chemical & agrochemical industry · the total output of the argentine chemical industry in 2017...

Confidencial Nombre Autor/Empresa Version 1.0Embassy of India in Argentina

Chemical & AgrochemicalIndustryin Argentina December 2018

Confidencial Nombre Autor/Empresa Version 1.0

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 03

2. MARKET VISION AND STRUCTURE 04

Value chain structure 05

Purchasers of the chemical sector 06

Divisions, sectors and subsectors 07

Market size 08

Evolution of chemical output 09

Chemical output by sectors 10

Industry dimension 11

Production of agrochemicals 12

Agrochemicals: production vs demand 13

Agrochemicals: supply vs demand 14

Agrochemicals: national production vs imports 15

Geographical distribution of national

production 16

Market situation 2018 17

Prohibited and restricted chemicals 18

3. MAIN COMPETITORS 21

Main industry competitors 22

Main agrochemical sector competitors 23

4. S.W.O.T. ANALYSIS 24

5. PUBLIC POLICIES 29

6. INTERNATIONAL TRADE 31

Exports 32

Imports 33

Trade balance 34

Trade by sectors 35

Trade of agrochemicals 36

Main business partners 37

Argentine market share 41

7. FUTURE PERSPECTIVES 42

8. OPPORTUNITIES FOR INDIAN COMPANIES 44

9. CONSIDERATIONS FOR FOREIGN INVESTORS 46

Country overview 47

Current economic context 48

Taxation and labor 50

Relevant legislation 62

Exchange rates 63

10. CONCLUSION 64

11. USEFUL INFORMATION 66

2

The total output of the Argentine chemical industry in 2017 was worth USD 26 billion. It is estimatedthat in 2018 production will decrease by 5.3% approximately in keeping with the economic recession.Production is expected to begin to pick up in 2019.

While half of it is applied to end-use chemical products, only 14% corresponds to agrochemicals.Nevertheless, the production of agrochemicals is inadequate to meet the demand, which renders thisindustry heavily dependent upon imports. China positions itself as the main manufacturing country ofthe agrochemical imports.

Both the chemical industry, in general, and the agrochemical sector present good prospects in themedium and long term, despite the current recession. Agrochemical sales increased 6% last year andare expected to further grow this year.

The industry affords opportunities to foreign companies, either to export to Argentina or invest locally.

3

EXECUTIVE SUMMARY

Embassy of India in Argentina | Chemical and Agrochemical Industry in Argentina

MARKET VISION AND

STRUCTURE

4


Oil and natural gas

5

▪ Olefins: ethylene, propylene, butylene, etc.

▪ Aromatics: benzene, toluene.

▪ Ammonia, methanol

RESOURCE CHEMICAL SUBSTANCES FINAL PRODUCTS

Minerals

Petrochemicals

▪ Sulfuric acid▪ Caustic soda▪ Chlorine▪ Hydrochloric acid,

others

Non-Petrochemical

Plastic resins

▪ Polyethylene▪ Polypropylene▪ PVC▪ PET

Fertilizers and pesticides

Cleaning and personal hygiene

Paints and varnishes

Plastic products

Rubber products

Manufactured synthetic fibers

Pharmaceutical products

Synthetic rubber

Imported supplies

CHEMICAL INDUSTRY

VALUE CHAIN STRUCTURE


6

PURCHASERS OF THE CHEMICAL SECTOR

PURCHASER INDUSTRIES

Paints and coatings

Cleaning and personal care

Cosmetics and perfumes

Pharmaceutical and medicine

Mining, oil and gas

Agriculture and stockbreeding

Construction

Plastic industry

Pulp and paper industry

Metal-mechanic industry

Automotive industry

Food and beverage industry

Textiles, footwear and leather goods

MANUFACTURES

Food and drinksAdditives for naphtha and lubricants

Soaps, detergents and cosmeticsBags, tubes and containers

Drugs and diagnosisFlexible foams

Fertilizers and compostExplosives and pyrotechnics

Pipes, accessories and profilesFibers and filaments

TiresPackaging and lamination

Industrial parts and auto partsSolvents, paints and inks

Varnishes and ThinnerTextiles, footwear and leather goods

CH

EM

ICA

L V

ALU

E C

HA

IN


7

DIVISIONS, SECTORS AND SUBSECTORS OF THE ARGENTINE CHEMICAL INDUSTRY

INTERMEDIATE-USE GOODS END-USE CHEMICAL PRODUCTS

Substances and basic chemicals

Agrochemicals and fertilizers

Speciality chemicals

Organic chemical

substances

Inorganic chemical

substances

Paints and varnishes

Cleaning and personal care

productsCosmetics

Medicines for human and animal use


MARKET SIZE

110,000Employees

20178

3,229 3.768.693TONS of locally demanded

agrochemicalsChemical

companies

TOTAL OUTPUT VALUE

USD 26 billionEXPORTS VALUE

USD 2.8 billionANNUAL VARIATION IN

PRODUCTION

-1%


The evolution of the Argentine chemical output can be described in two periods extended in the last 11 years. Between 2008-2014, the output expanded reaching a growth level of 10.2% in 2009, but slightly decreasing by 2014. Since 2015, when a new

administration took office, the economy has progressively headed into recession, which caused a shrinkage of the output. Production fell by 5.3% in 2018, but it is expected to start recovering in 2019.

