How to Manage Business Risk in Argentina: Foreign Investment in Buenos Aires
Without a doubt, Argentina has a lot to offer foreign investors looking to do business in the country. The future growth of the country will depend on a number of factors, one being the continued opening up of the economy to foreign investment. “Attracting foreign direct investment this year will be a catalyst to economic growth and to creating jobs and opportunities for the people of Argentina,” said President Mauricio Marci. Recent foreign direct investment in Argentina has already proven to be a great source of capital for sectors in desperate need of growth.
Argentina has traditionally had strong agricultural and oil/gas sectors (and now massive growth in the renewable energy sector) – these are two sectors that are particularly attractive for foreign investors looking to take advantage of the increased opportunities being generated as foreign investment opens up in the country.
With this being said, operating in Argentina is not without risks, and investors should be well-informed before doing business of any sort in the region.
Business Risks for Foreigners in Argentina
Individuals and companies looking to invest or trade should be aware of a range business risks that foreign investors face when operating in Argentina. However, investors should not be discouraged, as all countries in the world present business risks for foreigners looking to participate in the economy. Managing these risks comes down to an effective analysis of business environment and the development of a strategy to deal with the risks as best as possible. A strategic business collaboration with a local firm can prove to be a useful way to better understand the business environment and to have a point of contact should problems arise.
See below a list of potential business risks that investors may face when doing business in or with Argentina, and more importantly, a solution to manage them effectively:
1. Instability in the Argentinian Economy
Despite having the second strongest economy in South America (PP), the Argentinian economy tends to be quite unstable. This often discourages investment in the region. Unfortunately, one stable aspect of the economy has been the high levels of inflation in Argentina, with consecutive governments trying and failing to find a solution. However, the current government is working hard to rectify the long-standing economic issues facing the country, and they have already seen results. Leading into 2020, Argentina can expect:
- An increase in GDP
- Decreases in inflation (experts expect it to drop below 20% by the 1Q, 2018)
- Unemployment levels to drop below 10%
This is great news for the great country that is Argentina as well as for investors looking to get involved in the region.
Business risk solution for an unstable economy:
Investors need to be informed regarding the sector they are looking to get involved with. This may come in the form of extensive research or getting consulting services specific to their desired investment industry. While investors cannot do anything to impact the economy, stringent planning and the formation of strategic business collaborations can hedge the risk.
2. Strong Labour Laws in Argentina
In Argentina, employment law typically favors the employees. This can cause substantial financial and legal burdens for employers should an issue or problem arise in the workplace. Often, foreigners of recently formed Argentinian companies are unaware of the legal obligations they have to their employees.
Business risk solution for strong labour laws:
Time, money and resources should be invested into a well-thought-out recruitment strategy. A bad hire can result in significant legal and financial issues for employers. Partnering with a local legal company helps employers to understand their legal requirements and obligations with respect to their employees. In addition, the use of a recruiter can take time and stress out of the hiring process, increasing the chances of hiring the right person for the position.
3. Complicated Tax System in Argentina
Argentina is not only a highly taxed country (both federal and provincial), but the system is quite complex and difficult to grasp. Taxes will be an important topic at this year’s election, with the promise of tax reductions, as well as a simplified system. In order to avoid problems with the Tax Authorities, foreigners should be aware of the Argentinian tax requirements and obligations in Argentina.
Business risk solution for the complicated tax system:
Outsourcing accounting services to a local company who have a comprehensive knowledge of tax system in Argentina will assist in the compliance with all financial and tax obligations. This is an essential aspect of a company’s operations in the region and plays a pivotal role in ensuring the legality and success of the business operations in Argentinian.
4. High Levels of Bureaucracy in Argentina
Argentina is notoriously famous for having high levels of bureaucracy. In order to do business in Argentina, foreign investors must go through a range of governmental departments/agencies, with the processes being long, complex and tedious. Procedures such as forming companies, financial reporting, visa processing, international trading and tax compliance in Argentina can prove to be a nightmare for foreigners. This is made even harder when a language barrier is present.
Business risk solution for the Bureaucracy:
Give yourself plenty of time to complete required processes and procedures, and be prepared should they not get finished in the desired timeframe. Due to the high levels of bureaucracy, foreigners often chose to collaborate with a back-office services company while they are getting set-up in Argentina – it takes the stress away and allows them to focus on their core business.
Don’t Be Deterred – Argentinian Business Opportunities Outweigh Risks
As you can see, doing business in Argentina comes with a certain amount of business risk. If not managed properly, it has the potential to cause problems of all sorts – from your business not even getting off the ground, to legal issues regarding employment contracts and non-compliance with tax laws.
With a well-thought-out business risk analysis and a partnership with a local firm, these risks can be effectively managed. The business opportunities available for investors in Argentina far outweigh the business risks and encourage investors from across the globe to look towards Argentina as a land with great investment potential in a variety of sectors.
Partner with Biz Latin Hub – Argentina. We can assist with all aspects of your Argentinian investment, ensuring smooth sailing as you enter and operate within the region. Reach out to Oliver at [email protected] and see how we can add value to your Argentinian investment.
See this video for valuable information regarding the need for due diligence services in Argentina and Latin America.