ARGENTINA

1
ARGENTINA
See www.biasca.com www.vrg-ar.com
2
ARGENTINAAdvantages of Investing Today
Secretariat of Industry, Commerce, and
SMEs Ministry of Economy and Production
3
The Argentine Economy
4
Argentina at a Glance
Surface Area 2.8 million km² Argentina is the 2nd largest country in Latin America and the 8th largest worldwide in terms of surface area
Population (2005 est.) 38,592,150
GDP (2005 est.) US 162 billion
Growth (2005 est.) 6.3
Per Capita GDP (2005 est.) US 4,195
Form of Government Republican, Representative, and Federal
Political Subdivisions 24 autonomous States with political, administrative and economic powers (23 provinces and the City of Buenos Aires)
Currency, Exchange rate Argentine Peso (Arg) 2.92 Arg / US.
Language Spanish
5
In terms of purchasing power, Argentina boasts
the highest per capita income among major Latin
American economies.
6
The Argentine economy is highly diversified
GDP by Economic Sector, 2004
Goods, 46
Services, 54
Wholesale, Retail, and Repairs 21
Manufacturing Industry 52
Real Estate, Rental, and Other Business
Activities, 21
Transport, Warehousing, and Communications 17
Fisheries 1
Hotels and Restaurants 4
Electricity, Gas, and Water Supply 4
Other Services 7
Education, Social, and Health Services 12
Agriculture, Fishing, Hunting, and Silviculture
22
Construction
9
Mining and Quarrying 12
Financial Intermediation 8
Public Administration, Defense, and
Extraterritorial Activities 10
Source ADI based on National Accounts
7
with an ample supply of skilled labor

• The relative high school attendance expectancy is
  reflected on the literacy rate and the primary,
  secundary and tertiary education enrollment
  rates. Attendance expectancy at educational
  establishments in Argentina is the highest in
  Latin America and compares with developed
  countries (i.e members of the Organisation for
  Economic Co-operation and Development).

8
high availability of natural resources

• Argentina has just under 250,000 km² of arable
  land.
• This wealth of fertile land and a competitive
  industry makes Argentina
• The worlds leading producer and exporter of
  sunflower oil
• The worlds leading exporter and third largest
  producer of soybean oil
• The worlds leading exporter and second largest
  producer of honey
• The worlds leading exporter of horse meat
• The worlds second largest exporter of corn
• The worlds third largest producer of soybeans
• The worlds third largest producer and worlds
  leading exporter of lemons
• The worlds five largest producer of beef
• The worlds sixth largest producer of wine

Source ADI based on FAO (2004)
9
and considerable energy resource reserves.
CONFIRMED RESERVES as at 12/31/2003
Confirmed
Probable
Basin
Gas
Gas
3
3
Oil (Mm
)
Oil (Mm
)
3
3
(MM m
)
(MM m
)
North West
19,308
124,511
8,355
52,599
Cuyana
28,879
516
7,300
220
Neuquen
161,934
311,172
54,602
99,277
San Jorge Gulf
195,887
38,048
46,871
23,431
Southern
19,206
138,248
21,059
113,479
TOTAL
425,213
612,495
138,187
289,006
Source ADI based on Energy Secretariat data.
10
Domestic industry is modern and competitive

• Argentine industrial structure is broad and
  diversified.
• Highly competitive industrial sectors boast world
  class enterprises.
• The sectoral and regional active policies along
  with the general economic policy favors the
  development of the sector.
• Companies including Exxon, Ford, Coca-Cola, Fiat,
  Bayer, Renault, Siemens, Nestlé, Firestone, BASF,
  Pirelli and Abbot have been operating in
  Argentina for over 50 years.

• Annual capability of production at domestic
  industrial sector includes
• 7 million tons of oilseed oils and more than 20
  million tons of related products.
• 15 million hectoliters of wine.
• 2 million tons of sugar.
• 400,000 tons of tanned leather.
• 1.2 million tons of paper.
• 200,000 tons of PVC and more than 1.5 million
  tons of derivates like polyetyhlene and
  propiline.
• 275,000 tons of aluminium.
• 5 million tons of steel.
• 4.15 million tons of seamless and seam pipes.
• 550,000 automobiles.

11
with a highly developed infrastructure.

• A 38,744 km national road network
• This extends to 500,000 kms if the provincial and
  municipal networks are included
• A 35,753 km railway network
• 38 maritime ports and 25 river ports
• 52 airports, 21 of which are international
• Over 25 airlines operate flights from Argentina
  to 40 international destinations in five
  continents

TELECOMMUNICATIONS
Latin Am.
per 1000 inhabitants
Argentina
Brazil
Mexico
the Caribbean
Telephone Lines
220.2
182.1
124.7
145.9
Cellular Phones
168.8
136.6
142.4
70.5
PCs
91.1
62.9
68.7
59.3
Source World Bank (2002)

• Installed electrical energy generating capacity
  totals 21,300 MW.

12
Social conditions are above the average of Latin
America.
13
As a MERCOSUR Member State, Argentina enjoys
preferential access to a market totalling 274
million consumers.
MERCOSUR GDP US 722 billion Population 223
million people
MERCOSUR ASSOCIATES GDP US 975
billion Population 355 million people
Source ADI based on IMF data (2005)

• The MERCOSUR (Southern Cone Common Market) is a
  common market comprising Argentina, Brazil,
  Paraguay and Uruguay.
• Bolivia, Chile and Peru are MERCOSUR Associate
  States, recently it was approved the
  incorporation of Colombia, Ecuador and Venezuela
  with the same status.
• At the same time, Mercosurs calendar of external
  negotiations includes agreements and negotiations
  with different blocs and countries like Mexico,
  India and EU.

