Paraguay: An Investment Primer - 16

PARAGUAY FDI

diversify the number of car parts," an enthusiastic banker says.

Infrastructure investments

But investors may see more strategic opportunities in Paraguay. "Maquilas are providing
jobs and investment, but infrastructure is
going to be a huge FDI component. The
waterway is hugely relevant to the country,"
says Germán Heberling, chief country officer
at Citi in Paraguay. Germany's Imperial
Shipping has invested in barges and
pushboats to improve transportation on the
Paraguay River.
Investments through public-private partnerships are also expected to modernize the
nation's roads. "As the country grows, there
will be a virtuous circle. You will need more
investments and you will need more capacity to bring whatever material you need
and to export whatever you produce. The
country is becoming more industrialized. I
am very optimistic," Heberling says.
The food industry has attracted a lot of
interest, thanks to Paraguay's strong agricultural and livestock base. Other promising
sectors include cement and ethanol, according to banking sources. One of the largest
foreign investments to date has come from
Caiasa, a joint venture from the commodity
trading companies Bunge, Louis Dreyfus
and Copagra, which have injected some
$220 million in the past five years in a 4.5
million ton soybean crushing plant.
Brazil has also become a meaningful
investor. Itaú today is one the largest banks
in Paraguay - and the number one in
consumer credit - after Unibanco acquired
Interbanco in 1995 (Itaú later merged
Unibanco).
However, two Brazilian investors recently
left Paraguay due to the Lava Jato corruption scandal at home. Petrobras, Brazil's
state-owned energy company, sold its
gas distribution network to a local group,
Copetrol, for $380 million in June. The
meatpacking company JBS bought two
plants in Paraguay in 2016 but it sold them
to Minerva, another Brazilian company, in
June 2017.
16

"PARAGUAY HAS
BECOME A VERY
COMPETITIVE
PLATFORM IN THE
REGION, THANKS TO
INVESTMENT
INCENTIVES"
LIZ CRAMER, INDUSTRY AND
COMMERCE MINISTER
FDI inflows

Altogether, Paraguay registered inflows
of $356 million in FDI last year, an 11%
increase on 2016, which, in turn, was
5% higher than the $306 million in 2015.
"Paraguay has been one of the few
countries in the region that registered an
increase in foreign direct investment last
year," Cramer says. The United Nations'
Economic Commission on Latin America
and the Caribbean has reported a threeyear decline in FDI in the region, she says.
"After dropping in 2013 due to an institutional crisis that paralyzed the country,
FDI inflows in Paraguay rebounded since
2014," says Santander in a report. But José
Cantero, the central bank governor, does
not get carried away. "Total FDI stock is
about 12% of GDP," he says. "Paraguay still
has a lot of gaps in terms of FDI compared
to other countries. But we have reduced
those gaps in recent years, and there are
still a lot of opportunities."
Cantero calls the FDI momentum "a good
trend," adding that "when people realize
what Paraguay is, other companies will
come."
One of the current administration's strategies will be to complement FDI that comes
to the region. "In terms of flows, Brazil,
for instance, is a market for multinational
companies but our size is quite small. So
we have to think strategically, in a different
way," Cantero says.
Foreign investors have reacted favorably

A Supplement to LatinFinance - September/October 2018

to the continuity of economic policy, especially after the Abdo administration confirmed it will keep business-friendly policies.
"This provides visibility and predictability. We
have been here for 60 years. FDI investors
make investment decision for the long run,
not for a couple of years," Heberling says.
Apart from generous tax breaks,
Paraguay allows full repatriation of capital
and profits, supports assembly plant operations and guarantees national treatment for
foreign investors. Foreign investment is not
subject to screening, and foreign entities
are permitted to own property, according to
Santander.

Remaining challenges

Some business practices in Paraguay, as
measured by the World Bank in its Doing
Business report, remain challenging.
Paraguay currently ranks 108th out of 190
countries, down two places from last year,
in spite of improvements in some exporting
procedures, such as implementing a "single
window" mechanism to cut red tape. It takes
an average 35 days to set up a company,
three days longer than the average in Latin
America. Enforcing contracts and dealing
with construction permits are the most
problematic areas.
"The business climate remains challenging due to corruption and insecurity linked
to drug trafficking. The political climate, the
poor condition of infrastructure and the lack
of transparency in regulations are major
obstacles for investors. Labor regulations
are outmoded and restrictive," Santander
says.
Investors that come to Paraguay also
need to be ready to train local staff. "The
majority of our staff has not completed high
school, so we set up a school in agreement
with the ministry of education and a university within the company five years ago,"
says Fujikura's Mursa.
Several investors in Paraguay point
to a positive side in this situation. "The
Paraguayan worker is really good if you train
him. He will be the best guy you can get in
the world," McEnroy says. LF

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