Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Argentina Environmental Export Market Plan

Chapter 1-Overview of the Argentine Market

Environment and Development in Argentina

Although the need for environmental protection has received more attention in Argentina since the United Nations Summit on Environment and Development in 1992, Argentina is still struggling to establish a comprehensive environmental management framework to stem the impacts of urban and economic growth. Argentina has historically suffered from outdated and poorly enforced environmental regulations. Compounding this situation has been serious jurisdictional conflicts between the national and provincial governments, as well as decreased investment in environmental infrastructure. Pollution levels are on the rise throughout the country, as the urban infrastructure for wastewater collection/treatment, and hazardous/solid waste management is insufficient to meet the needs of a growing population and expanding industrial activity.

Improving water quality is one of Argentina's most pressing needs. Despite its relatively high per capita gross domestic product, Argentina has one of the lowest water delivery and sewerage coverage rates in South America. Rivers like the Matanza-Riachuelo and La Plata are vivid examples of the country's surface water pollution problems. The Matanza-Riachuelo, a 2 mile-long inland waterway which empties into the La Plata River, is considered one of the most polluted rivers in the world. Its pollution is mainly attributed to untreated discharges of industrial effluents and sewage from heavily populated surrounding urban areas. Groundwater contamination is also a significant problem, as many households rely on groundwater for their daily needs.

Argentina's increased industrial development and the frequent concentration of facilities near major urban centers are prompting the country to address issues of industrial wastewater, hazardous and solid waste, and air emissions. So far, industries have only partially addressed their environmental impacts. Few treat their effluents; many still dispose of the their wastes in the hundreds of unregulated dumps scattered around the country; and air pollution control is virtually nonexistent.

There are a number of initiatives under way to develop a comprehensive environmental management framework and address the country's most severe environmental problems. A number of these programs are backed by funds from the Inter-American Development Bank (IDB) and the World Bank. These activities are complemented by the privatization effort under way in the water sector to promote investment and improve the supply of potable water and the collection and treatment of wastewater.
Environmental Policy and Institutional Strengthening. An IDB loan is supporting a $32 million effort to develop a comprehensive environmental regulatory framework and accompanying environmental standards. This project is being developed by an international consortium of companies led by the U.S. consulting firm Tetra Tech, Inc.
Environmental Management of the Matanza-Riacheulo Basin. The IDB is supporting a $700 million project to clean up the Matanza-Riacheulo River Basin. This project focuses on reducing the discharges of untreated municipal and industrial waste in the river basin, closing at least 50 percent of the unregulated dumps, and establishing an environmental monitoring program.
Cleanup of Dock Sud. Dock Sud is one of the most heavily contaminated sites in Argentina. Located just outside of Buenos Aires, it is home to two major oil refineries and a number of petroleum storage facilities. The U.S. Trade and Development Administration funded a $750,000 feasibility study for the cleanup of this area. The study was conducted by Techint Brown & Caldwell, a joint venture between one of the largest Argentine construction companies and the U.S. firm Brown & Caldwell. The study identified between environmental investments, including remediation and plant modernization, totaling $200-$500 million.
Pollution Management Project. The World Bank is supporting a $18 million program to encourage environmental improvement at different levels. This project has four components: 1) strengthening the Secretariat for Natural Resources and Sustainable Development and integrating innovative environmental management programs into Argentina's environmental regulatory system; 2) instituting a program of integrated urban-environmental management, focusing on the municipalities of Campana and Zárate; 3) improving air quality management for Buenos Aires; and 4) promoting sustainable development of natural resource areas such as Puerto Madryn and the Patagonia coast.
Flood Management and Environmental Cleanup of the Reconquista River Basin. The Ministry of Public Works of the Province of Buenos Aires is developing a project for flood control and environmental cleanup of the Reconquista River basin. This $300 million project is financed by the Overseas Economic Cooperation Fund of Japan, the IDB, and the Province of Buenos Aires.

