LATAM e-News – Special Edition Argentina
Arturo Garcia Rosa
President & Founder, SAHIC
Hotel business and tourism in post-2015 Argentina
In the context of an economy that according to many people does not reach the end of taking off, with inflation beginning to slightly lower but still hitting the pockets of those who have less and also of those who have more, and where those who generate genuine employment are undergoing a no less complicated context, it seems difficult to imagine a promising future for a business that, in addition to the aforementioned ups and downs, suffers the consequences of a delayed exchange rate which entails a difficult situation of relative prices complicating the business equation.
The thing is that when relative prices are affected, it definitively leads towards a more unequal society and it makes impossible to imagine the chance of generating a thriving economy, which is the base for development in every society, as it is to maintain its fundamental values, without which it is impossible to imagine its existence.
Days ago, a renowned Argentine political scientist of Peronist root wrote that Argentina “is a society that is barely dreaming to stop its decadence”. Even when it may contain some truth, it may sound a bit extreme. However, Julio Bárbaro summarized this in an article where he does not deprive himself of pointing out what a large part of the Argentine population maintains as an indisputable truth, regardless of what the court can prove, intends to support or decides to demonstrate: “the Former president was undoubtedly corrupt. ”
The industry from 1991 to 2011
In 1998, that is, until before the recessive process that begun by the end of the second term of Peronist President Carlos Menem was settled, Argentina received for the first time in its history 3 million foreign tourists in the country.
These 3 million tourists showed that Argentina could almost double the arrival of travelers to the country in a period of only seven years: 1991-1998. But then the recession and the weariness of Menem’s second government with its corruption stories and the “mortal trap” of convertibility that he managed to deliver “wrapped for gift” to his successor Fernando de la Rúa, originated a period of retraction that lowered the arrival of tourists to 2.6 million, that later improved after 5 years and reached again 3 million tourists arrivals in 2003.
The beginning of Kirchner’s government, after the adjustment measures implemented by President Duhalde’s brief temporary position after resignation of President de la Rúa, marked the beginning of a new period of growth. This period had an impact on almost all aspects of economy, and especially on the development of the hotel and tourism business, which almost doubled the number of foreign tourists in a period of 8 years (2003-2011) and encouraged growth of domestic tourism while investments in the sector multiplied.
The critical 2011-2015 period.
As of 2011, the succession of a number of wrong measures including the known “clamp on the dollar”, the barriers to imports, the denial of the beginning of a major inflationary process and the lack of business climate in a framework of widespread corruption triggered the beginning of one of the greatest crises in Argentina. Crisis that the Argentineans clearly noticed, making visible their anger when deciding the change undertaken from December of 2015, when they refused to the continuity proposed by the ex- President Cristina Kirchner.
It was one of the most critical periods that can be remembered, where the business of hotels and tourism, among others, suffered one of the strongest and most regrettable tough periods to be remembered. While punishing those who invested in the country by subjecting them to coexist with an unprecedented cost increase, while expropriating a good part of their income through the seizure that was made by fixing an arbitrary rate in foreign exchange, on the other hand subsidizing the consumption of imported goods and services that Argentines very much consumed. High-end cars, fashion and luxury products, electronics and, of course, trips abroad, which multiplied to generate the largest tourist balance deficit to be remembered. A situation that still exists, even though the recovery curve is already becoming evident.
In fact, although the outflow of Argentines abroad continues to be significant thanks to a dollar that is held below the equilibrium of prices that supposes an annual inflation above 20%, the arrival of foreign tourists has begun to grow, which somehow begins to improve results in hotels, after spending very complicated years during the period 2012-2015.
The change from December 2015
The freeing of the foreign exchange market, the settlement of debt with holdouts, the return of Argentina to the exchange with the world nations and the return to dialogue, among other measures, introduced a new climate and modified the state of a situation that had become unbearable. Important, but not enough.
Having recovered certain basic issues that should have never been lost, the challenge is now to begin to grow. But work is not easy after the reached state of affairs. Beyond some periods of supposed economic bonanza, the reality is that as a society Argentina lives a process of decay that has moved the country away from that nation that seemed ready to be one of greatest in the globe to turn it into an eternal project in development. First, the military governments and then the democratic governments that followed them, each of the administrations on duty felt obliged to re-found a republic with a work that is never complete, probably because of the lack of convergence in setting major common objectives that exceed the mandate of a government. Argentine society has much bigger dreams than those of only stopping that decay. The country demonstrated this clearly when surprising almost everybody and, against all the supposed evidences, decided to change the course initiated in 2003 with the arrival to the presidency of the deceased President Néstor Kirchner, electing as President to the man that showed the possibility of initiating a resounding change of course.
The current industry scenario
Let’s resume the challenge of imagining a promising future for the business of hotels and tourism in Argentina.
As for the current scenario of the hotel and tourism business, as has been said, the number in tourist arrivals begins to improve, occupancy of hotels as well. The measure of VAT return on accommodation of foreign tourists implemented since the beginning of 2017, a measure that had been sleeping the dream of the just for over fifteen years, has brought another breath of fresh air for an industry that has so much to contribute in the way to recovery of the country.
Tourism in Argentina was able to reach almost 6 million arrivals in 2014, which made the country the regional leader to later start an annual decline that seems to be finally reversed, even if timidly, this 2017. Then surely Argentina will occupy the third position behind Brazil and Chile, a country that has been going up in the last years mainly driven by the strong increase of Argentine visitors that turned Santiago into “South American Miami”.
Business in post-2015 Argentina
The improvement that is being achieved, although not too significant, reveals more than encouraging signs. The thing is that it is basically supported by a clear improvement in the corporate segment due to the interest aroused in foreign investors by the opportunities in Argentina. While there is some truth, and it has been made clear during the visit of the German chancellor to Argentina, the investments will come after the Argentines decide to show that they are also willing to invest. What investors are really waiting for is that the midterm elections next October confirm that the path initiated by the current administration will continue over time, beyond the nuances of the changes that a democracy implies.
For the business of hotels and tourism, the signs are more than clear.
Regarding hotel chains, aside from the interest that almost all of them have over the future of the business in Argentina, Wyndham group CEO Geoff Ballotti recently announced that they will establish their regional operations center in Buenos Aires.
As for investors, the Sutton Group – an entrepreneurial group with excellent reputation in different business niches – continues to invest heavily in the hotel business. It has just inaugurated the luxurious Alvear Icon Hotel in Puerto Madero with an investment of US$ 110 million. Also, the group has already launched the remodeling of the traditional former Marriott Plaza Hotel in Buenos Aires. The SLS Hotel is already under construction in the luxury complex raised by renowned developer Jorge Pérez from Related Group and the Madero Harbor group announced the completion of the Viceroy Hotel Buenos Aires. All of them are renowned business groups accustomed to successfully crown their ventures, many of whom have anticipated what later would become a trend. Other investments focused on different segments and markets are advancing in the same way and, probably before the next election, a major investment in the sector is revealed, which will surely be in the spotlight since it would be called to modify an important area of Buenos Aires that is not precisely Puerto Madero.
There are reasons to see that the future of the tourism business will be one of the leaders in the growth process during the years to come.
The Ministry of Tourism is talking about a goal of 9 million foreign tourists and 70 million national tourists by 2019, figures that are not only possible but that could even be exceeded to reach 10 million arrivals of international tourists. Thus Argentina would become the second receptive market of Latin America, behind Mexico with about 35 million international arrivals.
Everything seems to be ready for a new tourism boom in Argentina.