Argentina PESTLE analysis

POLITICAL

Argentina government has a strong democratic setup. In 2011, President Fernandez de Kirchner won the presidency for the second time. Her government has been successful at introducing reforms to encourage regional trade and support private sector investment, particularly for the development of the country’s infrastructure, primarily through private-public partnership. The government has also announced the creation of the oil planning commission, emphasizing its interest in the oil industry1.

The Fernandez government is increasingly reliant on interventionist policies that fail to solve underlying structural problems and has been involved in several inflation figures manipulation and corruption charges, including a commotion with the International Monetary Fund (IMF) concerning inaccurate governance indicators impairing the economic outlook and deterring investment2. This has generated public discontent raising increasing protest against the government and a rapid decline in Fernandez popularity3.

Argentina foreign policies are mainly concentrated on developing regional trading relations (Mercosur and UnaSur), the country has a good partnership with the UN and has been working on improving relations with the US, with particular interest to develop the technology and science sectors. Nevertheless, relations with the UK have deteriorated following an official complaint to the UN regarding the Falkland Islands

ECONOMIC

Following the global financial crisis the Argentine economy has achieved a healthy recovery, predominantly through an increasing trade relationship with China, boosting substantially the country’s trade volume and generating a trading surplus5. However, the major concern for the economy is inflation and the great discrepancy of approximately 15% between official and non-governmental estimates. In addition, the government has increased regulatory intervention and thus reduced economic freedom and development.

The government’s recent nationalisation of oil giant YPF owned by the Spanish Company Repsol and of the private pension funds have furthermore hindered private and foreign investment. These factors combined with high public debt levels and low foreign-exchange reserves have constrained the potential for economic growth and left the country at increased risk of recession.

Argentina has a strong automotive industry. The government is aiming to attract further investments into the country’s automotive sector by lessening the regulatory framework obstacles and offering subsidies and incentives6.

SOCIAL

Argentina is a traditionally urban country and continues to experience high migration from rural areas. The urban centres enjoy a relatively high standard of living comparable to other Latin American countries, with notable healthcare and educational facilities. Argentina is facing the problems posed by an aging population. This is projected to affect government’s social security budgets and generate fiscal burdens.

Despite a comprehensive education system restructuring and an improving primary school education system, dropout rates continue to rise sharply7. This will eventually lead to a significant increase in the proportion of unskilled workers.

TECHNOLOGICAL

With a strong telecommunications industry and a growing IT market, Argentina has shown significant growth in both sectors. The government has implemented plans to augment IT service penetration in rural areas. In addition, it has supported biofuel R&D in an effort to preserve energy security and accelerate technological development.

Argentina’s energy industry is in a deplorable state as they are now a net energy importer, eroding the country’s foreign-currency reserves9. As a result, the government has shown an increasing interest in science and technology and in the biotechnology industry. However, as a result of inadequate investment in R&D, there is a low degree of innovation resulting in a reduced number of patents granted. Moreover, the lack of respect for intellectual property rights and copyrights has exacerbated the problem.

LEGAL

Argentina has a comprehensive legal and regulatory structure and a federal republican representative government, where each province has its own constitution. In addition, complex and bureaucratic business regulations and strong union and government ties have resulted in wages increasing at 25-35% annual rates. Furthermore, high taxes have been detrimental to investment. For instance, income and corporate tax rates are both set at 35% added to corporate social security tax of between 23% and 27%. These additional costs place an undue burden in industry.

Notwithstanding the introduction of criminal liability for money laundering offences, the judicial system requires an important overhaul to improve its effectiveness and to generate a conducive environment for new business ventures and investments.

ENVIRONMENTAL

Despite having a remarkable biodiversity and vast natural resources, the Argentinian government has been overexploiting its natural resources as a side effect of the rapid economic development. Increasing deforestation and the destruction of natural habitats have been accelerated by soybean cultivation and beef production11. Water and air pollution are major problems, particularly around industrial metropolitan areas.

Rising concerns over environmental degradation have resulted in ambitious schemes from the government to develop renewable energy sources. The government has initiated measures to collaborate with prominent multinational organisations to develop biofuel production with particular interest in ethanol from sugarcane pulp12. Moreover, the Argentine government, in partnership with Chinese investments is constructing the largest wind power project in Latin America and is projected to provide 4% of Argentina’s power requirements.