In addition to these development bank-driven projects, commercial factors are beginning to influence the environmental decisions in Argentina. These factors include:
--The high cost of treating waste relative to pollution prevention programs
--Increasing market pressure to adopt environmental managements systems (e.g., ISO 14000), particularly among export-oriented companies
--Requirements for local branches of multinational firms to comply with environmental guidelines issued by corporate headquarters
--The growing number of environmental liability cases considered by Argentine courts
--The increasing environmental awareness of the general population affecting firms’ business image
--The Southern Cone Common Market Agreement (Mercosur) requirements for environmental performance affecting Argentine exporting companies.

While many companies have chosen to wait for new environmental regulations to be promulgated, others, led by some of Argentina's largest companies, are taking a more assertive approach. For example, in the Campana-Zarate region, there is a private sector initiative to incorporate sustainable development principles into the regional industrial policy. The initiative is lead by the Comité Inter-industrial de Conservación Ambiental (Inter-industrial Committee for Environmental Conservation), a group of 15 major companies- including chemical producers and refineries. Its members drafted the Environmental Care Agreement, which commits signatories to comply with environmental laws, focus on waste minimization, and cooperate with local government officials. They are also advocating the adoption of ISO 14001.

Due to these public and private sector initiatives, the environment has become a high priority in Argentina. The biggest demand is for infrastructure development, driven largely by the privatization initiative that is fully under way in the water and wastewater sector. The overall market for environmental technology and services in Argentina is already promising and will continue to grow in the coming years.

Political and Economic Overview

Argentina is the second largest country in South America, occupying most of the southern cone. Its population of 35 million is growing at one of the lowest rates in Latin America. The country has the highest gross national product (GNP) per capita and enjoys one of the highest standards of living in Latin America. In recent years, Argentina has become a solid and stable economy, making it particularly attractive for U.S. businesses.

Political Situation

Argentina, a federation of 23 provinces and the Federal District, has been under civilian rule since 1983 when the military ceded control to a democratically elected government. This has been the longest period of solid democratic governance in Argentina's recent history. President Carlos Menem, who took office in 1989 and was reelected for the second four-year term in 1995, has pursued profound political reforms, which included the adoption of a new constitution in 1994. The last elections for the Argentine Congress were held in October 1997. Although Menem’s Peronist party lost the elections to an alliance of the opposition parties, all the major parties have expressed commitment to continuing Menem’s market liberalization policy. The Constitution grants extensive rights to the provinces, which have their own legislatures and are ruled by an elected governor. The Federal District (Buenos Aires) has recently been given the status equivalent to that of a province, and it is governed by an elected mayor. In recent years, under decentralization policies even more responsibilities have been transferred to the provinces, including health care and education.

Economic Trends

When the Menem administration took office in 1989, the country was going through a period of uncontrolled inflation. While the first austerity and structural reform measures of 1989-1990 were largely unsuccessful, the 1991 Convertibility Law played a crucial role in stabilizing the country's economic situation. The law tied the Argentine peso to the U.S. dollar and prohibited the creation of money except to buy foreign reserves. Besides the adoption of the Convertibility Law, the government has undertaken a number of structural reform efforts, including the privatization of most public sector utilities and services. Other reforms implemented by the Argentine Government include institutional reforms of the federal government, restructuring of liabilities with domestic and foreign creditors, and reforming the tax penalty law to improve the efficiency of the tax administration. Argentina was one of the countries in Latin America to suffer most from the Mexican peso devaluation in 1995. The economy shrank by 4.4 percent when $8 billion in deposits fled the country. Supported by the United States, Japanese, and European governments and international financial institutions, the Argentine Government did its best to preserve its anti-inflation plan. The government adhered to the Convertibility Law by tightening its fiscal policies. As a result, Argentina recovered quickly. The economy, now one of the strongest in Latin America, grew between 3 and 4 percent in 1996, with inflation remaining under 1 percent.

Table 1- Economic Indicators for Argentina

	1992	1993	1994	1995	1996	1997 (est.)
GDP ($ billions - current)	226	257	281	276	282	310
GDP Growth Rate (real %)	8.7	6.0	7.4	-4.4	4.3	5.0
						8,900
Inflation (%)	17.5	7.4	3.9	1.6	0.5	1.0

Source: Argentina Business Fact Sheet. U.S. Department of Commerce, November 1997.

