ARGENTINA: An Introduction

Energy, Mining and Technology Sectors in Argentina

On 10 December 2023, a new administration took office in Argentina, led by President Javier Milei of “La Libertad Avanza” party. The new government has indicated that it intends to implement business-friendly policies and has already started adopting numerous measures aimed at reducing public spending and inflation, deregulating the economy and limiting government intervention in the private sector. Several of the intended measures, however, require support from the National Congress where Milei’s political party represents a minority.

While analysts believe that Argentina’s GDP may only pick up by 2025, some sectors of the economy are already drawing attention from local and international investors.

Main industry sectors 

The energy, mining and technology sectors have been particularly active, and explain most of the transactional activity (M&As, lending and capital markets, project finance, etc) in recent years. This is a trend that should remain for the years ahead as these sectors benefit from the current local and global context.

Oil and gas 

Argentina’s energy rebirth is based on the development of shale gas and shale oil projects. Argentina has the 2nd largest volume of shale gas reserves in the world and the 4th largest shale oil reserves. Shale oil and shale gas production represents 50% of the national output. More than 50% of the unconventional resources are located in the Neuquén Basin, particularly in the Vaca Muerta formation.

While the country still lacks the appropriate infrastructure to transport and export the gas outputs, many projects are underway and some others are in different stages of development. Indeed, significant progress was made during the past two years to construct necessary incremental transportation capacity.

LNG 

The development of large scale LNG projects in Argentina is one of the top priorities for the new administration and energy companies operating in the country. Specific projects are currently under development. It is expected that the Milei administration will be able to pass legislation to foster investments in the sector (including through a large investments incentive programme under discussion at the National Congress).

Energy-transition-related projects 

The clean energy transition is driving a significant increase in the global demand for minerals (not only lithium but also cobalt, nickel, copper and other rare-earth elements). Argentina alone accounts for over 20% of the world’s lithium reserves, has the largest project pipeline on the planet, and offers certain competitive advantages from a cost perspective. The country’s lithium production has increased significantly, from less than 1% of the global production in 1994 to 5% in 2022. Further, experts believe that Argentina’s production will represent 13% of the world market share by 2030.

Renewable energy (mainly wind and solar) is also at the top of the list of local and international industry players. In addition, particular interest is being shown in blue and green hydrogen projects (on an industrial scale although at a nascent stage).

Private investment in the expansion of the power transmission system is also expected, particularly if the Milei administration can pass some of the energy regulatory framework reforms it is analysing. Power transmission constraints are, currently, one of the main obstacles for the continuous expansion of Argentina’s renewable energy sector.

Technology 

The technology sector has also shown great potential, with many local companies having achieved the “unicorn” status in recent years and now playing a regional and international role. The local venture capital ecosystem is reasonably well developed and foreign investment angels are active in the country.

Agribusiness 

Argentina benefits from a significant role in the global agricultural economy. Argentina is one of the largest producers and exporters of soy-derived products. Also, soy and sugar cane are extensively cultivated for biofuel production thereby placing the country as a leading player in the global biodiesel market. Recently, the Milei administration proposed the elimination of the restriction for foreigners to own large expanses of rural lands, which could foster foreign investment in the agricultural sector.

The future 

Given the ambitious agenda of President Milei, several regulatory changes (including the privatisation of some state-controlled companies and the normalisation of the foreign exchange market) are expected in the short term. In anticipation of structural changes, the Milei administration is already introducing long awaited red tape amendments to reduce inefficiencies in dealings with the government. Further, updates to tax, antitrust, capital markets and corporate laws and regulations are being discussed. If successfully passed, the New Investments Promotional Regime Law (which includes significant benefits and legal and tax stability protections for large investment projects in all sectors) could also trigger novel investment opportunities in the country and accelerate projects currently under analysis.

The mentioned changes should favour M&A activity generally as well as the potential re-opening of the international capital and credit markets for the sovereign, certain sub-sovereigns and blue-chip corporates. In turn, due to Argentina’s errant history, we note that foreign investors are following-up the economic and political developments cautiously. Thus, it would be reasonable to expect that the transactional activity during the next few months will be mainly driven by companies already operating in the country, though analysis and preliminary activity in connection with direct foreign investment and cross-border financing is happening already.