Nearshore Americas

Argentina’s ‘Knowledge Economy Law’ Creates Great Expectations, Challenges

Argentina’s senate has approved the proposed ‘knowledge economy law’, aimed at incentivizing investment in the sector, doubling the number of jobs and generating US$15 billion from exports by 2030.

The law was drafted with the contribution of entrepreneurs and engineers, and includes a tax framework aimed at allowing the 11,000 companies engaged in the knowledge economy to compete globally, “providing strong support for productive activities characterized by an intensive use of technology and which requires highly qualified personnel”, according to a government statement.

The new law is also recognition of the economic importance of the knowledge economy, and which created 65% more jobs than the remainder of the country’s productive sectors between 2007-17, and with growth over that period of 70%, compared with 12% for the rest of the economy as a whole, the statement adds.

According to Argentina’s ministry for manufacturing, in 2017 the knowledge economy accounted for 14% of the country’s total employment, and its exports increased six-fold between 2003-15, according to data from the Inter-American Development Bank (IDB).

The knowledge economy includes software, robotics, biotechnology, the aerospace and satellite industries, the audiovisual, electronics and communications sector, geological prospection services, outsourcing, research and development, nanotechnology and nanoscience.

Around 215,000 people are currently employed in such industries in Argentina, and which the government expects will be doubled by 2030 as a result of the new legislation. According to a report drawn up by Argentina’s entrepreneurs’ association (ASEA) and software chamber (CESSI), the country has the potential to increase employment in the sector by 43%, and exports by 183%, by 2030.

“We consider the new law to be a major move forward, and it will have a notable impact on the industry,” Alejandro H. Ramírez, a partner at law firm Highton, Marinelli & Ramírez in Buenos Aires, told Nearshore Americas.

Alejandro H. Ramírez, a partner at law firm Highton, Marinelli & Ramírez

He said that the legislation is an extension of the country’s 2004 software law, by expanding coverage to other sectors, such as biotechnology, robotics, artificial intelligence and outsourcing.

“That law needed to be updated, and this is therefore a major step forward as it is for the long term and is not a short-term measure, and there is much expectation among entrepreneurs and investors,” he said.

He said the law is also seen by ASEA, of which he is a representative, as having the potential to boost the creation of startups.

“Argentina has a lot of talent and entrepreneurs, and there are many examples of big ideas coming out of the country,  but the country needs venture capital investment, as there is still no culture of investing in startups in Argentina,” he said.

The law also comes at a time when Argentina’s exports of knowledge-based services (KBS) have fallen, and which totaled US$1.3 billion in the third quarter of last year, a 15.6% year-on-year drop, according to the labor and production ministry’s Knowledge Economy Observatory’s most recent report, published in February.

That report also highlights that average annual salaries in the sector in September 2018 were US$18,100, a 7.5% year-on-year drop, and which it attributed to the appreciation of the Argentine peso.

Ramírez also lamented the country’s recurring cycles of economic crisis as an impediment to investment.

“We have to do many years’ work to recover investor confidence in the country, as things cannot be changed from one day to the next,” he said.

“However, the knowledge economy has the potential for exponential growth, creating many jobs very quickly.”

Nevertheless, nurturing talent to meet the demand for personnel as a result of such growth could prove to be a challenge, according to Marcelo Nuñez, a partner at law firm Pérez Alati, Grondona, Benites & Arntsen in Buenos Aires.

“The new law widens the spectrum, and we are no longer solely talking about software, and one of the challenges is that, as a sector in constant innovation, we don’t know exactly what jobs will be required,” he said.

Marcelo Nuñez, a partner at law firm Pérez Alati, Grondona, Benites & Arntsen.

“There are excellent courses in Argentina, but there are many challenges, and we will have to see if there is sufficient talent to meet the demand, if the country is capable of producing the number of highly skilled employees required,” he said.

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Argentina has been able to establish itself as a hub for knowledge-based services (KBS) and the success of local startups such as Mercado Libre, software development company Globant, online travel agency Despegar and online marketplace OLX are evidence of the country’s potential, but the growth of the sector lags behind that of other countries in the region.

Argentina’s KBS sector grew by just 0.7% between 2011-17, well below the worldwide average of 6.9%, and below that of other countries in the region, such as Costa Rica, where the industry registered growth of 12.1%, and Colombia, with 11.8%, according to the World Trade Organization.

“The law aims to convert Argentina into a hub for technological development and innovation, and a magnet for investment, but regulations are still lacking regarding certain aspects of the knowledge economy, and which would allow us to understand the real impact the law will have,” Nuñez said.

“But without a doubt it will have a very significant impact for many.”

Adam Critchley

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