Argentina`s market for foreign investments has greatly expanded in the past five years. In 2001, the financial crisis in Argentina threatened the country`s stability and forced many investors to pull out of the market, most with negative returns on their investments. The main risk involved in investing in Argentina rests in the recent economic crash alongside the political instability that existed a mere thirty years ago. Many other emerging markets, such as India or a handful of East Asian economies, would likely seem an easier road to travel in terms of investments. Many of these other markets have had a longer track record of stability, while also being equally as promising as the Argentina markets.
Argentina does, however, have a long list of benefits that nearly seem to trump all the factors holding foreigners back from investing in Argentina markets. As the old investment banker`s adage reads, "with greater risk, come greater reward." This obvious benefit shows that if one invests in markets that have been more risky or unstable in the recent past, and things indeed turn out in favor of the investor, than the reward will be all the greater in return for bearing the initial risks. Aside from the risk and return tradeoff, many other notable benefits exist that promote foreign investment. The regulations and laws set by the Argentine government surrounding foreign investment were created in a manner that makes investing look infinitely more appealing. As opposed to the norm in most Latin American countries, foreign investors are not required to obtain permission to invest in Argentina, and in fact they are even allowed to wholly own a local company.
The educated and qualified work force would assist in allowing foreign investors to understand the culture and properly execute an investment in a way that will give the greatest yield considering the particular economic conditions of Argentina. Argentina`s weaker currency also provides tremendous benefits to investors. The currency exchange would allow for lower initial infrastruture investment and operating costs. Outside of these surface financial benefits, one looming benefit always seems to resound when investors speak of Argentina. While the country has been through some difficult times in the recent past, including a large financial crisis, it does have vast natural resources that outweigh most countries across the globe. This can be seen with the unnaturally large profits that were made by the first ranchers to come to Argentina, when they hardly had to do anything besides sell the meat from their livestock.
Europe and America are the two largest investors in Argentina. The types of foreign investments goes all across the board, ranging from retail to petroleum. When making an investment, the investor must be aware of which industries to avoid in order to optimize their return. The government of Argentina deregulated a number of industries following the financial crisis of 2001. This deregulation was started in hopes of expanding the economy; however, the deregulation has not extended to all sectors. These sectors, such as banking and electricity, that are still state-owned enterprises, should generally be avoided by investors for two main reasons. First, state-owned businesses are highly dependent on the country’s government. In the case of Argentina, this is not seen in a positive light due to the economic instability of the recent past. Also, investments in private companies generally yield a higher rate of return than investments in state-owned enterprises.
With these sectors to be avoided in mind, the investor can now focus on which sectors seem most appealing. We chose telecommunications and financial services as the two most promising sectors when considering risk, benefits, and rates of return. Telecommunications is an industry that is growing all across the globe. As countries become more modern, the demand for telecommunications products has a tendency to grow. Argentina has recently recovered from a crisis, and as it does, salaries, standards of living, and desire for innovative technologies increase. The educated labor force combined with Argentina’s surplus of natural resources and space help to make the telecommunications horizon even more appealing. The financial services sector is also a promising market for potential investors. Telecommunications seems to be a more competitive market than financial service, but both offer great returns. As Argentina’s economy continues to grow, more companies are formed and current companies continue to expand. As the business world in Argentina finds itself with more companies and employees, the demand for skilled financial experts also becomes an issue. These financial services would be useful both for the company and for the individuals. With Argentina’s markets and history in mind, telecommunications and financial services are both sectors that the educated investor would investigate.