ARGENTINA

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ARGENTINA BUSINESS OPPORTUNITIES JUNE 2006
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Argentina
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Location

• Southern South America
• Eighth largest country in the world in terms
  of surface area
• Seventh largest country in the world in terms of
  surface area suitable for agriculture
• Second largest country in Latin America
• Neighboring countries
• Paraguay
• Chile
• Bolivia
• Brazil
• Uruguay

4
Government

• Federal Republic
• Democratic political system
• President Néstor Kirchner (since May 2003)
• Political Subdivisions with 24 autonomous States
  with political, administrative and economic
  powers
• 23 provinces and the City of Buenos Aires

5
Basic Data

• Population 38.5 million (2005)
• Area 2.8 million km2
• Major Cities Buenos Aires (capital), La Plata,
  Cordoba, Mendoza, Rosario
• Language Spanish
• Religion Roman Catholic 92, 8 others
• Literacy rate 96.3
• Life expectancy 76 years

6
Economy

• Free market
• Limited role of the state in the economy
• Exchange rate US 1 3.00 pesos
• Inflation May 2006 0.5
• Unemployment 2005 11
• GDP US 146.4 billion (2005)
• GDP real growth rate 9.2 (2005)
• GDP per capita US 4.685 (2005)
• External debt US 129.583 Billion (2006)

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Why Argentina?

• Highly qualified population
• Modern telecommunication infrastructure
• International competitive costs
• Flexible labor laws
• Important urban centers
• Government initiatives to promote investments
• Minimal time difference between USA Argentina
• Increasing presence of foreign firms
• Availability and quality of natural resources

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Modern Telecommunication Infrastructure

• The main cities of Argentina offer connectivity
  nods where some of the most important
  international carriers are interconnected having
  access to multiple telecommunication networks and
  reaching a worldwide communicational coverage
  through optical-fiber networks all over the
  Atlantic and Pacific.
• Argentina has state of the art technology built
  by international communication companies such as
  Telefónica from Spain, STET from Italy, France
  Telecom, ATT and Telmex. These companies provide
  a wide range of services including traditional
  and mobile voice/data, internet, and submarine
  cabling.
• Furthermore, many advantages recline on the
  presence of software development.

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International Competitive Costs

• As a result of the local currency depreciation
  and the adoption of a more realistic exchange
  rate, Argentina has become in one of the most
  competitive economies in the international
  market.
• Argentina counts with important costs advantages
  for what is needed in BPO operations
• Workforce
• Telecommunications
• Electricity
• Office spaces

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Increasing Presence of Foreign Firms
Several American companies conduct business in
Argentina. Some of them have been operating
locally for a long time (more than 90 years). The
presence of US firms is significant in different
economic sectors like financial services, energy,
petrochemicals, food processing, and motor
vehicle manufacturing. Examples of Fortune 500
companies with facilities in Argentina includes
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Friendly Legal Framework For Foreign Investment

• The main aspects of the current legal
  framework with regard to FDI are based on
• National treatment for foreign investors.
• No prior approval process for investments.
• No prohibition to acquire a locally owned call
  center company or having partial equity position.
• Access to domestic incentive programs.
• Unimpeded transfer of profits and repatriation of
  capital.
• Argentina maintains bilateral agreements for the
  promotion and protection of investment with USA.

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After the 2001 2002 crisis and exceeding all
expectations, Argentina achieved an average
annual growth rate from 2003 to 2005 close to
8,3. Argentine economy grew faster than the
international average and the most attractive
developing markets. As a consequence of the
economy recovery new investment opportunities
appear in different economic sectors.
Source ADI based on IMF data.
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achieve sustainable growth through
Pillars
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The recovery of the Argentine economy started in
the second quarter of 2002, and there have been
14 consecutive quarters of growth since 2002.
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Argentina not only leads the GDP growth in Latin
America, besides it was the second economy that
grew the most in the world during the last three
years
16
One of the good points of the new growth process
is the recovery of flows of Foreign Direct
Investment (FDI).
17
After depreciation of the local currency, a
competitive exchange rate was achieved.
18
A robust trade surplus was maintained since 2002
despite the recovery on imports. Exports reached
40 Billion Dollars in 2005 achieving a new
record.
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A robust Fiscal Surplus is a necessary condition
to reach the sustainable growth of economy.
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• Consolidate fiscal solvency (tax reform,
  improvement of tax compliance, new scheme of
  distribution of federal taxes)
• Achieve long term price stability
• Recovery of long term credit
• International negotiations to expand trade
  opportunities (MERCOSUR, other American
  initiatives, European Union, WTO, bilaterals).
• Promote and consolidate social inclusion

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Highest per capita income among major Latin
American economies.
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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 exporter
  of lemons
• The worlds five largest producer of beef
• The worlds sixth largest producer of wine

Source ADI based on FAO (2004)
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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.

