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The Cordoba Connection.

Governor reinvents his province's ties with the outside world.

JUAN CARLOS RABBAT BELIEVES THE exodus of industrial manufacturers from this heartland province of 3.1 million inhabitants is no cause for panic.

Instead, the president of the 5-year-old Universidad Siglo 21--or University for the 21st Century--is preparing to capitalize on an influx of high-tech corporations. In May, he broke ground on a US$22 million state-of-the art campus designed by famed Argentine architect Cesar Pelli. The 20,000-square-meter campus on the edge of the city of Cordoba, capital of the province of the same name, aims to be a breeding ground for engineers, technicians and scientists--and a key steppingstone in the province's quest to embrace the economy of tomorrow. "We are very optimistic about Cordoba's future and the university's role in it," says Rabbat.

At first glance, such confidence seems quixotic. The province has suffered more than any other from neighboring Brazil's 1999 currency devaluation. In the aftermath of the real devaluation, exports fell by almost half. Leading manufacturers such as Goodyear and Delphi-Packard packed up and left the province rather than accept the additional cost of doing business in Argentina, where the peso is pegged 1-to-1 with the dollar. The Argentine automobile industry, 40% of which is based in Cordoba, was especially hard hit. Moreover, key sectors, including agriculture and heavy construction, remain bogged in a two-year-long recession and a precipitous decline in commodity prices.

So what is nourishing Rabbat's optimism? The cordobeses themselves. Although often ridiculed by the Buenos Aires elite for their provincial ways and sing-song accent, province residents have much to be proud of: Cordoba is the country's center of higher education with 10 private and public universities. And that is the key to its future.

Juan Schiaretti, Cordoba's Minister of Production, says there are 4.2 university students for every 100 inhabitants in the province, compared with 2.8 for Argentina as a whole and 1.5 and 1.07 in Mexico and Brazil, respectively. In the provincial capital, 10% of the population is enrolled in a university. "Our large pool of highly qualified talent is our greatest asset in attracting investment," says Schiaretti.

Schiaretti may be right. Direct foreign investment was up by a whopping 300% in 1999, even though such investment has been shrinking on a national level. Better yet, many of the new jobs are in the high-tech industries that Latin American economies need to maintain the hope of future prosperity.

Fertile ground. BellSouth has operations in Cordoba, as do Telecom, Telefonica and CTI-GTE. These are principally sales, tech and customer support centers. But Motorola has gone a step further: The U.S. wireless giant chose Cordoba as the site of a software development plant, its 14th worldwide, and its second plant in Latin America. (The other is in Puebla, Mexico.) When it opens early this year the facility is expected to pump US$40 million a year into the local economy and create 500 jobs for its microchips and software applications operation. "We are confident that Cordoba offers fertile ground," says Horacio Werner, general manager of Motorola Argentina.

To be sure, Cordoba's appeal as a university town with a qualified workforce wasn't the only factor in Motorola's decision. A lower cost of living allows the company to pay less for hard-to-find talent. An average engineer in Sao Paulo or Buenos Aires, for example, earns $2,000 a month compared with $1,500 in Cordoba, claims Schiaretti.

In addition, the province's location makes it a natural hub for commerce. Cordoba, Argentina's third-largest province, is located in what is known as the Corredor Austral, or Southern Corridor, a stretch of land that unites 125 million people from Argentina, Chile, Uruguay and the wealthier southern region of Brazil. Schiaretti says the corridor's per capita income is $7,000 a year.

But many analysts argue that none of Cordoba's innate advantages would have come to light if not for the energy of one man, Governor Jose Manuel de la Sota Since taking office in July 1999, the 51-year-old Peronist Party politician has traveled to France, Germany, Spain and the United States to sing Cordoba's praises to investors. On tap are trips to Mexico, South Africa, China and the Silicon Valley.