5.8%

10.2%

2.4%3.7%

2.9%

-0.4%

2.1%

-1.8% -1.4% -1.0%

-5.3%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (*)

9

EVOLUTION OF THE TOTAL CHEMICAL OUTPUT

Source: Compiled based on information provided by INDEC (National Institute of Statistics and Census).(*) Period January-October 2018


Almost half of local chemical production corresponds to end-use products (paints, cosmetics, drug products, etc.). Only 14% of the total production corresponds to agrochemicals; nevertheless, this sector that has been

growing at an average annual rate of 5%. 10

48% 14% 16% 22%2017

End-use chemical products Agrochemicals Speciality chemicals Basic chimestrySource: Compiled based on information from CIQyP (Chemical and Petrochemical Industry Chamber).


CHEMICAL OUTPUT BY SECTORS

11

30% 17% 5%

Manufacturing production

representation of the GDP.

Chemical industry representation of the total manufacturing

production.

Chemical industryrepresentation of the

GDP.

INDUSTRY DIMENSION


The Argentine production of agrochemicals hit a record high in 2017 with a total production of 1.94 million tons. It was the second consecutive year of increase.

1.46

1.78 1.821.72

1.511.40

1.771.94

0.00

0.50

1.00

1.50

2.00

2.50

2010 2011 2012 2013 2014 2015 2016 2017

12

Source: Compiled based on information provided by CIAFA.

In millions of tons


PRODUCTION OF AGROCHEMICALS

Local production of agrochemicals has historically been insufficient to meet the demand. The total output produced in 2017 could only cater for half the demand. This is the reason why this segment relies heavily on

imports. 13

AGROCHEMICALS: PRODUCTION VS DEMAND

1.94

3.77

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2010 2011 2012 2013 2014 2015 2016 2017

Production Demand

In millions of tons



As evidenced, total demand is met (with a small surplus) when the total supply is considered, i.e. local production plus imports.

14

AGROCHEMICALS: SUPPLY VS DEMAND

4.18

3.77

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2010 2011 2012 2013 2014 2015 2016 2017

Supply Demand

In millions of tons



In 2017, 53% of the agrochemicals traded locally were imported. Nationally produced agrochemicals have gained more market share increasing from 39% in 2010 to 47% in 2017; nevertheless, imports are still higher

than nationally produced agrochemicals. 15

AGROCHEMICALS: NATIONAL PRODUCTION VS IMPORTS

39% 41% 45% 44% 45% 52%43% 47%

61% 59% 55% 56% 55% 48%57% 53%

2010 2011 2012 2013 2014 2015 2016 2017

National Imported



16

Mendoza

Córdoba

Buenos Aires

Santa Fe1.8%

2.6%

15%

72%

GEOGRAPHICALDISTRIBUTION OF NATIONAL

PRODUCTION

Neuquén

4.2%

Rio Negro

2.4%

Overall, chemical production is concentrated in the central region of the country.

The province of Buenos Aires concentrates most the total production, manufacturing 72%.

Santa Fe follows second with a 15% share.

Source: Instituto Petroquímico Argentino (Argentine Petrochemical Institute).


MARKET SITUATION 2018

17

During the January-October period, production showed an accumulated decrease of 5.3% caused by plants´ lockouts, shutdowns and a lower demand.

However, during the first semester of 2018 local sales increased by 3% due to the clearance of many companies´stock.

Dollar exports in June stayed in the same level as in last year June, but the annual accumulated exports still remain positive (+20%),

Within the industry, the sectors that produce basic organic products and thermoplastic productsrecorded a 10% increase in sales, whereas other sectors, such as the inorganic products segment, were

struck by a decrease in sales.


18

ALDICARB

AMINOTRIAZOL

MERCURY BICLORIDE

BENDIOCARB

BISFENOL A

METHYL BROMIDE

CARBOFURAN

CHLORPIRIFOS

DAMINOZIDE

DICHLORVOS (DDVP)

ETIL AZINFOS

ETHION

FENITROTHION

FORMALDEHYDE

PHTHALATE

MALATHION

METHAMIDOPHOS

MERCURY

LEAD

PROPOXUR

CARBON TETRACHLORIDE

CHEMICAL CHEMICAL

To access the complete regulation with the comments and clarifications of each chemical restricted and prohibited in the Argentine Republic, contact the Ministry of Health. Find the contact details in “Useful information” section in this document.

