Rankings report: Argentina

Argentina struggles on

Hyperinflation and high currency exchange rates means that, while demand for accountancy services is high, Argentinian firms are working harder and harder to stand still. Che Golden reports.

Doing business in Argentina continues to be a struggle as the country grapples with hyperinflation, a brain-drain due to mass emigration, and constantly changing exchange rates that make it hard to keep a handle on fees and pay wages every month. While the country has been invited to enter the BRICS bloc, local firms have only a pessimistic outlook on the future as their politicians continue to let the country down.

“We are expecting inflation rates for this year to be over 150%, depending on what happens with the elections,” said Matias Tejero, managing partner at Moore Tejero. “It's highly probable that inflation will be 170% this year, which is tanking the Argentinian peso. As a result, we have a lot of issues and restrictions around foreign trade payments and different exchange rates.”

Argentina currently has more than 25 different exchange rates for operations, which Tejero describes as “insane”.  The rules are constantly changing, which means companies are very dependent on accountants to help them navigate international payments, but it also makes it hard for their accountants to balance their own books.

Esteban Basile, CEO, Canepa, Kopec y Asociados S.R.L, a Crowe Global member firm

“Constantly changing rules makes it very difficult to run ongoing operations efficiently,” said Tejero. “For example, you close a deal today but if the rules are going to change tomorrow, you have a deal that is closed, but you have to tell the vendor you cannot pay them now. You have to adapt really fast and for accountants, this means we always need to be in the trench trying to solve the different issues. That is a significant challenge for us, because while services demand increases from clients as they find it impossible to operate without an accountant by their side, inflation is putting huge pressure on fees.”

With inflation increasing at 10% a month, firms are finding they have to negotiate their fees with almost every transaction or have automatic methods for adjustment. If they do not, they risk losing money every month. Constant negotiation is putting pressure on fees, as firms are increasing their demands but struggling to raise prices on their services and goods to pay the accountants they so desperately need. “We are constantly trying to find solutions every month that suit our clients, us and our staff, because if we cannot make the fees work, we cannot provide the kind of services and the quality of work that clients need,” said Tejero. “Nor does it help with staff recruitment and retention, as we need to renegotiate salaries every month.”

Inflation is seriously impacting on staff relationships, according to Esteban Basile, CEO of Canepa, Kopec y Asociados S.R.L, a Crowe Global member firm. “In addition to the general problem of a shortage of qualified human resources, there is strong pressure to increase salaries, which cannot always be passed on to the fees charged to clients,” he said.

Noemi Cohn, Partner, Abelovich, Polano & Asociados S.R.L, a Nexia member firm

While the skills shortage is a problem worldwide, Argentina is experiencing widespread emmigration as professionals leave in their thousands to find work in more stable economies. Immigration has also decreased, thanks to Argentina’s exchange rate. As Tejero pointed out, one of the biggest concerns for immigrants is the ability to send money home to their families, but the exchange rate conversion reduces the amount of money that they can send back to their homes, significantly.

As well as hyperinflation, political instability hampers Argentinian businesses from growing and it has long been accused of having a hostile business environment. There is little hope that the upcoming elections on October 22 will do much to change that.

“The new government will have to deal with the people’s demand for change,” said Ignacio Rodríguez Spuch, partner at Casal, Vecchi, Rodriguez Spuch y Asoc. SRL, an MGI Worldwide member firm. “In the primary elections more than 60% of the votes were in favour of candidates with a clear pro-market economy. Whoever is elected must reverse the declining trend of the Argentine economy in recent decades. Many reforms, deregulations, price liberalisation, drastic reduction of public spending, will have to be faced. Those changes will also be a great challenge at the political level, but they are necessary and unavoidable to achieve macroeconomic stability and make it possible to return to the path of sustainable growth.”

Ignacio Rodríguez Spuch, Partner, Casal, Vecchi, Rodriguez Spuch y Asoc. SRL, a MGI Worldwide member firm

Noemi Cohn, partner at Abelovich, Polano & Asociados S.R.L, a Nexia member firm, pointed out that some populist measures were taken to improve the current government’s political chances of imposing its presidential candidate. “Recent regulatory developments include a mandatory increase on minimum wages, an exemption of income tax for employees’ salaries up to ARS1.700.000 a month (equivalent to USD 2300 calculated at the free exchange rate) and a higher exchange rate applicable for USD to be liquidated in pesos for soy exporters,” she said. This does leave the business community wondering how the government will make up the deficit if few people are paying income tax?

