The small, landlocked nation of Paraguay has the potential to become the factory of South America because of low taxes and high labour productivity, says Gustavo Leite, the country’s minister of commerce and industry.

Paraguay – with 6.7 million inhabitants and a $26.8bn economy – has had average GDP growth of 4.8% during the past 11 years. Other economic fundamentals are also strong: inflation is forecast to be 3.8% for 2016 and the unemployment rate is expected to be 6.2%, according to the IMF.

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Industrial leaps

Meanwhile, the central bank reports that the financial sector has expanded rapidly to a total credit portfolio of $11.7bn in July from just $1.2bn in 2005. The minister says industrial sectors have been experiencing economic growth averaging a whopping 13% a year during the past three years, and the manufacturing sector has expanded by 7% annually during the same period.

“Paraguay should become the ‘factory’ of South America,” adds Mr Leite, who attended a Paraguayan investment forum in London on September 29. “Not only are taxes low and labour productivity high, but electricity prices are very low and we have very good industrial relations. That creates a highly competitive combination.”

He says that Paraguay’s two much bigger neighbours, Brazil and Argentina, import a total of $85bn a year and that his country would like to have a greater slice of the imports pie.

And Mr Leite adds that the rise in the auto parts industry in Paraguay during the past five years is an example to other manufacturing sectors of the economy: auto part exports have reached $125m in 2016 from zero in 2012. During the past few years, 70 new export industries have been created in the country, with toys, plastics and clothing leading the exports drive.

Logistical strength

“One of Paraguay’s biggest advantages is logistics,” says Mr Leite. “Lead times from the country to its South American neighbours are only two days, whereas from China they are at least 60 days.” The country is undertaking major infrastructure projects to improve its economic potential. Initially, almost 300,000 cubic metres of the river Paraguay – which connects to the river Paraná and ultimately the Atlantic Ocean – are being dredged, so that the waterway is more navigable and goods can be transported more quickly.

Around 130 kilometres of the Trans-Chaco Highway, which connects Paraguay to Bolivia and Argentina, will also be upgraded. Meanwhile, the government will shortly announce the concessionaires for the construction of a new airport terminal in the capital, Asunción, and for the upgrade and extension of the highway between Asunción, which has a population of 2.2 million, and the country’s second biggest city, Ciudad del Este.

Mr Leite says the country is closely watching the progress of the Pacific Alliance, the trading bloc between Chile, Peru, Colombia and Mexico. Paraguay already has free trade agreements with Chile, Peru and Colombia and an economic co-operation agreement with Mexico.

He adds that the administration of Horacio Cartes, president since August 2013, has a strong relationship with the market-friendly governments of Argentina and Brazil.