19th ProPymes seminar: Predictability and dialogue, key for the future of Argentine exports
The main topics addressed during the seminar focused on aspects such as the articulation between the public and private sector, fiscal and monetary stability, reductions in taxes and export duties, andthe outlook in terms of predictability, expectations and plans for the future. Experts, government authorities and industry leaders exchanged ideas and opinions on the future for Argentine exports in the post-pandemic scenario. Of particular note was the exchange between the Minister of Economy of Argentina, Martin Guzman, and Paolo Rocca at the end of the meeting, as they discussed the importance of encouraging dialogue at all levels between the public and private sectors in their joint bid to drive recovery in Argentina.
The opening presentation was a panel hosted by Martin Berardi, Executive President of Ternium Argentina, with input from economist Emmanuel Álvarez Agis, and political analyst Sergio Berensztein. They examined the challenges faced by the country in its efforts to consolidate sustained growth in industrial activity in the post-pandemic context.
Berardi began the presentation by sharing the main conclusions drawn by the most recent survey held among the Techint Group companies’ SME customers and suppliers, revealing clear expectations for growth in investments, sales, exports and employment. The companies which took part in the survey envisage sales growth figures in the region of 11% in 2021 compared wth 2020, driven mostly by the construction, white goods and agriculture sectors, and achieving the levels reached in 2018. Exports are expected to grow 41%, representing the highest value of the last three years, while the projected increase in investment is around 40%, and the size of the workforce is predicted to grow by 4%. The survey also reflects the expectations of nearly 200 companies making up the industrial value chain of the Techint Group companies.
"Export data is critically important, as if we want to boost domestic consumption, we must also drive exports. This must be a joint effort. Without an increase in exports, domestic consumption cannot grow as there is a shortage of foreign currency to pay for importing supplies. There is much potential, in fact at one point our value chain achieved exports worth some USD 500 million, while this year these only reached USD 180 million,” said Berardi. "If you want to encourage exports, you have to be bold and eliminate the export taxes withheld on industrial products exported," added the executive.
Economist Álvarez Agis argued that if it were possible to measure the "tail winds" of the world economy, next year it is very likely that Argentina will experience its best year since 2010. He also highlighted the importance of increasing the level of international reserves in the Central Bank, and achieving a stable exchange rate with a view to fostering an "environment of predictability".
Sergio Berensztein referred to the political and economic conditions prevailing in the region and the post-pandemic outlook in general. "SMEs are going to have to navigate a complex global and local scenario dominated by uncertainty, but in general terms, the global context is favorable," said the analyst.
Looking to the future, Berardi opined that "there are opportunities, but you have to do your homework as a company, as a chain and as a country: to make the most of fair winds, you have to know how to trim your sails," he said, coining a maritime metaphor. “Our commitment for 2021 is to renew our push for ProPymes Exporta, earmark more financing for exports, ensure special prices, and do everything we can to strengthen the sector’s competitiveness. The country in general must export far more in order to avoid repeating these crises,” concluded Berardi.
During the second block in the seminar, as is traditional in this type of event, different companies from the Techint Group value chain shared their experiences. Various business figures presented successful cases highlighting the benefits of forming part of this association built around value, and how it has enabled them to carry out joint projects. Carlos Moriconi, President and Commercial Director of Vulcano, from Las Rosas, Santa Fe, Carlos Otero, Administration and Finance Manager of Justo Otero E Hijos, and Enrique Casares, Operating Director of Tecnotrol, two SMEs providing oil services in Comodoro Rivadavia all took the ‘online floor’ to share the know how gained from their experiences. There were also tales of how different businesses have tackled the challenges of exporting, brought to the table by Victor Baro, President of the Argentine Agricultural Technology Group "Argen Tech Group" and Eduardo Montes, General Manager of Mainero, who are from a cluster of nine agricultural machinery companies exporting worldwide, complemented by the accounts shared by Silvina Sforzini, Commercial Manager of Fundición San Cayetano and Marcos Dartiguelongue, Director of Ñuke.
Dialogue, trust and institutional stability
Paolo Rocca began his speech on a positive note: “This has been an extremely tough year for our families, for our companies and also for our countries. The global scale of the crisis has meant that both the opportunities and means of exiting this situation have been quite restricted until now. But I believe that the worst is now behind us, as we are emerging from the crisis. This is supported by the positive vision resulting from the survey we undertook with small and medium-sized companies, highlighting a shared view that we are past the lowest point of the crisis."
Regarding Ternium, Rocca drew attention to the clear rebound in the agricultural and construction sectors as well as in industrial chains such as the automotive industry, and also pointed to renewed export activity driven largely by a surge in the Brazilian market.
In the case of Tenaris, Rocca added that the company "is still operating at half the level of activity it had at the end of 2019. This is because Tenaris has a global dimension, and has thus been hit by a drop in demand around the world. Today, we are at half our level of activity, but this is growing every month."
