Argentina investments in Uruguay: Which businesses are crossing the river?

RIO DE JANEIRO, BRAZIL – The flow of Argentine companies into Uruguay has increased significantly over the past 2 years and, in many cases, has also led to the establishment of their owners in the country.

In addition to Argentina’s economic and political crisis, there are several reasons for this growth. According to the Uruguayan ambassador to Buenos Aires Carlos Enciso, the improvement of the Investment Law, the broad signals given by the Uruguayan government to attract foreign investments and the changes in tax residency, as well as the work of the Uruguayan embassy in Argentina, are some of the factors behind the capital flight to Uruguay.

“I believe that, independently of the pandemic, it has been possible to consolidate a business and investment environment with some important achievements. The embassy is one of our country’s many windows,” Enciso said.

Through its Commercial Economic area, the embassy has received a significant number of inquiries from service, software and logistics companies looking to set up in Uruguay.

“We should not rule out that Uruguay is poised to be a hub for many of these areas, such as medical cannabis,” the ambassador explains, adding that Argentines are also interested in investing in agribusiness through the purchase of land, the sale of agricultural machinery, the planting of peanuts to produce snacks and other agribusinesses.

“We have also accompanied and visited some companies linked to construction, ceramics, tiles and textiles,” he said.

Although the pandemic has slowed down processes, the projects are still underway and many entrepreneurs are completing the required formalities to be able to cross the border, Enciso points out.

“All this takes time, it is laborious, but what I can generally say is that there is a good environment, many inquiries and, like everything else, some will materialize and others will be just exploratory,” he added. Some companies that have recently passed through the embassy and which have set up or are in the process of doing so are the Mostaza hamburger chain, Colombraro plastic industry, Le Pain Quotidien bakery and Ombú metallurgical company.

THE KEY TO ENTER

“Since before the pandemic and due to the economic crisis in Argentina, both entrepreneurs and potential investors have expressed interest in setting up businesses in Uruguay. Many of them were delayed by the pandemic, but they will materialize,” said Canudas Franchises partner and president of Front Consulting International (FCI) Carlos Canudas.

FCI has set up the Balcarce Institute franchise, helped in market research and regulations to set up Eddis Educativa, and worked with an investor looking to establish herself by introducing the La Pinocha Chocolate brand and with other Argentines based in Punta del Este aiming to introduce the Umara Nails brand.

“The relationship with our partner in Uruguay allows interested parties to have a consultant both in their country of origin and in the destination country,” Canudas explains. Their partner in Uruguay is the SVET Consultancy and between them they have a portfolio of 57 Argentine brands present in Uruguay, mostly in the food and clothing sectors.

Among them are Freddo, Grido, Café Martínez, Almacén de Pizzas, Mostaza, Patagonia Brewing Co., Lucciano’s, Negroni, Caro Cuore, La Dolfina, Rapsodia, Kevingston, Kosiuko, and Cocot.

“Some 84% of franchises are granted to people who have already consumed the brand, so these types of Argentine brands are aimed at Argentines who want to come to Uruguay,” says SVET’s director Alexei Yaquimenko. Although there are Uruguayan investors, they choose to turn to well-known and consolidated brands in the national territory, Yaquimenko explains, although there are more and more intentions to turn to Argentine brands.

“We have a waiting list to grant Argentine and Uruguayan franchises to Argentines who want to come and settle here, as soon as they are allowed to enter. At a network level, Argentines are more interested in Miami and Spain, but Uruguay is one of the main options.”

Depending on the brand, investors can buy a franchise from US$30,000 to US$60,000. The areas most sought after by Argentines for investment are Punta del Este, Carrasco and Pocitos, but SVET, through an alliance with the company EQ Markets, is also offering them the opportunity to invest in gastronomic markets.

Adriana Bozzano, head of 384 Group franchising company in Uruguay, has also noticed an increase in interest and in the closing of business deals. Food and beverage is the most requested area and in this respect the brand has 4 projects in the pipeline: Del Turista chocolate shop, Weiss Burger Beer, Lo + Rico bakery and Tostado coffee shop.

