Expanding your business operations into Argentina is a move that brings with it a number of advantages. Unfortunately, in the midst of today’s uncertain global economic times, it also carries with it a certain degree of risk—as local news updates coming out of the country go a long way towards proving. Argentina’s high rate of inflation has routinely made it more vulnerable than other markets, and foreign investors tend to shy away from risky investments. The current administration has made a number of moves recently in an effort to help close the fiscal deficit, but Argentina inflation has remained as high as it ever was and has in fact significantly accelerated in recent months.
None of this is to say that Argentina should be written out of expansion plans entirely. It’s just that if businesses have their strategies focused on this particular market and are ready to make moves, there are a few key things they should keep in mind before their expansion begins in earnest.
Argentina Inflation Crisis
The most important thing to understand about the current situation in Argentina is that inflation reached 3.9% in August of 2018—the fastest pace that INDEC has reported since current President Mauricio Macri made significant changes to it just a few years ago. The previous government was accused of putting out false numbers and, when elected, Macri stepped in and helped INDEC regain credibility in 2016.
At the same time, consumer prices rose 34.4% compared to only a year ago, according to figures that were released shortly after the peso closed at an all-time low of 39.55 per dollar. That alone is something that experts agree will only further fuel inflation and will do little to help the country address its current problems.
All of this, coupled with an unfortunately-timed drought, rising United States interest rates, and a series of major policy errors have experts warning that Argentina could be headed towards a recession before the year is done.
The Impact of Argentina Inflation: Today, Tomorrow, and Beyond
In terms of the immediate impact for businesses expanding operations into Argentina, they may wind up in a situation where knowledgeable employees know exactly what is going on—and thus expect raises each year, or even every quarter. While employers certainly want to reward employees for all contributions, this could come with a hefty price tag, especially when those raises are paired with high employer contributions.
Likewise, this type of activity could easily lead to a massive political shift as soon as 2019. At that point, there are two options: the shift could potentially further destabilize the country’s economy and send it into a downward spiral, or it could “course correct” and set the country on the path it needs to be for recovery.
As of right now, Argentina’s incumbent, Mauricio Macri, seems set for re-election after winning a crucial mid-term vote. However, a continued decline could easily impact the way voters think and the decisions they ultimately make. Along the same lines, one must also be aware of the fact that the International Monetary Fund will be providing Argentina with a $50 billion loan. The specifics of that loan, however, and how it must be paid back, are factors that remain to be seen.
Similar situations have happened in the past, and in those instances public opinion was not supportive of the action. If history repeats itself, this could also have a significant impact on the current administration’s chances of re-election in 2019.
Trust in an Experienced Expansion Partner
Argentina offers incredible opportunities—but with those opportunities come risks. Working with an experienced partner can help mitigate these risks by providing country-specific reports, on-the-ground insights, and unmatched support and unrivaled knowledge throughout the expansion process.
If you’d like more information about expanding into Argentina (or any of the 185-plus countries in which we operate), reach out to Velocity Global today. With our full suite of global expansion services, we can have you up and running in your new market in as few as 48 hours—no matter where your global expansion takes you.