On this point, Rocca highlighted the importance of the government’s Plan to Promote Argentine Gas Production, known as the Gas Plan, which aims to encourage investment in gas production as a strategy to reverse the continued fall in production. “I hope that next year, the Gas Plan, which has been hailed as a success for this administration due to the consensus reached on a common program, in which Tecpetrol will participate and which will expand markets, will also benefit Tenaris. We signed up to this plan with a major pledge, committing to an investment program of between USD 1.4 and 1.5 billion over the next 4 years. We will be providing around 20 percent of all the gas produced in the Neuquén basin.”
Techint Engineering & Construction area has encountered significant difficulties during the pandemic, but is now focusing on restoring its backlog, in particular thanks to the mining developments on the Pacific coast as well as in Mexico and in Brazil, more so than in Argentina. At this point there are no major infrastructure projects in the pipeline in Argentina, although there are hopes that these will materialize in the short to medium term.
In this recovery process, there are many opportunities appearing in the international context. The combination of the contrast between the United States and China, and the way in which many value chains are being redefined, is opening up space for the Argentine industry to reestablish its presence and expand in the Atlantic dimension,” added Rocca. “There are opportunities at regional level. Brazil is growing and its speed of recovery over the last quarter is truly remarkable, indicating a vigorous industrial recovery, and at our operations in Brazil, we are seeing a hike in economic activity which will also have a knock-on effect on activity in Argentina. There are also opportunities at national level. The value chain is key to providing national content for developments in the country linked to different sectors and projects emerging as a result of an overall recovery in demand and investment.”
Regarding the role played by the State, Rocca referred to the presence of Martín Guzmán and underscored the need to create a solid context capable of transmitting confidence to companies and consumers alike. “We need a context that sends a message of confidence to business. Trust is built upon pillars such as predictability, and institutional and macroeconomic stability.” Rocca added that in this aspect the chief concern is how public accounts can be balanced, given the need to reorganize public spending priorities and define tax structures able to encourage production.
Turning directly to Guzmán, Rocca emphasized the importance of achieving a balance in public accounts by reducing public spending, not only by setting new tax burdens, “because, ultimately, in order to export and maintain competitiveness on the internal front, the issue of the tax burden can lead to real problems on the external front.”
Another critical issue for Rocca is stability and predictability in the exchange rate. “Our entire chain responds to an export profile on which a lot of work has been done throughout the years. The point is that small businesses need to differentiate themselves, but very often they lack the long-term backing needed to sustain themselves in such an unpredictable environment."
In response, Guzmán said that barely a year after the new government took office, they had to deal with "a year of administration during which we have had to adapt our economic policy plans to the realities confronting us." According to the official, even before the pandemic happened, the government was focusing on restoring macroeconomic stability, "as this is a central pillar for the functioning of the economy, so that all companies and SMEs can operate in a climate of predictability and trust, benefiting investments and enhancing value chains in order to foster greater productivity and competitiveness."
For Guzmán, another urgent priority was to resolve the foreign debt problem, both with private creditors and with the International Monetary Fund. “Establishing a restructuring process and drawing up a program with the IMF to be able to refinance our maturities and rebuild the public debt market in pesos is vital to laying the ground for a domestic capital market as currently it is virtually impossible to save in assets in our currency. Such a market will lead to greater availability of financing for companies in the country."
As for the jump in fiscal spending and the monetary imbalance caused by the pandemic, Guzmán stressed that “the pandemic forced us to tackle other needs in terms of spending, precisely to protect people’s jobs, to protect production and SMEs, and safeguard the most vulnerable sectors of our economy.”
In answer to the questions about problems faced by many of the participants, the government official said he agreed with the overall diagnosis, and emphasized that exchange rate stability "is of paramount importance for a healthy environment conducive to economic development and the full participation of the private sector."
Regarding the increase in taxes and fiscal spending, which also came in for questions from many of the participants, Guzmán affirmed that Argentina is in no position to reduce its tax revenues, precisely because fiscal stability is a key asset for the State. "This is part of what is needed to achieve macroeconomic stability."
Responding to a concern raised by Rocca, Guzmán pointed out that stabilizing the Argentine economy is a "collective task" in which all sectors of the economy had a part to play: “We must understand that there is a point of departure, and today is not the time to discuss anything which increases the fiscal deficit. On the contrary, it is critical to put the public accounts in order.”
Rocca and Guzmán agreed in their analysis of the tariff difficulties occurring in a less globalized world. "I think that we should not expect any radical changes," said Guzmán, adding that he believed that “there will be a greater importance or focus on multilateralism, contrary to trends in recent years." He added that: "As a nation state, we must have a strong state so we can solve the problems we have in Argentina today, where the private sector and the public sector together articulate a path for shared growth not only within our country, but also abroad."
At the end of the meeting, Rocca thanked Guzmán for his contributions to this forum and his “participation, openness and frankness in answering questions, and for his commitment to this country."