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A Look at the Paraguayan Investment Climate and Opportunities

by | Jun 22, 2024

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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