A discussion with Sebastian Ortiz Montaner, economic and trade counselor, Embassy of Paraguay to the United States.

Key Geographical and Cultural Attributes

Paraguay, located in the heart of South America, is known for its strategic geographical position, providing connectivity to major regional markets. The country boasts a rich cultural heritage, with Spanish and Guarani as its official languages. Paraguay’s vibrant culture, high literacy rate of 95%, and a young, dynamic population create a welcoming environment for investors, enhancing the Paraguayan investment climate.

LATAM FDI: How would you describe Paraguay’s current economic landscape?

Paraguay’s economic landscape is characterized by stability and growth. With a GDP of USD 43,389 million in 2023 and a projected growth rate of 3.8% for 2024, the country has shown resilience and positive economic performance, even during global challenges such as the COVID-19 pandemic. This resilience contributes significantly to the Paraguayan investment climate.

Economy and Major Industries

Sebastian Ortiz Montaner: What is the size of Paraguay’s economy in terms of GDP, and what has been the growth trend over the past few years?

The GDP of Paraguay was USD 43,389 million in 2023. Over the past few years, Paraguay has maintained a positive growth trend, with a GDP growth rate of 4.5% in 2023 and an average growth rate of 2.9% from 2014 to 2024. This consistent growth underscores the country’s economic resilience and potential, making the Paraguayan investment climate more attractive.

LATAM FDI: Which major industries drive Paraguay’s economy, and what opportunities do they present for foreign investors?

Sebastian Ortiz Montaner: The major industries driving Paraguay’s economy include agriculture, manufacturing, and services. Agriculture contributes 7.9% to the GDP, manufacturing accounts for 19.6%, and services, including commerce, transport, and finance, comprise a substantial part of the economy (around 70%). These industries present numerous opportunities for foreign investors, particularly in agribusiness, industrial manufacturing, and service sectors, which are key components of the Paraguayan investment climate.

LATAM FDI: How has Paraguay’s agricultural sector contributed to the economy, and what are the prospects for investment in this area?

Sebastian Ortiz Montaner: Agriculture contributes less than 10% to Paraguay’s GDP but remains the main driver of the country’s development. This is mainly because the service sector is closely linked with agricultural production, manufacturing, and agribusiness. Investment prospects in agriculture are promising, with opportunities in crop production, livestock, and agro-industrial processing supported by favorable climatic conditions and fertile land, all of which enhance the Paraguayan investment climate.

Workforce and Education

LATAM FDI: What can you tell us about the availability of educated and skilled workers in Paraguay?

Sebastian Ortiz Montaner: Paraguay has a high literacy rate of almost 95%, and the government is committed to developing a skilled workforce. The country’s educational system produces a steady stream of educated individuals, and ongoing reforms aim to enhance technical and vocational training to meet the needs of the evolving economy. This commitment to education further strengthens the Paraguayan investment climate.

LATAM FDI: How is the Paraguayan government ensuring the development of a skilled workforce to meet the needs of international investors?

Sebastian Ortiz Montaner: The Paraguayan government invests in education and training programs to develop a skilled workforce. Initiatives include vocational training, partnerships with international educational institutions, and programs to enhance skills in key industries such as technology, manufacturing, and services. Two notable recent initiatives include opening universities in collaboration with Germany and Taiwan, focusing on specialized programs designed to equip students with specific skills demanded by the industrial sector. These efforts ensure a skilled labor force that benefits the Paraguayan investment climate.

LATAM FDI: Are there any specific sectors where Paraguay has a particularly strong talent pool?

Sebastian Ortiz Montaner: Paraguay is a labor-intensive country with a young and well-trained labor force. Almost 70% of the population is under 35 years old. Paraguay has a particularly strong talent pool in agriculture, manufacturing, and renewable energy sectors. The country’s focus on developing these areas has resulted in a workforce with specialized skills and expertise, making it an attractive destination for investors in these industries and contributing to a robust Paraguayan investment climate.

