Invest in Paraguay: Economic-Commercial and Investment Panorama

Paraguay Special Report 2019 By Lía Rodríguez de la Vega1, Matías Iglesias2


Invest in Paraguay: Economic-Commercial and Investment Panorama

The sectors of greatest interest for investment in Paraguay are currently: the agricultural sector, construction, real estate, infrastructure, telecommunications, automotive, financial, call-center services, food, furniture, agro-industry and those sectors that require significant energy consumption.

Paraguay, one of the oldest republics in Latin America, is located in the central zone of South America, bordering Brazil and Bolivia to the north, Brazil and Argentina to the east, Argentina to the south and Argentina and Bolivia to the west. According to the projections of the General Directorate of Statistics, Surveys and Censuses / DGEEC (2015), it has a population of 7.5 million. The official languages of the country are Spanish and Guaraní (taking into account the fact that the languages of indigenous peoples are part of the nation’s cultural heritage).

As for its dynamic with India, both countries established relations in 1961. Paraguay opened its Embassy in India in 2006, while India is represented in Paraguay through its Embassy in Buenos Aires, Argentina, while there is an Honorary Consulate in Asunción. In 2012, Paraguayan President Fernando Lugo visited India, becoming the first Paraguayan president to do so, while this year (2019), the Vice President of India, M Venkaiah Naidu, visited Paraguay (MEA, 2019). For the rest, a tiny community of Indian emigrants resides in the country.

In the given context, this article aims to characterize the economic dimension of Paraguay, as well as highlight its investment landscape.

Economy

Paraguay has a small, moderately diversified and open economy, which since the beginning of 2000 stands out for its stability, with an average growth of around 4.5 percent per year, higher than most of its regional peers (Broncano, Mendoza and Vega, 2019). ECLAC (2018) points out that the expansion of GDP was based on agriculture, with the growth of 4.0 percent year-on-year, in the manufacturing industry (8.4%) and trade (12%). On the expenditure side, growth continues to be explained by private consumption and investment.

Among the main Paraguayan products are soy (which with its derivatives represents about 40 percent of total exports), rice, beans and tobacco. The livestock sector, which now represents around 2.2 percent of the national product, experienced moderate growth and forestry exploitation grew by 9.8 percent. In the secondary sector, the manufacturing industry grew by 8.4 percent driven by the production of paper, the production of oils, milling and baking, chemicals, beverages and tobacco, machinery and equipment. Construction, which was the engine of growth in 2016, slowed down (-1.5%). There was also growth in the services sector, mainly in commerce (12%), hotels and restaurants (10.6%) and services to households (8%).

Another important sector for the economy of the country is the production of hydroelectric energy, with Paraguay being the largest producer per capita, and the largest exporter of clean and renewable electric power in the world.

Regarding mining resources, in 2017, the Mining Director of the Vice Ministry of Mines and Energy, under the Ministry of Public Works and Communications (MOPC), pointed out that the mining industry in the country began to grow in 2003 and that currently, the country modifies some regulations to facilitate the arrival of foreign mining investments. For the rest, reserves of uranium, titanium, gold, nickel, cobalt and chromium have been discovered.

The Paraguayan economic growth was accompanied by a reduction in total poverty, which from 2016 to 2017 was reduced from 28.86 percent to 26.40 percent, while extreme poverty was reduced from 5.73 percent to 4.41 percent for being placed at its historical minimum. The World Bank highlights a rapid increase in the income of the poorest 40 percent of the population and the fact that the middle class almost doubled in size since 2003, reaching 38 percent of the total population (Llorente & Cuenca, 2019).

The World Bank stresses that during the last few years, monetary policy remains consistent with inflation targets, with a flexible exchange rate that continues to cushion external shocks and foreign reserves at prudent levels. The Fiscal Responsibility Law supports fiscal prudence, establishing a deficit limit of 1.5 percent (Llorente & Cuenca, 2019).

Investment opportunities

The stability of the economy, the abundance of energy and the legal and tax regime make Paraguay a particularly attractive country for foreign investment in this region of the world. Also, the government of Paraguay is strongly committed to the promotion of foreign investment, since it considers it essential for the development of the country.

