The paradox around the record investment by Argentine companies in 2022

The misalignments in the Argentine economy are causing inflation that will close the year at around 100% annually and an exchange rate gap of three digits.

But, paradoxically, these variables are boosting other variables, which may benefit in the short term, although it is not a very virtuous phenomenon in the long term.

That is happening with the investment rate, which is approaching record levels of 2008 and 2017 and has a highly productive composition, both machinery and construction.

According to analysts consulted by Bloomberg Línea, individuals and companies need to part with the devalued Argentine pesos.

Despite the foreign currency limitations faced by the economy and the apparent change in the investment cycle, in August, investment managed to grow 0.8% s.e. monthly.

In historical terms, the investment rate is still high, standing at 22.4% of GDP, according to a recent report by the consulting firm EcoGo.

RECORD INVESTMENTS IN THE PROVINCE OF BUENOS AIRES

This week the Ministry of Production, Science, and Technological Innovation of the province of Buenos Aires, the most populated province in the country, published a report in which it states a record of investments in the third quarter of 2022, the highest since 2018, “with an increase of announcements at the national level of 29% and a growth of the announced amount of 420%, compared to a similar period of 2021″, as published by the agency Télam.

The report highlights that this increase is justified “by the type of sector that registers large amounts in general, such as traditional and renewable energies since 76% of the total announced at the national level is concentrated in traditional and renewable energy projects”.

Among the investments that drove these figures, the agreement between YPF and Petronas for developing non-conventional gas and constructing the LNG plant for U$S10,000 million in the municipality of Bahía Blanca stand out.

WHY ARE THEY INVESTING SO MUCH?

“The gross transfer of income that caused an exchange rate gap of 75% on average in the last two years and ten months has a counterpart that must be pointed out.

“At the exit of the pandemic, investment was the component of aggregate demand that grew the most (almost twice as much as the region), and the investment rate is returning to record levels of 2008 and 2017, with a better composition (more machinery and equipment and less construction),” argues a report this week published by the EcoGo consulting firm led by economist Marina dal Poggeto.

According to this consulting firm, “the surplus of pesos cornered in the economy is partly returned to investment. The investment financed with cornered pesos or funded with negative rate and dollars sold in the CCL becomes very cheap”.

It is bad, but not so bad: “The scheme is perverse and not sustainable, but perhaps the jump in investment combined with a long technical position of Argentines in dollars, can help a faster exit if finally, a stabilization program is advanced”, says the report.

PRODUCTIVE INVESTMENT IN ARGENTINA 2022

“Concerning productive investment, we see that while investment dynamics, as measured in the national accounts, have been good, to see a sustained path of growth, macro stability, and clear rules of the game that motivate the private sector to invest and create jobs will be needed first,” Juan Manuel Franco, chief economist at SBS Group, told Bloomberg Linea.

He added that “what may be causing the current dynamics is that a large number of capital market provisions lead some companies to prefer to apply pesos to investments in the real economy, although we reiterate that to see a sustained path of growth, a framework of stability will have to be provided.”

ARTIFICIAL INVESTMENT?

“Indeed, investment is at very high levels; it is at historical records; you are above the fourth quarter of 2017″, said Emiliano Anselmi, Team Leader of Macroeconomics at Portfolio Personal Investments (PPI).

“The investment does not stop being a reflection of the excess of pesos or the flight of economic agents from the peso,” Anselmi specified and said that “it is record investment but not virtuous because it does not stop being a reflection of the fall in demand for money.”

For the PPI analyst, “if the investment is long-lasting, there will be a jump in productivity, but since it is not genuine, as soon as the cepo is dismantled, it is necessary to see where the investment in Argentina is; today, it is a quite artificial figure”.

With information from Bloomberg