The prospects for economic growth for the next decade are good. Upon his reelection in 1995, President Menem renewed his mandate to continue economic reform through 1999 and to retain monetary convertibility with the Argentine peso and the U.S. dollar. In turn, price stability and investor confidence have created a favorable climate for foreign investment.
Economic Integration. In addition to pursuing rigorous economic reforms, Argentina has become a full-fledged member of the global trade community. By far the most important international economic agreement for Argentina is the Southern Cone Common Market Agreement (Mercosur) with Brazil, Paraguay, and Uruguay. (Chile recently joined as an associate member.) Mercosur was instituted in 1995 and covers more than 200 million people and an aggregate GDP of more than $900 billion. The Mercosur member countries have established a trade commission to supervise the implementation of common trade policies. Most products enjoy total free trade within Mercosur, and there is a common external tariff.

For Argentina, joining Mercosur has improved the country's industrial productivity and contributed to the dynamic growth of foreign trade with Mercosur partners, especially Brazil. The exports to Brazil, for instance, now account for more than 27 percent of Argentina's total export volume. The ultimate goal of the pact is to become a true common market, which would eliminate barriers to the flow of labor and capital among member countries.

Under the U.S.-Argentina Bilateral Investment Treaty of 1994, the United States enjoys national treatment in all sectors except shipbuilding, fishing, insurance, nuclear power generation, and uranium production. The treaty allows U.S. businesses to repatriate capital and remit profits back to the home country without limits. In 1995, Argentina also signed a bilateral free trade agreement with the European Union.
Trade Policy. Argentina has benefited greatly from the Mercosur regional economic integration. Total exports almost doubled from $12.2 billion in 1992 to $23.8 billion in 1996. Imports also increased dramatically, growing from $14.8 billion in 1992 to $23.7 billion in 1996. This increase in imports reflects Argentina's continued demand for capital goods. Both in 1995 and 1996, Argentina had a slight trade surplus after many years of trade deficits. Exports of U.S. goods to Argentina exploded from $1.1 billion in 1990 to $4.7 billion in 1996, an increase of more than 300 percent. The United States has run a trade surplus with Argentina for 21 of the last 26 years. It equaled $2 billion in 1996.

Most import products are subject to the Mercosur common external tariff that runs from zero to 23 percent for most goods. Specifically, import tariffs in Argentina are 12 percent for capital goods and 15-20 percent for consumer goods on CIF (cost, insurance, and freight) value. In addition, there is a “statistics” fee of 3 percent on CIF value and a 21 percent value-added tax (VAT).

The southernmost Argentine province of Tierra del Fuego established a free trade zone allowing duty-free imports of foreign goods destined for specified high-priority industries and other tax breaks. National legislation recently passed authorizes the creation of free trade zones in all Argentine provinces.
Foreign Investment. Between 1990 to 1995, Argentina accumulated $16.5 billion of foreign investment. The main investment sectors are telecommunications, energy, food processing, automobile manufacturing, home appliances, retailing, health care, and hotels. Investments in water and wastewater infrastructure, a large part of which is contributed by foreign corporations, doubled between 1994 and 1997 to almost $300 million. The primary sources of foreign investment in Argentina are the United States, Brazil, Chile, and the European Union countries. The United States is the main foreign investor in Argentina, responsible for 50 percent of Argentina's foreign direct investment. In 1996 alone, U.S. direct investment amounted to $10 billion. This trend is likely to continue.

Table 2- Argentina's 1998 Environmental Market Estimates

Market Segment	Market Estimate (US$ millions)
Municipal Water Supply and Wastewater Treatment	505
Industrial Wastewater Treatment	145
Air Pollution Control	45
Solid Waste Management	70
Hazardous and Medical Waste Management	55
Consulting, Monitoring, and Laboratory Services	65
TOTAL	885

Source: Hagler Bailly, 1997.

The attitude of local businesses toward foreign investment has improved considerably in recent years, in part due to government policy and legislation encouraging foreign investment, which receives national treatment in virtually all sectors of the economy. Foreign investment is particularly welcome where special technology or risk capital is required.

