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Argentina’s Investment Development Agency
Beatriz Nofal (Ph.D), President
Argentina’s Investment Development Agency
Argentina, May 2008
Advantages of Investing in Argentina:
Automotive and Motorcycle Industry
Argentina’s Investment Development Agency 2
An Extraordinary Opportunity
Argentina’s Investment Development Agency 33
STRUCTURALLYCOMPETITIVE FACTORS OF PRODUCTION
KNOWLEDGE
NATURE
CULTURE
Argentina offers an extraordinary investment opportunity given the combination of high and sustainable economic growth, favorable terms of trade and a competitive base of production factors.
ARGENTINA’S SUSTAINABLE
ECONOMIC GROWTH
Five years of steady growth at an average
rate of 8.8%
Twin Surpluses: fiscal and external
Flexible and Competitive exchange rate
Prudent monetary policy
Record profitability
FAVORABLE INTERNATIONAL
SCENARIO
Favorable terms of trade and high prices of agricultural “commodities” and raw materials.
Global Integration of Value Chains and off shoring
New global consumption patterns (product differentiation)
Accumulation of foreign exchange reserves and reduction of public debt
Increasing demand for renewable energy sources
Marked reduction of unemployment and poverty
levels
Rich culture
Modern Industries
Entrepreneurial and innovative capacities
Skilled Human Resources
Abundant Natural Resources
Argentina’s Investment Development Agency 44
GDP annual growth rates (%)
4
9
6
44,4
1.1
8.8
10
1.82.9
5.7
10.1
2.32.9
5.7
9.2
10.4
2.6
3.7
8.5
11.1
2.1
5.9
8.7
11.5
China Argentina Chile Brazil G7: MostDevelopedEconomies
2003 2004 2005 2006 2007
Average: 10.6%
Average: 8.8%
Average : 5.1% Average : 3.6%
Average : 2.3%
Source: ProsperAr based on IMF WEO database, 2007.
Over the past five years, Argentina ranked among the fastest growing economies worldwide. In 2007, the annual GDP growth rate was 8.7% and the average annual growth rate during the last five years has been 8.8%. For 2008, the estimated growth rate is in the order of 8%
Argentina’s Investment Development Agency 55
25,722,7
-15
-10
-5
0
5
10
15
20
25
30
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
*
Primary Fiscal Balance
Current Account Balance
Growth is based on solid macroeconomic fundamentals that strengthen the country’s economy, making it more resilient vis-à-vis external shocks, and ruling out the possibility of a crisis in the mid-term. Macroeconomic sustainability results in higher predictability, a key factor for investment.
Fiscal and Current Account Surplus(in billions of pesos)
International Reserves(in billions of dollars)
Source: ProsperAr based on Ministry of Economy and Production.
50.446.9
32.028.1
19.6
14.110.5
19.4
26.527.826.524.3
19.317.617.9
0
5
10
15
20
25
30
35
40
45
50
55
Dic
-94
Dic
-95
Dic
-96
Dic
-97
Dic
-98
Dic
-99
Dic
-00
Dic
-01
Dic
-02
Dic
-03
Dic
-04
Dic
-05
Dic
-06
Dic
-07
Mar
.-08
During the first quarter of 2008, tax revenues increased at a faster rate than public expenditure and international reserves continued growing steadily.
Argentina’s Investment Development Agency 66
Investment has grown steadily, at higher rate than GDP, leading to robust employment growth.
*EstimatedSource: ProsperAr based on INDEC and Ministry of Economy and Production
0
20
40
60
80
100
120
140
1601
98
3
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
30%
35%
40%
45%
50%
55%
Employment rate (right axis) GDP constant prices (Index 1997=100)IBIF constant prices (Index 1997=100)
GDP, Investment and EmploymentIn % and Index numbers 1997=100
Argentina’s Investment Development Agency 77
Likewise, there has been important productivity gains in the industrial sector, as the surge in production outpaces the rise in employment.