The sectors of greatest interest for investment in Paraguay are currently: the agricultural sector, construction, real estate, infrastructure, telecommunications, automotive, financial, call-center services, food, furniture, agro-industry and those sectors that require significant energy consumption. In turn, labor-intensive production activities can constitute investment opportunities in sectors such as textiles, footwear, leather, furniture equipment and the automotive industry. Other sectors that offer opportunities are hotels, tourism, public and private services and barge shipyards (OECEA, 2018).

In addition to its macroeconomic stability, Paraguay has a legal framework aimed at attracting foreign investment. For example, Law 60/90 establishes the regime of fiscal incentives for the investment of national and foreign capital. The Maquila Law allows foreign companies to settle in Paraguay as maquila industries, introducing raw materials with a series of fiscal and tax incentives to assemble and manufacture products using national labor, to finally re-export them. This regime has already allowed Paraguay to start attracting foreign investment for the establishment of maquiladoras, both in the textile sector and in the development of car components.

We should also mention the tax advantages in the automotive sector, the Law 5.542 guarantee for investments and existing free zones. Indeed, the country also has the third largest free trade zone in the world: Ciudad del Este, after Miami and Hong Kong.

Moreover, there are no restrictions on the purchase of real estate and land by foreigners, there is no impediment or limitation to the departure of capital from the country, except when the amount exceeds $10,000, for prevention of money laundering, or there is no type of exchange control (OECEA, 2018).

Companies that want to invest in Paraguay will find comparatively low operating costs, although they have increased in recent years, especially the rental of offices and industrial buildings; abundant energy and labor; moderate costs of electricity, water services or local communications (OECEA, 2018).

It should be taken into account that Paraguay is a founding member of MERCOSUR, together with Argentina, Brazil, and Paraguay. The agreement has as its most important advantages the free circulation of goods, services and productive factors among the countries, the adoption of an external tariff and a standard commercial policy, the free distribution of citizens, etc. This means that although the Paraguayan market is small, the potential market is much higher. Thus, the maquiladoras of car components based in Paraguay supply the assemblers of Brazil and Argentina. In effect, MERCOSUR is the leading trade partner and Brazil and Argentina are the central exporting countries of Paraguay.

In terms of infrastructure, about 90 percent of the 65,000 km of interurban routes in Paraguay are dirt roads. More investment is required in airports, roads, river dredging (without having a maritime coastline, there are ports on the Paraguay and Paraná rivers, which give access to the Atlantic Ocean, through the Paraná-Paraguay Waterway), and electricity networks for greater Internal use of the energy of the Itaipú and Yaciretá dams. Itaipu, being the second largest dam in the world, only uses about 22 percent of its capacity, according to the Ministry of Public Works and Communications. On the one hand, renegotiation of the treaty with Brazil that establishes the compensation of the neighboring country for the use of energy will be fundamental for the current government. Whereas, on the other hand, the Analysis and Diffusion Center of the Paraguayan Economy / CADEP also points out that the country has low levels of domestic consumption due to various obstacles.

As for legal insecurity and corruption, they are one of the country’s challenges and were identified by all the candidates and political parties that took part in the presidential elections of 2018. In this context, the current president Abdo Benítez, upon taking office, placed a strong emphasis on corruption and impunity. For the latter, the government has embarked on a program to reform the judicial system (Llorente & Cuenca, 2019).

Conclusion

During the visit of Vice President Naidu, the importance of Paraguay as a food producer was highlighted, with natural complementarities with India, convening Indian investments. Also, both countries agreed to explore new areas of collaboration, including hydraulics and solar, health, information and communication technology, agricultural machinery, space and biotechnology, railroads and infrastructure related to tourism. The specific areas discussed included agricultural processing, the supply of equipment such as tractors from India, the modernization of the energy sector, and the supply of medical equipment and generic drugs, which could be useful for the Paraguayan health system (MEA, 2019).

Undoubtedly, the arrival of more FDI will ultimately enhance the human resources of Paraguay, constituting a key opportunity for any country in its trajectory of projection in Latin America.

Go to Special Report

Back to Top

Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

Search