“Foreign Direct Investment [FDI] has always been very small compared to the size of the Argentine economy and the flow of capital in general,” notes economist Pablo Besmedrisnik, partner and director of VDC Consulting. “As long as it lasts [currency controls] exists, that won’t change. But we will likely have good news for stronger sectors of the economy that are expected to see more growth.”
The government’s exchange control regime (cepo) strictly limits the amount of funds that can be taken out of Argentina. It also dampens the appetite of foreign and corporate investors to invest. Although most analysts now expect the cepo to be lifted within a year, corporate and foreign investment in Argentina remains largely limited to reinvesting surpluses that cannot be taken out of the country.
Megaprojects
According to Besmedrisnik, the largest foreign investments in Argentina remain mainly in the mining sector (lithium, copper, gold and silver), as well as in projects in the hydrocarbon sector. Chinese giant Ganfeng Lithium, Fortuna Silver Mines and Abrasilver are among the most significant players in the mining sector. On the energy side, the Argentine Aconcagua Group has announced and started implementing several projects in the fields of renewable energy, oil and gas. Meanwhile, state-owned YPF and Malaysian group Petronas announced a joint project worth $50 billion.
“Mining projects are not very significant for the industry – $30 to $70 million – but they indicate an investment trend not only in lithium mining, but also in other minerals,” Besmedrisnik says. “Aconcagua has announced a project costing approximately $200 million to expand its energy production capacity. But it is the Petronas-YPF project that is truly breakthrough and large-scale.”
The megaproject, approved in 2022, aims to build a large liquefied natural gas (LNG) plant in Bahia Blanca. Petronas’ announcement in January that it would commit $180 million to design the facility gave the project further impetus.
Once completed, the plant will double Argentina’s LNG production capacity through a $20 billion investment in the plant through 2031, plus another $10 billion in engineering projects and another $20 billion in new fields at the country’s other Vaca Muerta megaproject in Neuquén Basin.
The Bahia Blanca project could begin exporting six million cubic meters of LNG daily by 2027 and generate annual exports of $16 billion once completed.
“Argentina has some of the world’s largest reserves of unconventional shale oil and gas, and they are just beginning to be exploited,” says Ramiro Ferrari, CEO of Brazil’s Gulf Oil and former head of downstream transformation at YPF. “The country also has the fourth largest lithium reserves on the planet, and there is a huge global need for this mineral in the technology industry.”
Mileya’s ambitious privatization program leaves YPF with a unique opportunity to capitalize on the Vaca Muerta oil and gas field.
“YPF could be a major player,” he says, “but the scale of the field and the fact that investment in exploration and transportation in the region is sorely delayed also creates many opportunities for players in other sectors.”
With the formation of Vaca Muerta, Argentina has the potential to become the world’s largest gas exporter, but it will require billions of dollars in investment.
Some victories of the “alien” president
Attracting the necessary capital will also depend on Argentina’s success in reducing inflation, accumulating international reserves and resolving currency and monetary problems.
Miley had some success early in his reign, according to Patricia Krause, a Latin American economist at French credit and risk insurance company Coface. Monthly inflation fell from 25.5% in December to 13.2% in February.
“The economy will still contract by 2.5% or more this year, but Miley was able to achieve two budget surpluses in 2024 and improve Argentina’s international reserves by $10 billion,” Krause says.
Miley is a self-described “anarcho-capitalist” political outsider. He took office by promising to close the central bank, dollarize the economy and end what he called an “orgy of government spending.”
The 53-year-old has wasted no time since his December inauguration, proposing more than 664 economic and political reforms, most of them in the hands of a hostile Congress.
However, he cut government spending and, most importantly, helped devalue the Argentine peso by 54% against the dollar. Before this, the peso had an artificial official exchange rate which, when combined with the cepo, created a variety of black market exchange rates with spreads of up to 145%.
“This has created enormous uncertainty for corporations, making operations extremely difficult and sometimes downright impossible,” says VDC’s Besmedrisnik.
These measures provided greater stability to the peso, keeping the official rate lower but closer to market rates, giving companies breathing space to plan more reliably.
According to a recent study from analytics firm BMI, annual inflation is still rising and is expected to peak mid-year, but should begin to fall sharply by July. It is expected to reach double-digit levels in the first quarter of 2025. It hovered around 150% in the fourth quarter of 2023 and was at 272% earlier this year.
Argentina has a highly skilled workforce, and Ferrari and Besmedrisnik agree that the human component is essential to sustain growth. If Miley’s actions are successful, traditional industries could begin to export more and generate the reserves needed to further strengthen the economy.
“There should be a rapid recovery in the meat export business,” Besmedrisnik predicts, “as well as soybeans, wheat and corn, which suffered from weather-related problems in 2023. attractive.”
The Promise of Mining
However, the mining sector is underdeveloped and has plenty of room to grow, argues Pablo Haddad, CEO and COO of Minera Santa Rita, the country’s largest non-metallic borate mining company.
“Investment in mining projects has been delayed for over a decade,” he says. “There are many opportunities for new projects to emerge – world-class mines that could make Argentina a world power in this sector. Several projects are currently in development. Of course, economic reforms are not complete, but the fact that there is now a horizon is very positive for the mining industry.”