50
60
70
80
90
100
110
120
130
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*
Industrial Production Index, volume (IPI) Employed Workers Index (EWI)Productivity Index (IPI/EWI)
+ Productivity
+ Production
+ Employment
+ Productivity
+ Production
- Employment
= Productivity
- Production
- Employment
Industrial Production, Employment and Productivity
Argentina’s Investment Development Agency 88
One of the cornerstones of the current macroeconomic program is the maintenance of a flexible and competitive exchange rate.
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
Jan
-01
Ma
r-M
ay-
Jul-
01
Se
p-
No
v-Ja
n-0
2M
ar-
Ma
y-Ju
l-0
2S
ep
-N
ov-
Jan
-03
Ma
r-M
ay-
Jul-
03
Se
p-
No
v-Ja
n-0
4M
ar-
Ma
y-Ju
l-0
4S
ep
-N
ov-
Jan
-05
Ma
r-M
ay-
Jul-
05
Se
p-
No
v-Ja
n-0
6M
ar-
Ma
y-Ju
l-0
6S
ep
-N
ov-
Jan
-07
Ma
r-M
ay-
Jul-
07
Se
p-
No
v-
USA RER
EURO RER
Brazil RER
Nominal ER (US dollar)
Nominal and Real Exchange Rate (RER)EURO - USA – Brazil. Inverted Scale
Source: ProsperAr based on INDEC
Argentina’s Investment Development Agency 99
11,154
55,933
44,780
-10000
0
10000
20000
30000
40000
50000
60000
700001
99
3
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Trade Balance Exports Imports
Argentinean International TradeMillions of dollars
Source: ProsperAr based on INDEC
Argentina’s exports and imports are at record-high levels. The country has experienced a sizable and persistent trade surplus over the past eight years.
Argentina’s Investment Development Agency 10
Productive Capacities
• Rich culture and outstanding cultural productions in various fields
• Distinguished international figures and works of art
• Rich Urban life with a wealth of cultural possibilities
• International destination chosen for its quality of life and tourism
• High entrepreneurial and innovative skills (ranked 10th in the GEM 2007)
• Strong industrial tradition
• Modern infrastructure and technological availability
• World-class producers of agricultural and industrial commodities
• Competitive private sector
• Preferential Access to Mercosur market at 0% tariff
• Qualified Human Resources
• High level of education and training
• Prestigious Universities
• Excellent Research Centers
• Outstanding health indicators
• Abundance of land and natural resources
• A wide variety of mineral and energy resources
• Diversity of regions, topography and climate
• High commitment with environmental protection and sustainable development
Argentina’s economic growth is supported by an attractive and competitive resource endowment base which combines a pool of talented people, abundant natural resources, a wealth of culture and significant entrepreneurial and business skills...
NatureKnowledge Culture
Cesar Milstein – Nobel PrizeFederico Leloir– Nobel Prize
Argentina’s Investment Development Agency 11
Automotive Industry
Argentina’s Investment Development Agency 12
AUTOMOTIVE AND AUTOPARTS MAIN INDICATORS
►Companies: 9 automotive producers (TNCs); 400 autoparts producers (mostly local producers).
►Contribution to GDP: 2.2%
►Contribution to Manufacturing GDP: 13.2%
►Share in total Manufacturing Exports: 33.3%
►Employees: 110,000
►Quantity of models produced: 18
►Inhabitants per automobile: 5.1
►Sales (2007): 565,000 automobiles – Record High-
►Exports (2007): 316,410 automobiles – Record High-
Source: ProsperAr based on ADEFA, 2006
Location of Automotive TNCs in Argentina
The automotive industry weighs heavily and remains a growth leader in the country’s overall manufacturing production
(Since 2009)
Argentina’s Investment Development Agency 13
Domestic and external market are rapidly increasing
307
177
82
156
312
403460
565
2000
2001
2002
2003
2004
2005
2006
2007
136155
123108
146
182
237
121
83
36
90
203
259272
331316
2000
2001
2002
2003
2004
2005
2006
2007
Domestic Sales of VehiclesThousands of units
Exports and Imports of VehiclesThousands of units
Sales in the domestic market (locally produced and imported vehicles), have rebounded from the record-low levels of 2002. Sales in 2007 reached an unprecedented level of almost 565,000 units.
