Despite plastics production growth of 7.3 percent last year and an insatiable market with per capita consumption leading Latin America, Argentina's plastics industry is nearing a panic level, facing concurrent threats of energy shortages, government restrictions on imports and U.S. dollars, rapid inflation and reduced demand from Brazil.
Argentina's economy nearly doubled in size between 2003 and 2010, and unemployment hit a multi-year low of 7.1 percent in the first quarter of this year. But gross domestic product growth for the rest of the year is projected near zero by private-sector economists, and industries of all types are struggling with similar economic roadblocks.
The government is assessing a new 14 percent tariff on imports that compete with locally made goods, or blocking them outright by requiring written authorization and pre-approval requests for all imports. It's also restricting foreign currency that companies can use to spend abroad, to ensure enough dollars are available for Argentina to pay its debt.
“Argentina is trying to protect its national plastics industry because we think 2012 is going to be a year of drastically reduced global consumption,” said Sergio Hilbrecht, sub-manager of Argentina's plastics industry chamber, Cámara Argentina de la Industria Plástica (CAIP) in Buenos Aires.
“The [European Union], U.S. and Chinese economies aren't growing enough, overwhelming the market with [cheap] plastics. There's no end date set by our government for how long the import controls will last,” he said at Argenplás, held June 18-22 in Buenos Aires.
But Argentine manufacturers said the limitations put national industry at risk, because companies of all types depend heavily on raw material and parts imports — particularly plastics. Hector Mendez, former head of the Argentine Industrial Union and a plastics business executive, said earlier this year that the plastics industry will struggle as much as any in the nation with those restrictions.
The wait to import a foreign-made plastic injection mold — even when no domestic manufacturer offers the product — is now projected at 11/2 years and will suffocate growth opportunities for local producers, Mendez said.
On June 22, the U.S. demanded at the World Trade Organization that Argentina immediately end its import licensing scheme and tariffs against foreign suppliers. The WTO said it will decide this year if Argentina must lift some of the import restrictions.
Argentina's economy is very close to a prolonged recession, according to a May report from the University of Torcuato di Tella (UTDT), a respected source in Argentina for economic forecasts. The nation's top manufacturing industry, automobiles, reported January-May production was down 11 percent year-on-year. Auto exports, of which three-fourths have historically been sold to Brazil, were down 261/2 percent.
DuPont Performance Polymers, which has a plant in Argentina producing almost 4 million pounds per month of fiberglass polymites for auto plants mainly in Brazil, remains in Argentina because of proximity to a key supplier, despite the market's instability. But the company's ability to expand is severely compromised at the moment due to local trade policies, said Javier Barilatti, marketing development specialist.
“The reliability of Argentina for investment is simply unstable,” he said. “[The government] is closing the gates on us. Some say it's actually an opportunity, but many big companies are saying invest elsewhere.”
The biggest challenge Argentine plastics producers face is inflation, which is higher than devaluation of the dollar but difficult to measure because the government's inflation-rate index doesn't realistically factor the rapid increase in real costs of labor, energy and business taxes, said CAIP's Hilbrecht.
Argentina's inflation during the next 12 months is projected at 30 percent, UTDT said in a June forecast. If reached, that would tie Argentina's record.
The national statistics agency, Index, said annual inflation remains below 10 percent, but private economists have questioned Index's accuracy this year, going as far as to question whether the agency is purposefully downplaying key data.
Argentine plastics producers want to invest in new machinery and technology, but credit access isn't easy. Years after the debt default of Argentina's government in 2001, the country and its businesses can't tap global capital markets.
Through their banks, local producers must ask the government to finance their purchases of foreign equipment from a pool of U.S. dollars only the central bank can divvy out. It's a lengthy process of multiple requests, with explanations needed for why they can't buy locally.
The policy cuts both ways. Argentina's only local producer of extrusion and coextrusion lines, Roberto O. Rodofeli y Cia. srl, said it appreciates government help to stay competitive during an economic downturn.
But parts it can only buy from Europe and Asia will now be subject to the same lengthy requests process, adding up to six months of delays to future orders, said Roberto Rodofeli, production manager.
Argentina has implemented 191 protectionist measures, more than any country in the world in recent years, and more than all the other countries in Latin America combined (170), according to the London-based Centre for Economic Policy Research.
For European machinery companies like Macchi SpA of Venegono Inferiore, Italy, the relatively sudden cutoff of Argentina as a viable sales market is shocking, considering cultural ties to Italy have made it one of the top two markets in Latin America for more than a decade. International sales manager Massimo Buzzi and his local sales agent wasn't entirely sure what to tell interested buyers at Argenplás regarding a delivery timetable.
The new tariff on imported goods that compete with local options, which starts at 14 percent, isn't necessarily a deal breaker, Buzzi said. It's the multiple authorizations buyers must get from customs agencies and the central bank, with random denials for purchase or lending of dollars reportedly coming back to applicants with no reasoning offered from authorities.
Companies in the South American countries of the Mercosur trade agreement face fewer taxes on their products and machinery, but Argentine customers will still have to pass through the same new bureaucratic steps of import and financing approval.
“Markets like Chile, Peru, Colombia and Mexico are so much easier to sell into [than Argentina],” said Wilson Carnevalli Filho, commercial director for extruder producer A. Carnevalli & Cia. Ltda. of São Paulo, who credits those countries' consistent economic growth in recent years to their free-trade policies.