The Paraguayan maquiladora industry, also known as the Export Processing Zone (EPZ) industry, has been a significant part of Paraguay’s economy since the 1980s. As a result, Paraguay’s government and private sector have worked together to create a favorable business environment for multinational companies to establish maquiladoras.
Paraguayan maquiladora industry manufacturers initially focused on import substitution
The history of the maquiladora industry in Paraguay dates back to the early 1980s when the government passed a law creating a special economic zone (SEZ) in Ciudad del Este, Paraguay’s second-largest city. The law was designed to attract foreign investment and create jobs in the area. Initially, companies in the SEZ focused on import substitution, producing goods that would otherwise have been imported. However, as the industry grew, it shifted towards export-oriented production, with most maquiladoras producing goods for the Brazilian market.
The Paraguayan maquiladora industry has brought significant benefits to the country. It has created jobs, particularly for women, who comprise a substantial proportion of the industry’s workforce. The industry has also brought in foreign investment and helped diversify Paraguay’s economy, which was traditionally almost totally reliant on agriculture. Additionally, the industry has boosted Paraguay’s exports, which have increased by over 500% since 1990, making it one of the fastest-growing economies in South America.
Volume of exports grew in February
Exports from the Paraguayan maquiladora industry reached USD 87 million in February 2023, which reflected a 34% growth compared to the same period in 2022. It is a record figure compared to the same month in previous years.
The aforementioned is based on the latest report from the Ministry of Industry and Commerce (MIC), which highlighted the increase in the sector by the National Council of Maquiladora Export Industries (CNIME).
In the first two months of the year, exports totaled USD 160 million, 14% more than the USD 140 million in 2022.
The most exported product in the months analyzed corresponded to auto parts with 25%. The second item with the highest volume of exports was related to aluminum and its related manufactured articles with 20%.
Also, another class of products of importance in total export numbers was clothing and textiles with 18%. Finally, exports of food products and plastics were 13% and 6%, respectively. These items represent 82% of the total goods exported by the Paraguayan maquiladora industry in February 2023.
When considering the main export destinations for Paraguay’s exports so far in 2023, Brazil stands out as the most important customer, with a participation of 63%. It is followed by Argentina, the United States, Chile, and Uruguay, followed with 15%, 7%, 5%, and 4%, respectively. Concerning Mercosur, 81% of the shipments were concentrated in that trading bloc.
Maquiladora industry imports and trade balance
The purchases of inputs for industrial transformation under the maquila regime (imports) in Paraguay totaled USD 99 million between January and February. This was 5% more than the same period of the previous year.
For its part, the sum of the trade balance (exports minus imports) for January and February totaled USD 62 million, 35% more than the USD 46 million registered in the total for the first two months of 2022.
Regarding the estimates for 2023, in a conservative scenario, exports are expected to increase by 9% to reach some USD 1.12 billion by the end of this year.
Paraguay is a member of Mercosur
Paraguay is a Southern Common Market (Mercosur) member, a regional trade bloc composed of Argentina, Brazil, Paraguay, and Uruguay. Paraguay joined Mercosur in 1991. The grouping is an important platform for trade and economic integration among member countries. Mercosur has a combined GDP of over $2 trillion and a population of around 300 million people. This makes it one of the largest trading blocs in the world. Mercosur aims to promote free trade and economic cooperation among member countries, and it has signed several trade agreements with nations outside the bloc, including the European Union and China.
There are several benefits that the members of Mercosur enjoy. These include:
Access to a large market: Mercosur is one of the largest trading blocs in the world, with a combined population of over 300 million people and a GDP of over $2 trillion. Being a member of Mercosur gives countries access to a large and growing market for their goods and services.
Tariff reductions: Mercosur member countries have agreed to reduce and eliminate tariffs on goods traded within the bloc. This promotes trade and economic integration among member countries, leading to lower costs for consumers and businesses and increased competitiveness.
Common external tariffs: Mercosur member countries have a common external tariff (CET) on goods imported from outside the bloc. This helps to protect domestic industries and promote trade among member countries.
Political cooperation: Mercosur member countries cooperate on a range of political issues, including human rights, democracy, and regional security. This can promote stability and cooperation in the region.
Investment promotion: Mercosur member countries work together to promote investment and economic development in the region. This can lead to increased foreign investment and economic growth.
Overall, members of Mercosur, such as Paraguay, have access to a large market, tariff reductions, a common external tariff regime, political cooperation, and investment promotion. These benefits promote economic growth and development in member countries and strengthen regional cooperation and stability.