‘End-of-the-world’ factories struggle to adapt to Macri’s Argentina

RIO GRANDE, ARGENTINA: On a recent morning, workers wearing blue shirts and black gloves assembled digital TV set-top boxes inside one of the world’s most unlikely factory towns.

Their employer, BGH SA, for nearly 40 years has been manufacturing consumer electronics here in Rio Grande, a city in the chilly island province of Tierra del Fuego, located at the far southern tip of Argentina.

Like dozens of factories that have taken root in this sparsely populated land of penguins and glaciers, BGH owes its survival to government tinkering.

Special tax breaks and high trade barriers have turned this remote outpost into the source of 90 per cent of the air conditioners, cell phones, TVs and microwaves sold in Argentina.

Now, it has perhaps the most to lose as President Mauricio Macri works to modernize Argentina’s closed economy.

The former businessman has already lifted some import restrictions and began unwinding costly subsidies for electricity and other utilities, hitting electronics sales.

Tierra del Fuego, home to just 150,000 people, is feeling the sting. Amid a deep recession, it shed 6,000 jobs last year, a 13 per cent drop that was the sharpest for any province.

Output has plunged at many of the area’s factories, including BGH. The Argentine company’s TV set-top box business has dwindled to a single assembly line, down from five a few years ago. Its laptop unit closed last year, and the air conditioner lines run a single shift per day, down from two earlier this year.

The company’s woes are emblematic of the pain rippling across Argentina’s wider industrial sector, where employment shrank by 4.6 per cent, or 58,000 jobs, between November 2015 and May 2017, according to Buenos Aires consultancy Elypsis.

The losses carry risks for Macri, whose 2015 presidential victory ended 12 years of populist rule.

Former President Cristina Fernandez’s welfare spending, electricity subsidies and industry protections were applauded by many poor and working class Argentines, but the measures generated inflation and pummelled public finances.

Macri has won plaudits from investors by winding down those distortions. But the policy shifts have generated some losers in the near-term, including factory workers left without jobs and families saddled with higher power bills.

Whether Argentines feel the economic recovery that is underway will be crucial to the performance of Macri’s marketfriendly ‘Let’s Change’ coalition in October’s mid-term legislative elections.

“The government changed the rules of the game,” said Diego Teubal, executive director of BGH’s consumer division.

Emboldened by trade protections under the leftist Fernandez, the company invested in new equipment and doubled its Rio Grande workforce to nearly 2,600 people.