Restricted chemicals in Argentina:

PROHIBITED AND RESTRICTED CHEMICALS


19

Prohibited chemicals in Argentina:CHEMICAL CHEMICAL

2,4,5-T

3 CHLORINE -1,2 PROPANEDIOL

ABAMECTIN

COPPER ACETOARSENITE

FLUORHYDRIC ACID AND ITS SALTSMONOFLUOROACETHIC ACID AND ITS SALTS OF Na + and

K +ARYL ALCOHOL

ALDRIN

ALPHA NAFTIL TIOUREA

ARSENIOUS ANHYDRIDE

ARSENIC

SODIUM ARSENIATE

CALCIUM ARSENIATE

LEAD ARSENIATE

Na +, Ca + and K + ARSENIATE

Cu AND K ARSENITE

AMPHIBOLE ASBESTOS

CHRYSOTILE ASBESTOS

Barium, salts

BARIUM SULPHATE AND CARBONATE

CALCIUM BIARSENIATE

POLYBROMINATED BIPHENYL

POLYCHLORINATED BIPHENYLS

BLASTICIDIN-S

POTASSIUM BROMATO

BROMETHALIN

METHYL BROMIDE

BUTOCARBOXIM

BUTOXYCARBOXIM

CADUSAFOS

CAMPHECHLOR

CAPTAFOL

CALCIUM CYANIDE

SODIUM CYANIDE

CHLORDANE

CHLORMEPHOS

CHLORINBENCILATE

CHLOROETOXYFOS

CHLOROPHACINONE

CHLORFENVINFOS

MERCURY CHLORIDE

COUMAPHOS

COUMATETRALYL

CHLOROFLUOROCARBON

DDT

DEMETON-S-METHYL

DIAZINON

ETHYLENE DIBROMIDE

DICROTOFOS

DNOC

DIELDRIN

DIPHACINONE

DIFENACOUM

DINOCAP

DINOTERB

DISULFOTON

DODECACHLORINE

EDIFENPHOS

ENDOSULFAN

ENDRIN

EPN

RED SQUILL, scales, powders or dried bulbs.

CHEMICAL


PROHIBITED AND RESTRICTED CHEMICALS

20

CHEMICALSTRYCHNINE

ETHIOFENCARB

ETHOPROPHOS

FAMPHUR

PHENYLMERCURY ACETATE

FLOCOUMAFEN

FLUCYTHRINATE

FLUOROACETAMIDE

FLUOROALUMINATES

Na + AND K+ FLOURIDES

PHOSPHINE AND ALUMINIUM PHOSPHIDES

ZINC PHOSPHIDE

SODIUM FLUORACETATE

PHORATE

PHOSPHAMIDON

FORMALDEHYDE

METAL PHOSPHIDE

WHITE PHOSPHORUS

METAL PHOSPHIDE

FURATHIOCARB

CHEMICAL CHEMICALHCB (Hexachlorobenzene)

HEPTACHLOR

HCH (hexachlorocyclohexane)

HEPTENOPHOS

ISOXATHION

LINDANE

MALATHION

MECARBAM

METHOXYCHLOR

METHAMIDOPHOS

AZINFOS METHYL

MEVINPHOS

MONOCROTOPHOS

SODIUM MONOFLUORACETATE

MONOFLUOROACETAMIDE

MONOFLUOROETHANOL

STRYCHNINE NITRATE

OMETHOATE

OXAMYL

MERCURY OXIDE

1,4-DICHLOROBENZENE

p-DICLOROFENIL DIAZO TIOUREA

PARATHION

PARATHION-ETHYL

PARATHION-METHYL

PENTACHLOROPHENOL

PERSISTENT ORGANIC PESTICIDES

PROPETAMPHOS

STRYCHNINE SULFATE

SULFOTEP

METHYLARSENIC SULPHIDE

THALIUM AND ITS SALTS

TERBUFOS

TEBUPIRIMFOS

THIOFANOX

THIOMETON

TRIAZOPHOS

VAMIDOTHION

PARIS GREEN

WARFARIN


PROHIBITED AND RESTRICTED CHEMICALSProhibited chemicals in Argentina:

MAIN COMPETITORS

21


Profertil, owned by YPF and Agrium, holds the largest market share: 15.9% Its main products are urea and ammonia.

Ranking Company %1 Profertil (YPF-Agrium) 15.9%2 PBB Polisur (Dow) 15.3%3 Unipar Indupa (Solvay) 9.3%4 Bunge 8.9%5 YPF 8.6%6 Petrobras 5.9%7 Petroken 1.6%8 DAK Americas 1.6%9 Petroquímica Cuyo 1.1%

10 Others 32%

22

Profertil (YPF-

Agrium)15.9%

PBB Polisur (Dow) 15.3%

Unipar Indupa (Solvay) 9.3%

Bunge8.9%

YPF 8.6%Petrobras 5.9%

Petroken 1.6%

DAK Americas1.6%

Petroquímica Cuyo 1.1%

Others 32%

In terms of sold tons

MAIN COMPETITORS IN THE CHEMICAL INDUSTRY


Syngenta is the leader of sector with a 13.2% share, followed closely by Monsanto.