14
Since the creation of MERCOSUR, there has been
strong growth in trade between Argentina and the
other Member States ...
In 2004, 4,800 companies registered exports to
the value of US 6,650 million to MERCOSUR.

• Argentine exports to the bloc increased by 236
  between 1991 and 2004 (34 more than sales to the
  rest of the world). Imports from MERCOSUR
  practically quintupled over the same period.

15
resulting in a higher value added export
profile.
US/ ton (2004)
MERCOSUR
477

Other Markets
354
PP Primary Products AM Agricultural
Manufactures IM Industrial Manufactures FE
Fuel and Energy
Source ADI based on INDEC

• 37 of total industrial manufacture exports go to
  MERCOSUR.
• The export value per-ton to MERCOSUR is 35
  higher than to other markets.

16
Argentina ranks as an integrated economy...

• Since the late 80s and as a result of a
  significant reduction in tariff and non-tariff
  barriers, foreign trade has been particularly
  dynamic, a phenomenon that does not exclude trade
  with the region.

17
and with its doors open to the world.
FOREIGN DIRECT INVESTMENT FLOWS (FDI)


Foreign Direct Investment
By Economic Sector (1992-2002)

• Diferent factors influenced in order to make
  Argentina attractive to numerous foreign direct
  investment projects in various sectors of the
  economy.
• The good performance of last year allows to
  glimpse the beginning of a new growing cycle, in
  which Argentina will be among the major FDI host
  countries.

Oil
Manufacturing
20
Industry
34
Electricity, Gas,
and Water
Mining
14
1
Banks
Trade
10
4
Transport and
Others
Communications
8
9
Source ADI based on Ministry of Economy data
18
Argentina in thenew economic context
19
The economy staged a gradual recovery following
the crisis that began in mid-1998 and ended with
the abandonment of the Convertibility Regime in
January 2002.
20
The manufacturing industry led the recovery,
reaching the 1998 level in March 2004, only 1.2
below the historical record (June 1998).
21
There was renewed growth in the construction
industry, surpassing 2000 and 2001 levels.
Source ADI based on Ministry of Economy data
22
There has been a gradual recovery in investment
as from 4Q 2002. Renewed growth in investment
represented a significant contribution to GDP.
23
Following devaluation, consistent monetary and
fiscal policy led to price stability.

• 2002 inflation marked a break with the price
  stability of the previous decade and was the
  result of abandoning the Convertibility Regime,
  introduced in April 1991, establishing exchange
  rate parity at 1 US 1.
• Nevertheless, following the adjustment involving
  a minimal pass-through of devaluation to prices,
  a single-digit inflation rate was once again
  achieved in 2003.

Source ADI based on Ministry of Economy data
24
The recovery in economic activity led to a
significant increase in jobs.
1. Employment Rate Employed/ Total Population 2.
Unemployment Rate Unemployed/ Economically
Active Population

• Almost 2 million new jobs were created between 2Q
  2002 and 3Q 2004 in the private sector.
• The albeit still high unemployment levels began
  to drop following the recovery in economic
  activity, it is falling as the economy recovers,
  and a further decline can be expected.

25
A robust trade surplus was maintained in 2004
despite the recovery of economic activity and a
slight appreciation of the peso in real terms.

• Export performance is highly favourable and the
  upward trend is expected to continue.
• There has been a gradual expansion in exports as
  from 2003. Last year reached a new historical
  record.
• Imports have recovered strongly following the
  drop in 2002. Since then has registered an
  increase of 163.

Source ADI based on Ministry of Economy data.
26
The Current Account Balance has turned positive
following ten years of deficits.

• The 2004 balance is slightly down on 2003 due to
  a 60 rise in imports and the net expenditure of
  earnings and dividends following the economic
  recovery.

27
The trade surplus and the reduction in the
financial account deficit have significantly
boosted Central Bank reserves.
28
Fiscal accounts have improved substantially since
May 2002, as a result of stabilized public
spending and higher tax revenues.
Source ADI based on Ministry of Economy data
29
A favorable monetary trend was established
throughout the last years.
Source ADI based on Ministry of Economy data

• The expansion of the broad monetary base and the
  issue of Central Bank Bills (LEBACs) exemplified
  the continuity of a prudent and flexible monetary
  policy that accompanied economic growth at no
  cost in terms of inflation.

30
The drain on deposits was halted as from 2Q 2002
, with a positive trend from that point onwards,
together with banks recovering liquidity.
Source ADI based on Ministry of Economy data
31
Why invest in Argentina?
32
Why invest in Argentina?

• Highly qualified population
• Availability of natural resources
• Modern diversified industry
• Competitive costs and services
• Developed infrastructure
• Investment incentives
• A legal framework that does not discriminate
  against foreign investments

33
A country with a highly skilled workforce
A comparison of the main education indicators
reveals Argentinas high ranking at both regional
and international level. Attendance expectancy at
educational establishments is the highest in
Latin America and similar to the one observed for
developed countries such as Spain, Italy, and the
United States.
Illiteracy in the City of Buenos Aires, with a
population similar to Uruguay, is 0.5 and 1.3
in the metropolitan region, with a population
similar to that of Chile.
Source ADI based on UNESCO data, 2004.
34
Education is compulsory and free for the 5-14
year age group, thus ensuring high school
enrolment rates, not only at primary but also at
secundary and tertiary education level.

