Penguins & red tape: The perils of Argentina’s tech imports
Business Management

Penguins & red tape: The perils of Argentina’s tech imports

Argentina for the past many years has been a difficult place to sell laptops and cellphones or even do consulting because of restrictions on imports and currency controls. But in October 2015 the progressive Cristina Fernández de Kirchner government came to an end and a more pro-business politician came to power.  President Mauricio Macri has said he wants his country to operate more like Chile, where there is freewheeling capitalism.  But Argentina cannot change overnight.

So has Macri changed much there so far? And to take one quotidian example, can you buy an iPhone yet in Argentina at a reasonable price and should electronics manufacturers look to export to that market again?

Let's take a look.

 

Penguins and tablets

Geographically-challenged Chile has done what geographically-challenged Argentina has done, which is to set up tax-free zones at the extreme ends of the country to encourage people to settle there. In Argentina, the other goal is to boost domestic manufacturing.

One of those zones is Tierra del Fuego (Land of Fire.) This is the point of land furthest south in the Americas. Cruise ships default from there for Antarctica.  This is a bleak, wind-driven tundra more suited to penguins and blue whales than humans. Charles Darwin was shocked when he went there in the 19th century to see that the indigenous people barely wore clothes in the freezing cold. These were the Selkna people whose deaths, arising from European influence, people now label as genocide. The last Selkna died just in 1974.

The other indigenous people in the region are called Fueguinos which obviously sounds like “penguins”. Argentine and international manufacturers who have set up in that tax-free, duty free region call manufacturing there “Fenguino Argentina.”

 

Currency controls

The problem to date for manufacturers has been getting dollars out of the country to be paid, and steep import duties and bureaucratic roadblocks designed to slow imports. So why would a country isolate itself from world commerce by doing these things?

Argentina defaulted on its sovereign bonds in 2001. That action turned the country into pariahs on the international finance markets, thus drying up access to credit. It also led to some embarrassing, some might say amusing, episodes. 

President Kirschner used to charter Air France rather than use her own plane when she flew to countries where New York bondholders might be able to attach a line on that. But the navy was not so careful. The pride of its fleet, the tall ship ARA Libertad, which was piloted by naval cadets, was seized by creditors when it sailed into Ghana.

The inability to borrow and a government policy that pays heavy subsidies to the middle and working classes has caused Argentina to run perilously low on hard currency for quite a few years. To stop the complete collapse of its currency the government pretty much had no choice other than to stop people from selling pesos and buying dollars this limiting money leaving the country. But a company cannot buy electronics from China with pesos. 

To slow imports, and thus haemorrhaging of dollars, the government also levied a 35% tax on imports. Argentines using credit cards abroad paid 50% tax. And then the government put up logistical hurdles. But a country still needs cell phones and jobs for retailers to sell those. So the government created the aforementioned tax-free zones and encouraged foreign firms to set up shop there.

 

Fenguino manufacturing

Lots of electronics manufacturers have set up their own plants or partnered with Argentine firms to build tablets, cellphones, laptops, batteries, and other electronics in Tierra del Fuego. The list includes Lenovo, Huawei, Ericsson, BlackBerry and Motorola. The Argentine Newsan Group has seven plants in Ushuaia, Tierra del Fuego, manufacturing components and assembling phones and batteries for Huawei and Duracell respectively.

Apple refused to build phones in Argentina, leading one analyst to quip that the way one bought an iPhone was to wait for their next trip to Miami. (Under the Kirchner government entire families would fly to Miami—with mom, dad, and the toddlers each with the maximum $9,999 USD in undeclared cash stuffed in their clothes — to buy apartments there as a hedge against their sinking currency and evaporating savings.

 

Celular para todos

In Argentina, the populist Kirchner government, taking a shot at the moneyed classes, passed a law that requires soccer broadcasts to be free. Before that, sports fans had to pay a steep cable bill to watch the “beautiful game”. This decree is called Futbol para Todos or Football for Everyone. Now President Macri has rolled out something that is not free but heavily subsidized called Mobile Internet Access. One could call it Celular Para Todos (A cellphone for everyone).

In Argentina so many people still use 2G internet that text messages can take up to 24 hours to deliver and calls are sometimes dropped. The new plan lets people buy 4G cellular phones in 12 instalments for a total of 2,200 pesos (US$140). The goal is to get eight million people off 2G but 2G only carries voice and text messages, no data. The program is administered by Claro, Movistar and Personal cellular carriers and the group of manufacturers located in Tierra del Fuego called Afarte.

 

The current situation

President Macri cannot change the progressive policies of the Argentine government overnight without starting some kind of rebellion. Too many people still receive subsidies for too many products. There are powerful unions operating there who recently succeeded in banning Uber from the country entirely and who can shut down instantly the country’s roads, airports, and borders (and often do).

But he has done what he can do through executive action without provoking extreme outrage. He has lifted currency controls, fired many government employees, and worked out payment plans with his creditors. There are no longer restrictions on importing goods there but the process to get and fill out a Declaración Jurada Anticipada de Importación (Sworn Import Statement) is still not without some level of pain. Japan took Argentina to court over this document and trade barrier and just won, although what exactly it won remains to be seen.

But liberating the economy might have a downside. Grain farmers and ranchers no longer face restrictions on exports, so they are happy. But if the government cut import duties to zero then what would that do to Tierra del Fuego and the Fenguinos? The US did that to Puerto Rico back in the 1990s with the results that heavy manufacturing dried up there, although pharmaceuticals remain. And, having invested in men and materials at the bottom of the world, there is no reason for Huawei and others to pack up and leave… the foul weather notwithstanding.

 

 

Also read:

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Walker Rowe

Walker Rowe is a US citizen living and working in Santiago, Chile. There he edits the online magazine SouthernPacificReview.com and writes the blog "The Avocado Republic" about life in rural Chile.

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