phase of increased demand for inputs.”
“Over the past four years, Argentina's populist government has implemented policies to protect national industries, leading to severe import restrictions and a depletion of the central bank's foreign currency reserves. This made importing goods nearly impossible and deterred suppliers from engaging with the country.”
Adrián Schwartz, President, Grupo Simpa
El RIGI
Although dollarization has not yet taken place, Milei has implemented other measures, described by some as “shock therapy”: he devalued the peso by 50%, cut subsidies, and reduced the number of ministries, among others. One of the most significant developments is the approval of the ‘Omnibus Bill.’ Formally titled the ‘Law of Bases and Starting Points for the Freedom of Argentinians,’ Milei’s government had to work on a new version after his initial attempt to pass the bill with 664 articles fell through in February 2024. This led Milei to come up with a new and more concise version with 232 articles, which was successfully passed in June 2024.
Despite provoking criticism and controversy from various sectors of Argentinian society, the new law introduces significant changes to Argentina’s governance and economic policies. For example, it grants the President extraordinary powers for a year under specific conditions and includes reforms such as the modernization of labor regulations. This article will focus on two key points: the privatization of several companies and the implementation of the Large Investment Incentive Regime (RIGI, in Spanish), as they involve the crown jewel of Argentina’s chemical and petrochemical industries: YPF.
YPF, which was nearly entirely privatized for 13 years following a decree by Menem, became majority state-owned in 2012, when Cristina Fernández’s government passed a law declaring 51% of its assets of public utility and subject to expropriation. Milei attempted to reverse this with his initial Omnibus bill, which also included other companies like Aerolineas Argentinas (Argentina’s flag carrier). However, this idea never materialized, as YPF and other companies were ultimately excluded from the list of those slated for privatization in the ‘Omnibus Bill 2.0’.
The RIGI can be described as a scheme offering tax, customs, and currency flexibility to attract investments. It is supposed to provide fiscal stability for 30 years to companies investing over US$200 million. Although each province must choose whether to participate in the RIGI, the goal is to develop strategic sectors, including forestry, tourism, infrastructure, mining, technology, steel, and energy.
Shortly after the approval of the RIGI, YPF president Horacio Marín announced that the first project to be developed under this scheme would be an oil pipeline called Vaca Muerta Sur, with a total investment of US$2.5 billion. The project is the second phase of a gas pipeline connecting the Vaca Muerta shale gas formation to the Punta Colorada port in Río Negro province, one of the first provinces to adopt the RIGI, and also set to host YPF liquified natural gas (LNG) plant with an estimated US$30 billion investment.
If you have been following GBR’s reports over the past couple of years, you are likely familiar with how every interview with Argentinian executives revolves around Vaca Muerta and its key role as a feedstock source for Argentina and the broader region. As de Zavaleta from the CIQYP noted, Vaca Muerta is often described as Argentina’s “mini-Texas,” with over 300 trillion cubic feet (tcf) of natural gas reserves. Given Argentina’s annual consumption of 1.5 tcf, these reserves could potentially sustain the country for more than 200 years. However, it needs infrastructure to be developed: “Vaca Muerta’s unconventional natural gas presents an even more complex evacuation challenge. It contains methane (typically natural gas) and natural gas liquids (ethane, propane, butane, and natural gasoline), each with distinct markets and prices. This diverse gas basket offers a more attractive return, but handling it with this diversity poses a midstream challenge.”
“The agro-industry in Argentina is one of the main economic drivers, if not the foremost. In 2023, drought severely impacted the industry, affecting the country's macroeconomy. The only positive aspect of this catastrophe was the increased awareness of the importance of agriculture to Argentina.”
Federico Alonso-Hidalgo, General Manager, Gleba
Gabriel Rodríguez Garrido, executive director of the Argentine Petrochemical Institute, added: “In this value chain, petrochemicals represent the final link; however, they offer substantial value addition. For instance, converting methane into urea doubles or triples the value of gas. Similarly, exporting ethane as a polymer like PP or PE increased its value six times compared to exporting it as raw ethane.”
YPF has been making significant progress in exploiting Vaca Muerta. Florencia Rodríguez, executive business manager at YPF, shared with GBR that the company has been ramping up crude oil production and significantly increased Vaca Muerta’s output in 2023 compared to 2022: “Over the last five years, shale oil production has grown 4.3 times, and shale gas production has quadrupled. In this context, YPF Química is positioned as a key player in this growth strategy, exploring opportunities to leverage gas as part of the overall expansion plan.”
The YPF ‘s liquified gas plant (which is still to see if it is going to be a JV with Petronas) project is a key component of YPF's ambitious 4x4 plan, which aims to quadruple the company's production and value over four years. According to Rodríguez: “The monetization of Vaca Muerta's crude oil and natural gas are its cornerstones."
To capitalize on the unconventional shale crude from this Neuquén formation, Rodríguez noted that YPF has heavily invested in adapting its refineries. These upgrades have enabled the company to boost production of aromatics like toluene and xylene for the domestic and international market: “In 2023 alone, YPF invested US$5.7 billion,” she concluded.
If Vaca Muerta represents Argentina’s future in terms of energy sovereignty and the answer to securing US dollars, then the RIGI —or any similar economic mechanism, was essential. While current and future investments are crucial, it is also important to consider the fate of investments made in previous years, something raised by Adrián Schwartz, president of Grupo Simpa during his interview: “This policy places companies that made similar investments five or six years ago at a competitive disadvantage as they are excluded from these new benefits. While this approach aims to attract fresh investment and develop substantial reserves like the Vaca Muerta shale formation, it creates an unfair playing field for earlier investors.”
Although that part remains uncertain—particularly regarding whether the government will offer specific incentives—I would like to conclude this article with the words of Javier Sato from Petrocuyo, which, I think, depict what most of the current Argentina petrochemical and chemical industry feels: “I am very optimistic about our future and believe this change was necessary. Argentina went from being the world’s breadbasket at the beginning of the 20th century to having a poverty rate of nearly 50% today. I hope we can reclaim some of the glory from 80 years ago and stop the exodus of our young people seeking better prospects abroad.”
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