Argentina's economic divide: Investment booms in primary sectors, SMEs lag

Argentina's foreign trade is yielding excellent results and promising prospects, yet critics are raising concerns about the implications of a new productive matrix. They question the emergence of a country split in two, with "primary" activities like mining, hydrocarbons, and agriculture attracting large investments, while small and medium-sized enterprises (SMEs), a key source of employment and commercial traction in populated areas, lag behind. However, the root cause of this division predates 2023 and was not previously apparent. It stems from decades of protectionism, contract breaches, and currency destruction, which previously deterred investment in all sectors. When Chevron began developing Vaca Muerta in 2013, it did so under a secret agreement with offshore financial structures to mitigate Argentine risk, a move no other international oil company dared to replicate. Fortunately, a new framework, the RIGI, now allows for direct investment of a substantial $13.8 billion in the El Trapial block in Neuquén, bypassing such subterfuges. In mining, a lack of legal certainty previously prevented development. In 1998, the Argentine tax agency (AFIP) attempted to collect taxes on dividends, violating fiscal stability clauses, and in 2008, export retentions were applied. While the Supreme Court declared the former unconstitutional (Cerro Vanguardia case), it upheld the retentions (Minera del Altiplano case). Consequently, Chile exports $60 billion while Argentina exports a mere 10%. Under the new legal framework, investments exceeding $50 billion are expected in copper, nickel, lithium, gold, and silver. The article criticizes the "Kirchnerist" justification of currency controls, the exchange rate gap, and the SIRA system, stating, "We lack dollars." While high tariffs and anti-dumping measures were in place, no one complained, and financial managers were the stars. Industries affected by the opening should not be surprised, as Argentina ranked fifth among the world's most closed economies, behind Sudan, Venezuela, Turkmenistan, and Ethiopia. This not only increased the cost of living but also reduced incentives for competitiveness. Successive currency crises were caused by the sector's inability to generate foreign currency, which it demanded for production. The article dismisses the notion that the country "emerged from a cabbage," criticizing the super RIGI for granting fiscal benefits to investments over $1 billion in new sectors while neglecting established industries. However, it points out that for decades, business leaders claimed "there is no capital market in Argentina," despite the existence of over 200 entities.