Select Committee on Trade and Industry Written Evidence


APPENDIX 3

Supplementary Memorandum submitted by the Argentine Ambassador

  We are pleased with the opportunity given by the extension of the Trade and Industry Committee's terms of reference to widen to the remaining countries of MERCOSUR its inquiry into trade and investment opportunities with Brazil.

  The purpose of this document is to reflect the relevance of Argentina within MERCOSUR, its fast growth and, therefore, the big opportunities the country offers to British firms to trade and invest.

I.  ARGENTINA: FACTS AND FIGURES

  Argentina is a relevant member, and co-founder with Brazil, of MERCOSUR. It is a country of 2,750,000 square kilometers, almost as extended as India. Its continental territory lies between the tropic of Capricorn and sub-Antarctica's Patagonia. It is populated by almost 40 million inhabitants, of which 97% are literate and enjoy the highest social indicators of Latin America. Ninety-eight percent of its population is of European origin most of which settled in Argentina between 1860 and 1950. Many British joined those waves of immigrations and have established in Argentina. For example, today more of 40,000 inhabitants in Patagonia are from Welsh roots.

Argentina: facts and figures

Capital City: City of Buenos Aires.
Government:Republic, Representative and Federal.
President:Dr Néstor Kirchner. The president is both the chief of state and head of government. President and vice president are elected by popular vote for four-year terms. The cabinet is appointed by the president.
Official Language:Spanish.
Currency:Argentine Peso ($).
Religion:In Argentina, it exist total freedom of cult, although the official religion is the Roman Catholic Apostolic. It is practicing other cults as the Protestantism, the Judaism, the Islamism, the Greek Orthodox religion, the Russian Orthodox one and others.
Location:Argentina is located in the south end of the American continent, limiting to the west with Chile, to the north with Bolivia and Paraguay, to the east with Uruguay, Brazil and the Atlantic Ocean; while to the south it is the Beagle Channel the one that marks its limits.
Surface:American Continental Area: 2.8 Million square kilometers. Total Area (American + Antarctic): 3.8 Million square kilometers (1,5 square miles). Is the second largest country in Latin America and the eighth largest country in the world.
Politics Division:24 autonomous States with political, administrative and economic powers. (23 provinces and the City of Buenos Aires).
Major cities:Ciudad de Buenos Aires, Co«rdoba (City), Rosario, Santa Fe (City), Mendoza (City), San Miguel de Tucumán and La Plata.
Climate:It has a great diversity of climates, which range from sub-tropical in the Northeast to sub-Antarctic in the South. In the central region the climate is temperate, suitable for agriculture.
Official Hour:GMT -3 hours (normal/summer).
Population:36.223.947 (Year 2001) Estimate 2006: 38.970.611.
Urban Population:89%.
Population Growth Rate:1.1%.
Illiteracy Rate:2,6%.
Life expectancy at birth: 75,24 years.
GDP (2005 est):177,4 billion US dollars.
Annual GDP variation:9,2% in 2005, 8,7% in 2006 estimated.
GDP per cápita (2006 estimated): US$ 4.936. US$ 13.813 (Purchasing Power Parity).
Exchange Rate:(2006) US$ 1 = $ 3,08.
Inflation (2006 estimated):9%.
Unemployment rate:10,1% (IV Quarter-2005).
Foreign Direct investment flows
(Flows 2005):
4,6 billion US dollars (Stock 2004) 50,5 billions dollars.
Exports (Year 2006):Over 45 billion US dollars.
Imports (Year 2005):28,6 billion US dollars.
Regional integration: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.

II.  BRITISH-ARGENTINE LINKS AND CO-OPERATION

  Argentina shares two centuries of fruitful and strong cultural cooperation and economic links with the United Kingdom. Since mid-nineteen century to mid-twentieth century British investments and bilateral trade with Argentina were very significant. Only as an example it is worth to remember that most of the 40,000 kilometer's net of Argentine railways was built and operated by British companies. Banking and Agriculture were also sectors with deep British influence. In 1943, during the Second World War, 70% of British import of linen came from Argentina, as well as 14% of wheat, 29% of preserved beef and 35% of leather.

  As for 1990, relevant British firms have invested in Argentina, with a slowdown due to the economic crisis. The following are some of the British firms which have invested in that period and are currently operating in Argentina: BG; Shell; BP; Cadbury Schweppes Plc.; Ladbroke Group International; BAE Systems; Knight Piesold Ltd; Unilever; Tesco; Diageo; Anglian Water International; United Utilities; Glaxo Wellcome Plc.; Halcrow Holdings Ltd; ICI; HSBC; Rio Tinto; P&O, Sea Containers; BAT Industries Plc.; Clear Channel International; Mersey Docks & Harbour.

