Transcript argentina - Personal.psu.edu

ARGENTINA
Currency Devaluation and Its Effects on
Industries
TEAM 3
Dave Heyl
Deep Patel
Hilary Shah
Charles Paterson
ARGENTINA
• Population:
38,740,807
• Government:
Republic
• GDP:
$391 billion
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
• 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
• 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
• 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
• 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
• 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
• Financial Services
- Banking
- Capital Markets
• Travel and Tourism
- Hotels
- Airlines
- Car Rentals
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
• 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
• 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
• 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
• 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
•1995-1998 Auto Industry Investments
•Brazilian real devaluation
•Argentine peso devaluation
•Annual & Monthly Analysis
Auto Manufacturer Investments
•
•
•
•
•
•
•
•
Chrysler
Ciadea
Fiat
Ford
GM
Sevel
Toyota
VW
$100M
$200M
$600M
$1B
$1B
$300M
$100M
$500M
• 3.9B Invested in Argentina Between 19951998
• Exported to Brazil
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
• 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
Production
Units
1995
1996
1997
1998
1999
2000
2001
2002
285,435
313,152
446,306
457,957
304,809
339,246
235,577
159,401
% Change
-30.2
9.7
42.5
2.6
-33.4
11.3
-30.6
-32.3
Exports
Units
52,746
108,990
210,386
237,497
98,362
135,760
155,123
123,062
Domestic Sales
% Change
36.4
106.6
93
12.9
-58.6
38
14.3
-20.7
Units
% Change
224,965
215,143
228,297
221,971
220,553
186,400
93,833
46,294
-37.6
-4.4
6.1
-2.8
-0.6
-15.5
-49.7
-50.7
2002-2003 Monthly Analysis
Production
Exports
Domestic Sales
Units
% Change
Units
% Change
Units
% Change
2002
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
4416
7818
11155
16473
15247
13887
15830
15238
15721
16124
15787
11705
-42.2
77
42.7
47.7
-7.4
-8.9
14
-3.7
3.2
2.6
-2.1
-25.9
3573
8543
9976
11090
11973
9527
12402
11578
12810
11432
11027
9131
-45.4
139.1
16.8
11.2
8
-20.4
30.2
-6.6
10.6
-10.8
-3.5
-17.2
1816
4542
7419
6086
3933
2706
2874
2938
2954
3162
4181
3683
-55
150.1
63.3
-18
-35.4
-31.2
6.2
2.2
0.5
7
32.2
-11.9
2003
JAN
FEB
MAR
APR
MAY
JUN
JUL
8919
9909
13911
15559
14106
13728
12138
-23.8
11.1
40.4
11.8
-9.3
-2.7
-11.6
9504
7216
8839
10656
8671
8715
8633
4.1
-24.1
22.5
20.6
-18.6
0.5
-0.9
3701
3241
3660
4229
5123
5319
5301
0.5
-12.4
12.9
15.5
21.1
3.8
-0.3
Currency Devaluation
• The e-commerce and internet industry:
– Brief Background
– The effects from devaluation on the industry
– The future
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
• 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 users declined in 2001, yet the
number of internet users increased by 36%
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
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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