Argentina’s beneficial changesFebruary 28, 2018
Robert Fry, the Canadian ambassador to Argentina and Paraguay, talks to TOGY about the bilateral relationship between the countries, opportunities for companies in Argentina and what lessons and experiences can be applied in the domestic market. Canadian companies have a large presence in Argentina, particularly in the energy, mining and oil and gas industries.
On past obstacles: “The former government’s control of the exchange rate, restrictions on imports and exports, and establishment of export taxes was such a disincentive for anyone to come. Canadian companies left. The smaller and medium-sized companies could not survive in this environment. The big companies were able to weather the storm, but there were other companies which, if the government had not shifted, could not have functioned in conditions as they were here.”
On opportunities in Argentina: “There are huge opportunities here. The unconventionals sector alone is already extremely attractive. There are big oil companies here that prove that.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Robert Fry below.
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How has Argentina’s business environment and attractiveness to investors changed since President Mauricio Macri’s administration took office in December 2015?
The new government has worked hard to make it a much more business-friendly environment for companies. That has been attractive for Canadian companies to come back and look at Argentina as a place to do business and invest. This means stabilising the economy, bringing down inflation and being able to settle with bondholders so that Argentina can borrow again at reasonable prices, and that is creating a more normal business environment.
The former government’s control of the exchange rate, restrictions on imports and exports, and establishment of export taxes was such a disincentive for anyone to come. Canadian companies left. The smaller and medium-sized companies could not survive in this environment. The big companies were able to weather the storm, but there were other companies which, if the government had not shifted, could not have functioned in conditions as they were here.
I compliment the government, starting with President Macri, and the team he has put around him. They are smart and experienced and are putting in place an environment that is attractive to investors and is more business friendly. It is not a free-for-all. They are balancing the needs of the country, making sure that the economic benefits are spread out, jobs are created and inflation comes down, while simultaneously making it a better business environment.
What kind of trade relationship do Canada and Argentina have?
According to the Argentina Investment and Trade Promotion Agency, Canada has been the number one investor in Argentina since January 2016, in terms of investment announcements. A lot of that is in mining, but oil and gas is another area, as are agriculture and energy. There is also car parts manufacturing being done.
There is a real appetite in business and we are working hard with Argentina to improve the trade relationship between Canada and Argentina, and Canada and Mercosur [Southern Common Market trade bloc]. For me, there is so much potential. Our trade is about USD 1.9 billion, with USD 1.6 billion in favour of Argentina and about USD 307.7 million for the Canadian exports here, but we do not look at it that way. Trade relationships are much more sophisticated than this. As far as we are concerned, we see huge potential for growth in our trade relationship.
What is the role of the embassy in promoting local business opportunities to Canadian companies?
Part of our role is to support the Canadian businesses that want to do business here, either to export or provide services. It is also to help Canadian investors invest in Argentina and to talk to them about the Argentine market. We are talking with all sectors about what the opportunities and challenges are here.
What opportunities are available to Canadian companies in Argentina’s oil and gas industry?
There are huge opportunities here. The unconventionals sector alone is already extremely attractive. There are big oil companies here that prove that.
In Canada, we do not have the huge multinationals, but we do have many small and medium-sized companies. They do not get attention because they are working under the radar. They are involved in every stage of projects, but they are very good at their particular areas. Medium-sized companies are more flexible and adaptable. They do not take as much time to make decisions either. Canadian companies are more flexible, more adaptable and they are able to connect on a more equal footing.
There was a Canadian delegation to Neuquén in November 2017. We had 40 participants from 22 companies and two associations. They were really impressed and left very optimistic about the opportunities here. This is a place we think we can function and do business in, and we are here to support that.
What elements of collaboration in the Canadian oil and gas industry do you think Argentina is interested in adopting?
Delegations from Argentina have visited Canada. We have talked about similarities in the federal-provincial model. In Canada, we have been successful with it, when all sectors of the industry are aligned and working in the same direction. That includes the federal government, provinces, industry and unions. You need to talk about how everyone wins when things are going in the right direction. That is what we have learned in Canada.
I was impressed with the agreement signed in January 2017 between the provinces, national government, private sector and the unions. One area of concern is the union and the demands of that sector on the industry, because those industries are always trying to be as efficient and competitive as possible, and they have trouble doing that with some of the demands that exist here. That agreement was a good sign for the industry that all sectors, including the unions, were willing to try and show a bit of flexibility and compromise with companies willing to invest, governments willing to adjust their regulations and unions willing to adjust their demands.
At the end of the day, when there is more investment, there are more jobs, so that means more jobs for workers. There is more work for everyone and everyone wins. That is the challenge we have learned in Canada in terms of being competitive. It is a globalised world. Companies have options and they will go where they feel they can operate most effectively. Argentina is trying to take steps in that direction.
What are the key drivers of investment in Argentina and what have Canadian companies been most worried about?
The positive points are that Vaca Muerta is a great resource that is relatively easy to access. There is a need for infrastructural development in that area to make it more accessible.
We are also used to dealing with extreme climates in Canada. The climate is more hospitable here, which is a positive.
