LatinFinance - July/August 2014 - Paraguay Supplement - 14

PARAGUAY | Foreign direct investment
Auto parts, logistics, manufacturing - these are all sectors gaining increasing interest
from foreign direct investors in Paraguay

Manufacturing change
P

araguay's domestic market of 7
million inhabitants and a GDP of
just $28 billion is not an obvious
first choice for foreign direct investors.
Yet, there is something in the air of
Asunción that says that things may be
changing.
The Hard Rock Café is set to open its
first branch in the country by the end
of year. Korean brands, like Samsung
and Kia Motors, are ubiquitous - not to
mention Toyota. An unprecedented 16
million mobile phones were imported
last year, most of them from China.
Moreover, several car-part suppliers
have recently set up shop in the country.
Companies such as Yasaki are attracted
by low taxation and a friendly business
environment. Fujikura, another secondtier Japanese supplier for the automotive
industry, says its costs at its local plant
are 40% lower than in neighboring
Brazil.
The strategy is to use Paraguay as
a platform to import components at
zero or low tariffs, add value locally and
re-export them. A home-grown maquila
system of manufacturing free-trade
zones is reminiscent of the Mexican
maquiladora regime.
But transport logistics have to
be improved to allow companies to
export from this land locked country.
More investment is needed to improve
shipping conditions on the Paraguay
River and at the airport in Asunción.
Still, there is room for improvement.
Paraguay ranks 109 out of 189
countries in terms of "ease of doing
business", according to the World Bank's
annual ranking. The most critical issues,
according to the survey are trading
across borders (including cost to export
and import a container) and resolving

14 L ATINFINA NCE.COM - July/August 2014

insolvency (due to a low recovery rate).
Paraguay has not been a traditional
champion in terms of foreign direct
investment. But there some encouraging
signs. There has been a notable rebound
in FDI in the past 10 years, except last
year, when elections took place.
Between 2004 and 2007, FDI
averaged less that $100 million per year,
according to the Economic Commission
for Latin America and the Caribbean
(ECLAC). But the figure then jumped to
more than $200 million in 2008 and later
peaked at $550 million in 2011.
Nevertheless, in 2013, uncertainty
related to the eléctoral outcome and
the following political transition, led to
a 20% decline in FDI compared to 2012,
and reached one of the lowest levels in
South America.
Gustavo Leite, the industry and
commerce minister, is adamant that this
year will be a record year. Based on data
from the first five months of the year, he
estimates that FDI inflows will be twice as
large as it was in 2012.
"We will be successful in turning
round the overall trend," says Wilfrido

Sustained interest
FDI, yearly average ($m)
600
500
400
300
200
100
0

2004-2007 2008

Source: ECLAC

2009

2010

2011

Fernández, president of Eurocamaras,
the local federation of European
chambers of commerce.
"FDI is increasing gradually again.
There are benefits for foreign investors;
there is a favorable tax regime and low
labor costs." The European Union has
scheduled a business event in October
to attract more investors to Paraguay, he
says.
The largest investments so far have
targeted the agribusiness sector, such
as Caiasa, a $200 million joint venture
between Bunge and Louis Dreyfus, two
of the largest multinational commodity
trading groups. They are keen on
processing Paraguayan soya beans locally
to set the base for an incipient food
industry.
Other examples range from traditional
industries, like cement for the growing
real estate industry, with investment
from Portugal's Cimpor, or brewery
(Heineken's Compañía Cervecerías
Unidas acquired a 50% stake in Bebidas
del Paraguay in December 2013).
The meat and leather industry is set to
develop further. "[Brazil-based
beef firm] JBS has already
acquired two slaughterhouses
in Paraguay. It has recently
informed president Cartes of
its interest to invest some $100
million in one plant or more,"
says Leite.
"We are going to have
more people like JBS in
Paraguay. The world is going
to look for the most efficient
place to produce beef, and
as we have developed a very
competitive country, we have
to gain from that."
2012
2013
But the real challenge is
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