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Trade Agreements and Market Connectivity

LATAM FDI: Can you elaborate on Paraguay’s participation in international trade agreements and how these benefit foreign investors?

Sebastian Ortiz Montaner: Paraguay is a founding member of Mercosur, providing access to a market of over 295 million inhabitants. The country has numerous bilateral and multilateral trade agreements that offer preferential treatment, reduced tariffs, and enhanced market access for foreign investors. These agreements currently cover the whole of South America, facilitating easier entry into those markets and creating a favorable environment for export-oriented businesses. These agreements significantly enhance the Paraguayan investment climate.

LATAM FDI: What connectivity does Paraguay have with national and international markets regarding infrastructure, such as transportation and logistics?

Sebastian Ortiz Montaner: Paraguay has greatly improved its infrastructure network in recent years, including waterways, ports, and roadways, which connect it to major regional markets. The country’s strategic location allows efficient access to ports in Argentina, Brazil, and Uruguay, enhancing its role as a logistics hub in South America. Ongoing infrastructure projects aim to improve connectivity and transportation efficiency further, especially the development of the bi-oceanic route, which will connect both oceans in less than 48 hours. This connectivity is a critical aspect of the Paraguayan investment climate.

Investment Incentives

LATAM FDI: What tax incentives does Paraguay offer foreign investors, and how do these compare to other countries?

Sebastian Ortiz Montaner: Paraguay offers one of the most competitive tax regimes in the region, with a maximum corporate income tax rate of 10%. Additional incentives include tax exemptions for import materials, machinery, and supplies under the Maquila regime, VAT returns, and favorable conditions in Free Trade Zones. These incentives are highly competitive compared to other countries, making Paraguay an attractive destination for foreign investment and enhancing the Paraguayan investment climate.

LATAM FDI: What other forms of support or incentives does the Paraguayan government provide besides tax incentives to attract foreign direct investment?

Sebastian Ortiz Montaner:

• Investment Guarantees: Legal frameworks to protect investments and ensure a stable business environment.
• Incentives for Export-Oriented Production: Programs like the Maquila regime significantly benefit export-focused companies.
• Infrastructure Development: Government investments in infrastructure projects to improve connectivity and support industrial growth.
• Access to Renewable Energy: Paraguay’s leadership in renewable energy ensures a reliable and cost-effective power supply for industrial activities.

These support measures collectively create a favorable Paraguayan investment climate.

Business Climate

LATAM FDI: How would you describe the overall business climate in Paraguay, and what measures is the government taking to improve it further?

Sebastian Ortiz Montaner: The business climate in Paraguay is favorable, characterized by economic stability, low taxes, and a supportive regulatory environment. The government is committed to further improving this climate through structural reforms, investments in infrastructure, and initiatives to enhance the ease of doing business. These efforts continue to improve the Paraguayan investment climate.

LATAM FDI: What are some success stories of foreign companies that have invested in Paraguay, and what can new investors learn from their experiences?

Sebastian Ortiz Montaner: Several foreign companies have successfully invested in Paraguay, benefiting from its favorable business environment. For example, multinational agribusiness firms have thrived due to the country’s robust agricultural sector and competitive costs (Cargill, ADM, Bunge, Minerva Foods, among others). These success stories highlight the positive aspects of the Paraguayan investment climate and can serve as valuable lessons for new investors.

Future Outlook

LATAM FDI: What are the Paraguayan government’s economic development and diversification plans in the coming years?

Sebastian Ortiz Montaner: The Paraguayan government’s development plans focus on economic diversification, infrastructure improvement, and business environment enhancement. Key initiatives include promoting renewable energy, expanding industrial capacities, and supporting technological innovation. These plans aim to reduce dependency on traditional sectors and foster sustainable long-term growth, ensuring a dynamic Paraguayan investment climate.

LATAM FDI: How does Paraguay’s strategic location in South America enhance its attractiveness as an investment destination?