Syngenta13.2%

Monsanto13.0%

Dow Agrosciences

10.1%Profertil

10.0%Bayer8.1%

Atanor 7.8%Basf 5.7%

DuPont 5.3%

Red Surcos4.7%

Agrofina 4.6%

Adama 4.4%

Others 23.1%

Ranking Company %1 Syngenta 13.2%2 Monsanto 13.0%3 Dow Agrosciences 10.1%4 Profertil 10.0%5 Bayer 8.1%6 Atanor 7.8%7 Basf 5.7%8 DuPont 5.3%9 Red Surcos 4.7%10 Agrofina 4.6%11 Adama 4.4%12 Others 23.1%

23

MAIN COMPETITORS OF THE AGROCHEMICAL SECTOR

In terms of annual turnover


S.W.O.T. ANALYSIS

24


25

STRENGTHS

1. Good position and experience of the chemical industry Argentina

2. Technological and skilled human resources

3. Strict compliance with regulations in force

4. Regional scale market (MERCOSUR)

5. High level of formality

SWOT


26

OPPORTUNITIES

1. Presence of clusters

2. Implementation of a Strategic Industrial Plan 2020 with policies promoting a greater industrialization.

3. Possibilities of complementation with Brazil.

4. Low per capita consumption of chemicals providing growth margin.

5. Peripheral markets.

SWOT


27

WEAKNESSES

1. Low vertical integration

2. Some facilities are obsolete.

3. The decreasing participation of national companies causes the main decision centers to be located abroad

and obliges companies to compete for the localization of investments with other alternatives.

4. Reduced domestic market. Setting up plants on an international scale becomes difficult.

5. High logistic costs due to long distances to large international markets.

SWOT


28

THREATS

1. Unforeseeable evolution of the economy of the country

2. Weak legal framework

3. Lack of incentive policies providing for development.

4. Low interconnection between the productive chains.

5. In investment terms, high risk country index, which translates into a low credit rating.

6. Distortive tax scheme that impacts on working capital.

7. Scarce access to financing.

SWOT


PUBLIC POLICIES

29


30

Regulation Description

Strategic Industrial Plan 2020

It is a long-term strategic plan presented by the government in 2011. It establishes a set of specific and general guidelines to be achieved in 2020 for the development and consolidation of the national industry. These guidelines lay focus on 11 segments (chemical industry, among others), which represent 80% of the total industrial GDP.

Agreement with Brazil on the management of chemical substances and products

It seeks to promote the draft of proposals and the implementation of actions and management tools that apply to chemical substances and products throughout their lifecycle to ultimately reduce their adverse impact on health and the environment. Its specific goals include cooperation in shaping policies, rules and other regulatory instruments.

Joint Resolution 1/2018

Under this resolution, the Ministry of Agribusiness and Environment and the Ministry of Sustainable Development created an Interministerial Taskforce on Good Phytosanitary Practices that will be in charge of developing public policy recommendations based on scientific evidence to control and regulate the use of agrochemicals. This resolution is expected to strengthen the national agricultural policies for a better management of phytosanitary products.

Latin American Petrochemical Annual Meeting

This is an annual event organized by the Latin American Petrochemical and Chemical Association. It brings together the main companies, chambers and associations of the sector, providing a suitable business platform to boost business management and promote business in the sector.

PUBLIC POLICIES


INTERNATIONAL TRADE

31


$2,314

$2,793

$3,833 $3,581

$2,872 $3,133

$2,114

$2,761 $2,787

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2009 2010 2011 2012 2013 2014 2015 2016 2017

Chemical exports have remained stable in 2017 compared to the previous year. They are expected to further remain stable in 2018 at USD 2.8 billion, close to the average USD 2.9 billion recorded in recent years.

32

EXPORTS

Source: Compiled based on information from INDEC and Argentine Customs.

Evolution of Argentina´s chemical

exports

(in million dollars)


Chemical imports show a slight but steady decrease since 2012, which totaled USD 5.162 million in 2017. 33

IMPORTS

Evolution of Argentina´s chemical

imports


$3,771

$5,536

$6,852 $6,273 $6,226 $6,153

$5,484 $4,920

$5,162

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2009 2010 2011 2012 2013 2014 2015 2016 2017



-$4,000

-$2,000

$-

$2,000

$4,000

$6,000

$8,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Exports Imports Balance

The chemical industry structurally runs a trade deficit, evidencing a heavy reliance on imports.34

TRADE BALANCE

Chemical TradeBalance Evolution




The sector with the largest market share in exports is speciality chemicals with a 35% share. By contrast, 50% of imports correspond to basic chemical products.

35

30%

35%

10%

25%

Exports

Basic chimestry

Speciality chemicals

Agrochemicals

End-use chemicalproducts

50%

10%

15%

25%

Imports

TRADE BY SECTORS

Source: Compiled based on information from CIQyP (Chemical and Petrochemical Industry Chamber).


-$1,500

-$1,000

-$500

$-

$500

$1,000

$1,500

$2,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Exports Imports Balance

The agrochemical sector follows the same pattern as the overall chemical industry: it presents a structural deficit. Agrochemical exports record much lower levels than agrochemical imports.