Net education enrollment rate Number of students
enrolled in the correct age group level as a
percentage of the total population eligible for
this age group level.
Gross education enrollment rate Total number of
students enrolled in the level as a percentage of
the total population eligible for this age group
level.
Source ADI based on UNESCO data, 2004.
35
The Argentine education system is also well
developed at the higher education level.

University Students
(per 100,000 inhabitants)

• Argentina boasts a broad network of public and
  private universities attended by over one million
  students.
• The university student/ total population ratio
  is the highest in Latin America and compares with
  the ratio for several developed countries.

3,582
Spain
3,123
Argentina
3,022
Italy
2,400
Uruguay
2,100
Chile
1,540
Colombia
1,490
Mexico
1,068
Brazil
Source ADI based on UNESCO data
36
The strength of the education system is
exemplified by the number of scientists and
engineers working in research and development.

Scientists and Engineers working in RD
(per 1,000,000 inhabitants)
1,921
1,128
713
533
370
323
225
219
101
Spain
Italy
Costa Rica
Chile
Brazil
Mexico
Uruguay
Colombia
Argentina
Source ADI based on UNESCO data
37
Availability of Natural Resources

• Argentina is characterized by the abundance and
  quality of its natural resources that provide
  competitive advantages in developing activities
  linked to these resources.
• Argentina is the eighth largest country in the
  world in terms of surface area and its relevance
  is even greater if factors relating to the
  potential its surface area offers are considered
  (i.e. the proportion of surface area suitable for
  agriculture, mining resources, etc.).

38
Agriculture Argentina has some of the most
suitable agricultural land worldwide
The relevance of Argentinas agricultural surface
area is not only due to its size but also to the
excellent agroecological conditions, resulting in
high yields.
Source ADI based on FAO data
Land under temporary crops, temporary meadows for
mowing or pasture, land under market and kitchen
gardens and land cultivated with permanent crops
(fruit trees, nut trees, vines, etc.).
39
In Latin America, only Brazil has a greater
surface area suitable for agricultural use.
However, if domestic market pressure on
production is considered, Argentina has a higher
availability in relative terms.
Brazil and Argentina represents 9 of the worlds
agricultural surface area. Furthermore, Latin
America has about 23 of the world's potential
arable land.
Land under temporary and permanent crops,
temporary meadows for mowing or pasture, gardens
and land used permanently for herbaceous forage
crops, either cultivated or growing wild.
40

• In comparison with the major grain-producing
  countries, Argentine yields are highly
  competitive at international level.
• Similar conclusions are obtained when comparing
  yields for other crops such as apples, pears,
  lemons, beans, and garlic in which Argentina also
  has a considerable global market share.

Soybean Productivity
(Argentina 100)
Argentina
Brazil
USA
Australia
China
Russia
India
0
50
100
Wheat Productivity
Corn Productivity
(Argentina 100)
(Argentina 100)
China
USA.
USA
Argentina
India
Australia
Argentina
China
Brazil
Brazil
Australia
Russia
Russia
India
0
50
100
150
200
0
30
60
90
120
150
Source ADI based on FAO data
41
Agricultural production increased 103 in the
period 1990-2004. Principal crops include
soybean, wheat, sunflower, and corn. Cultivated
surface area increased approximately 40 over the
same period, representing significant progress in
terms of yields.
Source ADI based on SAGPyA data.
42
Silviculture The availability of extensive areas
promotes the development of other activities
including silviculture.

• The main factors determining competitive
  advantages in this activity (soil types, climate,
  costs, human resources, etc.) are present in vast
  regions of Argentina.
• Of the 20 million hectares suitable for forestry,
  only 5 are currently used for this purpose. Land
  suitable for forestry does not compete with other
  agricultural activities.
• The diversity of climates and soil types makes it
  possible to cultivate a wide variety of species.
• In addition to tree growth rates, the relatively
  low land value compared to countries such as
  Brazil and Chile yields high rates of return and
  exceptional payback periods.
• High growth rates 41 m3 / hectare/ year (Chile
  35 m3) for eucalyptus and up to 32 m3 / hectare /
  year for pine (three times the growth rate in
  Canada and twice that of the United States).

43
High growth rates for conifers and eucalyptus
Conifers Eucalyptus
Source Simpson Timber Co., Aracruz Cellulose,
Jaako Powry Investments. CIEF.
44
Fishery Resources The length of its Atlantic
coastline (4,725 km) and the variety of species
found in the fishing zone make Argentina one of
the best fishing areas worldwide.
Maritime fishing have recovered strongly in the
last years. There are also considerable captures
of molluscs and crustaceans like prawns and
squids, besides fish.
Source ADI based on SAGPyA data
45
Mining in Argentina

• The estimated surface area with mining potential
  totals approximately
• 750,000 km2, 75 of which has still to be
  exploited. Consequently, the Mining Journal
  Survey has ranked our country sixh in mining
  resources potential.
• Argentina has considerable gold, copper, lead,
  zinc, natural borate,
• bentonite, clay, and ornamental stone
  deposits. Most mineral deposits lie along the
  Andes range, wich extends over 4,500 km,
  bordering with Chile and Bolivia.
• The regulatory framework and current mining
  incentive regime play a key role in attracting
  investment to this sector.
• The positive impact of the new legal framework on
  the sector can be observed in recent investments
  and exports that rose from practically zero to
  over US 1 billion per year.