Sebastian Ortiz Montaner: Paraguay’s strategic location in the center of South America provides unparalleled access to major regional markets. Its connectivity through waterways, roads, and ports facilitates efficient trade and logistics, making it an ideal hub for businesses looking to expand in the region. This geographical advantage and a favorable investment climate enhance Paraguay’s attractiveness as a prime investment destination, solidifying the strength of the Paraguayan investment climate.

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A pivotal co-financing plan is set to bolster foreign direct investment inflows to Colombia. Through this strategy, Colombia is poised to invest a substantial $2.4 million to nurture supplier development projects, a key driver of its economic progress and prosperity. This plan holds the promise of maintaining and significantly increasing foreign direct investment, paving the way for a brighter economic future for Colombia.

In 2023, Colombia experienced significant economic stability an economic boost, with a substantial $17.1 billion in foreign direct investment (FDI). This success story is a testament to the growing potential of the co-financing plan, which aims to integrate companies into value chains, diversify the supply of goods and services, and set a solid foundation for future growth.

The co-financing plan aims to maintain and attract foreign direct investment

However, with the decline in foreign direct investment inflows to Colombia in the first quarter of 2024, the country received only $3.6 million, a decrease of $489 million compared to the same period in 2023. This stark contrast underscores the urgent need for a co-financing plan to maintain and attract foreign direct investment.

When discussing the allocation of foreign direct investment inflows to Colombia from January to March of the current year, it’s important to note that most investment was directed towards financing productive projects in various sectors. These sectors, including mining and oil, financial services and business, commerce, restaurants and hotels, transportation and communications, and manufacturing, have significantly benefited from the co-financing plan, demonstrating its broad impact.

Regarding FDI by country of origin, resources came mainly from the United States ($1.6 billion), Anguilla ($481 million), Spain ($443 million), Panama ($317 million), England ($148 million), Netherlands ($140 million), Switzerland ($83 million), and Mexico ($82 million).

Now, Colombia is calling on all potential investors to continue to perceive Colombia as an investment destination that meets their industrial supply needs. The Ministry of Commerce, Industry and Tourism and Colombia Productiva have opened their call for ‘Best Suppliers of Foreign Direct Investment (FDI),” which will invest $2.4 million to co-finance supplier development projects. This initiative is designed to ensure that micro, small, and medium-sized enterprises can be inserted into the supply chains of foreign direct investment companies, further strengthening the Colombian economy.

This call is part of the ‘Better Suppliers Chain’ strategy of MinComercio and Colombia Productiva, which provides technical assistance services and training in digital and complementary tools to strengthen the supply capacities of productive units, encouraging their insertion into high-value-added production chains, especially those related to the country’s Industrialization Policy.

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Efforts are aimed at micro, small, and medium-sized businesses

Hernán Ceballos, general manager of Colombia Productiva, explained that “through the EnCadena better suppliers’ program, the Government will allocate more than $34 million to improve the supply capabilities of nearly 2,000 micro, small and medium-sized businesses in strategic industries, of which $2.4 million is destined to strengthen supplies for investing companies.”

The objective of the project is clear. With resources from the Ministry of Commerce and the Inter-American Development Bank, six supplier development projects will be co-financed with up to four hundred million pesos each. These projects must have a proposing company or managing entity, three micro, small, and medium-sized enterprises or beneficiary productive units, and an FDI anchor company as an ally. These resources will co-finance, among others, the acquisition of equipment and software licenses; laboratory services and technological development; inputs, goods, and materials; subscriptions and access to information sources; expenses associated with training activities; payments for compliance with legal, regulatory, technical, and commercial requirements for market access, including the necessary legal advice; costs associated with the implementation of the commercial strategy; and consulting services, technical assistance, training, or specialized technical personnel.

At the end of the initiative, potential suppliers are expected to present improvements in profitability, sales, exports, and development or sophistication of processes, products, or services. This will allow them to create sustainable business relationships with companies that make foreign direct investment inflows to Colombia over time.

