A short, down-to-earth guide for British exporters.
If you are doing business with Argentina, or are thinking of doing so, you’ll know it’s a complex and risky country, but also one full of opportunity. Given the opening up of the market under Macri, after 15 years of being one of the most protectionist countries on the planet, many British companies are starting to research opportunities there.
So what’s happening right now is something that UK exporters should be aware of. Shocking? Surely not. We’ve always said that Argentina is risky, and we’ve always been cautious about who to suggest Argentina to as an export market, and why. This wonderful country is synonym of political and economic instability, and Macri can’t turn this around in just a handful of years.
So what’s happening right now and why is it so important?
Even though I’m an economist, I won’t even try to explain the whole thing – if you’re into it, please read this Economist article or this one from the FT (if you’re into emerging markets in general, this Economist article is also very good). You can also check out national economic papers El Cronista and Ámbito Financiero.
To sum it up, Argentina’s currency, the peso, has plummeted against the dollar, losing a fifth of its value against the US currency since the start of 2018. That is difficult to palliate, given inflation, debt and other constraints. So Macri’s government has asked the IMF for help. Now, if you don’t know much about recent Latin American history, you won’t understand how sensitive this can be: most Argentineans have painful memories of IMF interventions, and the organisation is very much hated across the region, but particularly in Argentina. Macri is compromising his political career with this move and definitely putting his 2019 re-election at risk. We’ll see if this all pays off.
So what does it all mean to you?
If you are working with a local importer, your products in pesos will have gone up considerably in the last few months and in particular in the last few weeks. Bear that in mind. Talk to your partners, see if they’re feeling the pinch. At the very least, you’ll show you care and that you’re in this for the long term, not just for the good times.
Your end customers, whether another business or consumers, will suddenly see your products considerably more expensive, so potentially sales could slow down pretty quickly, as well as the purchase orders from your importers.
The general instability Argentina is facing now makes people very nervous, and that is very rational if you ever lived through a tough financial crisis like Argentina has. If you’re doing business there, you need to understand these emotions, don’t underestimate them.
If imported products become more expensive in pesos, the already rocketing-high inflation (22-25% depending on who you listen to) becomes exacerbated. That adds to the instability described above.
The rest of Latin America is also feeling devaluations, but tend to be better equipped to manage them (the dollar is suddenly more expensive for all of us – two weeks ago I was buying some USD here in Uruguay at 28 pesos, today I bought them at 30.30, that’s a big jump).
If you are not doing business with Argentina, should this whole peso situation deter you? I wouldn’t say you should stop researching the market now, I’d keep looking. After all, we always knew that Argentina’s economy goes up and down in cycles, and as much as some of trusted Macri’s policies to bring in some order, we all knew he doesn’t do miracles. This wasn’t totally unexpected, so if Argentina was ok for you 6-12 months ago, this shouldn’t change things, not if you’re in it for the long ride. But you need to proceed with even more caution and, more importantly, with more sensitivity, because the human beings on the other end will be in the middle of turbulent times (which they know well – we are very resilient in this region!).
This crisis is just a reminder that rules in Argentina are slightly different from the rest of the region, and that you need to know how to play the game there. It’s a great market, but also not the one we recommend as the first one in the region, it’s a market that involves more experience, flexibility, manoeuvring and creativity. Argentina, once again, proves it’s not a market for beginners.
Subscribe to our monthly newsletter
- Consistent and straightforward: why are they so difficult to translate into Spanish?
- Argentina: one rather lively food service scene
- My English friend is coming over – and this is what I asked her to bring for me
- Plastic bags – what UK exporters can learn about Uruguay
- The Flamengo tragedy and safety standards in Latin America
- Taking a corner – Argentina style
- The luxury consumer in Latin America: some thoughts
- Obesity v beauty? Trends in Latin America
- 5 not-so-obvious things to pack for your Latin America business trip
- How slow is “slow” in Latin America?