Argentina is seeing an increasing government tendency towards intervention and regulation of economic activities. Almost all aspects of economic activity are currently being affected. Measures include restrictions on transfers of funds abroad, restrictions both on the import and export of goods, limitations on the acquisition of real estate by foreigners, and increasing regulation and scrutiny of companies that carry out certain activities such as broadcasting and oil & gas. These are only some examples.
Regulation and government intervention per se should not necessarily have a negative impact. However, when these create uncertainty, economic activity is invariably affected. The higher the uncertainty, the higher the negative effect. This applies especially to transactions that require a huge investment and a long ROI period.
Uncertainty is the main challenge Argentina faces at the moment. Profitable business opportunities exist, but the analysis of the risk involved must increasingly include an evaluation of political and macroeconomic aspects of the proposed transaction.
Due diligence in Argentina should not only include the typical range of issues, but also a much broader scope of questions, such as: Is this company in a strategic sector that may result in delays or non-approval of the antitrust authority? Is this a real estate company that is being purchased by foreigners? Are the prices of this company's products regulated? Are there minimum investment requirements for this activity? How do foreign exchange restrictions affect funding of the activity or distribution of dividends? Are there restrictions on the export of the target company's products or on the import of raw materials? Will the regulators limit the exit opportunities of the investment? Again, these are just some examples.
One key point to bear in mind is that it is important to understand not only what the law provides, but more importantly how the law is applied. In some cases unwritten principles override written regulations. Investors not only need to review the legal map, they also need to interpret it with locals who know the landscape and have experienced the journey many times before.
Originally published in Faces of M&A 2012 (Financier Worldwide, 2012).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
