[news] Industrial policy: the debate on the effects of promotion regimes

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ÓRDOBA.– In the absence of a consistent and long-term industrial policy, promotions, incentives and special regimes have been implemented in Argentina for years at the different levels of the State, without coordination. Does that work? The economists consulted by LA NACION emphasize that without an organized macro there is no development strategy. And they agree that the instruments must be decided jointly, evaluating whether they are justified and that, afterwards, their effects must be measured.

In the 2023 Budget project, the Executive Branch included a table with all the promotion regimes to be reviewed, with tax exemptions and differentiated tax schemes included. There are two regimes that are commonly referred to: that of Tierra del Fuego and that of the textile industry. The first arose to try to po[CENSORED]te the territory and was extended. The last extension was approved last October and took the validity to 2038.

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The 2023 Budget initiative indicates that the Nation would stop collecting $519,720 million, equivalent to 0.35% of GDP ($236,300 million for the release of VAT purchase and sale, $88,571 million for the exemption of Profits, $91,873 million for the rights of importation, and $102,941 million for the reduced rate of internal taxes on electronic products).

The textile regime, which includes the footwear sector, was created at the beginning of 2021 and covers La Rioja and Catamarca; coexists with the Promotion of Employment Generation in the Norte Grande, which provides for the reduction of employer contributions for new employees until December 2023. The Pro Tejer Foundation now asks to extend it until 2026, in addition to the periodic update of non-refundable contributions ( NRA).

Marcelo Capello, an economist at the Ieral, describes that Argentina recurrently finds bottlenecks in the international reserves of the Central Bank for two main reasons: the anti-export bias generated by public policies, and the outflow of capital due to mistrust and uncertainty that prevail in Argentina.

The anti-export bias, he says, is caused by several factors, such as tax pressure, infrastructure problems, excessive regulations, measures that restrict or hinder operations, and the increase in import prices.

In this context, there are plans to promote regions, sectors or activities that "also help to aggravate this bias." For Capello, the Fuegian system is along these lines, which encourages the manufacture of certain electronic items "artificially and excessively making imported products or products manufactured in other provinces more expensive."

Among this year's novelties, at the end of the first quarter, Newsan announced that it began producing Noblex cell phones with the goal of reaching 200,000 units per year at its Ushuaia factory. In mid-August, Etercor-Solnik (Xiaomi's official distributor in Argentina) began producing the Redmi Note 11 model in that city; it invested $600 million in a first stage and then plans to add $1.5 billion.

The Fuegian regime – born in the 1970s for geopolitical reasons – costs each year, in terms of fiscal resources, the equivalent of the Nation's spending on housing and urban planning throughout the country. "Indeed, that industry was developed that substitutes imports, but practically does not export," says Capello.

 

 

 

Manufacturing exports per capita in recent years are equivalent to 40% of what they were 12 years ago: “The Fuegian does not export because it is a regime that was designed only to substitute imports; its products are expensive for the international market, because its production costs are among the highest in the country”, says the economist.

He adds that local consumers and businesses pay more for electronics. "It negatively affects the average productivity of the po[CENSORED]tion and the Argentine economy, because notebooks, cell phones and other important products are paid more expensive (or are of lower quality)," he summarizes. Eliminating the regime would cause a shock, so the path is a "gradual reduction, which implies compensating with investments and other policies," concludes Capello.

The economist Bernardo Kosacoff recalls that, as the years passed, the promotion was used for a different purpose than the original. In industrial matters, the results are heterogeneous. There are companies that have “advanced”, but, he says, the incentives are to “assemble”, with “high transportation and all kinds of costs”.

Gastón Utrera, president of the Economic Trends consultancy, agrees with this analysis, which places the Fuegian regime at the "most controversial and least sustained" extreme, because, he says, "it makes no sense to assemble appliances" that must travel thousands of kilometers to reach to consumption centers. According to him, this policy should be directed to sectors based on natural resources and with potential.

Need for coordination
Without macro consistency there is no development strategy, emphasizes Kosacoff, who says that the Argentine case is "dramatic" and insists that, before establishing specific promotions, each instrument must be evaluated and looked at jointly: "Every instrument does not have to act state level on their own; You have to measure efficiency and do public-private institutional work to determine if it is justified”. In the country there are overlapping policies, different agencies that have similar plans. “Making public policy is evaluating, innovating, promoting value addition and not just transferring resources”, he summarizes.

From the Argentine Industrial Union (UIA), the economist Diego Coatz states that "always" a "general, sectoral and federal" productive policy is required. He adds: "There is no capacity to develop without this policy, especially in the new world configuration." He adds that the different state levels must “articulate” actions; that the decisions must be “of the State and not of the government” and have a comprehensive scope. “The first thing to attend to is the macro, to gain competitiveness, with trade rules, foreign policy and a certain tax standardization and simplification,” he says.

“It is necessary to concentrate on transversal policies that order, rather than thinking about specific issues of incentives that generate, perhaps, more distortions. You have to distinguish; not everything is the same”, says Utrera. As a counterpart to the Fuegian regime, he mentions the Knowledge Economy Law, which was derived from the Software Law. For Utrera, the question must be whether we have potential without promotion. And he replies: “Yes, but we can accelerate development and we have to measure the results”, he says.

Coatz shares the idea; he emphasizes that laws often require an update, but warns that promotions should have an end date. “In countries like ours, they end up being regimes that are cut off from macro tax policy,” he warns.

What and how to do in Argentina until the macro is resolved? For Capello, in a country with difficulties in generating foreign currency by exporting, the priority should be to ensure competitiveness for these sectors and “genuinely” substitute imports. The Fuegian regime, he says, must be "gradually dismantled, more quickly for the products that most harm competitiveness." And policies should be implemented to help generate or consolidate activities for which there are competitive advantages.

There is a consensus among the sources that the private sector is calling for lower taxes for lack of better ideas.

The automotive regime that the country has with Brazil within the framework of Mercosur emerged to move from managed trade to free trade. "It was born before the block, as a complementary design - Kosacoff describes -. It became more global and has lights and shadows.” Coatz adds that there are no "productive policy development manuals", but that without these policies "there is no country that can get ahead".

 

 

The budget project presented by Sergio Massa includes all the promotion regimes to be reviewed, tax exemptions and differentiated tax schemes.
Due to the debate around the fact that the prices of textile and footwear products, which are protected, rose 118% in the last year, as of September and according to Indec, in ProTejer they argue that the increase in the dollar and the costs they are the key. Its president, Luciano Galfione, adds that the price of clothing measured by the CPI has "little to do" with national production. “It is essentially imported clothing, because it is heavily based on clothing from shopping malls and, precisely, everything imported is what has increased the most due to restrictions on access to foreign currency,” he points out. Imports must be financed 180 days after nationalization, which implies a direct cost of 35% in dollars, which goes to the final price.

He stresses that, given the shortage of foreign currency, the supply of basic raw materials that are not manufactured in the country should be prioritized. He says: “This would save foreign currency and, furthermore, anchor prices of semi-finished products to the official dollar. And it would boost national production and Argentine work much more.”

 

https://www.lanacion.com.ar/economia/politica-industrial-el-debate-sobre-los-efectos-de-los-regimenes-de-promocion-nid16102022/