Doing Business in Argentina: What Does 2023 Have in Store?

Descripción

Like most countries in the region, and indeed the world, Argentina took an economic hit during the pandemic. But since then the Andean country has seen strong GDP growth of 10.2 percent in 2021, and is projected to grow by 3.6 percent this year. However, signs indicate that after its initial post-pandemic surge, Argentina’s growth is beginning to falter; the Organization of Economic Cooperation and Development (OECD) has projected the country’s GDP growth in 2023 to be only 1.9 percent. So what does that mean for foreign investors? Will 2023 be a better year for doing business in Argentina?

On the matter of whether 2023 will be a better year for doing business in Argentina, there’s a fine line between pessimism and realism. Let’s let one statistic speak for itself. Argentina ranked 126^th out of 190 countries in the 2020 Ease of Doing Business Index, a study conducted by the World Bank each year. The index ranks countries on how friendly a business climate they offer entrepreneurs and investors, where a No. 1 ranking (New Zealand) is the best for doing business, and No. 190 (Somalia) is the worst.

Why is 2023 unlikely to be a better year for doing business in Argentina?

Simply put, the bureaucracy, barriers and burdens that have made doing business in Argentina so painful in the past will continue into next year and well beyond. Some of the key challenges for companies and investors include:

• Difficulties starting a business
• Importation, currency barriers
• Persistently high inflation
• Convoluted property registry process
• High cost of obtaining credit
• A complicated tax regime
• Complex regulations for cross-border trade
• The ongoing national debt crisis

Key challenges to doing business in Argentina in 2023

If you’re wondering if 2023 will be a better year for doing business in Argentina, it could be – if you hire the right local legal and accountancy team that will work tireless to obtain all the licenses, certificates, notarization and documentation you will need. What follows are some of the biggest hurdles that companies and investors that plan to do business in Argentina will face next year:

1. When starting a business, be prepared for red tape

Starting a business in Argentina requires that businesspeople navigate a maze of bureaucracy and comply with seemingly needless requirements like notarizing employee records. “Argentina made starting a business more difficult by introducing an additional procedure for legalizing the employee books for companies hiring more than 10 employees,” the 2020 Ease of Doing Business study stated. Not something you want to hear if you are hoping 2023 will be a better year for doing business in Argentina.

2. Import barriers, difficulty accessing foreign currency

Businesses that rely on imports to Argentina could experience delays or denials of licenses to import goods and services, and face strict limitations on a company’s ability to access foreign currency to pay for those imported goods or services.

3. High inflation

The annual rate of inflation in Argentina accelerated to 71 percent in July of 2022, the highest since 1992, from 64 percent in June and above market expectations of 70.8 percent. Unlike other issues, much of this isn’t Argentina’s fault. The global rise in energy and food prices due to the war in Ukraine and fluctuation in oil prices have had a particularly adverse impact on Latin America. It is extremely likely these factors will have a negative impact on whether 2023 will be a better year for doing business in Argentina.

4. Registering property

Registering property requires the completion of seven procedures taking an average of 51.5 days. Before the process can begin, three different hard-to-get certificates are required, and the act of obtaining them can be costly and time consuming.

5. Costly access to credit

Bucking the inefficiency trend, getting access to Argentine credit in may be one of the most streamlined processes in the country. This may be the one glimmer of hope that 2023 will be a better year for doing business in Argentina. Still, there are four complex procedures to navigate and the cost of obtaining credit can be quite high.

6. Complex tax system

Paying taxes is a highly complicated process, with around nine payments needed per year, which can take roughly 312 hours of work to prepare. Argentina has very high levels of taxation and a complex system with overlapping taxes, making paying taxes a headache for businesses. The corporate tax rate in Argentina ranges between 25 to 35 percent.

7. Cross-border trade barriers

“Barriers” to Argentine trade might not be the most precise term to use, since those barriers are self-inflicted. But needless to say, cross-border trade remains challenging.

The government recently signed a series of new trade agreements with its neighbors, which sought to optimize the flow of international trade. Among the measures taken was the removal of tariffs on technological products.

Despite these efforts, Argentina remains one of the most complex countries from which to do cross-border trade. On the trade side of things, 2023 is unlikely to be a better year for doing business in Argentina.

8. Argentina’s sovereign debt crisis

Argentina’s economy has been hit by crises, defaults and rampant inflation for decades. This has been exacerbated by recent fears of a global recession and spiraling inflation, spooking investors over possible defaults and missed loan-repayment targets with the International Monetary Fund (IMF).

Signs of hope 2023 will be a better year for doing business in Argentina – in some sectors

Despite Argentina’s macroeconomic problems and omnipresent bureaucracy, there are positive signs in three of its most important sectors:

• Manufacturing – Earlier this year the president of Toyota Argentina, Daniel Herrero, said his auto manufacturing plant would increase production by 20 percent, and will continue the ramp-up in production into next year.

• Oil & gas sector – Argentina is a key exporter of oil and gas, and in 2022 was able to ramp up production, seeing 57-percent year-on-year growth in the sector as a result of increased capacity, and an increase in non-conventional extraction. This trend is likely to continue into 2023.

• Electricity production – The country is adept at generating electricity, but problems persist in distributing power along the national electricity grid. If private companies and the government could work out a deal to invest in updating critical infrastructure, this would not only help to boost power generation, but also jobs as well.