Foreign direct investment inflows to Colombia prioritize certain sectors

It should be noted that ‘Best suppliers for foreign direct investment’ projects focused on the strategic sectors of the Industrialization Policy will be prioritized: energy transition, agro-industrialization, food sovereignty, industrialization in the health sector, and industrialization for defense and life.

The country’s commitment to fostering foreign direct investment inflows to Colombia through the co-financing plan is a significant step towards ensuring economic growth and stability. By investing in supplier development projects and enhancing local businesses’ capabilities, Colombia is addressing the recent decline in FDI and paving the way for a more robust and diversified economy. This initiative reaffirms Colombia’s position as an attractive destination for foreign investors, promising a prosperous future built on strong, sustainable business relationships.

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Oji Holding Corporation, a leading Japanese multinational in the pulp and cellulose market, has made a significant investment in Uruguay, directly impacting the local land market. The company has purchased agricultural land in the country’s northern regions, acquiring over 41,000 hectares in the departments of Rivera and Tacuarembó. Valued at just under $300 million, this deal has significantly impacted the local land market and brought global attention, shining a positive light on Uruguay’s agricultural potential.

The Oji Holding investment in Uruguay is massive

The details of this major operation, which became public in May, reveal that Oji Holding Corporation acquired exactly 41,289 hectares for $287,598,326. This substantial investment in Uruguay’s fields was made possible through the collaborative efforts of the National Colonization Institute and various operators in the land sales sector. Oji Holdings is a global leader in the cellulose pulp and paper industry, with shares listed on the Tokyo Stock Exchange and part of the Nikkei 225 index.

With a proven track record and a strong presence in several countries, Oji Holdings is well-positioned to make this significant investment in Uruguay. Despite being headquartered in Tokyo, the company owns approximately 603,000 hectares of forested land worldwide. In Uruguay, Oji Holdings received legal authorization from the Executive Branch to own rural properties, a decision formalized in a resolution signed by President Luis Lacalle Pou and Minister of Livestock, Agriculture, and Fisheries Fernando Mattos on April 25. This successful history and the company’s global reputation instill confidence in the potential of this investment.

Under Law 18,092 of 2007, various entities, including companies, cooperatives, and associations, can be authorized by the Executive Branch to own rural real estate or agricultural holdings. The financial structure of this investment in Uruguay is well-planned, with the transaction set to be completed in a single installment at the time of signing the deed. According to colonization records, the total amount is $140 million for the land and $148 million for the forested areas.

Oji Holdings is a multi-billion dollar company

Oji Holdings’ revenue in 2022 reached $12.2 billion, indicating that funding this investment in Uruguay will not be an issue. The company employs 35,600 people and owns forested fields in six countries. In Brazil, Oji Holdings has 250,000 hectares and smaller areas in New Zealand, Australia, Indonesia, Vietnam, and other Asian nations. Additionally, it operates a pulp and paper production plant in Minas Gerais, Brazil, with most of its forest plantations consisting of eucalyptus.

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Uruguay has an important forestry and pulp industry

The Japanese investment in Uruguay by Oji Holding Corporation is a testament to the strategic importance of Uruguay in the global forestry and pulp industry. This $287 million deal underscores Uruguay’s appeal as a destination for significant foreign investments in agriculture and forestry. The acquisition of over 41,000 hectares in Rivera and Tacuarembó reflects Oji Holdings’ confidence in the region’s potential and highlights Uruguay’s favorable regulatory environment for international investors.

The involvement of environmental groups speculating about the possible establishment of a new cellulose pulp processing plant signifies the broader implications of this investment. Such a development could bring substantial economic benefits to the local economy, including job creation and infrastructure improvements. However, it also necessitates careful consideration of environmental impacts and sustainable practices.

Oji Holdings’ extensive global experience and robust financial health position it well to navigate the complexities of this investment in Uruguay. With legal frameworks supporting foreign ownership of rural properties and a clear plan for financial execution, this venture is poised for success. As Oji Holdings integrates this new acquisition into its global operations, it will likely bring advanced forestry management techniques and sustainable practices to the Uruguayan landscape.

