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Advantages of Foreign Direct Investment in Paraguay: A Gateway to Opportunity in South America

by | Dec 19, 2023

Paraguay is in the heart of South America and presents an increasingly attractive proposition for foreign direct investors (FDIs). Boasting a dynamic economy, strategic location, and a supportive business environment, it offers compelling reasons to establish or expand operations in the land of “eternal spring.” This overview delves into the advantages of foreign direct investment in Paraguay, highlighting the benefits of investing in three key sectors: manufacturing through the maquiladora program, agriculture, and the burgeoning service sector.

Investing in Manufacturing: The Maquiladora Advantage

Paraguay’s thriving maquiladora industry offers a unique gateway to regional and global markets. This export-oriented system allows companies engaged in foreign direct investment in Paraguay to establish factories under special regulations that attract investment through simplified import-export procedures, tax exemptions, and competitive labor costs. According to the Observatory of Economic Complexity (OEC), Paraguayan maquiladoras exported around $510 million worth of goods in 2021.

Key Advantages of Maquiladoras:

Duty-free raw materials and equipment imports significantly reduce production costs and enhance international competitiveness.

Tax exemptions on reinvested profits: Retaining funds for internal expansion incentivizes long-term commitment and boosts reinvestment.

Favorable labor costs: Paraguay boasts one of the lowest minimum wages in the region, making it a cost-effective location for labor-intensive manufacturing. The official minimum wage in Paraguay as of December 2023 is ₲ 2,289,322 per month (approximately USD 318). However, maquiladora workers don’t necessarily earn the minimum wage.

Strategic location: Access to both MERCOSUR and other South American markets provides access to a vast consumer base. As of 2023, the Mercosur trade zone boasts an estimated 260 million consumers. This figure combines the populations of its full member states:

Modern infrastructure: Investment in transportation and logistics facilitates efficient movement of goods and materials. Paraguay has seen several exciting infrastructure investments in recent years to boost various sectors and improve connectivity. Below are some noteworthy examples:

Corredor Bioceánico Ruta PY11: This $750 million project involves paving and upgrading a key road connecting Paraguay to the Atlantic Ocean through Brazil.

Río Paraguay-Paraná Waterway: Ongoing dredging and modernization efforts aim to improve navigability on this vital waterway for cargo transportation.

Silvio Pettirossi International Airport Expansion: Expansion plans include new terminal and runway upgrades, enhancing passenger capacity and air cargo handling.

Sectors Thriving in Paraguayan Maquiladoras:

Textiles and apparel: Paraguay’s established textile industry, coupled with maquiladora benefits, presents attractive garment production and export opportunities.

Auto parts and electronics: As regional demand for these products grows, Paraguay’s maquiladora regime positions it as a potential hub for assembly and production.

Food processing: With agricultural abundance and skilled labor, Paraguay can leverage its maquiladora system to add value and export processed food products.

Investing in Agriculture: Where Fertile Land Meets Opportunity

Foreign direct investment in Paraguay is also advantageous because its vast plains and fertile soil make it an agricultural powerhouse. With a focus on sustainable practices and organic production, the sector presents lucrative opportunities for investors seeking exposure to global food markets.

Key Advantages of Investing in Agriculture:

Abundant arable land: Paraguay boasts some of the region’s cheapest and most fertile land, ideal for large-scale agro-industrial ventures.

Diverse production: From soybeans and corn to yerba mate and stevia, Foreign direct investment in Paraguay offers a variety of high-demand agricultural products. Paraguay is the world’s fourth-largest exporter of soybeans, supplying these versatile legumes for food, animal feed, and numerous industrial uses.

Government support: The Paraguayan government actively promotes agricultural development through infrastructure investment and financial incentives.

Emerging technologies: Adopting precision agriculture practices and sustainable farming techniques creates valuable opportunities for innovation and investment.

Growing organic market: Paraguay’s commitment to organic farming positions it as a critical player in the global organic food market, offering premium market access.

Investing in Services: A Dynamic Economic Engine

As Paraguay’s economy diversifies, the service sector is experiencing an upward trajectory. From financial services and tourism to IT and logistics, the country’s services sector offers promising avenues for investment.

Key Advantages of Investing in Services in Paraguay:

Fast-growing sector: The services sector’s contribution to Paraguay’s GDP steadily increases, presenting robust growth potential. As of 2022, the service sector accounts for 48.31% of Paraguay’s Gross Domestic Product (GDP). This represents the most significant contributor to the country’s economy, surpassing agriculture (11.33%) and industry (33.21%).

Skilled workforce: Paraguay boasts a young and educated population, offering a readily available talent pool for various service businesses. The economically active population of Paraguay represents around 64.43% of the total population aged 15 and over. This means about two-thirds of the adult population are employed or actively searching for work.

Supportive legal framework: The government is actively streamlining regulations and improving the legal environment to attract FDI in services. Paraguay stands out for its open economy and competitive tax regime compared to other South American countries.

Strategic location: Paraguay’s central location in South America is a logistical hub for regional service providers. Although the country is landlocked, it is strategically linked. Paraguay borders major regional economies like Brazil, Argentina, and Bolivia, giving it access to vital trade routes and markets.

Emerging opportunities: Untapped potential exists in areas like fintech, renewable energy consultancy, and e-commerce, offering niche market opportunities.

Additional Considerations for Foreign Direct Investment in Paraguay

Paraguay’s vibrant economy and favorable investment climate present a unique opportunity for foreign investors seeking growth and diversification. Paraguay offers various possibilities across several industries, from manufacturing through the maquiladora program to agriculture and the burgeoning service sector. Paraguay is poised to become a key player in the South American market and beyond by leveraging its fertile land, skilled workforce, and strategic location. For discerning investors seeking sustainable and profitable ventures, Foreign direct investment in Paraguay offers a fertile ground for economic growth and a gateway to future success.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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