Spotlight: The software sector and knowledge economy in Argentina

Argentina's knowledge industry has opportunities for growth, but they are subject to the difficulties related to the country's macroeconomic turmoil, the lack of a favorable environment for expansion and regulatory decisions that limit companies' willingness to make exports.

The IDB recently approved a US$35mn loan to boost exports by the sector by providing specialized human capital, developing and adopting AI-based technologies, and promoting job creation.

"Global geopolitical conditions open an important window of opportunity for the Argentine export offering in all areas of the knowledge economy.  The barriers continue to be domestic as a result of macroeconomic disorder and the regulatory and political vicissitudes that continued to affect the sector," reads a recent report by Argencon, the local association that represents companies in the knowledge economy.

The report states that exports of knowledge-based services reached US$7.83bn in 2022, up 19.4%. That figure involves professional services (which rose 22.5%, more than any other area), computer services, personal services and intellectual property.

Argentina's software exports reached a record US$2.61bn in 2022, according to data from software chamber Cessi. That was a 17.9% increase compared with 2021.

"Although the increase in exports by the software sector in Argentina has been substantial, other countries in the region, such as Brazil and Uruguay, have performed even better, especially from 2018 onwards," Cessi said in its annual report.

In 2015, exports of software and computer services from Argentina accounted for 28.5% of total exports in the region, but the country's share of the total dipped to 23.8% in 2022.

Meanwhile, Brazil and Uruguay's contributions to these exports from the region last year, increased to 29.1% and 11.7%, respectively, up from 23.4% and 6.0% in 2015, according to Cessi.

The IDB says that Argentina has great potential to increase its participation in exports of knowledge-based goods and services, since they are still at relatively low levels.

The development bank pointed out that Argentina's share of total world exports in this sector had dropped to 0.26% from 0.45% over the last 10 years.

EMPLOYMENT

In 2022, a total of 9,000 jobs were created in Argentina's software industry, according to Cessi, bringing employment in the sector to more than 141,000 people. The jobs created represented 36.4% of all positions generated by knowledge-based services.

According to the employment expectations survey for 3Q23 conducted by Manpower Group's technology recruiter Experis, recruitment expectations in the IT sector are mixed. 

While 23% of IT employers plan to increase their workforce in this quarter, 28% expect to make cuts, 45% do not plan to make changes and 4% said they did not know.

The survey also shows that the Net Employment Outlook (NEO) for Argentina is the weakest in the region, with a forecast decrease of 5%. This compares with the 55% growth expected in the US, followed by Panama (+47%) and Costa Rica (+42%). Even the NEO figures for Guatemala and Peru are considerably better than for Argentina, at 15% and 26%, respectively.

However, Argencon said that the increase in nominal wages in the knowledge industry last year exceeded 120% in many cases due to the high demand for talent in the sector and competition with international salaries. This produced a real-term increase in the cost of exported services.

REGIONAL DIVERSIFICATION

The knowledge industry in Argentina has historically been based around hubs in cities such as Buenos Aires, Córdoba, Rosario, Mendoza, Mar del Plata and Tandil.

After the pandemic and increase in remote work, the search for talent has spread to other areas of the country. Argencon has identified 19 districts that could become the next to develop bigger knowledge-based industries, based on their scale, the availability of specialized education and their digital connectivity.

These are Campana in Junín province; La Costa, Luján, Necochea and Pergamino in Buenos Aires province; General San Martín in Cordoba; Diamante and Uruguay in Entre Ríos; Commander Fernández in Chaco; Catamarca, capital of Catamarca province; Ledesma in Jujuy; La Rioja and Chilecito in La Rioja; Rawson in Chubut; Maracó in La Pampa; Deseado in Santa Cruz; and Ushuaia and Río Grande in Tierra del Fuego.

Some of these are already technological hubs, with the network of IT clusters now including 23 cities in 13 provinces.

The Argencon study assessed 107 districts in 23 provinces. In 56 of these districts there is face-to-face training specializing in software and computing. In 23 there are technical and vocational courses and university programs, while 28 only have technical and vocational courses. Of the 107 districts, 70 have medium- to high-quality connectivity.