The debate on the protection of the industrial sector is neither new nor does it distinguish situations or particularities. Decades later, the dispute, far from being attenuated, was strengthened by a tradition of almost a century of interventionist policies, regulating and establishing more or less subtle barriers that made competition difficult. The distortions were so many that, added to a picture of stagnation and macroeconomic instability, the situation presents an uncertain future full of threats for the industry.
The origin of everything
For the researcher and professor of the Faculty of Economic Sciences at the UCA, Ernesto O’Connor, in the last three liberal governments – including the current one – industrial production was reduced and paradoxically it also did so during the third Kirchnerism; It only grew in the first Kirchnerism, much less in the second and somewhat under the extremely subsidiary impulse of the post-pandemic Fernández management.
In his opinion, the central issue is that Argentina cannot resolve by consensus a productive profile where natural resources, with or without much value addition, are competitive, as are some segments intensive in human capital, in contrast to some industrial branches more oriented to the internal market that have not been able to compete with global production for a long time. “Dani Rodrik pointed out that the industry is no longer the great creator of employment and that its possibilities at the national level were limited,” he concludes. This far from optimistic vision also helps to understand current dilemmas.
The economist Marina Dal Poggetto, for example, maintains that “history does not repeat itself, but it rhymes, in a country that has not managed to break the downward loop in the face of a leadership with a short-term view that overreacts to the demands of society.” He explains that in 1989 society’s demand was to lower inflation, in 2001 to lower unemployment and in 2023 it was to lower inflation again. “
In both cases (the ’90s and the current situation) there was a very closed economy model with high inflation, negative interest rates and an exchange gap in an economy that had lost access to credit; “which resulted in a very low productivity that, through protection, allowed a low level of unemployment to be sustained,” he details. And in both cases, the opening of the economy and the increase in rates was part of the strategy to correct relative prices. But he summarizes the differences that are greater: Menem started his mandate with structural reforms (including the State Reform Law and privatizations), with a much lower state participation in the GDP than the current one and without embarking on labor modernization.
What is not negotiated
The exchange rate anchor was, by definition, much more rigid during the decade that Convertibility lasted and the adjustment variable in employment was occupation rather than real salary. Furthermore, “the present extension of the scenario of aggressive opening of the economy with a dollar that is not ahead and without an accompanying jump in systemic productivity, is leaving a significant number of sectors out of play,” he analyzes.
Eduardo Fracchia, researcher and economist at the IAE, points out that an important point is the dynamics of the changes, even if they were essential and had consensus, the fruits take time to emerge. Even an economist close to official policy like Ricardo Arriazu recognizes that there is a “creative destruction” of companies and jobs that would later be compensated with emerging companies and better jobs. “Argentina with the ‘star’ sectors, the winners, is not enough, because it would be US$1,000 per capita in exports when Australia and Canada have US$7,000 per capita in exports of natural resources,” points out Fracchia.
The relevant question, in his view, is whether there will be a new configuration of activities associated with differences with the exchange rate. “There are sectors that are especially compromised, such as textiles and footwear, and many others that compromise vast regions,” he concludes.
Since November 2023, 19,114 companies have closed and 224,000 formal jobs have disappeared in total, of which more than half correspond to the manufacturing industry (more than 30,000 registered positions) and construction, punished by the financial drought and discouraged investments in the sector.
Formal private jobs fell six times more than public jobs, over which the proclaimed “chainsaw” was even passed, especially at the national level. According to data from the Argentine Industrial Union (UIA), industrial activity has fallen by 10.3% since 2023, meaning it has not yet reached pre-pandemic levels. The last measurement of the series prepared by FIEL showed that last October industrial activity fell 5.3% compared to the same month in 2024.
Several open fronts
Added to this is renewed fiscal pressure since, as Minister Federico Sturzenegger recently admitted, in order to lower taxes he will necessarily have to accelerate the cutting of expenses. But the criticism of the industrialists also focused on two levels: the provincial one for the increase in Gross Income rates and the municipalities for the creation or expansion of others such as “Safety and Hygiene” that they see as an expansion of a hidden tax on sales.
The economist and businessman Gustavo Lazzari, who runs a family sausage company, has a high media profile and also knew how to participate in the chamber of his sector, when he addresses the issue of the Government’s challenge for the industry to make a commitment to increase its productivity, he stands out and puts the ball in the other goal. “The industry is required to be competitive to be able to face at the same time the opening of trade through import deregulation, but at the same time it does not have any tax relief and must face a drop in generalized consumption,” he maintains.