36

Agrochemicals TradeBalance Evolution


INTERNATIONAL TRADE OF AGROCHEMICALS



Main destinations of Argentine exports of

chemicals

Argentina´s main trading partner in chemical exports is the United States, which holds a 29.1% market share. It is followed by Brazil in second place with a 12.1% share.

37


United States 29.1%

Brazil 12.1%

Netherlands 10.7%Germany 5.5%

Paraguay 4.0%

Chile 4.0%

Spain 3.7%

Uruguay 3.2%

Japan 3.2%

Bolivia 2.4%

Others 22.0%

MAIN BUSINESS PARTNERS


Main destinations of Argentine imports of

chemicals

China is the main supplier of chemical products in Argentina, with a 24.4% import share, followed by the United States in second place with a 19.7% share. India ranks fifth with 4.2%.

China 24.4%

United States 19.7%

Brazil 12.9%Germany 5.3%

India 4.2%

France 2.5%

Australia 2.5%

Mexico 2.0%Spain 2.0%

Switzerland 1.9%

Others 22.6%

38




Half of the Argentine exports of agrochemicals are destined to Latin America. Paraguay and Brazil are the main destinations with a 10.8% and a 10.7% share, respectively. Closely followed by Peru with a 10.6% share.

Paraguay10.8%

Brazil 10.7%

Peru 10.6%

Mexico 9.2%

Germany 8.8%Colombia 5.8%

France 5.5%

Venezuela 5.2%

Australia 5.2%

United Kingdom 4.1%

Others 24.1%

39


Main destinations of Argentine exports of

agrochemicals.



A total of 21.6% of Argentine imports of agrochemicals come from China, the main supplier. The United States and Russia follow in second place with a 15.7% and a 15.6% share, respectively.

China 21.6%

United States 15.7%

Russia 15.6%Morocco

12.3%

Mexico 5.3%

Netherlands 4.0%

Norway 3.3%

Chile 2.4%

Brazil 2.2%

Lithuania 2.1% Others 15.6%

40


Main destinations of Argentine imports of

agrochemicals



41

ARGENTINE MARKET SHARE

CHEMICALS

The Argentine chemical market represents 0.58% of

the global market.

AGROCHEMICALS

The Argentine agrochemical market represents 1.13% of

the global market.


42

FUTURE PRSPECTIVES


43

FUTURE PERSPECTIVES

1. Argentina has potential to increase the supply of raw materials through investments in the oil and gas industry.Efficient and well integrated chemical companies, together with a qualified workforce, will facilitate the growth ofthe country's chemical industry.

2. Apart from that, the quality, infrastructure, market, technology, and vast experience in hydrocarbons andrefineries secures an auspicious future for the industry.

3. Despite affected by the recession in the short term, recent M&As of chemical companies point out to aprosperous future in the medium and long term.

4. A better integration of MERCOSUR and the harmonization of industrial and business policies with Brazil willboost the advantages for the Argentine chemical industry.

5. The Argentine chemical industry is expected to show signs of recovery in 2019, after a decrease in productionin 2018.

6. The consumption of agrochemicals increased by 6% in 2017 and is expected to continue growing thanks to thereduction and elimination of withholdings and the growth of planted areas.


44

OPPORTUNITIES FOR INDIAN COMPANIES


45

OPPORTUNITIES FOR INDIAN COMPANIES

1. The Argentine market offers skilled labor and a relatively sound infrastructure. In addition, it is a strategic country to exportto the other member countries of MERCOSUR.

2. The country´s long-term potential for the development of unconventional resources, mainly shale oil and shale gas,represents an opportunity to increase the level of production and hydrocarbon reserves. Thus, it is expected that newinvestment opportunities arise in different segments of the industry, especially in those materials that have higher demand(polyethylene and propylene).

3. The presence of clusters facilitates and enhances the development of companies in the sector; thus, offering Indiancompanies the possibility to enter into agreements with local companies and profit from an economy of scale.

4. Half of the agrochemicals consumed in Argentina are imported. This provides great business opportunities for exporters inIndia, one of the largest producers of agrochemicals.

5. However, there is a large set of imported generic agrochemicals that could be formulated or synthesized in the country,which offers opportunities to investors.

6. In the period 2010-2017, the consumption of agrochemicals grew by 36%. It is expected to grow at 5% annual rate in theupcoming years.


CONSIDERATIONS FOR FOREIGN INVESTORS

46


44.494.502Total population

ARGENTINE PESO

National currency

2018 ESTIMATED INFLATION

47%ESTIMATED GDP GROWTH

-2.6%

47

21.824.372Men

22.670.130Women

COUNTRY OVERVIEW


22.8%25.6%

28.4%

38.5%

27.5%

40.3%

24.6%

47.0%

2011 2012 2013 2014 2015 2016 2017 2018 (*)

Argentina is one of the countries with the world´s highest inflation rate. The inflation rate is expected to reach 47% by late 2018, almost doubling last year´s inflation. Such scenario creates an extra difficulty at the time of conducting businesses that does not

occur in most countries. The Argentine economy lacks stability in terms of prices. 48

Source: Compiled based on information provided by INDEC.(*) Estimated

Inflation

CURRENT ECONOMIC CONTEXT


-2.5%

2.9%

-2.6%-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2011 2012 2013 2014 2015 2016 2017 2018 (*)

CURRENT ECONOMIC CONTEXT

Argentina's GDP has been expanding and shrinking alternatively portraying the volatility of the economy. GDP is expected to contract 2.6% in 2018.