As a result of a surging external demand, exports currently represent more than half of Argentina´s production. Similarly, imports account for more than 55% of domestic sales.
Source: ProsperAr based on ADEFA
Argentina’s Investment Development Agency 14
Brazil; 62.1%
C. America ; 3.6%
Europe; 2.8%
Uruguay; 1.6% Asia; 1.4%
Others; 4.7%
Chile; 5.1%
Venezuela; 6%
Mexico; 12.7%
Percent Change
2006 / 2005 2007 / 2006
Production 3.3% 9.9%
Sales 12% 22.4%
Exports -6% -13.3%
Imports 9.5% 18.7%
Argentina’s Exports of Vehicles, by CountryYear 2007
Brazilian Automotive Industrial Indicators
Brazil is by far the largest market for Argentina’s automotive exports.
Source: ProsperAr based on ADEFA and ANFAVEA
In 2007, automotive production in Brazil reached a record-high level of 2,870,000 units.
Argentina’s Investment Development Agency 15
Production of VehiclesThousand of units
Increasing demand in Argentina –and also in Brazil- stimulated domestic production to its record-high levels
458
305339
236
159 165
260
545
432
320
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
+ 19%
+ 242%
In 2007, automotive production expanded at a 26% annual rate, reaching a record-high level of 544,647 units.
Source: ProsperAr based on ADEFA
Argentina’s Investment Development Agency 16
1.025,5
458,0
159,4
432,1544,6
780,0737,5
672,0625,0
508,2
82,3
460,5
564,9 682,6
477,6362,9
237,5
108,1
236,8316,4
0
200
400
600
800
1.000
1.200
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(p)
2009
(p)
2010
(p)
2011
(p)
2012
(p)
2013
(p)
Th
ou
san
ds
of
un
its
ProductionSalesExports
Avg. Prod.: 345,500 un.
Avg. Sales : 419,000 un.
Avg. Exports: 40,000 un.
Avg. Prod.: 349,500 un.
Avg. Sales : 353,600 un.
Avg. Exports: 157,700 un.
Avg. Prod.: 314,300 un.
Avg. Sales : 329,700 un.
Avg. Exports: : 185,350 un.
Avg. Prod : 874,368 un.
Avg. Sales: 699,083 un.
Avg. Exports : 558,949 un.
Forecast of Vehicles Production, Sales & Exports
Source: ADEFA
Private sector estimates suggest that this growth trend will continue unabated
Argentina’s Investment Development Agency 17
3.4
19.8
46.9
52.5
64.3
78.8
70.9
95.6
5.1
26.2
57.5
66.4
69.0
88.0
115.3
117.2
All automotive companies currently operating in Argentina increased their production levels to meet the ever growing local and external demand
Source: ProsperAr based on ADEFA
Production of Vehicles by CompanyThousand of units
Argentina’s Investment Development Agency 18
Year 1996
Automobiles86%
Year 2007
Heavy Trucks3.3%
SUV & Vans10.6%
SUV & Vans34.6%
Heavy Trucks0.9%
Automobiles64.4%
Production of Vehicles by Category
Although automobiles still represent three quarters of the vehicles sold in Argentina.
Auto production represented 64.4% percent of total production in the industry. Production of SUVs (Sport Utility Vehicles) and Vans accounted for 34.6% of total production, while heavy trucks and passenger vehicles explained the remaining 1%.
Source: ProsperAr based on ADEFA
Argentina’s Investment Development Agency 19
Although automobiles still are the main vehicles sold in the domestic market.