  Since the economic crisis British exports to Argentina, in particular of capital goods, and Argentine exports to the UK have been steadily increasing. Argentine exports to the UK are mainly agri-food products but also some industrial products, like machinery, steel products, cosmetics, glassware, rubber, etc. It is expected that bilateral trade will be, in 2006, near its highest level since 1990.

  Argentina and the United Kingdom have signed recently several bilateral agreements with the purpose to foster cooperation, trade and investments.

Bilateral economic agreements

    —    Agreement for the Promotion and Protection of Investments (1990).

    —    Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (1996).

    —    UK/Argentina Partnership, Action Agenda (1998).

    —    Memorandum of Understanding on Cooperation on Trade and Investments (1998).

    —    Inter-Institutional Memorandum of Understanding on Co-operation in the Transport Sector (1998).

  Notwithstanding, recent British investments in Argentina, in relative terms, are behind those of Spain, France, Germany, Italy and Netherlands, whose business are actively engaged, including through increased high level official visits to Argentina, in taking advantage of the very favourable economic conditions and future prospects. In that context it would be beneficiary for both, the bilateral relation and British businesses to see a more active support of UKTI, including through business missions to Argentina.

III.  INVESTMENT AND TRADE OPPORTUNITIES IN ARGENTINA

  The Argentine economy is running through a very strong period of expansion. Since 2003, its GDP has increased around 9% every year, including in 2006. Economists are predicting strong GDP increases for 2007. Together with this growth the main macroeconomic variables are positive, including four years of unprecedented fiscal surplus and the lowest unemployment rate in the last ten years. In the same period exports have increased at an annual average rate of 15%.

  In Annex I you can find a document containing Argentina Economic Indicators as December 2006.

  It is important to remember that Argentina is emerging from its worst economic, social and institutional crisis of its history, which started in 1998 with four years of recession and exploded in December 2001. Some of the social consequences of that crisis still remain today and need active Government policies in order to mitigate their effects.

  Argentina is an open market economy in which State role is about control and regulation with the goal of maximising people's welfare.

  Production means are in private hands, including most of the utilities: communications, transport (railways, airports, roads and ports), energy (power generation and grid, oil, gas, nuclear, wind and sun generation), water, etc. Its heavy and medium industries are in frank recovery. Particularly dynamic and innovative is it sector of small and medium enterprises sector with its export orientation.

  Together with the development of its industry, Argentina has obtained significant levels of knowledge in some high-tech sectors as nuclear, satellites, software and biotechnology.

  Argentina is renown by its very efficient agri-business sector. The main reasons behind this success are the extension of its territory (250,000 square km of arable land), variety of climates (mostly temperate), excellent quality of agro-ecological conditions and technology. All of these allow Argentina to be and remain one of the main producers and exporters of food in the world.

  Tourism is a sector which is booming due to its variety of natural landscapes, diversity of culture and up to date infrastructure. International visitors are increasing annually at rates above 10% and huge investments are being made in infrastructure.

  Five years of high expansion of Argentine economy are opening a new stage of investment and public works in order to support its sustainability. It is important to note that Private, Public, Partnership modalities have been identified by the Government, including by a Law approved by Congress in 2004, and are already implemented in different projects.

  In Annex II we include a document prepared by the Investment Agency of the Ministry of Economy, called Ten reasons to invest in Argentina.

  For the purpose of this document we have identified only a few economic sectors for description, in the understanding that many others are as much dynamic and growing.

1.  The energy sector

  Because much is said about the Argentine energy sector and because it constitutes a good and critical example of the above mentioned facts and shows the dynamics implies, we are including the following information on decisions taken in that sector, in 2006:

Decisions taken in 2006 in the energy sector

    —    Siemens AG, has been awarded major contracts for the construction of two combined cycle power generation unit. The total order is valued at US$ 1.6 billion. Commercial operation is due to start in the first half of 2008.

    —    Investment in the development of biodiesel has recorded a strong growth between January 2005 and August 2006, reaching US$ 285.5 million. On 19 April a Law promoting the production of biofuels from grains and soybeans was enacted by the Congress.

    —    Bolivia and Argentina signed on 29 June a new gas agreement that will secure a large increase in export volumes, when a new pipeline in northern Argentina will be completed.

    —    Petrobras will invest US$ 420 million in Santa Cruz in order to explore and operate two gas fields. The company has already invested in that province nearly US$ 240 million in the last three years. Gas reserves in the area could reach 26,000 million cubic meters.

    —    Pan American Energy (a joint venture between BP and Bridas) announced that their Argentine production of natural gas was enlarged by 2,5 million cubic meters daily. This level of production was reached once the Macueta-Piquirenda gas pipeline started to function. The company invested U$S 110 million in the building of this pipeline.

    —    Winterhshall invested US$ 84 million in Argentina to explore and produce gas and oil in 2006.