By the end of 2018 the unemployment rate reaches 10.8%.49

Source: Compiled based on information provided by INDEC.(*) Estimated

10.8%

Unemployment rate

GDP


50

TAXATION AND LABOR

In Argentina, tax collection efforts are carried out at national, provincial, and municipal level by levying taxes on income, assets, and consumption.

The agency in charge of collecting taxes, monitoring, and controlling taxation at national level is AFIP (Spanish acronym for Argentine Revenue Service).

Consequently, taxes are classified into three tiers: national, provincial, and municipal.


51

TAXATION AND LABOR. NATIONAL TAXES.

INCOME TAXAll income is subject to tax. Local subsidiaries of foreign legal entities are regarded as resident businesses and are, therefore, subject to tax. The applicable tax rate is 35% and applies to total income. Non-resident businesses with no branches or permanent offices in Argentina are only subject to local income tax.

VALUE ADDED TAX (VAT)VAT applies to the values of goods and services at every stage of production. General VAT rate is 21%; nevertheless, the rate for certain goods and services is set at 10,5% or 27%. Imports are subject to the same VAT rate as local goods and services. Exports are exempt from VAT.

MINIMUM PRESUMED INCOME TAX

Minimum Presumed Income Tax is payable by legal entities, which are imposed a 1% rate on the value of all their assets located either in Argentina or abroad. It is also applicable to assets located in Argentine and owned by foreign individuals or legal entities with a permanent establishment in the country. This tax will be eliminated in 2019.

PERSONAL PROPERTY TAXThis tax is imposed on individuals and undivided estates with respect to assets valued at over ARS 1.050.000 (USD 27.000 approx.) as of 2018. As of this year, residents are taxed 0,25% on personal property.

EXCISE TAXESExcise taxes are levied on the consumption of specific goods, such as tobacco, alcoholic drinks, and luxury items; they are payable by manufactures or importers.

FINANCIAL TRANSACTION TAXES - CREDITS AND

DEBITS ON BANK ACCOUNTS AND OTHERS.

A 0,6% general tax is levied on withdrawals and credits on bank accounts transacted by entities governed by the Financial Institutions Act. Furthermore, transactions in cash are subject to a 1.2% rate if conducted through payment systems in lieu of current accounts.


52

TAXATION AND LABOR. NATIONAL TAXES.

Argentina has entered into double taxation agreements with the following countries to provide relief from double taxation on businesses, personal income, capital, and assets:

Bolivia Brazil Finland Norway Spain Switzerland The Netherlands Russia Mexico

Australia United Kingdom Chile Denmark Germany Belgium France Italy Sweden Canada

DOUBLE TAXATION AGREEMENTS


53

TAXATION AND LABOR. PROVINCIAL TAXES.

GROSS INCOME TAX

Gross Income tax is applicable to the revenue generated by businesses engaged in trade, industrial activities, agriculture, finance, or professional services. It is levied on each commercial transaction at a rate that ranges from 1,5% to 5%, according to the industry and area. Nevertheless, certain primary and industrial activities are exempted from this tax.

STAMP DUTYThis is a provincial tax placed on the execution of notarial and private documents, including agreements and other large-amount transactions.

REAL ESTATE TRANSFER TAX

Real estate owners are subject to an annual tax on their real property based on the fiscal value of the land free of any improvements and on the improvements of land, if any. The payable amount is estimated pursuant to the laws in force each fiscal year, which set forth the applicable values and rate scales according to the type of property.


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TAXATION AND LABOR. MUNICIPAL TAXES.

Municipalities collect taxes imposed on industrial safety services, lighting and cleaning services, etc. These taxes are calculated based on public revenue or other criteria, such as the number of employees.


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TAXATION AND LABOR. TAX INCENTIVES.

Tax regulations provide for incentives for certain activities such as mining, forestation, software development, renewable energies, research, biotechnology, and biofuel production.

Generally, such incentives consist in:

Tax stability for a specified period Tax credits Preferred tax rates VAT Exemption

A tax-free area has been established in southern Tierra del Fuego where all the activities and transactions conducted are exempted from all national taxes, except for specific activities and transactions, which are levied a reduced rate.


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TAXATION AND LABOR. LABOR LAW.

Labor Law no. 20,744

Permanent employment contract

Employment contracts in Argentina generally fall within this category, which means the labor relationship may extend permanently unless a cause of termination arises. The law provides for a three-month probation period. The employer must register the relationship with the relevant authority before the lapse of this period. Moreover, the parties are subject to the rights and obligations arising out the employment contract during this period, but either party may terminate the employment without cause. In such case, the employee is not entitled to severance payment.

