ARGENTINA Currency Devaluation and Its Effects on Industries: ARGENTINA Currency Devaluation and Its Effects on Industries TEAM 3 Dave Heyl Deep Patel Hilary Shah Charles Paterson


ARGENTINA: ARGENTINA Population: 38,740,807 Government: Republic GDP: $391 billion


Key Industries: Key Industries Agriculture Some major exports: corn, wheat, soy, beef Accounts for about 7.0% GDP Services Financial Travel and Tourism Automotive Industry and Growth E-Commerce Impact on consumers


AGRICULTURE: AGRICULTURE Represents 7% of the Gross Domestic Product (GDP) Produces 10% of world trade in wheat, 12.5% in corn, and 13.5% in soy 3rd largest organic meat producer, with 90% of it destined for export markets Remained fairly stable throughout devaluation


AGRICULTURE: AGRICULTURE Exports could reach US$15.3 billion in 2003 Exchange rate: US $1 = 1.4 pesos Seems like a 40% price advantage Doesn’t necessarily translate into a price advantage. “Look for world commodity prices to be little impacted by this devaluation. Inflation will rear its ugly head in Argentina and wipe out any price advantage expected by their farmers and ranchers.” American Farm Bureau Federation Senior Economist John Skorburg


AGRICULTURE: AGRICULTURE Example: If wheat were selling at $3 a unit in the world market and Argentina is devalued by 40%, the assumption would be that Argentina will sell into the world market at $1.80. However, world prices for agricultural commodities have not plummeted since the devaluation and the real impact will be an inflated peso in Argentina.


AGRICULTURE: AGRICULTURE 30% of the economy is still dependent on agriculture. Employs 1million people 420,000 farms small family operations “Almost our entire sector is made up of individual farmers…They generate large numbers of jobs and are the backbone of the country.” Secretary of agriculture, livestock, fish and food


AGRICULTURE: AGRICULTURE Farmers are seen as the country’s solution, since 90% of the consumed food and 70% of the nations exports come from local farming activity. President Eduardo Duhalde hopes devaluation will boost exports and increase investment in the ailing economy. The devaluation is attracting new investors, but John Skorburg believes that producers will hold on to their product until the internal price of it adjusts to the new peso.


Service Industry: Service Industry Financial Services - Banking - Capital Markets Travel and Tourism - Hotels - Airlines - Car Rentals


Financial Services: Financial Services Banking Past Decreasing Number of Banks Changes in Regulation Affect Operations of Banks (“pesification”) Deters Investments Present Foreign Banks Have Majority Share Citibank, Bank Boston, and TSB Lloyds Government Compensates Loss With Treasury Bonds


Financial Services: Financial Services Capital Markets Past Increasing Country Risk (Equity Market) High Cost of Capital Public Debt Supply and Demand for Private Sector Limited Present Stock Exchange Re-emerging (Capital Investment) Bill to Create New Futures and Options Market Self-regulated Market Independent Clearing House


Travel and Tourism: Travel and Tourism Hotels Past Occupancy Levels Declining Dropped 6% From 2000-2001 Average Room Rates Declining Dropped $31 US From 2000-2001 Present Hotel Sector Experiences Growth Hilton, Howard Johnson, Marroitt, Radisson, etc. Double-digit Growth in Occupancy Levels and Average Room Rates


Travel and Tourism: Travel and Tourism Airlines Past Reduction of Air Carriers National Airline in Bankruptcy Aerolineas Argentinas Present Air Carries Announce Increase in Flights Iberia, American Airlines, and Lufthansa Aerolineas Argentinas record Profits Owner Will Invest $30m US


Travel and Tourism: Travel and Tourism Car Rental Past Lack of Tourism No Demand for Car Rentals Present Tourism Boom Particularly From The US and Europe Sales Increase $6.5m US in Last 5 Years Expansion of Car Rental Agencies Alamo, National, Avis, Hertz, Localiza, and Europcar


Argentina’s Automotive Industry: Argentina’s Automotive Industry 1995-1998 Auto Industry Investments Brazilian real devaluation Argentine peso devaluation Annual & Monthly Analysis


Auto Manufacturer Investments: Auto Manufacturer Investments Chrysler $100M Ciadea $200M Fiat $600M Ford $1B GM $1B Sevel $300M Toyota $100M VW $500M 3.9B Invested in Argentina Between 1995-1998 Exported to Brazil


Brazilian real Devaluation: Brazilian real Devaluation February 1999 the Brazilian real devalues Worth 25% less than the Argentine Peso Thus making cost of importing Argentine cars Too expensive Causing production to shift to Brazil 2002 Argentine automotive production is at 15% Argentina was no longer a domestic consumption based economy


Argentine peso Devalues: Argentine peso Devalues January 11, 2002 USD 1/Arp 1 convertibility regime is ended Peso was pegged to the dollar for 10 years Production gradually rises in automobile production in Argentina


1995-2002 Annual Analysis: 1995-2002 Annual Analysis


2002-2003 Monthly Analysis: 2002-2003 Monthly Analysis


Currency Devaluation: Currency Devaluation The e-commerce and internet industry: Brief Background The effects from devaluation on the industry The future


Brief Background: Brief Background Argentine’s Economy has finally come unraveled. Pegging the peso to the dollar has resulted in a rapid devaluation. Country’s neighbors are bracing for the aftershocks this latest devaluation is likely to produce.


The Impact on Argentina’s E-commerce Industry: The Impact on Argentina’s E-commerce Industry Devaluation of the peso leaves Argentines to limited access to their savings eMarketer study showed that the percentage of Argentine internet users shopping online had declined from 2000 to 2001. However, Neighboring countries remain largely unaffected


E-commerce Usage: E-commerce Usage E-commerce users declined in 2001, yet the number of internet users increased by 36%


The Future : The Future Will Argentina’s fiscal woes have an impact on internet usage on a regional level? How will the industry be impacted? Will the internet help the Argentinean people or hurt them?


NOTES: NOTES Euromonitor Trade Partners Hotel Resource Travel Latin America Trade Partners Canning House Newsletter E- Marketer CIA Capital Magazine Fiscal Studies Business Week Business Week Business Week Business Week