A thriving manufacturing sector is essential for reigniting economic development, but Argentina’s industrial landscape is highly diverse. It encompasses sectors with varying levels of technology, complexity, dynamism, export capacity, job creation, and interaction with the state. Designing effective industrial policy requires a deep understanding of these differences. This series focuses on the manufacturing sector, providing a comprehensive diagnosis of its various branches and laying the foundation for an informed and strategic industrial policy.
Illustration: Boomba.inc.
Industrial Policy for the 21st-century
Manufacturing has long been central to national development, driving economic growth, creating formal and well-paid jobs, fostering technological innovation, and strengthening national autonomy. Recognizing this, governments worldwide have implemented a range of policies to support the sector.
In the 1980s, confidence in the state’s role in industrial development gave way to a prevailing belief in the virtues of free markets. Today, however, both major economies and middle-income countries are once again prioritizing industrial policy. Against this backdrop, the direction taken by Argentina’s current government under Javier Milei stands in stark contrast to global trends. The manufacturing sector is too important to be left without a clear strategic framework.
This series examines global trends and Argentina’s historical experience to outline the key principles of a forward-looking industrial policy.
What is industrial policy?
Industrial policy encompasses a set of public policies aimed at transforming a country’s productive structure to achieve key social and economic objectives, such as accelerating growth, generating good jobs, fostering technological development, and ensuring national autonomy.
To achieve these goals, industrial policy employs a variety of tools that shape market incentives for private enterprises, including:
- Subsidies for exports, investment, R&D, and worker training
- Financing for strategic sectors through subsidized loans or credit guarantees
- Trade protections against import competition
- Public sector production in key industries, public procurement, and regulations requiring the use of local inputs
- Infrastructure development for technology centers and laboratories, as well as intellectual property regulations
- Workforce training and education
- Investment in universities and the science and technology ecosystem
The renaissance of industrial policy in the world
The number of industrial policy initiatives has been rising globally—this is neither a coincidence nor a passing trend. Five key factors are driving this resurgence:
China, the world’s leading exporter and a key trading partner for much of the globe, is competing for dominance in R&D, controlling vast portions of supply chains for clean technologies—such as electric vehicles and renewable energy—and seeking leadership in artificial intelligence. The U.S. has responded with its own industrial policies, including the Inflation Reduction Act and the CHIPS and Science Act. These measures, which allocate significant resources to industrial policy, are not isolated efforts but part of a broader strategy to counter China’s rise.
The COVID-19 pandemic, the Russia-Ukraine war, and the growing geopolitical rivalry between the U.S. and China have underscored the importance of domestic production. These events have demonstrated that the late-20th-century approach—which downplayed the role of domestic manufacturing—has weakened national sovereignty.
Efforts to mitigate climate change are fueling massive investments in major economies, aimed at developing technologies to decarbonize production processes.
Many manufacturing sectors create high-quality jobs that surpass national wage and benefit averages. These industries also contribute to social cohesion and upward mobility.
Recent empirical research confirms that industrial policies may yield positive outcomes, boosting economic growth, exports, innovation, regional development, and job creation.
Industrial policy in Argentina: Evolution in the 21st century
Over the past two decades, Argentina has reintroduced policies to support the manufacturing sector. However, unlike in the mid-20th century, there has been no broad political consensus on its role in national development.
Peronist governments (2003-2015, 2019-2023) have generally prioritized industrial policy, particularly in non-agricultural manufacturing, through active state intervention. In contrast, conservative-leaning administrations (2015-2019, 2023 onwards) have adopted a more market-driven approach, showing less confidence in industry’s strategic importance.
As a result, Argentina’s industrial policy has been inconsistent, fluctuating significantly based on the ideological orientation of the government in power.
Five phases of Argentine industrial policy (2003–Present)
2003 - 2007
Under highly favorable macroeconomic conditions, industrial policy exhibited both continuities and shifts from the approach inherited from the 1990s. Among the continuities, we observe a high level of trade openness (with a more competitive exchange rate), the persistence of key promotional regimes, and incentive policies for the automotive industry. The most significant shift was in policy toward the primary sector, with an increase in export duties. Additionally, high-tech projects began to take shape in fields such as satellite technology and nuclear energy.
2007 - 2015
As macroeconomic conditions deteriorated, new industrial policy tools emerged, particularly targeting non-agricultural manufacturing. One of the most significant changes during this period was trade policy, which shifted from a predominantly free-market approach to increasing interventionism. Investments in high-tech sectors such as satellites and nuclear reactors matured, but at the same time, substantial resources were wasted on promoting low-value-added assembly industries, such as Tierra del Fuego’s electronics sector.
2015 - 2019
Macroeconomic imbalances worsened, and significant industrial policy reforms were implemented simultaneously. The government adopted a more market-oriented approach, adjusting relative prices away from highly protected sectors toward agro-industry. Macroeconomic stabilization became the administration’s priority. In terms of production, the focus shifted toward greater specialization in natural resources, agro-industry, and knowledge-based services.
2019 - 2023
With Peronism returning to power, industrial policy regained prominence on the agenda. However, this occurred in an environment first shaped by the COVID-19 pandemic and later by deepening macroeconomic imbalances.
From late 2023
With the election of Javier Milei, a new phase began, marked by the abandonment of most previous industrial policies. The government is prioritizing greater trade liberalization, deregulation, and public spending cuts to eliminate the fiscal deficit.
What lessons can we learn from these phases?
Argentina needs a 21st-century industrial policy. Learning from past experiences—both successes and failures—is crucial. Without this learning process, it will be difficult to move beyond the antagonistic perspectives that have led to the country’s cyclical industrial policy shifts.
