Argentina - environmental industries sector profile



Argentina has one of the best-developed environmental protection regimes in South America. The environmental sector is growing again after the economic crisis of 2001-2002, and the Argentine government was expecting the overall economy to grow by 9% in 2007. Argentines are still striving to meet international environmental standards by refurbishing their plants and improving their products intended for export markets. On the demand side, there is growing environmental awareness amongst the general population, while on the supply side, Argentina needs basic and cost-effective environmental solutions.

It is very difficult to measure the size of the Argentine market for environment-related equipment and services because many local manufacturers refuse to reveal production, sales and investment figures considered confidential. The information that trade associations and government agencies may have is speculative at best. To complicate matters further, statistics that are published normally include a much broader array of products than simply those directed at the environmental sector. For example, import figures under various Harmonized System (HS) codes include imported goods of other industry sectors together with those of the environmental sector. Therefore, investment by operators and the government becomes a better gauge to measure market size, however speculative this method may be. Educated guesses place Argentina's environmental industry market at approximately C$2-$2.5 billon [2] and Canada's market share is approximately 2% (see table in section 4).

Demand for environmental products and services stems from the petrochemical, pharmaceutical, and oil and gas industries, as well as from operators of water and environmental services, hospitals and municipalities. Mining is also a sector on the rise. Customers are primarily large multinational corporations operating in Argentina that can afford to buy more sophisticated environmental technologies. Medium-sized and smaller firms tend to be less polluting but have difficulty gaining access to financing. The public sector is also a client for solid waste management development, environmental studies and projects. We believe there are opportunities for the Canadian environmental industry mainly with regard to exploration of natural resources technologies.

Market and Sector Challenges

The environmental sector in Argentina has undergone many changes over the last five decades, moving first from a centralized administration of resources to the administration of services by provincial governments. Further changes created concession contracts for private operators, and then a return to ownership and operation by the government. Investment in maintenance and expansion of facilities fluctuated greatly during these years, and came to a virtual stop during the current decade. It is expected that this risky situation will soon be reverted, offering good opportunities for Canadian exporters of environmental equipment and technologies.

Though there is a federal Environment Secretariat, provinces have jurisdiction over environmental matters, including environmental impact assessments. Even when environment legislation exists, implementation, enforcement and consistent application of rules can vary.

Financing is the most significant obstacle to penetrating Argentina's environmental market, with the exception of purchases and projects involving international financial institutions (IFIs), multinationals and/or leading local companies. Market opportunities have been stagnant due to a lack of investment by the private and public sectors in addressing environmental issues. Although companies are under increasing pressure to improve their environmental performance, they are reluctant to do so because it involves higher production costs and a possible loss of market share.

The recommended way to approach the Argentine market for environmental technologies is through the appointment of an agent or distributor. Training of sales personnel of the agent or distributor is of utmost importance. Proximity and language are key issues in such instances. Given the return to public ownership, most purchases of large items will be done through public tenders. In all cases, goods imported from Mercosur member countries (Brazil, Paraguay, Uruguay) are duty free. For major service contracts, including IFI projects, companies should partner or create a strategic alliance.

In terms of Canadian interest within the market, the challenges associated with this sector are mostly related to increasing market share. In the past years we have observed a decline in the interest of Canadian environmental firms in the Argentine market. Small and medium-sized Canadian firms, in particular, often cite lack of resources to pursue new opportunities. At the same time, European and American companies have been very aggressive in the market.

In contrast, local environmental firms focus on the services sector. Argentine firms only provide the most basic effluent treatment equipment and non-hazardous waste disposal services and equipment, or so-called end-of-pipe solutions.

In terms of water treatment related equipment, U.S. exports to Argentina accounted for nearly 29% of the total import market in 2006. Brazil also has a substantial share of the market, due to its proximity and its exemption from import duties under Mercosur laws. Spain and France were also strong competitors, operating three of the largest water utilities in Argentina until very recently. China is emerging as a growing supplier in this sector, and its share may increase even further if Chinese companies continue to make investments in Argentina. Denmark is also a strong supplier of centrifugal pumps and filter presses. The strongest competition, however, comes from local industry. There are literally thousands of small and medium-sized industrial companies in Argentina, as well as several larger local manufacturers, that supply a broad range of equipment to the water sector. This includes but is not limited to steel pipe, plastic pipe, and various types of valves and pumps.