Automobiles75%
Others5%
SUV & Vans20%
Automobile sales accounted for the lion-share of the domestic market sales, with 75% of total. Sales of SUVs & Vans accounted for 20% of total sales, heavy trucks, and passenger vehicles for 5%.
Sales of Vehicles by Category2007
Argentina’s Investment Development Agency 20
The production of trucks has skyrocketed in 2007
11411501
2503
2972 3003
4912
2002 2003 2004 2005 2006 2007
Production of trucksIn units IVECO was the only producer in
Argentina in 2007.
The domestic market is mostly supplied by imports. Current imports are roughly 3.5 times domestic production.
Demand for trucks has increased dramatically, stimulated by the strong economic growth of the past five years and particularly by a booming agricultural activity.
Production has grown steadily since 2002 to meet the increasing demand
Imports increased faster than production.
3,52,0
3,8
15,5
3,4
2002 2003 2004 2005 2006
Imports / Production Ratio
Argentina’s Investment Development Agency 21
Argentina offers competitive labor costs…
140
100
95
82
56
46
17
11
11
5
4
12
13
Germany
USA
Japan
UK
Spain
Korea
Czech Rep.
Brazil
Poland
Mexico
Argentina
India
China
Labor Costs by Country. Index USA base = 100
Source: ABECEB based on PriceWaterhouse & Coopers
Unskilled assembly workers
US$: 2.22/hour (AR$ 7.01/hour)
Trained assembly workers
US$: 2.73/hour (AR$ 8.59/hour)
Trained welding personal
US$: 2.86/hour (AR$ 9.00/hour)
Office employees* US$: 3.03-3.31/hour (AR$ 9.55-10.42/hour)
Labor Costs in Argentina Wages per hour
*This figure excludes ManagersSource: ProsperAr based on Ministry of Labor.
Argentina’s Investment Development Agency 22
… and a set of production incentives
In 2006, Argentina and Mexico eliminated all bilateral trade barriers in automobile trade and in June 2006 were eradicated hundreds of tariff items in the car parts sector.
The “Flex” Mechanism
► Cash Reimbursement
Fiscal benefits for vehicles produced domestically and that have imported parts whose value do not exceed 30% of the wholesale price of the final good (Decree 774/05). Specifically, a company manufacturing vehicles in Argentina receive a cash reimbursement equivalent to 6% of the value of the locally produced parts being purchased.
Argentina and Brazil bilateral trade flows are tariff-exempt within a ”flex” mechanism, which determines the level of Brazilian imports (US$ 1.95) for every dollar of Argentine exports. Tariffs will apply when this level is exceeded.
► The “Flex” Mechanism for bilateral Trade with Brazil
► Trade with Mexico
Argentina’s Investment Development Agency 23
The largest Japanese company has settled in Argentina, 10 years ago.
Source: Toyota Argentina
Toyota Argentina Productionin units
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
97-'02 2003 2004 2005 2006 2007 e
Since it was settled, and particularly in the past few years, Toyota Argentina has expanded operations becoming a regional supplying platform of multi-purpose vehicles.
World-class Japanese companies, such as Toyota or Honda choose to produce in Argentina not only to supply the domestic market, but also to supply the region.
Argentina’s Investment Development Agency 24
Toyota’s settlement in Argentina acted as a magnet for other Japanese companies
A rising number of Japanese car parts manufacturers have settled in Argentina as a response to Toyota’s steady growth.
Argentina’s Investment Development Agency 25
Toyota has not only increased its production scale, but it has also developed new models, enlargening the scope and reach of its local output.
Toyota Argentina in figures
► Production per year: 75,000 units (est. 2007)
► Employees: 2,600
► Exports: 74% of the production
► Sales all around Latin America
► Investments for more than US$ 700 million since 1997
Argentina’s Investment Development Agency 26
Having settled in Argentina 1978, Honda is building a new automobile production plant that will start operations in 2009.