But it also offers other franchises, such as Veterinarias Alem, which now has its first store in the Punta Carretas neighborhood, and Walá swimming pool company, both from Córdoba.

The profile of the investors varies, from entrepreneurs looking to expand their business units, to people looking for profitability and a job to support their families once settled in Uruguay and want to be active franchisees.

From the Uruguayan Chamber of Franchises, Marcel Burgos says that there is more interest in franchises than the conversion rate, something he expects to be reversed with the reopening of borders.

Among the obstacles Argentine investors face, the consultants highlight the delay in bureaucratic times, which were slowed down by the pandemic and high costs in Uruguay.

“Argentines sell and work with Argentine pesos, so when they come to Uruguay, when we provide them with budgets in dollars, they find a huge difference,” Bozzano says, adding that they may also struggle to secure credit for that first initial investment.

GASTRONOMIC LANDINGS

Argentine brands’ presence in Uruguay is most noticeable to the general public in the gastronomic sector. And the wave of new proposals is far from stopping.

One of the companies preparing its arrival in the country for the first half of 2022 is Le Pain Quotidien, the international chain of bakeries and restaurants. Although the company is Belgian, its Argentine franchisee -which has been operating there for 9 years- will be in charge of bringing the brand to Uruguay.

It is currently looking for locations and is in negotiations with Punta Carretas Shopping, but it is not yet clear about the business model it will bring. “We are analyzing three options: to go as direct operators, sub-franchise the brand or make a mix and operate jointly with someone,” explained the company’s CEO in Buenos Aires Federico Lantaron, who will travel to Uruguay in October to finalize the details.

In a first stage, the brand will open in Montevideo, where it sees potential for four or five stores, and at a later stage it will expand to Punta del Este.

“The plan is to have a mix of stores as we have in Argentina, with some on the street and others in shopping malls,” Lantaron said.

In Argentina, Le Pain Quotidien has 14 of its own stores, 10 sub-franchises and will open 4 more sub-franchises in the coming months. With a 2,200 m2 production plant located in Buenos Aires, one of the plans for Uruguay is to be able to import part of the products.

In case of setting up a sub-franchise, opening a store will cost approximately US$250,000 including the opening fee and the start-up costs of the business. “Due to the brand awareness in Uruguay, we are sure that it will be a success.”

REASONS FOR INTEREST

The clarity of regulations, legal certainty, the beneficial tax regime, trust in the Uruguayan government and the opportunity to plan for the future are some of the reasons why Argentines choose Uruguay to invest.

The free zone model, the free movement of capital and the possibility of using Uruguay as a pilot to plan internationalization are also attractive to the neighboring business community.

“The wide benefits traditionally provided by the Uruguayan tax regime, in addition to the most recent relaxations, mean that Uruguay has strengthened its position as one of the most seductive countries in the region when considering investment or business expansion projects in Latin America,” says Valeria D’Alessandro, from Argentine consulting firm D’AlessandroTax, which over the past year has assisted over 100 families and companies from different countries in the region in structuring their assets and businesses through Uruguay.

Local consulting firms have also received dozens of inquiries and interest from Argentines who want to develop business in the country. Verónica Raffo, partner of Ferrere law firm, points out that “some of them are in traditional sectors, such as agribusiness or real estate, but also in other areas such as technology, construction, cannabis, energy and insurance.”

Ana Laura Ghislandi, partner of Baker Tilly, says that the technology sector has been receiving the most inquiries and projects: “this was particularly noticeable in the past two years.” She explains that this is due to the fact that the software law in force in Uruguay offers better incentives than the similar law in force in Argentina.

According to specialists, the arrival of Argentine companies should be a trend to continue, depending on a number of factors such as the situation in Argentina, how Uruguay responds to investments, the amount of talent available to meet the demand – mainly in the technology sector – and the maintenance of legal stability.