- Paraguay's relative stability, combined with low taxes, cheap electricity and plenty of fertile land have caught the attention of a first cohort of foreign investors coming from the region.
- "Even though we have excellent conditions for investment, we are not very well known, we don’t have any reputation,” says Estefania Laterza, deputy minister for investment and exports and head of Rediex.
- Paracel's proposed $3.3bn pulp mill in the city of Concepción — the country's biggest private investment ever – is seen as a game-changer.
- However, quality of infrastructure, deforestation and availability of talent remain a challenge.
Landlocked, and nestled between Brazil, Argentina and Bolivia, Paraguay shares little of its neighbours’ fame. At best, it is barely known; at worst, it is still perceived as an isolated hub for contraband, particularly within the region.
However, both perspectives are unfair to a country that has come a long way since the end of the era of Alfredo Stroessner, the brutal dictator who ruled Paraguay for 35 years until 1989.
While the ebbs and flows of major economies in the region have been systematically dictated by polarised, quixotic politics, Paraguay has achieved a fair degree of political stability. The wave of protesters that stormed the parliament building and set it on fire as recently as 2017 — hardly a common scene in a ‘stable’ country, even in the wake of the US Capitol riots in 2021 — may prove the exception to the rule. Preventing a repeat of the excesses of the Stroessner era by opposing a bill allowing a second presidential term seemed a good enough reason for many Paraguayans to resort to extreme measures. Parliament, eventually, ditched the reform.
Relative stability, combined with low taxes, cheap electricity and plenty of fertile land have caught the attention of a first cohort of foreign investors coming from the region.
The Paraguayan government is now committed to taking a more proactive role in getting the word out beyond South America, while it works with the IMF to further progress its reform cycle.
“Even though we have excellent conditions for investment, we are not very well known, we don’t have any reputation,” says Estefania Laterza, deputy minister for investment and exports and head of Rediex, the country’s national investment promotion agency. “We have to change that first.”
Even though we have excellent conditions for investment, we are not very well known, we don’t have any reputation. We have to change that first.
All the world needs
A country of 7.2 million people, Paraguay’s gross domestic product (GDP) stood at $38.3bn in 2021, thus growing by a factor of 5.4 from 1992. With a limited domestic market, the country’s economic fortunes are anchored to foreign trade, which makes up 72% of its GDP, the highest level in South America after Suriname and Guyana. Lacking the mineral resources of most of its neighbours, soybean and meat dominate its exports matrix, according to official figures. Electricity also accounts for about a fifth of total exports — with Brazil, the country is co-owner of the world’s second-largest hydroelectric dam, the 14-gigawatt Itaipu dam. Everything else accounts for just a fraction of total exports.
“Paraguay is an open economy, it’s on a trajectory of sustained growth and active in strategic sectors,” Fabrizio Opertti, manager for integration and trade at the Inter-American Development Bank, tells fDi. “Paraguay has what the world needs — energy and food. It’s a compelling value proposition.”
Paraguay has what the world needs — energy and food. It’s a compelling value proposition.
The so-called 10-10-10 regime (10% corporate income tax rate, 10% income tax rate and 10% value-added tax rate) is one of the pillars of the country’s business environment. More recently, the government approached the IMF to access a Policy Coordination Instrument to support and underpin the implementation of needed structural reforms to withstand the several external shocks of the past years.
From the region and beyond
“The country is more economically stable and fiscally prudent than others in the region,” Gunther Baumgarten, country analyst at risk consultancy Verisk Maplecroft, tells fDi. “Which is why they first started attracting investors from the region and now are looking further afield.”
Brazilian investors are by far the most represented. Among others, global meat processing behemoth JBS opened a local $60m facility in 2016, while textile producer Grupo Lunelli opened a $20m garment factory in 2019. Overall, Brazilian investors have announced 15 FDI projects worth $1.2bn in the country since 2003, according to foreign investment monitor fDi Markets.
Denis Lunelli, president of the eponymous group, cites among the country’s perks its “low taxes, low cost of electric energy and abundant workforce”.
The reach of the country’s value proposition has already stirred interest beyond the region. In June, Japanese garment producer Hagihara and US carbon fibre power conductor manufacturer CTC Global both announced the launch of local production facilities, their first in Latin America. A few weeks later, the government granted a free trade zone regime to Swedish-Paraguayan joint venture Paracel, which wants to develop a $3.3bn pulp mill in the city of Concepción — the country's biggest private investment ever.
But Paraguay is yet to address several of its major challenges. The booming local meat industry has raised deforestation concerns. Infrastructure is generally perceived as poor, which further hampers internal logistics and limits the potential of river transportation along the Paraná river — the country's only access to the Atlantic Ocean. Talent and skills are an issue too. “It fares poorly in quality of education and skilled workforce compared to other countries in the region,” Mr Baumgarten says.
Paraguay fares poorly in quality of education and skilled workforce compared to other countries in the region
Mr Lunelli insists, though, that local workers “are committed; they learn quickly, they are friendly, trustable and hard-working”.
What is certain is that the country is now taking its first step as an investment destination. “We were never conscious that we could use FDI to improve the domestic economy ... Now we are working to consolidate a strategy to bring capital into Paraguay,” Ms Laterza concludes.
This article first appeared in the December 2022/January 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.