Paraguay attracts investments from Uruguay
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Luis Chase, Ambassador of Paraguay in Uruguay, has commented on the fact that in recent years Paraguay has attracted investments from Uruguay, that this is due to the “Policy of the three 10s”: 10% VAT, 10% tax on corporate income and 10% personal income tax.
Ambassador Chase added: “In Paraguay there is a fair balance between capital and labour, and few labour disputes.” He also stated that this “facilitates investment, protects it, it cannot be impounded,” and that “Paraguay is experiencing a great economic takeoff.” Some 15,000 Uruguayans have invested in Paraguay.
Another notable advantage of Paraguay is the youth of its population: more than 30% are under the age of 29 years. “Investors are amazed to learn of the Paraguayan worker, his commitment and loyalty, because he understands that his prosperity is linked to that of the company,” reiterated the representative of Paraguay.
The Minister of Labour of Uruguay, Ernesto Murro, confirmed that this situation is worrying. The government has made great efforts to deter certain companies, with some success. Furthermore, he stated that in Paraguay “the development of labour standards, social security standards and freedom of association is very low.”
In turn, Juan Castillo, the National Director of Labour of Uruguay affirmed, “Now it seems that Paraguay is a trend. There may be cheaper labour costs, but we do not know if there is the same legal certainty,” statements made in a forum organised by the Municipality of Canelones.
In Las Piedras, in the department of Canelones, concern was expressed about the reduced activity of the Japanese auto parts company Yazaki, as discussed in the Chamber of Industries of Uruguay. The transfer of an important part of the activity, affecting hundreds of workers, would lower labour costs. Other factors contributing to the exodus would have been an average absenteeism of 25% and a string of labour disputes.
Paraguay attracts investments from Uruguay in diverse areas
Across the border, the Ambassador of Uruguay in Paraguay fully confirmed the facts, stating, “Unquestionably, the main element of attraction for Uruguayan entrepreneurs remains the excellent business climate you have here. Although some improvement is needed in terms of infrastructure, for Uruguayans it is a very good choice, and quite feasible to invest in this country.”
Investments from Uruguay have traditionally been concentrated in the agricultural sector, with an emphasis on livestock. Currently, 2 million Paraguayan hectares are owned by Uruguayan citizens. However, in recent years, these investments have diversified considerably.
During the past five years, 87 Uruguayan companies have made significant investments in Paraguay, of which 20 have initiated activities in Paraguay within the last two years. These include professional services firms – logistics, general services, accounting – among others.
Another industry which has seen a large share of Uruguayan capital is construction, a major growth area, especially during the last 36 months.
“Paraguay is trendy,” says Diego Vallarino, advisor to Uruguayan investors. Among the investments originating in Uruguay are shopping malls, franchises like “La Pasiva,” the bus terminal in Asuncion, and construction.
Paraguay has implemented a law with regard to investment promotion, as other countries in the region have done previously.
Because of that, it is the fastest growing country in the region. It has much lower costs and a good business climate. Wages are also the lowest in the area.
Furthermore, energy is abundant, and above all, much cheaper than in neighbouring countries, which offers a strong comparative advantage.
All these antecedents are a warning sign for Uruguay, for its government, its legislators and its workers.
The great opportunity of Paraguay
If one compares the sustained efforts made by Paraguay, especially during the last five years, with the profoundly complacent attitude on the part of Uruguay, this explains why companies and capital are absconding across the border.
This is a sign to which Uruguay, as a whole, should pay much attention, and develop appropriate improvements to maintain investments.
In another sense, Paraguay must consider labour protection and provide a more respectful legislation for workers. Not to address this inequality and make the changes needed, may affect exports with a charge of labour dumping; a concept that is incorporated into the international fair trade and the international treaties signed by Paraguay, which allow countries that are directly affected to claim and apply sanctions and/or prohibitions to the relevant international organisations.
Paraguay has abundant water resources, and therefore has cheaper energy than its neighbours, and also taxes well below average in the region.
What appears at first to be very beneficial in attracting foreign investors, either from Uruguay or any other country, the low tax burden directly influences low public spending, especially if compared with the average of the area.
These factors, born of a lack of endemic resources to spend on infrastructure, also severely affect industry in this country.
In short, the boom that Paraguay enjoys today should be considered an opportunity to match the working conditions, and not be compelled to do so by international sanctions. If they materialised, this would produce an economic setback, unwanted by all.
In conclusion, Paraguay must comply with international standards on labour, dictating more respectful and fair rules. At the same time, it must modify its domestic legislation on taxation, in order to have the resources needed to invest in infrastructure, which is holding the country back.
In turn, Uruguay should support more emphatically the investment in cheaper energy from renewable sources, to remain competitive in the area, and it must also encourage greater productivity and lower absenteeism from its workers.
Do you want to know more about Paraguay? Then read some of our other Paraguayan posts.
English Editor: Audrey van Ryn
Writer & Translator: Mª Verónica Brain
Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.