The market for waste-handling equipment in Argentina is mainly supplied by Argentine companies or foreign companies located in Argentina. There are very specific needs for solid urban waste (SUW) equipment. Competing suppliers of waste-handling equipment include Terex, New Holland, Liebherr, Komatsu, Daewo, Caterpillar, Case and Volvo. Much of this machinery is produced in Brazil and exported to Argentina taking advantage of Mercosur's 0% import duty. Smaller equipment, such as trucks, containers, compactors, and chippers for branches, are usually produced and sold locally.

For air pollution control, Swiss firms are predominant in the supply of incinerators and furnaces, while Canadian and Australian companies lead in mining environmental technology, and German firms lead in soil treatment. An increasing number of U.S. firms are showing an interest in the market.

Sub-Sector Identification

The sub sectors defined for Argentina are water and wastewater treatment, accounting for the largest share of Argentina's environmental market, followed by solid and hazardous waste treatment, including treatment for soil contaminated by oil and petrochemicals, and air pollution control.

Specific Opportunities - Sub sector

Water & wastewater technologies

An announcement by AySA (Agua y Saneamientos Argentinos, a public company for water provision in Buenos Aires) in early 2007 that it will invest roughly US$3 billion in water and sewers in the next five years may offer a reasonable basis for estimating the market. It would be reasonably safe to predict imports of at least US$76 million for the coming year with virtually zero investment in new plants or in expansion of transportation and distribution facilities in the last year. Increasing figures can also be expected as investment by utilities, spearheaded by AySA, picks up. AySA was expected to present a plan to the Ministry of Federal Planning by mid-2007, to include basic infrastructure, treatment plants and pipeline networks. AySA will reportedly contribute US$50 million of its own capital, while financing for the rest will come from the federal government, the Government of the Province of Buenos Aires, the Government of the City of Buenos Aires, and the municipal governments of the suburbs served by AySA. Two thirds of the money will be used for sewers, and one third for water treatment and distribution facilities.

Solid waste management

At present, a national SUW management program is under scrutiny by the Secretariat of the Environment through a pilot project in the provinces of Chubut and Tucuman. This World Bank-financed plan aims to eliminate the abundant open-air dumps. It involves the creation of several separation plants in each of the provinces to process 500-800 tons of solid waste per day. In principle, this represents an opportunity for suppliers of waste-handling equipment, as the provinces lack the technologies and equipment to carry out the required processes in accordance with international standards. The current pilot project in Chubut and Tucuman will eventually be the model for a nationwide project that will divide the provinces into jurisdictions responsible for contracting companies to collect, transport and dispose of SUW.

Air pollution control

Air pollution problems are concentrated in and around Argentina's largest cities and industrial areas. Buenos Aires, Cordoba, Rosario and Campana have the most serious air quality problems, caused by the lack of emission regulation controls at industrial sites such as oil refinery, petrochemical, chemical, tannery, steel, sugar refinery, and pulp and paper manufacturing sites. The cement and concrete industry producers and waste management sectors are contributing to the battle against air pollution in Argentina. The increase in automobiles on the road is raising the levels of urban air pollution in large cities. Meanwhile, Argentina's natural gas vehicles sector is in need of technologies to convert diesel combustion cycles to use 100% gas or diesel/gas combination cycles. This challenge may lead the next cycle of this environmentally friendly technology into the region, most likely propelled by the trucking industry in Argentina and Brazil, which runs on diesel fuel.

Canadian Capability

Environmental industries represent the third-largest industrial sector in Canada. Canadian expertise in the environmental sector matches very well with the needs of the Argentine market. Canadian firms are able to offer a variety of environmental solutions, particularly in the areas Argentina has identified as being a priority, such as wastewater treatment, solid waste management and energy efficiency. Also, firms and consultants from Canada are most competitive in the areas of land management and wastewater treatment. Such companies that combine their technical expertise in these areas with the country-specific expertise of local partners will be well positioned to win international bids or contracts.

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