Argentina’s protectionist moves hinder future growth of e-commerce

Emerging markets have taken quite a beating on Wall Street recently and Argentina is no exception as its currency witnessed an 11% decline last week. However, each individual emerging market is unique and Argentina is no exception to this.

Argentina has been using its currency reserves to pay foreign debt since its economic collapse in 2001-2002, and has found it difficult to attract international loans at market rates. In fact, Argentina’s reserves of hard currencies dropped by 30% last year.

To keep currency reserves from falling further, Argentina has announced yet additional restrictions on imports, including a 35% tariff on credit card transaction abroad and on online shopping. Anyone who purchases items through international websites such as Amazon or eBay will now need to sign a declaration and produce it at a customs office, where the packages have to be collected. Individuals are allowed to buy items up to the value of $25 from abroad tax free every year. Once the $25 level is reached, online shoppers in Argentina will then pay a 50% tax on each item bought from international websites.

Instead of helping Argentina’s economic situation, restrictions such as these will instead exacerbate an already difficult situation and as the country turns further inward and embraces further protectionist measures, Argentina’s status as an “emerging market” could even be questioned. In fact, in the recent Agility Emerging Markets Logistics Index, the country tumbled 6 spots to the 25th spot.

Included in the definition of an “emerging market” is the emergence or expansion of a middle class. According to the Economic Commission for Latin America and the Caribbean, while Latin America’s middle class has collectively increased by 56m people since 1999, Argentina’s middle class dropped from 56% to 52% of the country’s total population.

A declining middle class combined with import restrictions bodes for limited, if any growth for Argentina’s e-commerce market.

According to eMarketer, Argentina’s B2C e-commerce market is still in its early stages and is estimated at about $3.3bn for 2012 with growth expectations of 15% to $3.8bn for 2013. Cross-border online shopping is also beginning to increase in Argentina, with about 1.5m Argentinians purchasing items from foreign websites in 2013, about double the number in 2012. However, as we saw earlier in this brief, cross-border online shopping will likely come to a halt thanks to recent government restrictions. This is unfortunate particularly as product selection is already cited as a hurdle to e-commerce.

Why is e-commerce important? Countries such as China see it as a means to not only encourage domestic spending and to help balance its trade more evenly between exports and imports but also to encourage the growth of small to medium size businesses. Likewise, the same can occur in Argentina where its exports outweigh imports and its small to medium size business must battle government restrictions that are prohibitive to such growth.

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