This investment in Uruguay strengthens the economic ties between Japan and Uruguay and sets a precedent for future multinational investments in the region. It showcases Uruguay as a viable and attractive destination for large-scale agricultural and forestry investments, paving the way for further economic development and international collaboration.

The investment is a strategic move

The Oji Holdings investment in Uruguay is more than just a financial transaction; it is a strategic move that could have long-lasting impacts on the region’s economic landscape. As Uruguay continues attracting significant foreign investments, such as this $287 million deal, it is poised to become a key player in global forestry and agriculture. This infusion of capital and expertise from one of the world’s leading pulp and paper companies promises economic growth and advancements in sustainable forestry practices. The local economy benefits from increased employment opportunities, infrastructure development, and potentially new technological advancements in agriculture and forestry management.

Moreover, this investment in Uruguay by a major Japanese corporation strengthens bilateral relations between the two nations, encouraging further collaboration and mutual economic benefits. It sets a benchmark for future investments and highlights Uruguay’s potential as a hub for multinational companies looking to expand their operations in South America. As Oji Holdings integrates its new Uruguayan assets into its global portfolio, the move could inspire similar investments from other global players, enhancing Uruguay’s reputation as an attractive investment destination. Ultimately, this deal represents a significant step towards a more dynamic and interconnected global economy, with Uruguay at its forefront, ready to seize new opportunities and drive sustainable growth.

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The Monterrey Aerocluster is made up of 45 primarily Mexican companies. It is currently operating at maximum capacity due to growing demand and the challenge of satisfying it as part of the relocation of supply chains, indicated Erik Palacios, executive director of the cluster.

In 2023, the Monterrey Aerocluster continued to attract Foreign Direct Investment (FDI) to Nuevo León and demonstrated robust performance in production growth. Notably, the companies associated with the Monterrey Aerocluster are operating at 90% of their capacity, a clear sign of the high demand and the challenge to satisfy it as part of the nearshoring phenomenon. This success story is a testament to the cluster’s potential and its bright future.

The executive director of the Monterrey Aerocluster, Erik Palacios Garza, recently shared the challenges the cluster is facing. He said, “The companies in the cluster, where we also have companies installed in Tamaulipas and Coahuila, are doing very well. They tell me that they are all at capacities above 90% and cannot serve all the clients coming to them; they are surprised by the number of aerospace clients looking to access their services in recent years. These challenges highlight the need for support and understanding from the industry and the government.”

The majority of the companies in the Monterrey Aerocluster are domestic

He highlighted that the Monterrey Aerocluster comprises 45 companies; most are Mexican, contrary to the case in other aerospace clusters in Mexico, where foreign companies seeking maquila predominate.

He explained that the aerospace industry has clusters mainly on the border, such as Baja California, Chihuahua, Sonora and Nuevo León, and Querétaro in the country’s center. These industry clusters function as collaboration centers of the triple helix: private manufacturing companies and government and academic institutions.

A Fact Sheet on the Aerospace Sector of Mexico, prepared by the Economic and Commercial Office of the Spanish Embassy in Mexico City, indicates that “the most prominent states in terms of aerospace investment and activity are”:

Querétaro: The Central Mexican state is one of the leading centers of the aerospace industry in Mexico, as it is home to specialized industrial parks, research centers, educational institutions, and leading companies. Querétaro hosts several prominent manufacturers. Bombardier Aerospace is a key player, with a major facility producing critical aircraft components. Safran, another major aerospace company, operates extensively in Querétaro, focusing on engine components and landing gear systems. The aerospace park in Querétaro also includes Airbus Helicopters, which manufactures and assembles various helicopter parts. Additionally, the French company Figeac Aero has a presence, specializing in aerostructures and precision machining. These companies and others, such as General Electric (GE) Aviation, which produces jet engine components, underscore Querétaro’s strategic importance in the global aerospace supply chain.