- Industrial policy can yield positive results and enhance economic complexity. It has been instrumental in developing key capabilities in high-tech industries such as satellite technology, nuclear energy, and biotechnology, where Argentina stands out regionally. It has also helped consolidate South America’s leading pickup truck export hub.
- Some ineffective policies must be reformed. High-cost, low-impact promotional regimes, such as the Tierra del Fuego program, have proven difficult to phase out once established. Additionally, excessive protection of uncompetitive sectors should be reassessed.
- Industrial policy should not come at the expense of primary sector development. The primary sector plays a crucial role in generating the foreign exchange necessary for industrial growth, as well as driving demand for machinery and inputs produced by the manufacturing sector. This will be even more relevant in the future, as natural resources are expected to play an increasingly important role in Argentina’s exports over the next decade.
- Redesigning and properly implementing industrial policy requires investing in state capacity and rigorous policy evaluation. Without this, it will be impossible to generate the learning processes needed to move beyond Argentina’s historically cyclical industrial policy framework.
What kind of manufacturing does Argentina have—and what kind does it need?
Manufacturing accounts for 19% of Argentina’s GDP, 2.5 million jobs, 57% of exports, and 54% of private R&D spending. Manufacturing jobs offer above-average quality, and the sector has some of the highest economic multiplier effects in the country.
Snapshot of the Argentine manufacturing sector: Where we are and where we should go
Argentina’s manufacturing sector is highly diverse. It includes industries with high export potential, such as agro-industry, as well as medium- and high-complexity sectors, such as knowledge-based and metalworking industries. It also comprises traditional industries that require significant trade protection and generate substantial employment, albeit of below-average quality. Additionally, there are assembly industries that, despite receiving strong state support, have delivered very limited results in terms of innovation, competitiveness, employment, and backward linkages to other sectors.
To better understand their characteristics and project their future, we have divided Argentina’s manufacturing sector into six major categories.
A snapshot of the industrial sectors (2022 - or latest available data)
Overview of Argentina’s industrial sectors
A leader in exports and job creation, particularly outside the Metropolitan Region of Buenos Aires. It accounts for nearly 30% of manufacturing GDP and relies heavily on domestic inputs. However, over the past decade, its growth has slowed, and it faces challenges such as transitioning toward sustainability, which will increasingly determine export opportunities. Policies should focus on reducing export duties, promoting technologies to enhance productivity and sustainability, expanding into new international markets, and adding value to raw materials.
This category includes sectors such as petrochemicals, pulp and paper, steel, liquefied natural gas, lithium active materials, and a significant portion of the chemical industry. These industries generate relatively few jobs, but they are high-quality and have strong multiplier effects. The high levels of investment required for their development have not materialized in recent years due to Argentina’s macroeconomic instability. However, they have significant growth potential by adding value to natural resources, such as hydrocarbons from Vaca Muerta, lithium mining, and the forestry sector. To unlock this potential, regulatory frameworks that encourage investment in these industries are essential.
This category includes sectors such as apparel, footwear, and furniture, which are labor-intensive and face challenges related to productivity and formalization. Traditional industries have struggled due to international competition. To improve their competitiveness, they require financial support, technological modernization, and training programs to enhance product quality and design. Additionally, reducing dependence on trade protection is crucial.
These industries have great potential as suppliers for resource-intensive sectors. They generate formal employment and have substantial technological development. While many firms export, imports in this sector remain significantly higher. To foster growth, these industries require various policies, such as investment regimes that include supplier development requirements, as well as public procurement and financing mechanisms. Additionally, the Argentine automotive industry should begin its transition toward electromobility.
This sector includes pharmaceuticals, biotechnology, and high-tech niches such as satellite, nuclear, and aerospace industries. It accounts for 5% of manufacturing GDP and is the most advanced in technological complexity. Additionally, employment conditions in this sector are among the best in manufacturing, as it predominantly requires skilled workers. To promote this sector, it is essential to invest in the science and technology system and introduce government incentives for companies that innovate and expand exports.
The emblem of this category is Tierra del Fuego’s electronics industry and the motorcycle sector. These industries primarily serve the domestic market and are highly dependent on imported components. They generate little added value and employment. Nevertheless, they have been excessively promoted through public policy, leading to extraordinary rents despite poor outcomes. Industrial policy for these industries must be completely restructured, encouraging their transformation toward sectors with greater potential for genuine competitiveness.
We need a strategic industrial policy—not just any industrial policy
Industrial policy has been crucial in shaping productive structures both globally and in Argentina. However, the Argentine case demonstrates that not just any industrial policy will be effective. How we design and implement industrial policy is key.
Beyond the fundamental premise that Argentina needs a stronger and more advanced manufacturing sector to drive development, our recommendations are based on two key principles:
- We should not be afraid to pick winners. Just as companies manage a portfolio of projects with varying levels of success, governments must do the same by selecting strategic industries. However, it is equally important to recognize when an initiative is not delivering results and be willing to phase it out.
- Industrial policy should be proactive rather than defensive. Instead of merely protecting jobs in sectors threatened by foreign competition, it should focus on promoting exports, fostering investment in R&D, enhancing productivity, and developing new high-tech industries.
Four key conditions for a successful industrial policy
- Time-bound incentives with clear exit strategies and strong enforcement. Industrial incentives should be temporary, with clearly defined exit mechanisms and effective state enforcement.
- Performance-based policies. Policies must be tied to measurable performance targets, requiring rigorous impact assessments to adjust them based on results.
- State autonomy, not isolation. A strong industrial policy requires the state to remain independent of special interests, but this does not mean disengaging from the private sector. On the contrary, maintaining autonomy while fostering dialogue with businesses is essential, as they provide valuable insights and data that policymakers often lack.
- Building bureaucratic capacity. Implementing an effective industrial policy requires investing in institutional and technical capabilities to design, execute, and monitor policies effectively.
