The Brazilian economic studies center Getúlio Vargas Foundation (FGV) released the results of the Economic Climate Index (ICE) of Latin America, which positions Paraguay as South America’s most favorable business climate.
The study indicates that, in general, the business climate in Latin America reached its best level in the last 11 years in the first quarter of 2024, according to the EFE news agency.
This is its best level since the first quarter of 2013 (109.8 points). Furthermore, this was the first time since 2018 that the Index remained within the so-called favorable zone (more than 100 points) for two consecutive quarters.
Brazilian numbers improve, but Paraguay boasts the best business climate in South America
According to the FGV, the improvement in the first quarter was driven by the good evaluation of Brazil, the largest regional economy, whose indicator rose from 100 points in the last quarter of 2023 to 114.6 in the first quarter of 2024.
The business climate improved in all countries in the region except Mexico, where it fell 27.5 units to 114 points, and Chile, where it fell 7.9 units to 72.7 points.
Paraguay tops the list with (154.6 points), followed by Uruguay (139.4 points) and Brazil (114.6 points).
The Index highlights that the other countries are in the zone considered unfavorable (below 100 points) despite the increase in their indicators: Peru, with 85.3 points; Colombia, with 72.8 points; Chile, with 72.7 points; and Ecuador, with 42.2 points.
Argentina’s indicator rose from 26.1 to 41.7 points with President Javier Milei’s first economic measures, and Bolivia’s indicator remained in last place, with 20.8 points.
The study points out the improvement in indicators. It reflects the upward revision of the projections for GDP growth in 2024 in three of the countries in the region: Uruguay, Chile, and Peru.
According to the new projections, Paraguay will grow the most this year, with a projected expansion of 3.9%, followed by Uruguay (3.2%) and Mexico (2.8%).
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Paraguay: South America’s Rising Star for Business?
While giants like Brazil and Argentina often dominate headlines about South American economies, Paraguay is quietly emerging as a potential frontrunner for attracting new businesses. Let’s explore the factors that contribute to making Paraguay the country with the best business climate in South America.
Economic Sectors and Industries
Paraguay boasts a diverse economic landscape. Agriculture remains a significant player, with soybeans, corn, and beef as major exports. However, the manufacturing sector is experiencing a boom, particularly in food processing, textiles, and auto parts. The Paraguayan maquiladora industry holds significant economic promise, driving job creation, exports, and economic diversification. Here’s a breakdown of its importance:
- Export Growth: Maquiladoras typically focus on assembling imported components for re-export. This translates to increased exports for Paraguay, generating foreign currency and boosting the overall economic activity.
- Economic Diversification: Paraguay’s economy has traditionally been heavily reliant on agriculture. The maquiladora industry offers an opportunity to diversify the economy, reduce dependence on agricultural products, and foster growth in the manufacturing sector.
- Strategic Trade Partnerships: Paraguay’s free trade agreements with Brazil and Argentina, particularly for auto parts, incentivize maquiladoras to set up shop in the country. This allows them to export finished goods to these large markets without tariffs, creating a win-win situation for Paraguay and the established manufacturers in neighboring countries.
Workforce Composition
Paraguay has a growing young population with a median age of around 30. This translates to a readily available workforce that is eager to learn and adapt and is one of the reasons that Paraguay boasts the best business climate in South America. The education system is also undergoing reforms to equip graduates with the skills needed to thrive in the modern workplace. This combination of a youthful population and a focus on education positions Paraguay for future solid economic growth.
Government Policies for Business
The Paraguayan government has actively implemented policies to attract foreign investment and to create the best business climate in South America. These include:
- Low Tax Regime: Paraguay offers one of the most competitive tax rates in the region, with a corporate income tax of only 10%.
- Free Trade Agreements: Paraguay enjoys access to major markets through participation in trade agreements with Mercosur (Southern Common Market) and the European Union.
- Streamlined Business Registration: The government has simplified the business registration process, making it faster and easier for entrepreneurs to start.
- Investment Incentives: Paraguay offers tax breaks and other incentives for businesses operating in specific sectors, such as manufacturing and export-oriented industries.
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Geographic Advantage
Paraguay’s central location within South America offers a distinct logistical advantage. Businesses can leverage this position to efficiently access and distribute goods throughout the continent. Additionally, the abundant hydropower resources from the Itaipu Dam provide a reliable and relatively inexpensive industry energy source.
Paraguay’s combination of a growing economy, business-friendly policies, and strategic location makes it home to the best business climate in South America. While challenges remain, the Paraguayan government’s commitment to creating a favorable business environment suggests that this South American nation has the potential to become a significant economic player in the coming years.
Is Paraguay right for your business?
Carefully consider your specific industry’s needs and research the current market landscape in Paraguay. Consulting with international trade and investment experts at LATAM FDI can also provide valuable insights. Paraguay might be the business location you’ve been searching for in South America.
In summary, Paraguay has firmly established itself as a top contender for business ventures within South America. With a diverse economic landscape, a young and educated workforce, and government policies to foster a favorable business environment, Paraguay offers significant opportunities for growth and expansion. As businesses evaluate potential markets, Paraguay’s reputation as the country with the best business climate in South America makes it a compelling choice for investment and strategic expansion initiatives.
