Paraguay is opening the way for new investment in the manufacturing industry, demonstrating that it is a dependable, stable and competitive destination
B R I E F I N G / BY Yanet González Sotolongo
The manufacturing industry in Paraguay is opening itself up to new national and foreign investment. Manufacturing is the third biggest sector of the country’s GDP, representing on average a 12.02% contribution between 1995 and 2015. It is an attractive sector for investing capital and an efficient creator of jobs.
The manufacturing industry ended 2015 with a growth rate of 2% compared to the previous year, as a result of the increased production of meat products, drinks, tobacco and textiles. Paraguay is free of foot and mouth disease, has a systematic vaccination system and follows the necessary health regulations. For these reasons, increased investment is expected in these industry sectors alongside others such as chemical products, timber, base metal production, non-metal products, machinery, specialist equipment, other manufactured products, paper, oils, dairy products, milled products, bread, sugar and other foods. These latter products, although they have been developed in the past, are sectors that appeal to future investors, given the favourable conditions offered in the region.
The strength of Paraguay’s manufacturing industries, even in times of a slowing economy, has been left considerably unaffected
The strength of Paraguay’s manufacturing industries, even in times of a slowing economy, has been left considerably unaffected. It has even experienced growth at times, and as a result has had a positive impact on the economy. Both the government and the private sector are currently encouraging new companies to form as natural or legal entities, to exploit the manufacturing sector’s dynamism. The Ministry of Trade and Industry highlights that from 2013 to May 2016, 397 more new companies were launched than in previous years. The intention is also to increase jobs, bearing in mind that manufacturing industries make up the largest share of total employment (13.7%), exceeding the construction sector (7.8%). From a legal perspective, industry will be encouraged through laws that promote increased foreign and/or national investment. To this end, Law 60/90 on investments was passed to benefit such investments with the objective of increasing production of goods and services, creating permanent sources of work, boosting exports, substituting imports, incorporating new technology that enables increased efficiency and productivity, allowing for the use of raw materials, labour and national energy resources to be used and for the investment and reinvestment of profits in capital assets.
This law will benefit both national and foreign investors and capital assets should involve adequate technology and be used with efficient productivity techniques. Investors benefit from complete exemption from national and municipal taxation, customs duties and other similar taxes such as internal taxes on importing capital goods, prime materials and supplies for local industry for the agreed amount of time. This can be extended to up to ten years when the investment is worth US$5,000,000 or more. Thanks in part to these incentives, in 2014 163 new projects were created, while in 2015 162 benefitted from the law. Likewise, 2015 saw the greatest increase in jobs created within the country since 2007.
Over time there will be less dependence on imports from the Asian continent to the region, reducing energy costs and making the zone’s economic development viable from a sustainability perspective
One of the largest investors in Paraguay is currently Brazil, which is taking advantage of the favourable economic situation of recent years. There are 32 companies with Brazilian capital in the country, with the current government welcoming proposals that enable investments between the two countries. Of these, nine companies make clothes, 21.9% are in the chemical substances and metal products sector, and 15.6% are abattoirs. The rest are divided between shoe making, mobile phone parts, plastic, non-metal mineral products and agricultural production. These companies export a total of 20.5% of their products to Brazil.
Competitive factors that Brazilian companies find in Paraguay include the skilled and unskilled workforces, a sufficient average monthly salary, a young population, and reasonable costs for electricity and low taxes. These favourable conditions were exploited in 2014, with an annual growth of 52% in the sector and 24 new projects approved. There was also growth in exports, with auto-parts production being the main category, followed closely by clothes and textiles.
As well as the historical alliance between Brazil and Paraguay, the country’s competitive production costs make it a reliable destination for new investment, with Brazil as one of the main markets for its exports. One consequence will be the gradual replacing of imports coming from the Asian continent, reducing energy costs and making the zone’s economic development viable from a sustainability perspective. They represent a new kind of world economic distribution, which if taken into consideration for the economic outlook they present, could lead to considerable profits.
Paraguay’s manufacturing industry has shown signs of growth and stability, creating successful investment projects, and backed by official legislation which creates a favourable view that will encourage production and development, not only at a local level but with a positive impact throughout the region.
