Argentina: Russia’s New Market

BUENOS AIRES – Russian businessmen met with their Argentinian counterparts in Buenos Aires on November 11 to discuss investment projects in the energy, nuclear and mining industries, as Moscow seeks to lessen its reliance on the European Union due to the crisis in Ukraine.

Since the conflict begun between Russia and Ukraine over Crimea’s control earlier this year, the Kremlin has turned to new allies to fill the gap its traditional trade partners have left.

The E.U., the United States, Australia, Canada and Norway sanctioned Russia’s oil, defense and financial sectors as a tit-for-tat move against its annexation of Crimea in March 2014 and its support for rebels waging an insurrection in east Ukraine.

To hit back, Moscow banned food imports, namely meat, fish, fruits, vegetables and dairy, from these countries for one year.

Argentina, however, has backed Russia’s position.

Tiptoeing in the U.S. backyard

In retaliation to the U.S. involvement in Ukraine, Russia has deepened its economic relations with Argentina – and Latin America in general.

The delegation of Russian entrepreneurs met with directors of YPF, Argentina’s state-owned energy firm, to discuss investing in the Vaca Muerta (“dead cow” in Spanish) shale formation in Patagonia, in the south of the country.

The reserves contain 240 trillion cubic feet of technically recoverable gas – one of the largest shale gas resources outside the United States – and 23 billion barrels of oil.

Gazprom OAO, the state-controlled Russian energy giant, plans to invest US$1 billion in Argentina’s natural gas sector.

Argentina and Russia have also expanded their cooperation in nuclear energy during President Vladimir Putin’s visit to the South American country in July 2014.

He inked deals with his counterpart Cristina Fernandez de Kirchner so that Russia helps Argentina build the third reactor of a nuclear power plant. Representatives of both countries also signed a cooperation agreement on the peaceful use of atomic energy.

“Latin America is a vibrant region, which is developing and that has very good prospects, so it will soon be, and already is, one of the pillars of the new world order,” said Russia’s Foreign Minister in a forum of the Community of Latin American and Caribbean States in August 2014.

Diplomatic cooperation

In addition, Russia and Argentina have strengthened their diplomatic ties to develop an alternative to a Western-dominated media system.

On October 2014, the two presidents celebrated a television partnership to broadcast state-owned channel Russia Today in Spanish in Argentina.

The Russian head of state referred to “the information wars that characterize modern times, with attempts by international actors to monopolize the truth” in a videoconference with President Kirchner.

She said that the deal would enable “all Argentinians [to] know the real Russia and all Russians [to] know the real Argentina” rather than rely on what “some international and national media want us to know.”

A lucrative deal

President Putin’s embargo on food imports could benefit Argentina, the world’s fifth producer of food products.

“Russia now lacks raw materials, which is why Argentina is an opportunity,” explained

Jorge R. Garcia Tunon, President of the Argentina Russia Chamber of Commerce and Industry, in a conference on new trade opportunities on September 4th.

In fact, exports to Russia could triple in 2015, said Javier Rodriguez, Argentina’s Secretary for Political-Institutional Coordination and Farming Emergencies. He participated in the World-Food fair in Moscow in September 2014, along with 100 Argentinian businessmen and politicians, to boost bilateral trade.

On the one hand, higher export revenues would profit to Argentina’ central bank reserves. The country cannot access international financial markets. It is battling a Standard & Poor’s decision to declare the country on “selective default” on July 2014.

On the other hand, Moscow would be a key market for Argentina since it imports 40% of the food its 140 million people consumes. In 2013, Russia bought US$43 billion worth of food. It is the biggest consumer of European fruits and vegetables and a leading buyer of fish, meat and dairy.

Russia and Argentina have already rather strong commercial ties. “Russia represents 25% of meat exports from Argentina,” said Mr. Tunon. He added that Russians are the third largest immigrant community in the country.

Besides, Russia’s imports from Argentina increased by 16% in one year and totaled US$344.285 million in 2013.

Argentina exported mainly fruits and cheese to Russia in 2013. It could trade citrus, in particular, as Russia is one of the most important buyers of this fruit.

As the largest wine producer in South America, Argentina could also capitalize on wine opportunities. “Consumption of wine in Russia will increase by 16% by 2016,” forecasted Mr. Tunon.

Overcoming trade barriers

“Argentina needs to avoid closing exports of strategic products for Russia especially dairy products and meat to replace cheese from the E.U.,” he pointed out.

Global Trade Alert, a platform monitoring restrictions on international trade, set out that Argentina has imposed more “harmful” trade limitations that any country in the world since 2011. It ratified more trade barrier policies than Russia.

“Argentina might not be ready to supply the world with technology and an economy of scale,” explained Carlos Gonzalez Botana, Director at Agrosud, a brokerage company in Buenos Aires.

“Russia’s ban is an opportunity for Argentina but with or without the ban, the point is to build a sustainable business relation in the future,” he added.

Another challenge for Argentina is competing with the quality of European food products that Russians consumed.

 

This article was published in International Finance Magazine on November 14, 2014. Click here.


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