The new Honda plant is intended to meet the ever-rising domestic demand.
The new plant will begin exporting products to other countries in South America and will play a key role in Honda’s production strategy in South America along with the Honda auto plant in Brazil.
New Automobile Production Plant
• Investment: aprox. U$S 100 million
• Start of Operation : Second half of 2009
• Annual Production Capacity : 30,000 units
• Production Model : compact passenger vehicle
• Processes: stamping, welding, painting, engine assembly and final assembly
Argentina’s Investment Development Agency 27
Automotive companies are undoubtedly responding to market trends with new investments
August 2007: U$S 24 to expand capacity and to increase the integration of local parts in their domestic productionPreviously, 76 million Euros were invested to start the production of the new Citroen C4.
August 2007: U$S 161 million for the production of a new car in 2008 and a pick-up in 2010. In 2006, the completion of previous investment projects resulted in an increase in production from 300 units per day to 340 units.
March 2007: U$S 41.5 millon to increase production of parts Toyota has so far invested U$S 1 billion in Argentina
May 2007: U$S 100 million to expand capacity for the production of transmission gearOctober 2007: U$S 320.5 millon, for the production of a new pick-up.
Investment Projets in Argentina
Argentina’s Investment Development Agency 28
2007: U$S 50 million for the production of a new commercial vehicle, the NCV3
May 2007: U$S 80 million for the production of a new vehicle, and to increase the production of the Kangoo and the Clio.
July 2007: U$S 200 million for the production of a new model in the plant located in Rosario
Honda is investing U$S 100 million in a new plant in Campana to start production in 2009. Two-thirds of the 30,000 units that are expected to be produced in this plant will be exported to Brazil
After an agreement between Fiat and Tata Motors, the Fiat plant in Ferreyra, Cordoba, is expected to start the production of a pick-up.In 2008, U$S 60 million will be invested for the production of 50,000 annual units of the Siena model.
Argentina’s Investment Development Agency 29
Autoparts Industry
Argentina’s Investment Development Agency 30
Source: AFAC.* Estimated Employment for FY2008
Main Location of the Autoparts companies in Argentina
Santa Fe
Buenos Aires City
Buenos Aires
Cordoba
AUTOPARTS MAIN INDICATORS
► Companies: 400
► Direct employment: 63,100 *
► Share of industrial employment: 3.8%
► Sales (2007): U$S 5,450 M
► Exports (2007): U$S 2,267 M
Autoparts main indicators:
Argentina’s Investment Development Agency 31
1.827
5.448
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
-
1.000
2.000
3.000
4.000
5.000
6.000
19…
19…
19…
19…
19…
19…
19…
19…
20…
20…
20…
20…
20…
20…
20…
20…
Var.
%
Sale
s in
U$S
Var. %
Autoparts sales have grown significantly, following trends in the auto production.
Autoparts Domestic SalesIn million of U$S
Source: AFAC
Argentina’s Investment Development Agency 32
Autoparts exports have also risen significantly since 2002...
-
500
1.000
1.500
2.000
2.500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Mil
lio
ns
of
U$S
12% compounded annual growth rate (1992-2007)
90,2%
Autoparts ExportsIn million of U$S
Source: AFAC.
Argentina’s Investment Development Agency 33
-686 -774 -811-1.397
-1.904-1.176
-72-561
-1.298-1.914
-2.856
-4.120
-1.738-1.837
-2.880 -2.926
4.007
2.2671.942
253773
1.118 1.081 1.367
1.144
1.763
1.537
6.388
4.798
939
2.170
3.9993.204
2.834
3.676
1.216
-6.000
-4.000
-2.000
0
2.000
4.000
6.000
8.000
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Balance Exports Imports
Mill
ions
of
U$
S
AUTOPARTS EXPORTS, IMPORTS & OVERALL TRADE BALANCE
…and imports are escalating, reaching unprecedented levels
Source: AFAC based on INDEC
Argentina’s Investment Development Agency
Investment in the sector has shown a significant positive trend.
