Why P&G’s investment in Argentina could spell a new era of industry growth

By Simon Pitman

- Last updated on GMT

Why P&G’s investment in Argentina could spell a new era of industry growth

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Procter & Gamble has just announced that it is investing an additional $50m in Argentina, as a new government is ushered in with the promise of more liberal trade and business regulations.

The company announced the plans at the AmCham Summit 2016, where it confirmed the investment would be made to increase the capacity at its manufacturing operations in the country, with specific investments planned in brands such as Gillette, Pantne and Male Beware.

The AmCham Summit was being held ahead of the state visit of President Obama, which will give way to discussions that will focus on strengthening ties with the new Argentine government.

“This is a sign of openness and trust — especially for the private sector from (Obama’s) country of origin,”​ Foreign Minister Susana Malcorra said during a press conference at the San Martín Palace in the Retiro neighbourhood of Buenos Aires City, yesterday.

“I think the gesture of him coming to Argentina is very important because it proves that the United States administration is interested in making the (Mauricio) Macri government a priority,”​ the Foreign minister added.

New center-right government promises liberal trade

The election of the new center-right government in the country has also beckoned in some big changes that are expected to benefit both the Argentine economy and international trade in a number of areas, including fast moving consumer goods.

The new government has started to rebuild the country’s economy with the tough measure of devaluing the country’s peso currency by approximately 37%, a move that is likely to hurt many international businesses initially.

But after two months in power, the new government is also ushering in revised trading conditions that should help liberalize the economy and facilitate a higher level of business in the longer term.

Rebuilding trade relations with the US

In particular, the new Argentine government, headed up by President Mauricio Macri, wants to rebuild trade relations between Argentina and both the US and the rest of the world following an 8-year presidency under left-wing Cristina Kirchner that saw the country allied with countries such as Iran and Venezuela and Cuba.  

For years the cosmetics and personal care industry in Argentina has remained flat at best, and in some areas highly challenged, reflecting the tough economic conditions and rampant inflation that have dogged the country.

Like many other business sectors in Argentina, the cosmetic and personal care business has been affected by a depressed consumer sentiment and limited spending power.

A more positive consumer and business sentiment

However, the arrival of the new government is changing that outlook, with a more positive sentiment, both from consumers and international business players hoping to target the market once again.

Although P&G CFO Bob Shanks estimates that the company has taken a $300m hit from currency devaluations worldwide in January and December that were mainly attributable to Argentina, the fact that the company has upped its investment stakes in the country for 2016 – 2017 reflects the growing optimism.

That President Obama is set to start his official state visit today is no coincidence, and one will see an emphasis on his role as business ambassador.

Indeed, ahead of the president’s arrival, the United States Chamber of Commerce in Argentina has stated that US business could rise by as much as $18bn in the course of the next few years – a three-fold increase on the current annual level of $4 – 7 bn.

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