Baja California: The border region, especially Tijuana and Mexicali, has experienced significant growth, with several foreign companies having manufacturing and assembly plants in this area. Tijuana, Mexico, is home to several prominent aerospace manufacturers, contributing significantly to the region’s industrial landscape. Among these, the Honeywell Aerospace facility is a significant player, focusing on producing avionics, safety systems, and aircraft engines. GKN Aerospace also has a considerable presence in Tijuana, specializing in advanced aerospace systems and components. Eaton, a global power management company, operates a manufacturing plant in the area, producing hydraulic systems and other critical aerospace parts. Additionally, Gulfstream Aerospace has a facility in Tijuana dedicated to aircraft interiors and structures. These companies and other key industry players like Suntron and Benchmark Electronics reinforce Tijuana’s status as an essential center for aerospace manufacturing in Mexico.

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Chihuahua: This Northern Mexican state has a significant presence in the sector. In Ciudad Juárez and other cities, companies are dedicated to manufacturing aerospace components. Chihuahua, Mexico, has established itself as a crucial center for aerospace manufacturing, hosting several prominent companies. Among the leading manufacturers, Honeywell Aerospace stands out with a substantial facility dedicated to producing aircraft components such as turbines and avionics. Safran also has a significant presence in Chihuahua, focusing on engine components and landing gear systems. Cessna, a subsidiary of Textron Aviation, operates in the region and specializes in assembling and finishing various aircraft models. Additionally, Zodiac Aerospace, now part of Safran, contributes to the aerospace ecosystem by producing aircraft seats and interiors. Other notable companies include Metal Finishing Company (MFCO) and Benchmark Electronics, both of which play vital roles in the supply chain for aerospace components. These manufacturers collectively highlight Chihuahua’s strategic importance in the global aerospace industry.

Nuevo León: The Monterrey Aerocluster has experienced growth, with companies dedicated to the manufacturing and assembly of components. Monterrey, Mexico, is a crucial hub for aerospace manufacturing and is home to several prominent companies in the industry. Among these, the Danish aerospace giant Terma stands out, producing advanced aerostructures and electronic systems. Grupo Alfa, a Mexican multinational, operates in the region through its subsidiary Nemak, which manufactures complex aluminum components for aerospace applications. Quimmco, another significant player, provides precision machining and components for the aerospace sector. In addition, Parker Hannifin has a substantial presence in Monterrey, focusing on hydraulic systems and motion control technologies for aircraft. Furthermore, Frisa Aerospace, a leading supplier of seamless rolled rings and open die forgings, serves the aerospace market from its Monterrey facilities. These companies and others, such as Ducommun and Metal Finishing Company (MFCO), underscore the vital role of the Monterrey Aerocluster in the global aerospace supply chain. 

Sonora, Mexico: This western border state has emerged as a significant player in the aerospace manufacturing sector, hosting several prominent companies. Among these, the French company Safran operates a key facility in Hermosillo, specializing in producing aircraft engine components and landing gear systems. TE Connectivity, a global leader in connectivity and sensor solutions, has a significant presence in Empalme, where it manufactures a variety of aerospace connectors and sensors. In addition, Latecoere, a prominent French aerostructures manufacturer, operates in Hermosillo, focusing on assembling doors and other structural components for aircraft. The state’s aerospace industry is further bolstered by companies like Tetakawi, which provides manufacturing support services to numerous aerospace firms. These companies and others in the region highlight Sonora’s strategic importance in the aerospace supply chain and its growing role in global aerospace.

“I think it is a time of prosperity for companies. It makes me very proud that it is also for the Mexican companies that comprise the industry’s ecosystem,” stressed Erik Palacios.

Aerospace industry companies are spread out among 19 Mexican states

It is estimated that more than 350 plants are in the country, mainly in 19 states. Baja California leads with 97, followed by Sonora with 58 and Chihuahua with 52 plants. The Monterrey Aerocluster is comprised of 45 companies.

