When Argentina’s Peronist leader, Alberto Fernández was inaugurated in December of 2019, there were several indications that his first year in office would be a rocky one. Latin America’s third largest economy was already in the midst of an economic meltdown that began under President Fernández’s predecessor, Mauricio Macri, in 2018, when country was dangerously close to defaulting on its sovereign debt, inflation was running rampant and poverty and unemployment were rising.

Jorge de Zavaleta, executive director of the Chemical and Petrochemical Industry Chamber (CIQyP), outlined the ways in which these struggles were felt by industry: “2019 was a very challenging year for the industry in Argentina as a result of the weakness of the different value chains that use our products and other circumstances including local currency devaluation and interest rates increasing from 50% to 68%. The petrochemicals and chemicals industry experienced a 4% contraction year-on-year in terms of production volumes. Sales value in US$ plummeted by 25%, and the value of exports also fell by 32% in US$.”

Emilio Nager, commercial manager for international markets at Braskem Argentina, also offered his analysis saying: “There were specific niche opportunities in the market, yet demand for polyethylene and polypropylene was really slow as a consequence of the economic and political situation in Argentina.”

Whatever ambitions President Fernández had to restore growth in his first year on the job were quickly put on hold due to Covid-19. In response to the pandemic, Argentina imposed some of Latin America’s strictest lockdown policies. Its economy is now forecast to shrink by 12% this year according to the IMF, and its budget deficit is set to widen to about 8% of GDP. Since Argentina is limited in its ability to borrow abroad, the Central Bank has been printing money to finance the pandemic spending, which is helping to keep inflation above 40%. The government has responded by freezing the price of services like mobile phones and internet, and is proposing to raise funds for the budget with a one-time wealth tax on millionaires.

Argentina, despite starting strongly against the virus, now has one of the world’s highest rates of positive Covid-19 tests. As of October 2020, the country hit 809,728 confirmed cases and passed 20,000 fatalities.

Given that it touches such a wide variety of sectors, the chemical and petrochemical industry is a great indicator of the direction in which the broader economy is headed. At the beginning of 2020, aspirations were high that the Vaca Muerta shale region would play an integral role in spurring business activity. However, the toxic combination of an oil-price war between Saudi Arabia and Russia, two of the world’s largest producers, and the Covid-19 pandemic have driven the global crude market to below US$25 per barrel, effectively rendering much of the region’s shale uneconomical. Although oil prices have since recovered to around US$40 per barrel as of October 2020, investment has been slow to return. However, as market conditions improve, Vaca Muerta will continue to be a national priority because of its vast export potential and because it will bring in what the country needs most to pull itself out of a financial crisis in its third year: US dollars.

There are some executives who see a silver lining. Gabriel Rodríguez Garrido, executive director of Argentina’s Petrochemical Institute (IPA), contends: “If Argentina wants to solve its endless economic crises, the country needs to incentivize exports. Today, chemicals or petrochemicals make up 20% of all the industrial products manufactured in the country, so the industry offers enormous opportunities to add a lot of value by generating currency, jobs, and exporting value-added products. If Argentina does not take this opportunity, other countries will.”

Besides, Argentina’s economy is not all in a state of economic malaise. One of the more positive developments for the country is its strong agricultural sector. In the opinion of Federico Alonso-Hidalgo, general manager at Gleba, a crop protection firm: “The agro sector in Argentina is a leader worldwide in adopting new technology. We have excellent productivity ratios and the industry has an export profile. In this context, the agrochemical sector is important in bringing new technology to our producers both in extensive and intensive segments.” IPA’s Rodríguez Garrido is similarly bullish on the prospects for Argentina’s agro industry. “Fertilizers would be an obvious choice in terms of investing on a new project in Argentina, because the market for this product is already in this region, with large agricultural markets in Argentina and Brazil.”

In addition to agro, companies like Braskem are finding opportunities to invest in sustainable materials in the region. The company’s green polyethlene is a plastic produced from sugarcane in Brazil. Sergio Marcondes, general manager at Braskem Argentina, commented: “We are very optimistic for the region and Argentina. We want to step up our business in Argentina and try to bring our innovative products here, such as green polyethylene, as well as our circular economy and sustainability efforts in the plastics value chain.”

There are several areas in which the country needs to progress in order to encourage more circular economy investment, however. Marcondes continued: “Currently, the Argentinean structure for recycling still needs improvement. It is very difficult to source post-consumer material for recycling purposes and that is a key challenge to any circular economy effort. In other countries you see stronger partnerships between the industry and the government regarding this topic. I think there is an opportunity to improve that partnership in Argentina, both at the national and local levels.”

The intertwined tasks of suppressing the pandemic and restoring growth present a remarkable challenge for Argentina’s new president. Additionally, how President Fernández handles the country’s foreign debt crisis will likely define his legacy. The economic woes and frequent debt crises are not a cause but rather a consequence of structural problems such as lack of trust in the peso, low competitiveness, and large fiscal deficits. Although it is unreasonable to think chemicals and petrochemicals will be enough to return the country to its days of prosperity, there is no doubt that Argentina will lean heavily on agricultural exports, the most internationally competitive area of the economy, and its promising petrochemical industry to help drag the itself out of its current precarious state.

Image courtesy of Hector Ramon Perez.