Intellectual Property - Breaking Trade and FX Barriers in Argentina

There is a great opportunity to invest in the Argentinian production of IP by using the big distortion in the price of Capital Flows.

Several countries in Latin America have severe restrictions on Capital Flows and Exchange Rate Transactions. Some restrictions on short-term Capital Flows are sensible protections from the high volatility of financial flows that can be highly damaging to small interdependent  economies (i.e. Asian Crisis of the 90s). This is the case with the restrictions in Chile and Brazil that have regimes that regulate and tax short-term foreign investments.

However, there are some cases where these restrictions are extreme and generate enormous distortions as  in Argentina and Venezuela. The most interesting case is Argentina where you have 3 types of FX: "Official" at 5.20, "Black" at 10 and "Contado con liqui" at 9.4. The "Official" is the exchange rate on the trade of goods and services, the "Black" is the exchange rate on small savings and illegal transactions and the "Contado con Liqui" is the exchange rate on Capital Flows.

At 5.20, the official exchange rate is the most expensive it has ever been in real terms in the last 30 years of Argentina, including its infamous "Convertibilidad". 

At 9.4,  it is close to the cheapest it has ever been to invest in Argentina.

But the cheapest for what? 

Most big investment physical assets in Argentina are traded in dollars (i.e. real estate) and the price is not significantly lower than it used to be. At the same time, all of these assets have significantly diminished there return on USD because they are exposed to the local salaries (rental property) or the official trade exchange rate (farms´exports).

Investments in Salaries are cheap. But only if you can produce something that you can sell at 9.4 and not at the prohibitive 5.2 (goods and services), that is if you can make them produce capital.

And how does labor produce capital? It produces Intellectual Property! 

There are no trade barriers for IP. IP is transmitted through a fiber-optics line or a piece of paper and it has no home nor country. You can produce a patent in Argentina, but patent it in the US. You can design a WebPage in Argentina to sell goods in Brazil. Consequently, your IP is sold abroad directly without customs and is therefore valued at 9.4 $/USD.

There is a great case to invest in IP in Argentina:

- Pay salaries at 5 $/USD, but produce something worth 9.4 $/USD

- Argentina has a long tradition of Entrepreneurship (Mercado Libre, Despegar, OLX) and Science (Bioceres, Keclon, 3 Nobel Prizes in Science)

- No political risk: you do not own anything in Argentina, you only pay salaries