    —    On 23 August the Argentine Government announced the reactivation of nuclear activity in the country by deciding to update its power plants (Atucha I and Embalse), by completing a partially built nuclear power plant (Atucha II) and by studying to build a new power plant and resume production of enriched uranium and heavy water.

    —    The Inter-American Development Bank announced on 2 August a US$ 550 million loan to finance a 1,220 kilometers 500 kV electric power transmission line that will link the Northwest and Northeast regions of Argentina. It includes the construction of provincial and regional transmission and sub-transmission works and a transformer station.

    —    Occidental Petroleum Oil Company has recently confirmed its intention to double oil production in Argentina within five years. This project would demand a total investment of US$ 1 billion.

    —    Repsol YPF plans to increase investments in Argentina's southern Chubut province to US$ 630 million over the next three years.

    —    The Argentine Congress approved in September a new hydrocarbon law, which creates a fiscal incentive to stimulate oil and gas production in the country.

    —    The oil companies Repsol YPF and ENARSA have started in December the first phase of offshore exploration in the Argentine Sea. For three months the ship Geco Triton will perform seismic exploration in the area called Marina Colorado Basin. The cost of this operation amount to US$ 27 million.

    —    The Government has called for tender to build a 280 MW thermoelectric plant near the city of Rio Turbio in the Patagonian province of Santa Cruz. Offers for the US$ 480 million tender are due on 15 March 2007.

2.  IT development and industry in Argentina

  This is one of the most dynamic and active sectors in the Argentine economy. Argentina leads IT development and production in Spanish language which is a market of almost three hundred millions people. The National Government considers this sector of strategic relevance for the development of the country as a whole. Congress, in 2004, has enacted two laws for meet that objective.

IT Sector: facts and figures

    —    Employs 35,000 professionals;

    —    Grows at an annual rate of 50%;

    —    Its market growth attains 25% per year;

    —    There are 660 IT companies;

    —    Its main exports are directed to Latin America, Spain, United States, México and European Union;

    —    Argentine companies have opened 94 offices abroad;

    —    There are 120,000 IT students in 50 study centers;

    —    The sector represents 1.8% of Argentine GNP;

    —    Argentina is leading in Spanish language;

    —    Costs are highly competitive and infrastructure is updated and;

    —    There is a development strategy integrated by technological clusters.

  Argentina IT has developed new products and services oriented towards the needs of international markets, in the following sectors: Agri-businesses; Health and Medicine; Oil and Gas; E-learning; Video Games; Banking and Financial Services; Website Development and Interactive Marketing; Software Factory; Business Application; Quality; Data Security and Protection; and Mobile Technology.

3.  Agri-business sector

  Argentina by its natural conditions, size and relatively low population is one of the more efficient agri-food producers and exporters in the world. Its geographic diversity allows tropical, temperate and Mediterranean type of production. In the past it was known by its beef and wheat. Today beef and cereal remain important and quality products, but its production has expanded to several types of crops and livestock.

  Oil-seeds, in particular soy and its flour and oil, have become the main exports of Argentina. The 2005-06 crop was above 40 million tons and very close to 2004-05 bumper crop. Argentina's richness of soil and the extended use of modern and environmentally friendly technology as direct till and biotechnology, allows Argentina to be the first exporter of soy oils and soy meals. Some of the externalities of this activity are the new ports, new process factories and the technological developments attaint in agri-machineries, seeds, farming techniques and biodiesel production.

  Nowadays Argentina processes most of its crops and livestock for domestic consumption and export. It's the fifth producer of wine in the world, buoyant sector thanks to the high quality of its wines and important foreign and local investments. It is also an important dairy producer and exporter and a relevant fishing country. Those productions are cultivated and processes with local technology. As an example, Argentina is at the forefront of direct till machinery technology.

Agri-business: facts and figures

    —    2005-06 crops production was above 70 million;

    —    Argentina is the first producer of sunflower, sunflower oil, lemons, concentrated lemon juice, "yerba mate"; it is also the third producer of soy oil and honey; fourth of de-hydrated apples; fifth of beef, concentrated apple juice and wines; sixth of powder milk and cheeses; eighteenth of skim powder milk and twentieth of beer;

    —    Argentina is the first exporter of sunflower oil, soy oil, pears, honey. It is also the second exporter of peanut oil; third of beans; fourth of concentrated apple juice; fifth of olives and powder milk; seventh of tea; eight of beef and skim powder milk; 12 of wine; 18th of candies;

    —    Argentina is the third food supplier to the EU-25;

    —    Most of Argentine agriculture is from extensive production;

    —    Argentina is the second country in certified organic land;

    —    Agriculture in Argentina has cero subsidies;

    —    Argentina has a higher level of control for food for domestic and export markets;

    —    Traceability systems includes apples, pears, citrus, beef, poultry, ovine meat, fish products, wines;

    —    Argentina is a free country of BSE, Avian Influenza, Newcastle and Foot and Mouth;

    —    Extensive land production insures high standards on animal welfare.