46
The Mining Investment Law provides the following
incentives

• According to the Law, companies may file for a 30
  year long fiscal stability period.
• Double deduction of prospecting, exploration, and
  technical/ economic feasibility study expenses,
  for income tax purposes.
• Financing and reimbursement regime for VAT on
  capital goods and investments in physical
  infrastructure projects.
• Accelerated depreciation of capital investments.
• Exemption from import duties on capital goods and
  equipment, spare parts, and accessories.
• Exemption from assets tax.
• Provincial royalties are limited to 3 of the
  pit-head value of mineral extracted.
• An income tax deduction of up to 5 of extraction
  operating costs and a tax deduction for
  environmental conservation allowances.

47
Notable growth in mineral exports

• The transformation and integration of the
  Argentine mining industry into international
  markets is reflected in the tripling of exports
  over the last seven years. The upward trend is
  expected to continue due to Argentinas
  geological potential, the availavility of
  potential areas that remains unexplored and high
  rates of return.

Source ADI based on INDEC data
48
Investment growth in the sector

• The positive impact of the new legal framework on
  the sector can be observed in recent
  investments that rose from practically zero to
  over US 1 billion in 2002.
• Investment has remained robust despite the
  economic crisis.

• Leading global mining companies including
  Barrick - Homestake, BHP - Billiton, FMC Lithium,
  Anglogold, Weathon River Minerals, Xstrata, Rio
  Tinto and Minera Aguilar have already decided to
  invest in Argentina.

Source ADI based on CEP data
49
Argentina ranks high internationally in terms of
available mining resources.

• The principal mining areas currently in
  production include Bajo La Alumbrera, El Salar
  del Hombre Muerto, Farallón Negro, Mina Aguilar
  and Cerro Vanguardia and important projects
  involving significant metalliferous mineral
  reserves in various stages of exploration are
  underway at locations including Pirquitas, Agua
  Rica, Pascua Lama and Pachón.

• 1.China
• 2. Peru
• 3. Philippines
• 4. Brazil
• 5. Chile
• 6. Argentina
• 7. Mexico
• 8. Bolivia
• 9. Venezuela
• 10. Burma

Source ADI based on Mining Journal
50
Increased oil and gas production

• Argentina has a very gas-intensive economy,
  natural gas accounted for half of total primary
  energy supply. Gas production has increased
  constantly since the early 90s, doubling early
  90s levels in 2004. Argentina is the second
  largest producer in the Region.

• Although oil production has fallen in recent
  years, levels are still 50 above the levels
  recorded 13 years ago. At the same time, should
  be pointed out that Argentina is still one of the
  major producers in the region.

Source ADI based on Energy Secretariat data
51
Oil and Gas

• The oil reserves/ production ratio increased
  despite a 13 rise in production during the
  period under review.
• Although the gas ratio decreased between 1994 and
  2002, it should be pointed out that production
  rose by 65.2 during this period.

Gas Reserves/ Production ratio
Oil Reserves/ Production ratio
(years)
(years)
10.6
19.8
19.3
10.2
17.8
9.2
9.1
8.9
14.8
14.5
1994
1996
1998
2000
2002
1994
1996
1998
2000
2002
Source ADI based on Energy Secretariat data
52
A Sustainable Environment

• Argentina ranks 9 among 146 countries in the
  University of Colombia environmental
  sustainability rankings.
• The availability of vast areas with optimal
  environmental conditions is clearly a significant
  factor in attracting investment. Nowadays,
  Argentina is highly considered noyt only because
  the abundance and quality of its natural
  resources but also because of its lowest
  vulnerability to environmental stress, the
  functioning of ecosystems and global stewardship.

The ESI is elaborated by a team of environmental
experts at Yale and Columbia Universities.
53
Modern diversified industry

• Argentina boasts a relatively modern and
  diversified industrial structure. There has been
  substantial investment in machinery and equipment
  in recent years and a nucleus of state of the art
  companies has emerged.
• In addition, Argentinas industrial profile is
  characterized by
• Pronounced alignment with Argentine factor
  endowment
• High labor productivity indices
• High capital intensity
• Export-oriented production
• Increases of scale
• Transnational enterprises

Source ADI based on CEP data
The recovery is currently being boosted by new
investment, with flows aimed at industry and
other tradable goods sectors playing a dominant
role.
54
Relatively higher prices for domestic products
favor the production of tradable goods, resulting
in a higher industrial sector share in GDP.

• The industrial sector is one of the pillars of
  the current economic recovery and growth in
  production is the result of higher exports as
  well as import substitution.
• The improvement in the structural sustainability
  of the economy, allows to settle down
  competitiveness policies that will consolidate
  the strategies of quality, technological
  development and productivity.

Sector Share in GDP at current prices
55
A modern diversified industrial sector integrated
into the global market

• Economic opening has transformed the industrial
  sector, resulting in
• A greater emphasis on exporting Manufactured
  goods exports have increased their share
• of industrial GDP.
• Increased international integration
  Intermediate goods imports have increased their
• share of industrial GDP.

Intermediate Goods Imports/ Industrial GDP
Exports / Industrial GDP
70
26
26,2
60
28,7
50
22
40
10,1
18
30
35,8
IM
20
IM
14
13,6
10
AM
11,8
10
0
94
96
98
00
02
04
94
96
98
00
02
04
Source ADI based on INDEC and National Accounts
data
56
The industrial sector displays continuous
improvement in human resource productivity.

• Argentina has recorded significant progress in
  human resource productivity with a
• 26 increase in labor producivity between 1995
  and 2000.