In the case of Motorola, the clincher was the attractive venue and De la Sotas offer to bankroll the training of 500 engineers. In total, the city of Cordoba will sink $14 million into the Motorola facility, which sits on the site of a former Army garrison that Cordoba is converting into a 32-hectare office parkway for high-tech and telecom companies. "I always tell potential investors that Cordoba will better any offer," says De la Sota. "We consider it an investment in our people's future, not a subsidy."

The VW pitch. And De la Sota hasn't written off the province's past economic strengths. He is quick to point out that his modernization campaign also extends to the ailing automobile industry, which accounted for 25% of all investment last decade. Carmakers have been scaling back their presence in Argentina ever since Brazil's devaluation made cars 30--40% more expensive to produce here. Faced with that ominous reality, De la Sota began stressing the superior productivity and technical expertise of the workforce.

That pitch apparently worked on German automaker Volkswagen. De la Sota won a commitment from VW to expand its local operation with a new $200 million assembly plant that will export transmissions to Brazil and less traditional markets, including Mexico, Spain, Germany and Slovakia. The auto plant, which will benefit from tax deferments and the government's pledge to rebuild an access road, is expected to create 1,100 jobs when it begins operations in November 2001. "Unions in Europe aren't flexible enough and productivity in Brazil is too erratic to meet sudden surges in global demand," says Arturo Gallego, production manager for the Volkswagen Argentina plant "In Cordoba, we have the best of both worlds."

De la Sota is a spirited advocate of supply-side economics. Since taking office, the governor has slashed most provincial tax rates by 30%. The International Monetary Fund warns that the so-called Cordoba experiment could end in a fiscal collapse, but the policies are reaping gains so far. Tax collection was up by more than 4% in 2000; to achieve the same result, the federal government had to impose a painful middle-class tax hike that has been derided as the impuestazo.

Of course, micromanaging a $2.8 billion budget pales in comparison with President Fernando de la Rua's task of supervising some $55 billion in resources, especially when the federal government is bankrolling 57% of the province's revenue through a tax-sharing agreement. Most economists doubt Cordoba's cost-cutting policies could prosper on the national stage right now. And with federal taxes so high, De la Sota's tax-cuffing crusade only slightly boosts the bottom line of most businesses.

Even so, the governor is rallying the business community, injecting a much needed dose of optimism into Argentina's moribund economy and catapulting his name as a major candidate in the 2003 presidential race. "For peso-dollar parity to survive, Argentina needs to come up with new remedies to lower costs and attract investment' says De la Sota, who denies he is after De la Ruas job. "In Cordoba, we are taking that responsibility seriously, but I'm not sure if the federal government is."

If good economic news keeps flowing out of Cordoba, it won't be long before the government takes notice.


* FERNANDO DE LA RUA: Argentina's 63-year old president was born in Cordoba and graduated with a law degree from the National University of Cordoba.

* CARLOS SAUL MENEM: Although from the western Andean province of La Rioja, the flamboyant former president spent most of the 1950s studying law at the National University of Cordoba.

* DOMINGO CAVALLO: The whiz kid economy minister under Menem and architect of the plan that pegged the peso to the dollar, was born in the province and earned his doctorate in economics from the National University of Cordoba. He has served in Congress, representing his province.

* ERNESTO CHE GUEVARA: Before becoming Fidel Castro's lieutenant in Cuba's Sierra Maestra, a teen-age Guevara roamed the lesser-known Sierras de Cordoba mountains. Born in the neighboring province of Santa Fe, a young Guevara was brought by his parents to the dry, resort town of Alta Gracia to find relief for his chronic asthma.

* U.S. AMBASSADOR JAMES D.WALSH: Argentina's new ambassador hails from Pennsylvania, but his interest in diplomatic affairs took root in Cordoba. At age 18, Walsh was an exchange student at the Colegio Manuel Belgrano and Catholic University of Cordoba. He made long lasting friendships with the country's future political elite, including Guillermo Gonzalez, the current Argentine ambassador to the United States.
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Publication:Latin Trade
Date:Jan 1, 2001
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