4.  Tourism sector

  Tourism has become in Argentina an important activity which already accounts for about 7% of the GDP. The surge of tourism in Argentina, particularly of incoming visitors, is based on three basic pillars:

    (a)  the variety and beauty of its landscapes, which goes from tropical jungles and rivers to the Patagonian lakes and glaciers and from the infinite Pampa, to the longest and highest portion of the Andes range;

    (b)  the Argentine culture, blend of native, Spanish, Italian and other European cultures and;

    (c)  a modern and updated infrastructure, including hotels, roads and ports and airports facilities.

  In that context the Government is encouraging the formation of joint ventures.

Tourism: facts and figures

    —    In 2005, tourism represented 7,33% of Argentine GDP;

    —    Tourism employs 1,13 million persons, which account for 7,14% of the work force;

    —    Argentina is the second tourist destination in South America with more than four million visitors in 2006;

    —    From 2005 to 2006, tourism grew an 18% in value and above 10% in visitors. Tourism as sector of goods and services accounted in 2005, for 8,2% of total Argentine exports;

    —    Until November 2006, 76 hotels were inaugurated. There are more than 250 hotels under construction;

    —    In 2007, one new domestic airline will start to operate and al least two new international airlines. Aerol-«neas Argentinas is increasing its fleet in 14 new airplanes. Many others companies are increasing their frequencies.

5.  Transport, another dynamic sector in the Argentine economy

  Due to the high expansion of the economy, as well as with an increased requirement of energy there is an increased demand of transport. The following are some examples:

    (a)  Railways: The Government has pledged as one of its priorities to foster the railways system as an efficient mean of transport. In that context, in 2006 the Government called several projects for tender.

2006 railways related tenders

    —    To build a high speed train between the city of Buenos Aires, the city of Rosario, Province of Santa Fé and the city of Cordoba, Province of Cordoba;

    —    To re-establish the Central Trans-Andes Railways to link the cities of Mendoza and Guaymallen and the border with Chile;

    —    To exploit the Railways Line between the city of Buenos Aires and the city of Posadas, Province of Misiones;

    —    To build the multi-purpose terminal of passenger and ferro-car in the city of Mar del Plata, Province of Buenos Aires;

    —    To build railways platform, tracks and operative buildings at the Mar del Plata, Province of Buenos Aires Station.

  Air transport: Government has called for a tender to provide 30 bi-dimensional radars and three, three-dimensional mobile radars. Government has also called for tender for 50 domestic and international air routes.

  Naval transport: Argentine boat yards are operating at their maximum capacity, most of them are expanding or planning to expand their capacity. In that context the Italian Gruppo Beltrame recently announced in December 2006 its plans to build in Argentina a plant to manufacture between 150,000 and 200,000 tons of thick steel plates used in the naval industry. The range of activities by Argentine boat yards goes from building freighters, tankers, river barges, fishing boats and, yachts (motor and sailing boats) and repair facilities. Argentina has 38 maritime ports and 25 river ports in the river Paraná and Uruguay which constitute the first section of the Hidrov-«a Paraná-Paraguay.

Hidrov-«a Paraná-Paraguay

  The Hidrov-«a (waterway) Paraná-Paraguay is a 3,450 km net of navigable rivers which links Argentina, Uruguay, Paraguay, Bolivia and Brazil. In its first stage the project already allows navigation of 300 foots of length and 36 foots of draft ships in the River Paraná from the city of Buenos Aires to Rosario, Province of Santa Fé (500 km). Smaller ships can reach the city of Asuncio«n, in Paraguay (1,100 km further). Only in Argentina twenty five ports, most of them recently built and privately operated, lie in that shore. Seventeen million inhabitants are already being served by this stage of the Hidrov-«a, including most of the agriculture production of Argentina, Paraguay and Uruguay and the mineral production of Bolivia.

IV.  CONCLUSION

  The above mentioned sectors are only a few of the ones which could be of interest for British firms to invest, buy, sell or establish joint ventures. British businesses, which are already operating in Argentina, are showing that there is a wider area of interest. We believe that there is room for an increase economic cooperation between our two countries and that this aim can benefit from an increase exchange of information, business men and Government and Parliamentary representatives.

  For nearly two centuries, strong human and cultural ties as well as intensive trade have formed the basis of an enduring relationship between Argentina and Britain. This historic affinity between both people constitutes a springboard to foster cooperation and association and to allow British businesses to profit from the Argentine economy comparative advantages.

  The Embassy stands ready to assist should the Committee need further information and/or clarification on this matter.

January 2007





 
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