The relative labor productivity gap with the
United States is the lowest in Latin America.
According to ECLAC statistics, average Argentine
industrial sector labor productivity is 67 of US
levels, with Brazil at 37, and no other Latin
American country higher than 40.
Source ADI based on INDEC data
57
A modern, diversified, and growing industrial
sector

• Industrial production has developed favorably in
  recent months. The recovery in domestic demand,
  the integration of Argentine world class
  producers of industrial inputs and primary
  commodities into external markets is
  intensifying, accompanied by a new process of
  import substitution in specific branches.

The industrial activity is currently at its
highest level for the last five years. The
cumulative increase from January 2002 to December
2004 is 38,5.
Source ADI based on INDEC data
58
There has been growth in all industrial sectors
in recent months.
Industrial sector evolution

• Of the industrial sectors currently displaying
  increased growth, special attention should be
  drawn to the metalworking and automotive
  industry, editing and printing products and other
  foodstuff and drinks sub-sectors.
• Industrial growth over the past two years has
  been generalized, irrespective of the various
  branches specific orientation (domestic market,
  import substitution, or exports).

2004 average vs. 2003 average, variation
Automotive
Editing and printing
No metallic minerals
Other metalmechanics
Paper and cardboard
Chemicals
Rubber and plastics
General Level
Textiles
Beverage and food
Petroleum refining
Basic metals
10
20
30
40
50
60
Source CEP based on INDEC data
59
Argentina is among the most competitive economies
in the international market in terms of costs
for producing a wide range of products and
services.

• Some of the basic costs investors must take into
  consideration if they wish to set up their
  business in Argentina are listed below.

Source ADI based on Ministry of Economy and
Production data
60
Skilled labor costs for Buenos Aires are
competitive vis-à-vis other cities worldwide.

• Comparing City of Buenos Aires local labor costs
  with costs in other major urban centers reveals
  that Argentine costs are highly competitive.

Source ADI based on UBS, Prices and Earnings
2003.
61
Buenos Aires also offers clear advantages over
the rest of the world in terms of cost of living.
A basket of 39 products with due consideration of
the preferences of Western European consumers was
taken as a reference.
A basket of 19 services including telephone, post
office, hairdressing, cinema, restaurant dining,
dry cleaning, etc. was taken as a reference.
Source ADI based on UBS, Prices and Earnings
2003.
62
Competitive costs for agricultural land combine
with excellent agroecological conditions that
ensure high yields in the widest variety of crops.
Source ADI
63
Availability of office space at low rates
The rent quoted is the typical achievable
rent for a 1,000 sq. m. unit in a top quality
(Class A) buildings in a primer location. Class
A Buildings generally used for rental purposes.
Located in easy access areas. Modern layouts with
good natural light and view. Well finished and
maintained. Tenants are generally multinational
companies and/ or tenants with a high economic
capacity.
Source ADI based on CBRE, Global Market Rents
2004.
64
Low-cost electric power for industry
65
Low-cost gas for industry
66
Competitive telecommunications costs
67
Developed infrastructure

• Argentina boasts considerable development in
  terms of road, rail, port, aeronautical, and
  telecommunications infrastructure.
• In addition, modern regulatory frameworks ensure
  a high level of competition.
• Appropriate infrastructure provides a platform to
  boost production sector competitiveness and
  ensure territorial and social integration.
• The development of new infrastructure projects
  was listed as among the major priorities for the
  national government. The implementation of theses
  projects will be carried out by the State or by
  local or foreigners private operators.

68
Commercial Aviation infrastructure

• The National Airports System comprises 52
  airports, 35 of which are managed by the private
  sector in conjunction with recognized
  international operators.
• Argentina has 21 airports equipped for
  international traffic (see map).

69
Port infrastructure

• Argentina has 38 maritime ports along the
  Atlantic coastline and 25 river ports. Most of
  foreign trade transactions passed out through
  these ports.
• Recognised international maritime cargo operators
  operate out of Argentina.
• The Port of Buenos Aires is the main container
  port in Latin America and the Caribbean.
• Argentinas principal maritime and river ports
  are featured on the map.

70
Port Infrastructure

• Argentinas main port has achieved considerable
  progress in recent years in terms of
  operability. Buenos Aires was born and grew with
  a close relationship to its role as a port, which
  would become, in time, a point of commercial and
  communication ways concentration.

71
Paraguay - Paraná Waterway

• The Paraguay-Paraná Waterway is the main river
  transport lane along the Paraguay-Paraná water
  system and measures 3,302 km in length.
• The importance of this project lies in the lower
  river navigation costs (the approximate freight
  cost is US 0.010 per ton/ km) and the lower
  environmental impact.
• Hidrovía S.A. is responsible for dredging to a
  draft depth of 32 feet, seamarking, and
  maintaining the main access channel to the River
  Plate and the River Paraná for the 779 km stretch
  to the port of Santa Fe.
• The waterway is navigated by tug-propelled barge
  convoys, each barge with a loading capacity of
  1,500 tons. Currently, the maximum convoy is
  generally 20 barges (30,000 tons) measuring
  approximately 300 meters between perpendiculars
  with a 48 meter beam.

72
Road Infrastructure

• The National Road Network spans 38,632 km,
• 81 of which are paved (see map).
• A further 180,000 km of roads are under
• provincial and 280,000 km under municipal
• jurisdiction.