The changes the government has made are all positive. They are doing their best. The predecessor of the current governor of Neuquén went to Alberta to see how it was organised and how it developed, and he brought some of those experiences and examples back to help development in Neuquén.
Companies are nervous about unions and unionisation. In Canada, we have unions and we believe in that. Workers need to be properly compensated and their rights and safety need to be looked out for. It has to be done in a balanced way in which people are willing to compromise, see the other side of the issue and make adjustments that benefit everyone in the end.
It was such a positive sign that they were able to sign an agreement in January 2017, because there is the perception that unions in Argentina are intransigent and unwilling to compromise. That agreement showed that there is a willingness to compromise and make things work.
What experiences in Canada can be applied to Argentina’s oil and gas industry?
You can never have enough dialogue and outreach. We provide companies with business support. Part of that is advice, encouragement and pressure to make sure that they have their CSR [corporate social responsibility] in order, and respect the rules and regulations of the country. It even goes beyond that, setting a higher standard in terms of respecting the environment, doing outreach with indigenous and local communities, going the extra mile to make sure you are talking to the right people and listening to them, making the necessary changes and adjustments, and taking into account what people are asking you about balance.
Companies need to be respectful of these things as well, because that is how they obtain their social licence. You can only operate for so long without doing those things. The old way of doing things is now unacceptable. Canadian companies have a good track record on the environment and in terms of bringing benefits to the countries in which they operate. It is not just about making profits and leaving. They leave behind a legacy and infrastructure.
We want it to be a win-win arrangement. We want the country we are operating in to benefit in many ways and we want to leave a lasting legacy because we believe in our long-term reputation. The Canadian brand is impacted by how our companies and businessmen conduct themselves. It applies in all industries.
What lessons can be learned from how Canada has managed the relationship between oil and gas companies and indigenous communities?
Many lessons can be learned. We have been mining and developing the oil and gas industry for a long time. Canada learned many lessons from not always doing things the right way. Now, there is much better partnership in Canada. The federal government has taken a lead and has made many efforts in recognising the territorial rights of indigenous communities and rights to access economic development on their lands.
There are extensive consultation processes in place for any type of project that has to be put in place. There are also many commitments in terms of employing indigenous people so that they get jobs and benefits from these developments. There has to be a balance in which communities feel they are benefiting from the development. We encourage companies to employ as many people as possible from local communities. Companies are trying to train people so that they can do these types of jobs.
How can Canada help Argentina fully exploit lithium and renewable energy resources?
Many Canadian companies are involved in the lithium industry. Big projects are being done in Jujuy and Salta. There are billions of dollars worth of Canadian investments in lithium development. Lithium is the hot mineral right now and Argentina is in the top three places in terms of supply. It is fair to say that Canadian companies are the main player in lithium.
Some Canadian companies have put in bids for renewables projects. Three rounds have taken place. There have been Canadian companies in all of those, mainly in solar in Mendoza and Salta. One of those projects involves building solar cells in Mendoza, so they will not only put in a project, but also bring in some manufacturing and industry.
We know how committed Argentina is to achieving 20% renewables by 2025. Argentina is doing a great job in being committed to clean technology. We want to support that and we are working on that in Canada as well. We both have easy access to oil and gas, so in some ways, it can be economically difficult to promote renewables, but the more forward-thinking leaders and citizens want our governments to move towards cleaner energy and technology, as this is the future path to a cleaner planet and better environment for our children and grandchildren.
What is the outlook for the political alignment between Argentina and Canada?
There is very good chemistry between President Macri and Canadian Prime Minister Justin Trudeau. They have met six times in two years. In 2018, Canada and Argentina are hosting the G7 and G20 meetings, respectively. We have already committed to working together to try to align our agendas. There are things that we can work on together, and at the highest levels, the leaders and ministers have committed to doing this.
One of the main themes of the G20 meeting is the future of work . This has so many dimensions to it, one of which is jobs for the new economy. There are job losses because of automation, so this means looking at how to create jobs in this new economy. That is one area that there is going to be a lot of discussion and dialogue in.
There was a time when we focused on specialisation, but when things change so quickly, you might be out of work because one specialisation could be superseded by events or technology. In some way, we are going back to basics where we are teaching young people skills that will serve them throughout their whole lives: problem-solving, engineering skills and those that will help them become adaptable and flexible. You need a basis in technology skills, but even those are changing rapidly.
The whole future of work discussion will talk about retraining employees who have lost their jobs because of changes in the economy and globalisation. It is going to talk about education and how we need to prepare our workforce for tomorrow. When our kids get out of school, the jobs they will be doing will likely not yet have been invented.
We have seen the backlash against globalisation across the world. Some people feel left behind, and unless we can help them feel as though they are benefiting, we are not going to be able to continue on this path of globalisation and growth. Education and retraining will need to be put in place to compensate for this. It is not always easy. There is a real obligation for governments to manage this. They have to be able to put in place mechanisms with the private sector or universities to help train, educate and retrain people.
One of our failings so far is that jobs have disappeared and governments and companies have not done a good job of training people to go into different jobs, so people are out of work, left behind and seeing only the upper tier of multinationals benefiting. If we let this continue, we are in for problems down the road.
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