Some of the most important companies in the aerospace industry in Mexico are Safran, Bombardier Inc., The Boeing Company, Airbus, Honeywell International Inc., Daher, Dassault Aviation, Ducommun Inc., General Electric Company, GKN Aerospace, and Raytheon Technologies.

Mexico is a significant player in the global aerospace industry

The Monterrey Aerocluster’s remarkable growth and high capacity utilization underscore its strategic importance in the global aerospace supply chain. Comprising 45 predominantly Mexican companies, the Monterrey Aerocluster has demonstrated resilience and adaptability in response to the nearshoring trend, attracting significant foreign direct investment to Nuevo León. The executive director, Erik Palacios, highlighted the unprecedented demand from aerospace clients, which has pushed operations to 90% capacity and beyond. This robust performance is mirrored in other prominent aerospace hubs across Mexico, such as Querétaro, Baja California, Chihuahua, and Sonora, each contributing uniquely to the industry’s landscape. The Monterrey Aerocluster, with its diverse array of companies and significant role in manufacturing and assembling aerospace components, exemplifies the prosperity and potential of Mexican enterprises within the global aerospace ecosystem. As these clusters continue to expand and innovate, they collectively reinforce Mexico’s critical position in the international aerospace sector.

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Free zones are geographical areas within a country operating under a special tax regime. They have been established to seek and encourage foreign direct investment, promote international trade, and stimulate economic development. The free zone regime in Ecuador can contribute to national economic growth and reduce economic disparities between regions.

In Ecuador, an attempt had already been made to reintroduce the free zone regime, without success, by a bill sent to the National Assembly, which ended up rejecting it, and by Decree-Law, declared unconstitutional by the Constitutional Court because it was not considered of an economic nature. (Roa Chejín, 2023).

A free zone regime in Ecuador had been in place since 1991

There had already been a Free Zone regime in Ecuador since 1991, approved by the National Congress, which was established to promote trade and stimulate foreign investment, considering the country’s sociopolitical characteristics and geographical location. One of the objectives of the Law was the development of economically depressed areas. The free zones had to be delimited by an Executive Decree. By this, a concession was granted to an administrative company to operate under the free zone regime in Ecuador.

One of the particularities of the Free Zone Law in Ecuador was the exception regarding the stability of labor contracts. The nature of the contracts in free zones was temporary. On the other hand, workers’ salaries had to be 10% higher than the minimum wage. These salaries must be paid in American dollars (remember that the Law predates 2000).

Another exception to the  Free Zone Law was the exchange regime since users of the free zone regime in Ecuador enjoyed exchange freedom and were not subject to the laws, regulations, and regulations of the Central Bank of Ecuador.

ZEDES replaced the free zone regime in Ecuador in 2010

The COPCI (Organic Code of Production, Trade, and Investment) abolished the free zone regime in 2010 and replaced it with the special development zones or ZEDES, whose vision was different. The ZEDES were customs destinations that operated in delimited areas of the national territory and whose types varied in terms of their purposes:

1. To carry out technology and innovation transfer and disaggregation activities.
2. To execute industrial diversification operations
3. To develop logistics services.
4. To engage in tourist services

The recently approved “Organic Law of Economic Efficiency and Employment Generation” reforms the COPCI and reintroduces the free zones in Ecuador, defining them as delimited geographical areas within the national territory subject to special regimes in various areas, such as foreign trade, customs, taxation, finance, agribusiness, technology, and capital treatment; where industrial, commercial and service activities are carried out (34 COPCI).

Job creation is the goal

The purpose of free zones in Ecuador is the generation of employment, the attraction of national and foreign investments, the promotion of development poles to improve competitiveness at the national level, the facilitation of foreign trade, the promotion of global value chains, technology transfer, and innovation, the internationalization of goods and services, the promotion of development in economically depressed areas, the facilitation of the association of recognized communities, the attraction of essential infrastructure, the promotion of business internationalization strategies, the taking advantage of opportunities such as nearshoring, the leveling of international competitiveness, the attraction of projects for the internationalization of Ecuador, and the creation of beneficial infrastructure for users of free zones in Ecuador and their respective regions (art. 35 COPCI).