73
Railway Infrastructure

• The Argentine railway network is one of the most
  extensive worldwide, covering a distance of
  35,753 km.
• The federal government has decided to promote
  regional integration though the railway system
  and consequently decreed the reopening of branch
  lines such as the Central Trans-Andean Railway
  via tender and the rehabilitation and
  transformation of the Belgrano Cargas freight
  line.

74
Telecommunications

• Argentina began developing telecommunications 123
  ago, only 4 years following the launch of the
  Bell Telephone Company.
• Over the last 10 years, investments totalling
  more than 20 billion dollars have increased the
  number of telephone lines in service by 74,
  total digitalization of the network has been
  achieved, and the mobile telephone service has
  grown from less than half a million to 12 million
  phones in service.

PER 100
Latin Am.
Argentina
Brazil
Mexico
INHABITANTS
Carib.
Telephone lines
22.0
18.2
12.5
14.8
Cellular phones
16.9
13.7
14.2
12.2
PCs
9.1
6.3
6.9
5.9
Internet users
8.8
4.6
3.7
5.0
Source World Bank (2001)
75
Telecommunications

• Various indicators give an overview of
  improvements in the telecommunications sector in
  recent years.

CATHEGORY
1990
2004
Fixed lines installed (thousands)
3,097
9,894
Cellular phones (thousands)
15
12,480
Digitalization of network
13
100
Lines in service per 100 inhabitants
11.9


55.6


Public telephones (thousands)
22.5


150.7


Lines in service per employee
76.1


956.9


Investment in the sector 1991-2000
US 21,150 Millones
Source National Communications Commission
76
Telecommunications
77
Telecommunications
78
Investment Incentives

• Argentina has a number of regimes designed to
  promote investments by both domestic and foreign
  investors alike
• General incentives Instruments and measures
  aimed at promoting investment in any region or
  economic activity.
• Sectoral incentives Promotion regimes aimed at a
  particular economic sector.
• Regional incentives Provincial investment
  promotion regimes and investment support
  infrastructure.

79
General Incentives

• Export promotion incentives including drawback,
  temporary admission, turnkey plant exports, and
  customs-at-factory regimes.
• Instruments and regulations aimed at reducing
  initial investment costs investment Value Added
  Tax (VAT) financing reduced VAT tax rate on
  capital, informatic and telecommunications goods
  zero import tariff on capital goods zero tariff
  on all goods destined for use in major investment
  projects.
• Measures that boost competitiveness by reducing
  operating costs, such as deregulation of the
  electricity and long distance telecommunication
  markets, air freight transport, etc.

80
General Incentives New tax measures to promote
investments

• Since September 2004, the Executive Branch has
  implemented new mechanisms designed to promote
  investment. The new promotion regime consists in
  the accelerated reimbursement of VAT related to
  the investments and in an accelerated
  depreciation regime under the income tax
• Accelerated depreciation for machinery,
  equipment, and infrastructure works destined for
  investment projects. Capital goods purchases may
  be depreciated in the balance sheets for the
  three years subsequent to purchase and
  infrastructure project depreciation will be
  reduced by 50 vis-à-vis the usual depreciation
  period.
• Refund of VAT paid on the purchase of goods
  destined for use in investment projects. All VAT
  not offset will be refunded in cash three months
  after purchase.
• The regime will remain in effect for 36 months.
  Until now 36 projects were included in the regime
  covering a total investment of 1,800 billion us
  dollars.

81
Sectoral Incentives

• Certain sectors including mining, forestry,
  tourism, and the automotive industry have
  specific investment promotion regimes.
• Some of these regimes include the following
  incentives inter alia
• Fiscal stability for 30 years (forestry, mining)
• Special depreciation regime for income tax
  purposes (forestry, mining)
• Tax exemptions (forestry, mining, tourism,
  automotive industry)
• Compensated trade regime (automotive industry)
• On March 2004 the Argentine Government sent to
  Congress a bill containing a series of measures
  aiming to promote investments in different
  sectors like Biotechnology.

82
Regional Incentives

• Various provinces in Argentina have investment
  promotion regimes that generally include the
  following incentives
• Exemption from provincial taxes such as turnover
  tax, stamp duty, real estate tax, etc.
• Reduced public utility rates
• Support for infrastructure and equipment projects
  
• Facilities for the purchase, rental, or lease
  without charge of public property
• Most provinces have business support
  infrastructure such as industrial parks and free
  trade zones.

83
Legal Framework

• The legal framework currently in force was
  designed to attract foreing investment trough the
  open up of its economy and the removal of
  barriers to foreign investor acess to specific
  economic sectors.
• The main aspects of the current legal framework
  with regard to FDI are based on
• National treatment for foreign investors
• No prior approval or registration requirement for
  investments
• Access to all economic sectors
• Access to domestic incentive programs
• Unimpeded transfer of profits and repatriation of
  capital

84
Attractive Sectors for Investment
85
The following include some of the most
attractive sectors for investment? Mining?
Forest industry? Leather and leather products?
Petrochemical industry? Agricultural
machinery? Vegetable oils? Grape growing and
wine making? Cultural industries?
Software? Outsourcing? Tourism
Attractive sectors for investment
86
Mining
Rates of return after taxes
(gold mine)

• Strong increase in production
• Exports tripled in the last 7 years (US 996
  millon in 2003)
• Strong foreign investment in the last 6 years
  (US 3 billion)
• Favorable legal framework
• Geological potential rich in mining resources
  (ranked sixth worldwide)
• 75 territory with potential still unexplored
• Mining Integration Treaty with Chile
• High profitability in copper and gold mines
• Availability of production resources
  infrastructure, skilled labor and a growing
  supply of local suppliers

