E-commerce booms in Argentina
The Covid-19 pandemic and ensuing restrictions on in-person activity led to dramatic changes to business models and a surge in e-commerce sales across the world. According to eMarketer, a US-based market research firm, global e-commerce sales rose by 28% in 2020, to US$4.3trn. Although e-commerce grew by double digits in all regions, the rise in Latin America was especially noteworthy.
Argentina was no exception to this trend; in fact, eMarketer reports that the country became the fastest growing e-commerce market in the world in 2020. As per the Cámara Argentina de Comercio Electrónico (CACE, a non-profit association that promotes e-commerce), online retail sales in Argentina skyrocketed to Ps905bn (US$13bn, or 3.3% of GDP) in 2020—a huge increment of 124% in nominal terms (and 60% in real terms). The surge in e-commerce turnover was driven largely by increased orders (up by 84%) as the price of the average purchase actually fell (by 13%, after adjusting for inflation). The reduction in the price of the average purchase largely reflects transient changes to consumption patterns, particularly a sharp decline in purchases related to high-value services activities like tourism and entertainment.
Structural factors are supportive
The rapid expansion of Argentina's e-commerce market has been facilitated by a number of structural factors.
For one, Argentina has a high rate of internet penetration despite being a middle-income country. According to INDEC, the national statistics institute, Argentina's internet penetration rate currently stands at 83%; the indicator is substantially above the average for Latin America (66%) and the world (49%). Although official data on smartphone penetration rates are not available, private estimates put it at about 60-70% for Argentina —well above the emerging-market average (45%) and close to the developed market figure (76%). Lastly, financial inclusion is higher in Argentina than in most of its peer economies; according to the Banco Central de la República Argentina (BCRA, the central bank), about 68% of the population (and 92% of all adults) holds at least one bank account.
Given its competitive advantages, Argentina was able to expand rapidly the use of electronic transactions during the pandemic. According to CACE, there was sharp growth in the use of internet banking services (up by 58% in 2020), online movie and TV show rentals (48%), online food orders (43%) and purchases of groceries (34%). The pandemic also led more than 1.3m customers to make online purchases for the first time, taking the total customer base to 20m people (just under half the population). Likewise, many businesses had to adopt e-commerce strategies to rise out the Covid-19 crisis. According to CACE, online sales represented 43% of total retail sales in 2020—up significantly from 31% in 2019.
Prospects hold firm
All signs indicate that the near-term outlook for e-commerce will remain positive. On May 10th-12th CACE held its "hot sale" event—one of two major annual online sales (the other being "Cyber Monday") organised by the institution. According to CACE, turnover from this year's hot sale posted a turnover of Ps25bn (US$265m)—up by 29% from last year. Although this represents a real decline of about 7%, the result is to be interpreted with caution for two reasons. The first is that quarantine measures were much stricter during the 2020 hot sale, which meant that captive demand was much higher. The second reason is that the price of the average purchase dipped further in 2021, probably reflecting reduced demand for electronics (which have fairly long life spans) after record purchases in 2020. As such, the inflation-adjusted turnover from this year's hot sale was still more than 50% above the comparative figure for 2019. Businesses also continue to be upbeat about the outlook for this year: according to the latest survey conducted by CACE, two-thirds of firms making online sales expect 2021 to be better than 2020 in terms of online sales.
We expect e-commerce to retain its dynamism well into the medium and long term. Although there may be some disruption late this year and early next year as the Argentinian economy reopens, we believe that online consumer habits developed during the Covid-19 outbreak are likely to outlast the pandemic itself.
Concurrently, businesses will also be keen to retain (and expand) their digital footprint, not least because margins on online sales tend to be substantially higher than on those made through traditional retail. The longterm trend of digitisation will create both winners and losers; firms that are unable to adapt will probably be forced to shutter altogether, leading to a much more consolidated online marketplace. On the other hand, firms that are able to adjust rapidly their business strategies to cater to growing online demand will stand to gain from a significant first-mover advantage.
There are, however, risks to our relatively sanguine outlook for Argentina's e-commerce sector, stemming in large part from a sub-optimal policy mix. In October 2020 the government, led by Alberto Fernández, approved a new Knowledge Economy Law, which provides tax incentives for firms operating in high-tech industries to promote the provision of digital goods and services. However, the measure is at odds with a range of other policies implemented by the Fernández administration, including broad-based price controls, currency regulations and import taxes. More fundamentally, there is a risk that the continued pursuit of interventionist and heterodox policy will hamper Argentina's long-term growth outlook, leading to a shrinking of the country's middle class and, along with it, the scope for new market opportunities.