Strong trading relations and friendship exist between Mexico, the land of mariachis, and Argentina, the land of the tango. Mexico and Argentina maintain important free-trade ties and a strong cultural relationship through their collaborative efforts in other areas such as filmmaking, football and television. For example, the score for the highly acclaimed film “Babel,” directed by Mexican Alejandro Gonzalez Inarritu, was written by Argentine’s Gustavo Santaolalla, who won an Oscar for his efforts.


When it comes to trade relations, Argentina and Mexico began to improve their ties in recent years when both economies recovered from major crises and began to grow again. Last April 4, for example, they began new rounds of conversations to expand from 2,000 to 5,000 the number of products covered by tariff preferences between the two markets. “Starting from their bilateral accords within the framework of ALADI, the Latin American Integration Association, the relationship with Mexico has clearly expanded,” says Enrique Déntice, senior economist at the school of economics and business at the National University of San Martin in Argentina.


According to the foreign secretary at the Mexican embassy in Argentina, Mexico is Argentina’s third-largest source of imports as well as the sixth-largest destination for Mexican exports in the region.


Mexico’s leading imports from Argentina include autos, gasoline, leather products and propane gas. Meanwhile, it sends Argentina cellular phones, medications and auto ignitions, as well as acids and salts.


More Genuine Investments


Beyond the exchange of products, there has been a sustained increase in genuine investments between the two partners, especially starting with the devaluation of the Argentine peso in 2002.


Between January 1999 and September 2006, Argentine-owned companies made investments worth $597.9 million in Mexico. This total represents 50.2% of all investments from the 12 ALADI countries of Latin America, according to the Mexican government. For its part, Mexico’s direct investments in Argentina more than tripled in value. “They reached about $1.986 billion by the end of 2006, representing 3.2% of the total value of all investments [in Argentina]. Without doubt, the cost of acquiring Argentine companies in the post-devaluation era makes this business strategy attractive. At the same time, Mexican companies have taken advantage of a market that needs products that are not supplied by global sources. Mexico has more investors in this country than in the rest of Latin America,” says Déntice. “In fact, Argentina’s presence as an investor in Mexico amounts to almost 19% in the steel sector.”


In addition to taking advantage of the Argentine exchange rate after devaluation, “Argentina is a big attraction for Mexican investors now that it [Argentina] provides an opening to MERCOSUR, the expanded regional trade bloc (comprised of Argentina, Brazil, Uruguay, Paraguay). Because of the nature of that pact, Argentina has made a joint commitment to those four other countries in the region, and Mexico’s agreement with Argentina is very similar to the pact that Mexico has with Chile. This is all part of a new Mexican strategy designed to lessen its dependence on NAFTA, and it also signals an indirect approach toward Brazil,” says Déntice.

Cell Phones, Bread and Pharmacies


Telecom companies, such as Carlos Slim’s Telmex, have already planted the Mexican flag in Argentina. According to Forbes magazine, Slim is the second richest man in the world after only Bill Gates. Slim arrived in Argentina at the end of the 1990s. In 2003, he spent $200 million for CTI, a telephone company that is now the second-largest operator in the [Argentine] cellular market.


Other very successful Mexican companies have also chosen Argentina, including Bimbo, the bread producer; Dr. Ahorro, the pharmacy chain; and Grupo Posadas, which owns the five-star Caesar Park hotel in Buenos Aires.


A few weeks ago, news of another very important arrival was announced: Grupo Elektra, owned by [Mexican] entrepreneur Ricardo Salinas Pliego, which is an appliance retailer. It will compete against other established players, such as Garbarino and Frávega, which are already in the Argentine market. For starters, Elektra will invest $60 million and open 35 branches.


Bruno Ferrari Wolfenson, director of the CIF investment bank, has several clients who are interested in moving into Argentina. He explains that “the Elektra business model is focused on the direct tie between consumption and financing, since it is part of the same business group that has a financial arm called Banco Azteca. Its approach is to offer high-quality products to low-income people who make small weekly payments. It is a new player in the market, and it will force the other players to sharpen their commercial skills and their financing strategies.”


Financing for appliance sales has been one of the motors of growth in Argentina’s consumer sector. According to the Banco de Valores, $2.361 billion in loans designed exclusively for that use were issued in 2006.


Wolfenson notes that other Mexican investments could emerge in various sectors such as agribusiness, retail distribution, healthcare, advertising, media, soft drinks and public works. “Mexico and Argentina are two totally complementary markets. No major imbalances exist between them. On the contrary, the opportunities that Argentina offers as a platform for marketing and regional growth are exceedingly valuable beyond the cyclical patterns of the country [Argentina].” For Wolfenson, the interaction between the two economic blocs “represents poles that … can complement each other culturally and geopolitically without any major imbalances, especially because the two countries play a leading role in each trade bloc.”


The Next Challenges


For Déntice, Argentina’s largest advantage is “the favorable exchange rate, which becomes a sort of explicit insurance policy, as well as low labor costs and its involvement in Mercosur.”


Beyond the benefits that it now provides, Argentina has yet to attract larger investments from the region and from other countries. According to Déntice, “We are a long way from having a strong stream of investors from abroad, except in those sectors where corporate headquarters see a need to expand their market. This is because of the pressure to utilize installed capacity so that the Argentine investor can be said to be nearly autonomous. In macroeconomic terms, Argentina finds itself very well positioned, but its external credibility has yet to be restored.”


In that regard, Wolfenson maintains that “the image of Argentina as a destination for investment is stronger than the image that people have of Argentine entrepreneurs. People recognize that Argentine executives are skilled at keeping companies afloat during recurrent crises. Nevertheless, this gives them the impression that their constant efforts to survive have meant that there are not many managers who have long-term vision.”


Déntice stresses that Foreign Direct Investment in Argentina has “very slowly recovered to its pre-1998 levels.” During the first nine months of 2006, FDI amounted to $4.5 billion, almost 9% more than during the same period in 2005, and a significant 115% higher than in 2001. The sort of investment that Argentina hopes to attract, he adds, “would be sustained again and again by the reinvestment of profits, the way we see things happening in both 2005 and 2006 in private-sector capital accounts and other financial yardsticks.”