S. Africa
Chile
Argentina
Australia
USA
Peru
Bolivia
Canada
Mexico
China
0
5
10
15
20
Rates of return after taxes
(copper mine)
Chile
Argentina
S. Africa
USA
Australia
Peru
China
Bolivia
Mexico
Source Colorado School of Mines
Canada
0
5
10
15
20
87
Forest Industry

• PAPER INDUSTRY
• Unmet domestic demand
• Growing per capita consumption
• WOOD INDUSTRY
• New project potential
• Cost of wood lower than in Nordic countries
• High expansion potential due to relatively low
  consumption

• The Forestry Law provides an attractive legal
  framework for investments
• Fiscal and economic incentives for the
  development of the sector
• High growth rates and lower harvesting maturities
  
• Abundant supply of suitable low-cost land and
  extensive tracts available
• 20 million hectares of suitable virgin land, only
  5 of which is currently being cultivated
• High potential for industrial development
• PULP INDUSTRY
• Abundant supply of forest raw material
• Extensive use of recycled fibers with definite
  growth potential

Source ADI based on CEP data.
88
Leather and leather products

• Production has increased notably in recent years.
  
• The largest firms produce up to 5,000/6,000 pelts
  per day (in Italy average-sized companies produce
  approximately 200/300 pelts per day).
• The industry is moving forward in terms of
  upstream integration, basically by producing
  upholstery covers for the automotive industry
  (US 200 million in exports).

The sector produces tanned leather, semi-finished
and finished leather, and upholstery covers with
an annual turnover of US 1 billion. Argentina is
the worlds fourth largest producer and exporter
of leather goods and claims 9 of the global
leather market. 80 of total production is
exported and 50 of these exports go to the USA,
China, and Brazil.
Source ADI based on CEP data.
89
Petrochemical Industry
The petrochemical industry has been operating for
more than fifty years in Argentina and
petrochemical plants process and add value to raw
materials in the form of locally extracted
hydrocarbons (oil derivatives and natural gas
compounds).
43 plants with installed capacity on an
international scale produce primary,
intermediate, and final products, and in the
five-year period 1996-2000, the petrochemical
industry invested approximately US 3 billion and
doubled its installed capacity to 6.2 million
tons per annum.Demanding domestic market one
of the most notable examples is the increase in
apparent consumption in the agricultural
sector.The industry has the potential to become
a production platform to supply MERCOSUR
markets.Human resource productivity in the
manufacture of chemical products for agricultural
use has practically tripled in 10 years.
90
This sector has been industrially active for
over 100 years and has the capacity to adapt to
changes in agricultural practices (e.g. the
adaptation of seeders to the direct seeding
system).
Agricultural Machinery
? An ever-expanding and important domestic
market Agricultural production is displaying
marked growth, while current profitability allows
producers to procure suitable equipment.? The
industry is able to support domestic purchasers
in the post-sales phase.? National equipment
can be adapted perfectly to Argentine soil
characteristics.? Applied knowledge export
potential.
Argentine seeder production statistics
3,278
1990
2,562
1991
2,080
1992
3,100
1993
3,600
1994
3,400
1995
5,880
1996
4,740
1997
4,640
1998
4,178
1999
3,894
2000
3,420
2001
5,100
2002
5,350
2003
91
Vegetable Oils

• SOYBEANS
• Average production unit capacity 5,000 tons
  Principal global producers USA (1,500 tons),
  Brazil (2,500 tons)
• Crush cost US 4/ ton (USA US 10-, Brazil -US
  14-)
• A high incidence of leading-edge technology in
  use in the industrial sector.
• Capacity to produce bio-fuels from vegetable
  oils.

• Argentinas prominence in the global market
• 12 of global soybean production
• 30 of vegetable oil exports and 10 of
• seed exports
• 22 of global sunflower production
• Leading exporter of sunflower oil
• GPV US 4.2 billion.
• Low cost of arable land.
• High geographic concentration of primary and
  industrial production.
• Availability of futures markets for agricultural
  producers.
• Growing global demand for vegetable oils and
  vegetable oil by-products.

Source ADI based on INDEC data
92
Grape Growing and Wine Making

• High availability of raw materials eighth
  largest global producer of fresh grapes
• High competitiveness of Argentine wine
  producers excellent price/quality ratio
• Low cost of land in the context of a global
  reduction in planted area
• Available technology similar to that used by the
  major producing countries
• Capacity to export high-value wines amid growing
  foreign demand
• Capacity to produce organic products
• Ongoing improvement in the quality of grape and
  wine products

• Argentina is the worlds fifth largest producer
  of wine
• High domestic consumption (worlds sixth largest
  consumer of wine)
• Argentine wine exports have risen by more than
  400 in the last ten years
• High quality wines account for over 80 of
  exports in this sector

Source ADI based on INDEC data
93
Cultural Industries

• The book industry was one of the first to
  develop in Latin America, while there is also a
  long history of film production.
• Cultural industry professionals and technicians
  are high-quality, and human resources working in
  these industries display a high degree of
  flexibility in adapting to work-related
  developments and adverse scenarios.
• A large number of training centers are available
  for professionals in the various specialist
  fields covered by these industries.
• Argentina boasts talented writers, musicians,
  actors, authors, scriptwriters, directors, and
  advertisers of world renown.
• High-level equipment in graphic design, film
  studios, television and music production ensures
  high-quality productions.
• Argentine cinema is always represented and
  performs well at international film festivals,
  and Argentina was among the top five creative
  leaders worldwide in advertising in the 90s.
• Argentina has a wide variety of landscapes and
  locations suitable for filmmaking, and a good
  tourist infrastructure and transport system makes
  it easy for television, cinema, and advertising
  production teams to stay in and move around the
  country.

