ARGENTINA INVESTMENT

Mendoza, at the heart of Argentina’s wine industry, has become a hotbed of international investment over the past decade or so – and there’s more to come, says Patricia Langton

At the annual meeting of the Great Wine Capitals in Mendoza last November, local business analyst Consejo Empresario Mendocino predicted investments of over US$100 million a year in the region’s wine industry until 2010, assuming no serious economic downturns.

The city of Mendoza became a member of the Great Wine Capitals (GWC) group in 2005, joining seven other cities linked to the world of wine: Florence, San Francisco, Melbourne, Bilbao, Cape Town, Oporto and Bordeaux, the source of the initiative back in 1999. GWC’s raison d’être is to promote the business and tourist interests of its members on an international level (for more information, see www.greatwinecapitals.com).

Regional promotional body ProMendoza, which works alongside Wines of Argentina, is very keen to attract a new wave of investors to Mendoza, home to 70% of the country’s wine industry.

Reel back a decade and there was still a lot of room for modernisation. Today, new and updated facilities and often immaculately tended vineyards are very much the norm, and the industry is a fast-changing scene.

The region’s infrastructure is catching up too, thanks to a four-year plan funded by both public and private investment. As part of the plan, roads are being upgraded and developed for wine routes and the vital Route 40, which connects the region from north to south, is being expanded. Once completed, this will significantly shorten journey times from Mendoza to the south of the province.

With the severe economic crisis of 2001/2 firmly behind it and the country enjoying strong economic growth, expectations are high that further outside investment will come this year, much of it adding to the growing wine tourism scene.

The players

Large groups such as Pernod Ricard (Etchart, Graffigna and Balbi), Diageo (Navarro Correas) and LVMH (Chandon and Terrazas) have been part of the landscape for some time, while the late 1990s saw a flurry of investment from the US, Europe (especially France) and neighbouring Chile. Spain’s O. Fournier (see right) followed fellow Spanish investor Codorníu (Septima), and Portugal’s Sogrape made its first overseas acquisition in Argentina in 1998 with Finca Flichman, now an established name on the export scene.

What attracted a company such as Sogrape to Argentina and, nearly a decade on, how has it found the experience? As Finca Flichman managing director Ricardo Rebelo explains, Sogrape recognised the opportunities presented by the New World and chose Argentina over Chile, Australia and South Africa. He says: “In Argentina we found the right natural conditions to produce outstanding wines that could over-deliver on value.” Like many other investors, Sogrape also recognised Argentina’s huge export potential, as an industry traditionally focused on the local market turned more of its attention to the international scene.

But it hasn’t all been plain sailing for Sogrape. The economic downturn of 2001/2 resulted in a credit freeze for both companies and individuals, and a very insecure business environment. However, companies were able to offer more competitive price-points after devaluation thanks to the fact that most production costs were paid in pesos, while exports were invoiced in US dollars or euros.

Rebelo believes that Argentina offers great opportunities and that the country will be a success story in the next decade, aided by the positive and ambitious attitude of the people in the wine industry.

Less certain for all producers, however, is the political environment. The current government, while managing to keep the economy on an even keel for now, has a habit of making itself unpopular, as witnessed by the ban on its frontline export, beef, in the early months of last year. As Rebelo says: “Argentina, under stability, is a great place to do business.”

© db March 2007