Investments were made by companies of all sizes
Autoparts companies are investing to improve their productivity levels, to enlarge their production capacity and to develop new products
232
302
356
416
460
0
50
100
150
200
250
300
350
400
450
500
2004 2005 2006 2007 2008*
Investment of Autoparts companiesIn millions of US$
Source: AFAC. *Estimated
Argentina’s Investment Development Agency 35
Motorcycle Industry
Argentina’s Investment Development Agency 36
Location of the Motorcycles companies in Argentina
Santa Fe
Buenos Aires
Cordoba
The Motorcycle industry in Argentina is formed by both world-class foreign companies and domestic firms.
Catamarca
San Juan
San Luis
The most important motorcycle producers are located in the province of Buenos Aires. Other companies are located in the provinces of Córdoba, Santa Fe, San Luis, San Juan and Catamarca.
Demand remains higher in the provinces than in the City of Buenos Aires.
Argentina’s Investment Development Agency 37
Motorcycles Domestic SalesThousand of units
The domestic market for motorcycles has boomed over the past four years.
137.6 158.3119.6
12.7 25.789.3
231.6
477.6
680.7
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
+ 42.5%+ 5261%
Source: ProsperAr based on ABECEB
+ 106.2%
Demand for motorcycles increased as a result of the strong economic growth of the last 5 years, the recovery of income, employment, consumption and the widening gap between prices of automobiles and motorcycles.
Argentina’s Investment Development Agency 38
Production and Assembly of MotorcyclesThousand of units
Production increased significantly to keep up with rising demand.
7.3
60.1
225.4
131.9
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: ProsperAr based on ABECEB
+ 2997%
Argentina’s Investment Development Agency 39
Imports of MotorcyclesThousand of units
Although, imports grew even faster than production.
634.6
60.610.810.3
93.3114.592.9
156.2
423.7
183.1
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Source: ProsperAr based on ABECEB
+ 6090%
China, 93%
Brazil, 6%
Others, 1%
Imports by Destiny
Imports come mostly from China and are concentrated on small motorcycles
Argentina’s Investment Development Agency 40
Conclusions: A Booming Automotive and Motorcycle Industry.
The autoparts industry is booming as the demand from automakers The autoparts industry is booming as the demand from automakers escalate and as automakers continue to increase their outsourcing escalate and as automakers continue to increase their outsourcing activities.activities.
New industry patterns emerged as a result of the opening of new New industry patterns emerged as a result of the opening of new markets, the focus on regional cooperation, and the country’s markets, the focus on regional cooperation, and the country’s competitive exchange rate. Large inflows of foreign direct competitive exchange rate. Large inflows of foreign direct investments (FDI) expanded production capacities and brought investments (FDI) expanded production capacities and brought technological know-how for process improvements.technological know-how for process improvements.
Rapidly growing exports and domestic sales at record-high levels Rapidly growing exports and domestic sales at record-high levels are stimulating production, which almost doubled since 2002 in the are stimulating production, which almost doubled since 2002 in the automotive industry and triple in the motorcycle industry . As a automotive industry and triple in the motorcycle industry . As a result, the automotive industry explained more than 30% of the result, the automotive industry explained more than 30% of the growth in the country’s industrial production over the past three growth in the country’s industrial production over the past three years. In 2007, the production of cars exceeded by 19% the peak years. In 2007, the production of cars exceeded by 19% the peak of 1998.of 1998.
Argentina’s Investment Development Agency
Muchas GraciasThank you
To learn more about how to invest in Argentina, contact ProsperAr:
Florida 375, 8th Floor Suite B (C1005AAG) Buenos Aires,
Argentina
Tel: (+5411) 4328-9510
email: [email protected]
www.prosperar.gov.ar