Greater competitiveness
In this view, one cannot speak lightly about competitiveness without referring to the burden of regulations, tax burden, lack of real regulations and poor infrastructure that aggravates the so-called “Argentine cost.” “Only after a major tax reform can we know who can remain and who cannot because I can assure you that, among the local business community, there are much more who are competitive than those who are not,” Lazzari emphasizes.
For his part, Jorge Vasconcelos, chief economist of the Mediterranean Foundation, highlights that the manufacturing industry needs to gain competitiveness in any scenario. “Exports of MOI – manufactures of industrial origin – have fallen to a level of around 0.16% of world exports, coming from 0.25%, before and after the Convertibility crisis, but this reconversion requires adequate conditions,” he emphasizes. He cites as an example the case of an exporter in the automotive sector that, in its sales abroad, charges its units a surcharge of 12% to 13% that is explained by distortive national, provincial and municipal taxes, which cannot be discharged at Customs as is the case with VAT.
“Sector studies show that the tax burden (outside of VAT) in comparable value chains in Argentina doubles the figures of Brazil and Mexico (approximately 30% versus 15%). A real burden on competitiveness that not only hinders exports, but also puts many local products at a disadvantage in bidding on an equal basis with imported ones,” he highlights.
Vasconcelos believes that these data reaffirm the need for a synchronized process in the policy of opening the economy, so that the mechanism of the aforementioned “creative destruction” is functional for long-term growth. Above all, when the greater aggressiveness of the Asian giant in its exports to third markets is presented as one of the most notable collateral effects in the fight between the United States and China. He even recognizes that, before the declared “trade war,” the emergence of China, capturing a third of the planet’s industrial exports, had already put local industrialists on notice.
Race between sectors
The old duality between companies or sectors that are part of more or less competitive sectors in the face of a changing scenario marked by affiliations to trade flows and multilateral agreements is in full review due to these circumstances. Vasconcelos says that new projects tend to rely on competitive advantages that are considered “sustainable” and are a mix of industry and services, related to productive centers such as agriculture, hydrocarbons and mining.
Economist Leandro Mora Alfonsín, executive director of Argencon (the entity that brings together knowledge-based service exporters), maintains that the incorporation of technology is not an isolated issue and refers to a particular sector, but rather has a strong impact on the entire industrial chain. This sector exported about US$9.7 billion this year (21% more than the previous year) and is the third largest exporter after agribusiness and energy.
The star is, without a doubt, the application of Artificial Intelligence used for concrete improvements in competitiveness (such as robotics and the use of data). “Technology is becoming cheaper and, in that sense, the links between services, industry and agriculture have prospects of increasing, under the obligation of improvements that drive all this,” he points out. Finally, the incorporation of technology is very heterogeneous in terms of different sectors and even between companies in the same sector, observing different trajectories with very different results.
Another example that Vasconcelos cites is that of abundant natural gas at very competitive prices that can facilitate part of this reconversion, as happened in the United States after the emergence of shale: which includes a wide range of sectors, from petrochemicals to food, glass, cardboard, organic fibers, foundries, alcohol, fertilizers, etc. “The expansion of gas supply thanks to Vaca Muerta is a true magnet for detailed sectors, but macro and ‘micro’ policies have to be more consistent to facilitate investment decisions,” he concludes.
For his part, Dal Poggetto points to the so-called “agenda of structural reforms” that reappears after the October election, but which is logically much slower than the times for companies to adapt to the new rules of the game. “The RIGI for large projects and informality for smaller ones have been functioning, in fact, as ‘de facto tax (and labor) reforms’, generating great asymmetries,” he maintains, marking the difference between the regulatory framework and the daily practice in which companies operate.
Thus, within the common aspirations among industrialists, there is also anxiety about knowing how the new rules of the game will impact each one’s business. Yes, they will be a deepening of what was tested in the first two years of this Government and, instead, they will have a result that divides waters between those that make up the value chain of the “winning” sectors (energy, mining, a good part of the agribusiness and those linked to the export of technology with added value) and those that will not be able to compete with a “regulation” that is still unknown, although it can be inferred. This border would not necessarily cross due to size (large-SME), nationality (multinational-local) or the object of its activity (manufacturing with low high added value). It is another question that is added to the speed with which the Government will play its role in this dispute.