Special employment contracts

In order to provide an adequate framework, the law sets forth special forms of employment:

1. Fixed-term contracts2. Seasonal employment contracts3. Contingency employment agreement4. Team employment contracts


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TAXATION AND LABOR. LABOR REGULATIONS.

COMPENSATION (SALARIES AND WAGES) STATUTORY ANNUAL EXTRA PAY

Employees' compensation may be fully paid in cash or it maybe paid both in cash and in kind, i.e. food or accommodation.In such case, payments in kind cannot exceed 20% of the totalcompensation amount.

The employer has the obligation to:

Wire-transfer the employee´s salaries to a bank account on their names.

Provide a salary slip

Comply with the statutory term of payment: salaried employees must be paid at the end of the month, whereas wage earners must receive their compensation on a weekly or monthly basis.

All workers are entitled to a thirteenth salary, which isofficially referred to as Statutory Annual Extra Payment.Such payment is made in two installments: 50% of the totalamount is granted by June 31 and the remaining 50% byDecember 31.

MINIMUM SALARY AND WAGE

The law establishes the minimum salary and wageamount. As of July 2018, such amount is set at ARS 10.000(USD 260 approx.) for monthly salaries and ARS 50 (USD1.30) for hourly wages.

Given Argentina´s high inflation rates, salaries are adjustedseveral times a year.


Annual vacation is paid time off employers grant to theiremployees.

The length of vacations varies according to the employee´sseniority:

1. From 6 months to 5 years of service: 14 calendar days2. From 5 to 10 years of service: 21 calendar days3. From 10 to 20 years of service: 28 calendar days4. Over 20 years of service: 35 calendar days

New employees who have rendered services for less thanhalf the business day of the year are entitled to one vacationday for every 20 days of service.

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The law provides for paid maternity leave which extendsfrom 45 days before childbirth to 45 days after delivery.

Once this period elapses, women workers can choose to:

1. Resume working under the working conditions beforethe leave.

2. Terminate the employment contract unilaterally.3. Request an unpaid extension of the maternity leave

for an additional period ranging from three to sixmonths.

Women workers are entitled to a daily thirty-minute breakto breastfeed her child. This entitlement lasts for one yearafter childbirth.

ANNUAL VACATION PAID MATERNITY LEAVE


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Employers have the obligation to provide insurance toemployees to cover labor risks. To such end, they must eitherself-insure or hire a risk labor risk insurance company (inSpanish Aseguradoras de Riesgos del Trabajo or ART), inorder to compensate in the event of work accidents anddiseases.

The employer must obtain an insurance policy within thirtydays of the commencement of the employmentrelationship.

Businesses undertake to make the relevant contributions inconnection with social security services for their employees.Such contributions include family allowances, union healthinsurance, pensions, and contributions to unemploymentfunds. Contributions represent 27% of the gross salary ofemployees that render services and 23% of the gross salary ofthe rest of the employees.

The minimum working age is 16 years old.

LABOR RISKS COMPULSORY LIFE INSURANCE

SOCIAL SECURITY MINIMUM WORKING AGE


None of the parties can terminate the employment contractwithout giving prior notice. The minimum notice period is setby the law as follows:

1. For the employee: 15 days2. For the employer: 15 days for employees under probation

period, one month when the worker's length of service isless than five years, and two months, when the length ofservice exceeds five years.

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The employer has the obligation to register theemployment relationship with the relevant authorities. Inthe event of termination of contract, the employer mustgive relevant notice to the Social Security Registry.

The duly registration of the employment relationshipallows workers to enjoy the social security benefits grantedby the law.

DISMISSAL EMPLOYMENT RELATIONSHIP RECORDS


In Argentina, working time is 48 hours per week with a limit ofnine hours a day (six hours a day for work performed underhazardous conditions). Night working time is limited to seven-hour shifts. Overtime is permitted with certain restrictions.Overtime rate is 50 per cent, for work performed onweekdays and Saturday mornings, and 100 per cent for workperformed thereafter and on public holidays. The lawestablishes the maximum overtime limit which shall notexceed 200 hours per year or 30 hours per month.

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Most workers are unionized. Historically, the power andinfluence of union was moderate, but it has increased inthe last few years to such an extent that workers are alsoprotected by collective bargaining agreements.Moreover, these workers may also opt for joining a union.

OVERTIME LABOR UNIONS


RELEVANT LEGISLATION

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LEGAL FRAMEWORK

The Argentine Law provides for the protection of foreign investors and their projects. Argentina hasentered into several bilateral investment treaties with other countries. It is a member country of theMultilateral Investment Guarantee Agency (MIGA), which provides guarantees to protectinvestments against non-commercial risks.

INVESTMENT MODEL

Foreign investors can start their businesses in three ways: setting up a foreign branch, acquiringownership in an existing company or creating a new company.