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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).

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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.
• 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.

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Road Infrastructure

• The National Road Network spans 38,632 km,
• 81 are paved
• 180,000 km of roads are under provincial
  jurisdiction and
• 280,000 km under municipal jurisdiction.

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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 through the railway system
  and consequently decreed the reopening of branch
  lines such as the Central Trans-Andean Railway
  via public tender and the rehabilitation and
  transformation of the Belgrano Cargas freight
  line.

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? Mining? Forest industry? Leather and leather
products? Petrochemical industry?
Agricultural machinery? Vegetable oils? Grape
growing and wine making? Cultural
industries? Software? Outsourcing?
Tourism? Oil Gas
Best Prospects for Business Opportunities
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Mining

• Exploration and development
• Projected investment
• Agreements with Chile and Bolivia
• Equipment and services
• Government incentives
• Favorable legislation
• Exports to 40 countries

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Argentina ranks high internationally in terms of
available mining resources.
Mining

• 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
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Mining

• 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 that generated exports
  that rose from practically zero to over US 1
  billion per year.

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Mining
Rates of return after taxes
(gold mine)
S. Africa
Chile
Argentina

• Strong increase in production
• Favorable legal framework
• Geological potential rich in mining resources
  (ranked sixth worldwide)
• 75 territory with potential still unexplored
• Availability of production resources
  infrastructure, skilled labor and a growing
  supply of local suppliers

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
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Forest Industry

• The Forestry Law provides an attractive legal
  framework for investments
• Fiscal and economic incentives
• High growth rates
• 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

• PAPER INDUSTRY
• Unmet domestic demand
• Growing per capita consumption
• WOOD INDUSTRY
• New project potential
• High expansion potential

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

• Production has increased notably in recent years.
  
• The industry is moving forward in terms of
  upstream integration, basically by producing
  upholstery covers for the automotive industry
  (US 200 million in exports).

Source ADI based on CEP data.
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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.
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.
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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
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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
• Growing global demand for vegetable oils and
  vegetable oil by-products.

• SOYBEANS
• Average production unit capacity 5,000 tons
  Principal global producers USA (1,500 tons),
  Brazil (2,500 tons)
• Capacity to produce bio-fuels from vegetable
  oils.

Source ADI based on INDEC data
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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
• Capacity to produce organic products
• High quality wines account for over 80 of
  exports in this sector

• Argentina is the worlds fifth largest producer
  of wine
• High domestic consumption (worlds sixth largest
  consumer of wine)

Source ADI based on INDEC data
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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
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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.
• 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.
• 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, with good
  infrastructure and transport systems.

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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

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Software

• 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

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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.
"
)
Source University of Cambridge, EFL
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Tourism

• 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.).

Tourist countries of origin
2003
Brazil
Others
13
17
Chile
Uruguay
17
26
USA
Europe
Canada
17
10
Source INDEC
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Tourism

• Opportunities
• Hotel construction upgrading
• Convention centers
• Equipment supplies for the hotel industry
• Mountain ski resorts
• Tourism infrastructure / development

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Argentina National Energy Balance Primary
domestic demand 1986-2004
Source Secretaría de Energía - IAPG
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Oil Gas

• Exploration and production
• Equipment and services
• Refineries and petrochemicals
• Environmental services

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Oil Gas
24 Sedimentary Basins

Total Basins 1.845.000 Km2
On Shore Basins 1.457.550 km2 (79 )
Off Shore Basins ( up to 200
mts. ) 387.450 km2 ( 21)
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Argentina Proven Reserves Oil Gas
1989 - 2005
Oil
Natural Gas
Thousands of Million m3
Million of m3
Source Secretaría de Energía - IAPG
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Argentina Oil 1992 - 2005
Production per well and number of active wells
Production Millions of m3
Nº of wells
Source Secretaría de Energía - IAPG
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Argentina Natural Gas 1992 2005
Proven Reserves Production / Reserves
Annual Production
Thousands of MM of m3
Rel. Res./ Prod. Year s
Mil Millones de m3
Source Secretaría de Energía - IAPG
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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

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• Key material and data for this presentation was
  provided by the Argentinean Government
• Our recognition and appreciation to
• Argentina's Investment Promotion Agency
• Tel. [phone] / 3313 / 3315. Fax (54
  11) 4349-3453
• Email adi_at_mecon.gov.ar http www.inversiones.gov.
  ar
• Email acivet_at_mecon.gov.ar matmol_at_mecon.gov.ar