Exactly one year ago, on December 10, 2023, Javier Miley assumed the presidency of Argentina with the promise of taking the country out of a deep economic crisis. To deal with inflation above 200%, the devaluation of the Argentine peso and the distorted exchange rate policy, the new government promoted in its first year in office an unprecedented fiscal adjustment — affecting the population and companies, including Brazilian ones.
Industrial and infrastructure subsidies were eliminated, in addition to reducing taxes on the export of agricultural products. Even so, the Argentine Gross Domestic Product (GDP) shrank throughout 2024: in the first and second quarters the drops were -2.57% and -1.7%, respectively. But, For many Brazilian companies, abandoning the Argentine market is not an option.
“Talking to executives who operate there, patience has become a recurring practice. Many have already faced countless crises, including the recession of the 2000s,” says Welber Barral, former Brazilian Secretary of Foreign Trade and founding partner of BMJ to InfoMoney.
The strategy has been to reduce operations and wait for better times, says Barral: “It is better to stay, and maintain the already consolidated operating history.”
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But even though economic crises are nothing new for siblingsthe “Milei factor” has taken its toll. , unemployment has increased and economic activity is in contraction.
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“Companies, previously accustomed to a more regulated environment, now face new challenges in a more unstable market. Purchasing power was greatly reduced, generating direct effects in the short term, both on people’s lives and on the generation of wealth”, says José Luiz Pimenta, professor of International Relations at the Escola Superior de Propaganda e Marketing (ESPM).
Fall in consumption
With the population currently living with lower purchasing power, the decline in consumption is a direct consequence of this scenario. Among the Brazilian companies in Argentina, the Ambev () faces inflationary pressure along with falling demand. In the third quarter of this year, the company’s sales volume in the country fell by 15% compared to the same period in 2023.
“The industry remained challenging, but we continued working to be better prepared for the future,” said the company when reporting its results. In 3Q24, Ambev’s profit was R$3.57 billion, a drop of 11% compared to the R$4.015 recorded a year earlier.
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For Bank Of America (BofA), Argentina continues to be a challenge for Ambevbut the overall numbers for the last quarter were stronger than expected. “Despite the challenging environment, prices per hectoliter were above expectations in all markets, especially in South America,” the analysts wrote in a report.
Another Brazilian company that has been affected by Milei’s Argentina is Vulcabras ()as the country is one of its main export destinations. Among the highlights of the manufacturer’s last quarter, sports shoes registered an increase of 1.6% compared to the volume sold in 3Q23.
“The growth is justified by the 2.7% increase recorded in the domestic market, which was overshadowed, once again, by the significant decline in sales to the foreign market”, highlighted the footwear manufacturer in the results report. General profit, on the other hand, was not impacted by Argentine consumption, rising 35% in 3Q24, to R$172.2 million, compared to the same period last year.
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Difficult automobile
Another segment experiencing difficulties due to the Argentine recession It’s the automotive. THE Mahle Metal Leve () faces a drop in the production of light and heavy vehicles in the country, with a direct impact on the 2.5% drop in net revenue in the year to date.
Even so, sales in Argentina totaled 43.6 thousand units in September, recording the best monthly result of the year. “It was the third consecutive month with sales above 40 thousand units, demonstrating a recovery in this market in the second half of the year”, the manufacturer wrote in the last earnings statement.
The automotive segment still represents around 40% of bilateral trade between Argentina and Brazil. “Weakened domestic consumption, high costs and the economic downturn, caused by the fiscal adjustment policy, reduced demand for vehicles and auto parts components”, explains Barral.
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Despite this, he emphasizes that the elimination of and regularization of payments has improved predictability for companies. This is because the export of parts and components intercompany from Brazil, for assembly in Argentina, continues to be a positive point for the sector.
“Today, representation is relatively smaller in the general revenue of Brazilian companies”
Opportunities in Milei’s Argentina
If the outlook is challenging for consumption, some areas have benefited from Milei’s reforms. THE Argentine agribusiness was boosted by the reduction in taxes on exportsresulting in an increase in demand for fertilizers and chemicals — benefiting Brazilian companies in these sectors.
However, Barral remembers that, making prices higher not only for the population, but also for companies. “With this artificial difference, costs are higher. Milei does not want to devalue the currency, as this would have a significant inflationary impact.”
It was the case of Unipar()which pointed out the effects of inflation in the country and the exchange rate variation of the Argentine peso on financial results. In the year to September, the chemical company’s net revenue reached R$3.8 billion, 11% lower than the same period in 2023.
Another promising sector is infrastructure. José Luiz Pimenta believes that the area is a long-term bet, benefiting Brazilian companies operating in mining and steelmaking in Argentina. “Their investments are linked to the dollar, reducing the impact of local economic fluctuations. Despite pauses and project reviews, it is an essential segment for the country’s development.”
A Gerdau ()which has operations in the province of Santa Fé, highlights that the drop in the country’s domestic demand for steel generated an annual drop in sales of 9% in the third quarter. Compared to the three immediately previous months, however, there was an increase of 6% — but thanks to operations in Peru.
“In Argentina, the steel sector continues to face significant challenges in demand”, says the company’s management.
