ARGENTINA: An Introduction to Banking & Finance
Introduction
Argentina is one of the largest economies in Latin America, with a Gross Domestic Product (GDP) of approximately US$450 billion. With a population of over 45 million, Argentina has vast natural resources, fertile lands, gas, minerals such as gold, silver copper and lithium reserves, and a great potential for renewable energy. In addition, Argentina’s tech industry is in the centre of the international scene.
Although in recent years Argentina’s economy has been unstable, with high inflation rates (94.8% in 2022), and a depreciation of the peso versus the US Dollar of approximately 20% in 2021 and 72.4% in 2022, the banking and finance, and the infrastructure, energy and mining sectors remain active and adaptable.
Primary elections have recently taken place, showing a seemingly positive - although still preliminary - electoral result for the current opposition parties. Presidential elections are scheduled for 22 October and a new administration will be sworn in on 10 December.
In any scenario, the upcoming government is expected to adopt overdue major policy changes geared at re-establishing economic stability and promoting growth. This would help important business areas to develop, in turn providing more attractive conditions for private investment and cross-border financing.
Energy
Renewables
In recent years, Argentina has seen remarkable progress in the renewables share of its power generation matrix, positioning the nation as a key player in the global push towards sustainable energy sources. This growth is driven by favourable natural resources, supportive policies, and a commitment to carbon emission reduction. The government's RenovAr programme, launched in 2016, introduced auctions for long-term contracts, encouraging private investment in renewable energy projects. These contracts ensure fixed prices for energy over 20-25 years, enhancing project viability. Consequently, significant investment flowed into the sector, leading to the establishment of multiple solar and wind farms.
Local players have a significant know-how in quickly ramping up solar PV and wind facilities, and cross-border financing was possible under bankable structures such as RenovAr via a strong involvement from MLAs and ECAs. Renewable generation rules mandate that 20% of the energy consumption is sourced from renewables by 2025. As of today, that percentage is 13%, which means that at least an additional 7% would still need to be commissioned (7664 MW of new renewable generation) by the end of 2025. To that end, the government has recently awarded bids for additional small/medium scale renewables aggregating 634 MW and PPAs will be entered starting on 15 October 2023. This is a promising development that may mirror Chile’s PMGD programme.
The current gap may also be closed by an active corporate PPA market (which has mainly been funded locally by equity or debt) which has recently benefited from certain regulatory measures targeted at dealing with transmission issues. In addition, the government has recently published the Energy Transition Plans to 2030 and 2050, aiming for new renewables ranging 7.5 GW for 2030 and 34-45 GW for 2050.
Transmission
Argentina’s growth in the power sector in recent years has been driven by policies aimed at expanding power generation installed capacity from renewables and thermal facilities, alongside developing a corporate PPA market for renewable projects. This push has not occurred in sync with transmission expansion works. As a result, currently transmission capacity faces bottlenecks (with zero spare capacity for new projects in certain relevant corridors, like province of Buenos Aires or Patagonia), imposing a barrier for additional power generation projects.
This situation also seriously limits the growth of high-power-consuming industries like copper/gold and lithium mining projects and their entire production chain as well (eg, vendors, equipment providers). New power transmission facilities are of the essence for mining projects which are currently off-grid. Projects would improve their feasibility and advance their FID status should they be able to offtake electricity from the network directly.
According to the National Energy Transition Plan to 2030, more than 5,000 km of new power lines and transformer station segments to connect the core transmission system to several grid systems, scattered throughout the country, are planned. Under this scenario, investment totalling approximately USD5,570 million would be required.
LNG
The LNG sector presents significant opportunities for Argentina to leverage its unconventional natural gas resources produced in Vaca Muerta and become an exporter of liquefied natural gas.
The commissioning of a new natural gas pipeline has garnered support in aiding development of the country and decreasing reliance on imports and is the first step to allow Argentina to produce a natural gas surplus which may be exported eventually.
To drive progress in this sector, the Executive Branch has submitted a bill before the Congress, which is currently being discussed, setting forth a 30-year stability regime; certain fiscal and tax incentives; access to the FX market up to a predetermined percentage; and a zero-export tariff.
Mining
Lithium
As the fourth global lithium supplier, Argentina owns one of the world’s largest lithium reserves, a critical component for energy transition, considering renewable energy storage solutions and electric vehicle batteries. Argentina’s push comes amid a global demand for this key material. The country’s mining-friendly policies and low royalty rates can make it Latin America’s premier destination for foreign investment looking for lithium projects, fuelling projections that the country may surpass Chile as the world’s second-largest lithium producer.
The sector has largely been driven by private enterprise and increased demand worldwide, as the federal and provincial governments have looked to raise export proceeds through lithium mining projects. Despite the macroeconomic challenges, Argentina has shown a steady growth of this industry throughout the last years, with a clear export increase forecast for the near future.
The Argentine government regulates lithium like any other ore. Miners pay a 3% royalty (as opposed to a progressive royalty up to 40% in Chile). Argentina also locks in tax rates in mining contracts for 30 years, does not levy tax on capital goods, and allows companies to deduct double the amount spent on exploration from taxes.
When it comes to funding, given the amounts involved and the current strict FX regulations, most lithium projects have been financed from offshore sources (or by foreign equity), but in some cases sponsors and lenders have resorted to complex financing alternatives, including ECAs and multilateral financial institutions.
Copper, gold and other minerals
Argentina’s metal sector holds vast potential for growth, with abundant reserves, especially copper, gold and silver. Under Mining Law there is a 30–year fiscal stability period plus other benefits (such as tax-free imports) at each stage of project development.
In most cases investments have been channelled through offshore financing or by offshore equity contributions given FX regulations that make cross-border financing to the operating company challenging.
Considering the status of logistical issues and the absence of grid connection for isolated projects, this sector is becoming a source of interesting opportunities for energy and infrastructure developments.
Energy Transition
Argentina has the potential to become a leader in energy transition, including the development of hydrogen technologies and the promotion of sustainable mobility. Due to significant costs in scaling up infrastructure for hydrogen production, storage and transportation, the government has a key role to play. Other logistical challenges will need to be dealt with as well, like scaling up ports, improving roads, and revamping the existing transmission facilities (even under an off-grid design).
The government has recently published the Energy Transition Plans to 2030 and 2050, with ambitious goals in terms of Green H2 development and associated power generation and electrolysis installed capacity.
Digital Infrastructure
Argentina is aiming to hold the country’s long-delayed multiband 5G auction. To date, Argentina has large amounts of spectrum (210 MHz) unassigned, equivalent to 50% of the total currently assigned. Spectrum in the 1500MHz, 2.3GHz, 3.5GHz, 26GHz and 38GHz bands will be made available for bidding, along with frequencies in the AWS-3 band. The government expects the auctions to generate as much as USD1,5 billion. Key investment areas will include massive MIMO capabilities; cell site densification and fibre backhaul.
Fintech
Argentina’s fintech landscape is undergoing a dynamic transformation, reshaping the financial sector through innovative technology-driven solutions. Fuelled by a need for accessible financial services, fintech startups are proliferating across the country. These startups are addressing various financial needs, from mobile payments and digital lending to investment platforms and blockchain applications.
As Argentina navigates economic challenges, fintech innovations offer new avenues for financial inclusion, efficiency, and competition. With a growing ecosystem of startups, increased investor interest, and evolving regulatory frameworks, Argentina’s fintech sector is poised to play an increasingly integral role in shaping the future of finance in the country.