While Argentina would benefit highly from investments in infrastructure, the current status of the country makes it a challenge for investors. With political changes pending and the investigation of corruption scandals still lingering, there is some risk surrounding involvement in infrastructure projects and when would be the right time to get involved.
About two years ago, the Argentine government tried to bring more foreign investment for infrastructure into the country by passing new regulations using the system of Public Private Partnership (PPP). This would have assigned the risks of a project differently, with some risks taken by the public and some taken by the private contractor. This system allowed for a more agile process when selecting who would be responsible for different components of the projects. The old process, which had the state giving out contracts, was slow and also could lead to corruption. The new regulation allowed for more transparency. The first project using this system was going to be the Safe Highways project, the renewal of Argentina's highways. Unfortunately, a corruption scandal stemming from the previous government was uncovered, which included many of the companies that were now interested and invested in the PPP projects. This caused all the construction projects to stop and infrastructure investment to come to a standstill.
Since then, the government has been looking for solutions with both the local and international banks. But then, in 2018 the economic crisis hit and the projects have still not started back up.
Another problem and deterrent for getting these projects back on track is the interest rate for financing, which is around 70% in Argentine pesos. This rate is exorbitantly high and can deter both investors from coming to Argentina and companies requesting new financing.
There are options for investment
Some private companies in Argentina have decided to go ahead with private financing to take on smaller scale infrastructure projects. There is the possibility of getting financing through either a traditional corporate bond or a project bond with guaranteed structures. The rates for these could be lower if cash flows from exports or commodities are involved and could allow for more optimal investments. There is also hope with the upcoming election in Argentina that the PPP will open again and investments will resume.
Argentina does have important investment opportunities and there is a need for infrastructure investment but it is not without real risk. Anyone looking to invest needs to ask for the right guarantees which requires local help from a legal, tax and cosec team in the country.
Types of projects
Investors should look towards projects surrounding energy, both traditional and sustainable. There are many projects that should happen in the next two years and have a lot of potential.
Before the current administration there had not been significant infrastructure improvements in many years to highways, bridges and other areas of Argentina, so there are many chances for foreign investments.
TMF Argentina is prepared for any scenario that could occur with changes in government due to the elections and also are the experts in helping foreign companies. Whether Argentina remains open to foreign investment and investors need traditional guarantee structures, or if the PPP projects are revived by new regulations or a better scenario, TMF Group can help with any type of services needed to participate in infrastructure investments. We have the experience and professionals that understand all of the local laws and regulations and are constantly monitoring any changes that will affect local and global businesses. We will work with you on reporting, tax compliance and any other financial services you need for your business to succeed in Argentina. Talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.