Paraguay’s maquila system has drawn particular attention from Brazilian companies over the past few decades, with businesses expanding across the border in significant numbers to take advantage of Paraguay’s tax system. Brazilian news outlets recently noted the scale of investment on Paraguayan soil by Brazilian companies. The amount of Brazilian companies in Paraguay has been on the rise over the past few decades, partly as a result of the maquila system and the benefits that Paraguay can offer companies under this law, and also because the tax advantages offered by Paraguay have acted as a draw for foreign companies that have since set up business in Paraguay and changed the country’s industrial model. Folha de São Paulo reports that approximately seven in ten maquila regime companies that have arrived in Paraguay over the past 25 years are Brazilian.
Key Brazilian Sectors Expanding in Paraguay
The most important sectors for Folha are those involved with footwear production, the companies within which have seen considerable growth over recent years. The report indicates that there are a total of 203 active footwear companies under the maquila system by the end of 2024. There has been a particular increase in the number of Brazilian companies along the border, which has jumped in number by 182 since 2014. This growth is clearly important for the presence of Brazilian companies in Paraguay, with a number of Brazilian footwear producers moving part of their operations to Paraguay.
Grupo Lupo Begins Construction of New Investment
A story reported in the media that appears especially relevant for the continued growth of Brazilian companies in Paraguay is the case of Grupo Lupo, a textile company that was founded almost a century ago. In January, Grupo Lupo’s executives announced to investors the opening of the company’s first factory outside Brazil, in Ciudad del Este near the border with Foz do Iguaçu. The investment by Lupo is reported to be about 30 million Brazilian reais, with the new factory becoming part of the company’s strategy to expand in South America. The new company will produce 20 million pairs of socks a year and will generate 350 direct jobs. Lupo estimates that the factory will be running at full capacity by 2026. This case is also notable because it shows that the presence of Brazilian companies in Paraguay is not limited to sectors traditionally connected to maquila; Brazilian companies in Paraguay are starting to look for new ways to diversify operations to gain new market share, while also having a smaller fiscal and logistical impact.
Previous Investments: Guararapes, Texcin, and Estrela
The report by Folha also returns to a number of investments made by large Brazilian companies in the early days of the maquila boom. Guararapes (parent company of Brazilian retail chain Riachuelo) and Texcin were the Brazilian partners in an investment made between 2014 and 2015 to create a large center for garment production in Paraguay, a joint venture of USD 10 million. This venture was significant, as it generated around 2,000 jobs and thus had a pivotal impact on the apparel industry in Paraguay. Guararapes’ investment is connected to several other investments made by Brazilian companies along the border. The following year, one of Brazil’s more well-known toy manufacturers, Estrela, also opened a production plant in Paraguay. This case, along with those mentioned earlier in the report, helps put the situation of Brazilian companies in Paraguay into context. These investments show that, across different industries, from textiles to manufacturing and consumer goods, there were companies that identified the opportunities offered by Paraguay’s maquila regime.
Brazilian Companies in Paraguay: The Attraction of Paraguay’s Maquila System
The article reports that Paraguayan authorities have set a particular focus on the attraction of textile companies, as well as those that work with plastics and auto parts. The industries that operate under these categories currently represent 58.1% of all maquila regime companies, according to Paraguay’s Ministry of Industry and Commerce. The data released on Paraguayan exports indicate that in 2024, Brazilian companies in Paraguay produced around 60% of all products exported by Paraguayan maquiladoras and that these were destined for the Brazilian market. The same source shows that the number of maquila-certified industries in Paraguay was 292, with Brazilian companies in Paraguay representing 71% of these. These figures show how the relationship between Paraguay and Brazil is so integrated with the maquila system. For every 1% increase in the Brazilian GDP, the Paraguayan maquila exports increase by 4.1%, on average. These are all signals that Brazilian companies in Paraguay will continue to grow, using Paraguay as a platform for optimized production that can be directed at regional and even global markets.
Tax Benefits in Paraguay and the Legal Framework
The Paraguayan maquila law also allows companies to establish a legal entity in the country, which has some important benefits that have made Paraguay particularly attractive for these Brazilian companies. Tax exemptions, zero duties when importing capital goods, raw materials, and services, and the payment of a tax of 1% of the value of exports are among the advantages of Paraguay’s maquila system. Paraguay’s maquila law took shape in the year 2000, with the publication of a decree to regulate its application, and the first maquila operations took place in the second half of 2001, as informed by Paraguay’s National Institute of Technology, Standardization, and Metrology. The close integration between Brazil and Paraguay is also clear within the maquila system, with every 1% increase in Brazil’s GDP resulting in a 4.1% increase in Paraguayan maquila exports. Maquila exports represent 68% of Paraguay’s total industrial exports, growing in recent years at an average rate of 20%.
Paraguay to Expand on the Attraction of Brazilian Companies
Natalia Cáceres, Executive Secretary of the National Council of the Export Maquila Industry, also stated that Paraguay plans to attract more Brazilian investors and strengthen this trend by participating in major trade fairs and international business events, highlighting the qualities of Paraguay’s industrial fabric. Cáceres emphasized that it is not about ‘dragging’ the industries out of Brazil. In fact, the country seeks to join with them so that they can improve their competitiveness. The country has a cost-efficient environment that complements the advantages of Brazilian industry. This type of message is important as it shows a longer term outlook for the growth of Brazilian companies in Paraguay. For Paraguay, the presence of Brazilian companies in Paraguay continues to be a very important tool to use to export production to regional and global markets in the most optimized way.
Existing Challenges for Maquila Industry: Credit and Labor
On the other hand, some business leaders have also highlighted certain issues, such as the lack of easy access to credit in Paraguay, as well as a shortage of skilled labor. In fact, these factors have been barriers that have limited the growth of production in certain areas of specific industries, even with the presence of tax advantages. The government has stated its commitment to working with other Mercosur countries to increase credit lines for the maquila sector and to improve training for the labor force. By the end of December, companies registered in the maquila system already had almost 30,000 people employed, which generated twice as many indirect jobs. The government has indicated its intention to continue increasing the participation of the maquila sector in the economy. Upon taking office in 2023, President Santiago Peña promised to create 100,000 new jobs in the maquila industry by 2028, reiterating his position that his government will not be raising taxes to attract new investors.
Conclusion
To summarize, the maquila industry in Paraguay, particularly with the entry of Brazilian companies, is a market with a clear and constant trend of growth, in part determined by how Paraguay has managed to incorporate itself into the productive development of its neighbor. The convergence of several favorable factors, such as tax exemptions, cheap labor, and access to Brazil, has made Paraguay a country that companies, from footwear and textile companies to Brazilian companies dedicated to the production of consumer and auto-parts, have used to set up operations that will allow them to be more efficient or diversified. This is evidenced by the Grupo Lupo factory, Guararapes, Texcin, and Estrela projects. However, the development of the maquila industry in Paraguay should also be accompanied by improvements in challenges such as credit and the lack of technically trained personnel. In this way, the maquila industry in Paraguay is certain to continue to grow in the coming years, with the introduction of policies that support international projection and infrastructure improvements, generating better jobs and a stronger position in the South American market.