CORPORATE AND BUSINESS ACT

Law No. 19,550 (amended and renamed as General Corporate and Business Law No. 26,994). Setsforth the different business forms available. The most popular business forms among foreigninvestors are Sociedades Anónimas (S.A.)— Corporations— and Sociedades de ResponsabilidadLimitada (S.R.L.) — Limited Liability Companies or LLCs.

FOREIGN INVESTMENT LAW

Law No. 21,382 Sets forth the conditions for foreign investors to invest and transact business in thecountry. It further provides for the expansion of existing investment undertakings.

TRANSFER OF FUNDS

The funds received as capital contribution from foreign residents can be entered into the country orbe kept abroad, there are no regulations in this respect.


Date ARS/USD Date ARS/USD Date ARS/USD Date ARS/USD

jan-13 4.96 jul-14 8.18 ene-16 13.93 jul-17 17.44

feb-13 5.02 ago-14 8.33 feb-16 15.04 ago-17 17.72

mar-13 5.09 sep-14 8.43 mar-16 15.22 sep-17 17.55

apr-13 5.17 oct-14 8.49 abr-16 14.70 oct-17 17.76

may-13 5.25 nov-14 8.53 may-16 14.43 nov-17 17.79

jun-13 5.34 dic-14 8.56 jun-16 14.44 dic-17 18.05

jul-13 5.44 ene-15 8.61 jul-16 15.17 ene-18 19.36

aug-13 5.49 feb-15 8.70 ago-16 15.13 feb-18 20.17

sep-13 5.75 mar-15 8.79 sep-16 15.32 mar-18 20.56

oct-13 5.86 abr-15 8.88 oct-16 15.45 abr-18 20.54

nov-13 6.03 may-15 8.96 nov-16 15.57 may-18 24.19

dec-13 6.33 jun-15 9.05 dic-16 16.10 jun-18 27.26

jan-14 7.07 jul-15 9.16 ene-17 16.21 jul-18 28.29

feb-14 7.86 ago-15 9.26 feb-17 15.91 ago-18 30.96

mar-14 7.94 sep-15 9.38 mar-17 15.83 sep-18 39.41

apr-14 8.01 oct-15 9.50 abr-17 15.67 oct-18 38.08

may-14 8.06 nov-15 9.64 may-17 16.00 nov-18 37.49

jun-14 8.14 dic-15 13.30 jun-17 16.37 dic-18 38.82

EXCHANGE RATES

The Argentine peso was subject to a sharp devaluation in the second semester of 2018. It depreciated by 101% against the US dollar during 2018. 63

Monthly average exchange rates.


CONCLUSION

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CONCLUSION

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Overall, the Argentine chemical industry is highly competitive, even at international level, but such competitiveness hasbeen weakened as a result of the economic recession. This translates into a drop in consumption, which has an unundoubtedly adverse effect on the production of many industries. However, the economy is expected to improve in thenext year, which could help reactivate production. The outlook for the medium and long term is promising, as theincrease in demand and the efficient use of resources is expected to enable a growth in production.

It is essential to ensure legal security and predictable rules to secure new investments. The improvement ofMERCOSUR and the consolidation of a regional market under free trade conditions with harmonized macroeconomicpolicies will have an important enhancing effect for investments in the chemical sector in Argentina in the short andmedium term.

However, and despite the scarcity of public policies promoting development, the chemical industry currently presentsdifferent opportunities for direct and indirect investment. The potential investments in the country to produceagrochemicals that are currently imported could help reduce trade deficit, which is further facilitated given thepresence of clusters.

Argentina is a strategic country to develop the regional market due to its importance in MERCOSUR. The geographicalproximity and the reduction or elimination of tariff barriers among the members of the block makes intraregional trademore competitive.


USEFUL INFORMATION

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Chemical and Petrochemical Industry Chamber (CIQyP)

Address: Av. Córdoba 629– 4th Floor– City of Buenos AiresPostal Code: C1054AAF

Phone: (54-11) 4313-1000 - Web site: www.ciqyp.org.ar

Fertilizers and AgrochemicalsArgentine Industry Chamber (CIAFA)

Address: Bartolomé Mitre 1332– 4th Floor– City of Buenos AiresPostal Code: C1036AAZ

Phone: (54-11) 4381-2742 - Web site: www.ciafa.org.ar

Petrochemical and ChemicalLatianomerican Association (APLA)

Address: Carlos Pellegrini 1069– 7th Floor office “A”– City of Buenos AiresPostal Code: C1009ABU

Phone: (54-11) 4325-1422 - Web site: www.apla.lat

Chamber of Agricultural Health and Fertilizers (CASAFE)

Address: Reconquista 661– 1th Floor office “A”– City of Buenos AiresPostal Code: C1003ABM

Phone: (54-11) 4893-7772 - Web site: www.casafe.org

USEFUL INFORMATION


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Embassy of India | Buenos Aires, Argentina

Commercial Sector: [email protected] | [email protected] | [email protected]

Tel.: (+54 11) 4326-3895

Website: www.indembarg.gov.in

© 2018 Embassy of India in Buenos Aires, Argentina. All rights reserved.


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