94
Software

• Human Capital highly trained, specialized in
  technology and IT solutions at competitive costs,
  with socioeconomic and cultural characteristics
  similar to those in the most highly developed
  countries
• 3,500 computer and IT graduates/ year
• 20,000 AMBA professionals
• Potentially significant domestic markets for
  specific applications
• Agribusiness, industrial automation, educational
  and entertainment software (edutainment)
• Exportable software development capability

• Low production costs the cost structure for this
  sector is highly competitive internationally
• Argentina A highly competitive base for
  producing and exporting software and IT services
  to Latin America and the Spanish-speaking world
• Legal framework Software Development Bill
• Fiscal stability
• Extrazone import duty exemption for
• hardware imports
• Income tax reduction in the amount of a
  percentage to be invested in RD
• VAT credit

95
Outsourcing

• Argentina is in a position to become one of the
  main beneficiaries of this growing corporate
  trend. Various multinational companies (Ernst
  Young, Delloite, KPMG, HP, IBM, Teleperfomance,
  Siemens, SAP, Motorola, Accenture) have selected
  Argentina as their base for operations ranging
  from basic services (such as telemarketing or
  call-centers) to software development,
  engineering, financial analysis, design, and RD.
  
• The main reasons for Argentinas attractiveness
  are the level of qualification of the population,
  the critical mass of professionals and university
  students, labor cost levels, and
  telecommunications infrastructure availability.

Proficiency in English examination
"

• Potential to provide the US market with call
  center services. A growing number of Argentines
  are training and qualifying in English.
  Qualifications obtained abroad by Argentine
  students are among the highest.

( of successful candidates)
70
60
50
global average
46
40
No data available less than 40 candidates
30
20
10
0
Chile
Brazil
Uruguay
Argentina
Italy
Spain
Source University of Cambridge, EFL
96
Tourism

• The number of foreign tourists visiting Argentina
  rose by 27 in 2003 compared to a 15 increase in
  2002.
• Foreign tourism displays a high degree of
  diversity in terms of countries of origin and
  average spending, accompanied by longer average
  stays.
• There has been strong investment in hotel
  infrastructure in recent years, although there
  are still a considerable number of locations
  available for developing tourist services.
• Skilled labor is low-cost and tourist tariffs are
  attractive.
• The diversity of Argentine landscapes makes it
  possible to tailor products to international
  demand (ecotourism, rural tourism, cultural
  tourism, sport tourism, etc.).

Hotel supply
Number of establishments
7,800
7,500
7,200
6,900
6,600
6,300
1998
1999
2000
2001
2002
Tourist countries of origin
2003
Brazil
Others
13
17
Chile
Uruguay
17
26
USA
Europe
Canada
17
10
Source INDEC
97
Perspectives and Challenges
98
Market expectations consensus improved Argentine
economic performance
Market Expectations Survey
GDP
Industrial Activity
2004
9.0
2004
8.9
(Interannual variation)
2005
6.5
(Interannual variation)
2005
7.5
Nominal Exchange Rate
Investment
End 2004
2.97
2004
34.1
(/US)
End 2005
3.00
(Interannual variation)
2005
17.3
Consumer Prices
Trade Balance
Dec 04
6.9
2004
11.2
(Interannual variation)
Dec 05
8.3
(US billion)
2005
10.1
Average Salary
Current Account Balance
2004
10.5
2004
3.1
(Interannual variation)
2005
10.3
(US billion)
2005
2.1
Unemployment Rate
International Reserves
2004
13.5
2004
19.8
( of Workforce)
2005
11.1
(US billion)
2005
22.1
Source BCRA
This survey is conducted by the Central Bank of
Argentina to obtain a systematic follow-up of the
principal short- and medium-term macroeconomic
projections made by Argentine and foreign
analysts and academics on Argentine economic
performance.
99
Argentina was among the leading countries in
Latin America in 2003 / 2004 in terms of growth.
Source ADI based on World Economic Outlook
(IMF)and BCRA.

• Argentina recorded the highest growth in Latin
  America in 2003 and, exceeding all expectations,
  the economy grew 9.0 last year. This trend is
  expected to continue in the years to come.

100
On the domestic front, Argentina aims to
intensify the current economic growth process

• To achieve this goal, Argentina must ensure
  continuity in the processes already underway
• Lowering unemployment
• Boosting investment flows
• Strengthening the financial system
• Fiscal consolidation
• Restructuring the social security system
• Stabilizing prices

101
While on the international front, the main
objective is to intensify Argentinas
quantitative and qualitative international
integration by ...

• Deepening regional integration schemes and moving
  forward in the foreign trade negotiations agenda
  (WTO, FTAA, MERCOSUR, etc.)
• Ensuring the ordered and sustainable
  restructuring of public and private debt with a
  view to achieving a solution in accordance with
  Argentinas payment capacity.

102

• Secretariat of Industry, Commerce, and SMEs
• Ministry of Economy and Production
• Av. Julio A. Roca 651 5th Floor, Office 22
• (C1067AAB) Buenos Aires
• Republic of Argentina
• Tel. [phone] / 3313 / 3315
• Fax [phone]
• E-mail adi_at_mecon.gov.ar
• http//www.inversiones.gov.ar

103
ARGENTINA
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