Environmental Market Overview

The country's political and economic stability, greater prosperity, and decentralization of authority create an attractive business climate for environmental technologies and services. As Argentines enjoy the benefits of an improved economy and greater democracy, they will demand cleaner water and air, and greater protection of the natural resources. Much of Argentina's market is driven by development bank funding and by investments in the water sector, prompted by the recent release of concessions to private sector companies. In the private sector, the larger companies have begun to implement voluntary programs to manage their environmental issues in order to prevent future overregulation and environmental liability. Environmental concerns from trading partners, especially Mercosur member countries, are also prompting increased environmental protection efforts in Argentina.

Market Estimates

The 1998 estimate for the environmental technology and services market in Argentina is $885 million. Table 2 provides a breakdown by market segment.
Water Supply and Wastewater Prevention/Control. The market for water supply and wastewater prevention and control, which includes municipal and private clients, currently accounts for 57 percent of the total Argentine environmental market. To promote investment in Argentina's seriously deficient water sector, the government launched a privatization effort in the early 1990s. The first system to be privatized was in Buenos Aires. The Aguas Argentina concession remains one of the largest in the world and serves as a model for other concessions in Argentina and in other countries. A number of provinces currently have plans under way to award concessions for potable water delivery and sewerage collection and treatment systems. Initial investments in these systems range from $20-$150 million. Despite the opportunities privatization has created, U.S. companies may find breaking into the market for such systems somewhat challenging, given that project specifications have typically required experience managing private sector systems-which few U.S. companies have. To date, the main concessions have gone to consortiums led by the French water companies Lyonnaise des Eaux and Champagne Generale des Eaux. Several U.S. entities are pursuing alliances with these companies.

U.S. firms are very competitive in supplying technologies to the industrial sector. The best prospects for U.S. companies are in technologies for the removal of heavy metals, fat, oil, grease, and bacteria and pathogens from industrial wastewater. Pretreatment and pollution prevention technologies are also increasingly in demand.
Air Pollution Prevention and Control. Air pollution has received relatively little attention in Argentina, largely due to the favorable geographic conditions of Buenos Aires. The flat relief of the city and its surrounding plains allows air pollutants to dissipate quickly.

Data on air emissions is notably lacking. To correct this, an air quality monitoring network is being established in Buenos Aires. There is some investment in air pollution control equipment by larger companies in conjunction with their ongoing environmental improvement efforts. The air control products with the best sales potential are air monitoring stations and industrial emissions monitoring systems. The chemical, petrochemical, and mining industries are good candidates for them.
Solid and Hazardous Waste Management. Solid and hazardous waste management has received greater attention from both the national and local governments in recent years, and there are efforts under the various river basin cleanup programs to close down many of the highly contaminating, unregulated dumps. Much of the waste collection and disposal is performed by private companies. The Argentine Congress passed comprehensive hazardous waste law requiring “cradle to grave” waste tracking in 1992. However, many provinces are not enforcing the law. While there is some recycling of waste solvents and oils, there are not enough facilities to treat and dispose of these and other hazardous wastes. The products with the best sales prospects in the market for solid/hazardous waste management are recycling and waste minimization technology, and technology to store and treat hazardous waste on-site.
Environmental Services. Several U.S. companies have successfully entered the environmental services market and taken a leading role in conducting environmental impact assessments (EGAS) and baseline studies both for private and public sector clients. A good entry strategy is to provide services to multinational corporations operating in Argentina as these firms often hire consultants from their U.S. home office to design pollution control systems and provide environmental management consulting. Another good opportunity for U.S. companies is to provide environmental insurance. Recently proposed environmental legislation obligates generators, transporters, and treaters of industrial, pathological, and hazardous wastes to contract insurance for their operations.

International Competition

U.S. companies are making inroads in the Argentine market. A few have taken advantage of multilateral development bank projects to get into the market and have been able to build a client base from the work they did on those projects. While the large European water companies have traditionally dominated the water sector segment, U.S. companies are finding niches. U.S. equipment sales are competitive, particularly in the water treatment market. German, Swiss, and Italian firms are also very active in the environmental market. The Swiss are noted for their air control and monitoring equipment and incinerators, and the Germans for their soil remediation technologies.

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