There will be an elevated risk of protests and strike action throughout 2017, as President Mauricio Macri’s economic reforms face opposition from labour unions. Economic growth will rebound on the back of increased investment and industrial output. Macri’s attempts to improve the country’s investment environment should see significant opportunities emerge for hydrocarbons companies in the medium term.
In March 2017 tens of thousands of people demonstrated in Buenos Aires over government job losses and removal of import restrictions. The support of the opposition Justicialist Party for these union-led protests indicates that the risk of strikes, riots and civil commotion will be elevated in the lead-up to the October 2017 mid-term elections, as anti-government pressure is heightened. Although these protests are unlikely to lead to significant violence or property damage, there is a heightened risk of transport disruption and business interruption in urban areas.
Environmental protests have the potential to impact the operations of international hydrocarbons companies in 2017, with fracking projects in Neuquén province likely to face opposition from indigenous communities. These incidents are ordinarily low-level, with small groups of protesters or individuals blocking exploration sites, creating a heightened risk of business interruption.
Rising exports and investment should see Argentinian growth rebound in 2017, as Macri's liberalisation of the economy begins to bear fruit. GDP is forecasted to grow by 3% in 2017, up from an estimated contraction of 2.2% in 2016. The return of significant foreign direct investment will strengthen the country's macroeconomic outlook. Although the current account will register small deficits in the medium term, increased exports will see the deficit improve to 1.3% in 2017 from 2.5% in 2015. This will allow the country to gradually build its external buffers. Foreign reserves currently stand at around USD 51 billion up from USD 25.6 billion in 2015, covering over seven months of imports. This will help to reduce sovereign credit and government non-payment risks in the medium term.
Currency inconvertibility and transfer risks have reduced for international companies under Macri. On 20 January 2017, the government extended the period in which companies must repatriate US dollar earnings resulting from trade in the Mercosur bloc to 10 years. Earlier in the month, the Macri administration removed a 120 day delay between an investor bringing money into the country and being able to access the funds. These measures indicate the government’s continued commitment to removing a raft of capital controls introduced under the previous administration of President Cristina Fernández de Kirchner.
Since becoming president in December 2015 Macri has worked to reverse years of interventionist policies by the Kirchner government, which had significantly reduced Argentina’s attractiveness to international investors. His withdrawal of some capital and price controls will boost the business operating environment, fostering increased industrial production in 2017. The risk of expropriation has decreased significantly since the Kirchner administration, under which Spanish firm Repsol faced the expropriation of its majority stake in Argentinian petroleum and natural gas company Fiscal Oilfields (YPF) in 2012.
Investment in energy projects and transport infrastructure is central to the government’s economic objectives in the three-year outlook, and will provide opportunities to international hydrocarbons firms. Exploration in the unconventional hydrocarbons space should offer particular scope for investment, with the country estimated to have recoverable reserves of around 22.7 trillion cubic meters of shale gas and 27 billion barrels of shale oil.
Macri’s attempts to draw investment into the Vaca Muerta shale play in Patagonia saw international companies, including Chevron, BP and Shell; agree to invest USD 5 billion in January 2017, with investment potentially rising to USD 15 billion in the coming years. In return for this private investment the government has agreed to end an oil export duty that had been in place since 2002, as well as maintaining regulated gas prices above the market level in order to entice investment.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Turkey, Peru, Somalia and Jordan, all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email email@example.com