Spuch pointed out that Argentina has enormous potential to develop in the coming decades - it has trained human resources, a large amount of natural resources (not only agricultural, but also oil, gas, and mining including lithium), industrial sectors of some importance, tourism in significant growth and a relevant service sector (including technology). To achieve this potential, there is no time to waste with the necessary reforms, but Tejero is pessimistic about the chances of this happening. “I do not expect much from politics,” he said. “We will have to adapt to whatever comes and face the new challenge. Because if we expect anything, we are going to be disappointed.”

“The outlook is still very uncertain,” said Basile. “While the leading candidates have economic proposals aligned with market development, the current situation is so complex that a substantial change is not anticipated for at least two years.”

Dr. Roberto Bassus, Managing partner, Pinther, Bassus & Asociados, a PrimeGlobal member firm

Argentina has been invited to join the BRICS bloc, but so far has not accepted the invitation as candidates remain divided on the issue. Javier Milei, a far-right candidate, has called for abandoning Argentina’s peso and adopting the US dollar, a posture diametrically opposed to the BRICS grouping’s efforts to reduce the relevance of the US currency. His victory would probably make Argentina the first country to decline the invitation to join the BRICS bloc. More than 40% of Argentina’s exports in 2022 went to BRICS member countries and Argentina would potentially benefit from gaining access to funds from the New Development Bank. But Spuch does not believe any financial benefits will be significant.

"The BRICS membership will not produce significant concrete effects in terms of increased investment flows or foreign trade, as it is more of a political than an economic agreement,” he said. “On the other hand, opposition leaders, who have the best chances of winning the presidential election, have already expressed that they will analyse the scope of this incorporation, given that (among other reasons) countries with questionable systems of government are part of this bloc."

But again, while Tejero thinks joining BRICS would be good for Argentina, he doubts that any government elected will be able to really take advantage of membership. “We do not have a strong state policy on foreign trade and international integration, and I do not think that is going to change anytime soon,” he said. “We suffer from pendulum political strategies, depending on the party in charge. You have some countries where, if there is a change of government from left, centre, right, it doesn't matter, because they have a strong state policy. In our case, we change our strategy 180 degrees with every change of the government, so it's difficult to develop long term solutions.”

Rafael Faillace, Partner, MGI Jebsen & Co

Something needs to be done to attract foreign direct investment. “At this moment, foreign investment is at a standstill due to the closeness of the elections, and the lack of knowledge of who the winner may be,” said Dr. Roberto Bassus, managing partner at Pinther, Bassus & Asociados, a PrimeGlobal member firm. “Let’s remember that there are three candidates with the possibility to be president and with very different ideologies among them. We are a country with great potential to attract investments, which needs to have tax and labour reforms that allow investors to be certain about the direction of the country.”

If there is any optimism, it is that the demand for accountancy services is increasing in many sectors, helping firms to stay one step ahead of inflation. Tax consultancy is the most obvious growth market in a country that has 166 taxes. Tejero joked that you cannot wake up in Argentina if you do not have a tax advisor. Rafael Faillace, partner at MGI Jebsen & Co, has seen a spike in business process outsourcing (BPO) services in the last 12 months but thinks exciting things will happen in the energy markets. “The development of new businesses related to the production of oil and gas, and also lithium, will grow dramatically in the next 12 months,” he said. “Not only for companies investing in these different areas, but also for suppliers of those direct investors, such as the accounting and tax sectors.”  Basile has seen the most significant growth in IT consulting, BPO services and performance (efficiency and cost reduction), while Cohn expects to see an uptick in due diligence, mainly for acquisitions by local investors of foreign subsidiaries, and audits from companies moving from the Big Four to a second-tier audit firm.

Argentina holds its breath and waits to see what the upcoming elections will bring. The market can only hope, despite the pessimism locally, that desperately needed reform will be ushered in by a new government and Argentina will once again have an environment that businesses can thrive in.

Main Image: Buenos Aires, Argentina. Credit: Dudarev Mikhail