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The activities to which free zones can be dedicated are, first of all, the “Industrial goods” encompass areas devoted to the processing, transformation, assembly, repair, and conditioning of goods, including manufacturing, agriculture, agroindustry, processing of fishery products, aquaculture, and forestry, as well as other activities designated by the Strategic Committee for the Promotion and Attraction of Investments (CEPAI). Secondly, the “Service Industries” include areas for tourism, repair, cleaning, quality testing, auditing, consulting, professional services, telecommunications, information technology, health, scientific and technological research, and technical support, among others. These activities are also subject to CEPAI designation. Finally, the “Commercial and Logistics” category includes trade activities of goods for import, export, or re-export and logistics services such as transportation, storage, collection, packaging, distribution, recycling, exhibition, and other related functions, as established and defined by CEPAI.

The free zone system in Ecuador has three main actors: users, operators, users, and support services.

• Operator users are those legal entities, under private or public Law, with a mixed economy, national or foreign, designated by ministerial agreement whose main activity is the acquisition, leasing of land, development of its infrastructure, sale or rental of physical facilities, services promotion, direction and administration of the free zone.
• The users are the legal entities of private, public, national, or foreign mixed economy qualified by the user operator to carry out specific activities, according to what is described in the previous paragraph.
• Support services are those natural or legal persons under private Law established within the Free Zone that provide services to users and user operators.

Free zone operators must abide by Ecuador’s labor code

The Law for the free zone regime in Ecuador does not provide for a special labor regime since user operators, users, and support service companies must apply the provisions of the Labor Code. The regulations issued must uphold the provisions of said Code (art. 50.9 COPCI), which differs from the previous free zone regime.

The Law provides certain fiscal exonerations and exemptions concerning free zones, mainly:

• 0% Income Tax rate for operators and users for the first five years of declaring a free zone from the first year concerning acts and contracts carried out in the free zone, and a fixed rate of 15% thereafter.
• Operators and users are exempted from VAT, ISD, and foreign trade taxes.
• VAT exemption is for purchases of raw materials, supplies, goods, and construction materials from operators located in the national territory.
• Exemption from income tax on income or dividends generated by the shares or participations of operators or users.

One of the concerns of opponents of the free zone regime in Ecuador is its environmental impact. In this sense, the art. According to the Ministry of the Environment guidelines, 50 COPCI prohibits activities that cause environmental deterioration, such as mining, hydrocarbon extraction, etc. Likewise, those responsible for violations due to environmental damage must carry out the remediation process following the Environmental Code. In addition, ecological damage or non-compliance with the Environmental Management Plan constitutes a serious penalty (50.25.f COPCI).

This reintroduction of the free zone regime in Ecuador can be very positive in terms of international trade, job creation, and attraction of investments. This is contrasted with the income that the state does not receive by the exemptions and exonerations described above. It remains to be seen if the free zone regime in Ecuador will meet such purposes and if the government can promote free zones to contribute significantly to the country’s economic development, especially in certain areas and regions that need to catch up to the rest of the country.

In conclusion, the reintroduction of the free zone regime in Ecuador represents a significant strategic move aimed at boosting international trade, generating employment, and attracting national and foreign investments. By offering fiscal incentives and a specialized regulatory environment, the free zones are designed to stimulate economic development, particularly in regions that have historically lagged behind the rest of the country. However, the effectiveness of this regime will ultimately depend on its implementation and the government’s ability to balance the potential economic benefits with environmental protection and the equitable distribution of resources. The success of the free zone regime in Ecuador will be measured by its ability to enhance the country’s competitiveness on the global stage, foster innovation, and create sustainable economic growth across diverse sectors.

Original Spanish Language Source Article

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