The country conveys confidence through legal stability, but it must overcome certain disadvantages amid the new paradigm emerging across Latin America.
Uruguay’s push to attract Foreign Direct Investment (FDI) is one of the government’s core priorities for the coming years, although it will have to contend with a far more competitive regional environment.
Predictability and the transmission of confidence stand out as national assets in the effort to attract both domestic and foreign investors. However, the economy also has “fine print,” associated with internal costs and competitiveness. As Uruguay repositions its economy, these structural challenges are becoming more visible.
In a turbulent global context, the ability of South American countries to attract investment will be crucial. Examples include Paraguay reaching investment-grade status by the end of 2025, the potential consolidation of macroeconomic stabilization in Argentina, and Chile’s low-interest-rate cycle, which is making it increasingly attractive.
A more competitive region
“The era when Uruguay attracted investment by default is over,” summarized public accountant and financial analyst at Nobilis, Ezequiel Gutiérrez, in recent statements, noting that “today the region challenges us with much more aggressive competition.”
When examining changes in neighboring countries, he argued that Paraguay “has undergone the most relevant structural shift, because it validates its institutional security before the world. It no longer offers only low costs and minimal tax burdens, but has now become a safe destination for the real economy, directly competing for industrial investment.”
Regarding Argentina, he observed that “if it manages to consolidate its macroeconomic stabilization, it offers potential profitability through accelerated recovery and a market size that Uruguay simply cannot match.” Meanwhile, he stated that Chile “continues to apply pressure with its financial depth, competing for corporate capital.”
In short, he stressed that for Uruguay, “selling legal security alone is no longer enough to avoid losing ground to cheaper, more profitable, or more financially sophisticated competitors.” As Uruguay repositions its economy, he argued, the country “is compelled to improve productivity and reduce its country cost.”
A similar perspective, though with nuances, was offered by Balanz financial advisor Alan Babic. Speaking to this outlet, he acknowledged that “one could say Paraguay might in some way be ‘the new Uruguay,’” but cautioned: “It still has a path to walk.”
In terms of certainty, he noted that Uruguay “is backed by its history” and predicted that abrupt changes are unlikely. “I think it’s actually the opposite: investors will increasingly have more alternatives and will be able to diversify their portfolios. Rather than leaving Uruguay or Argentina, they will have a new investment option, and that’s positive for the region.”
Uruguay’s strengths and weaknesses
Babic focused on Uruguay’s strengths in attracting FDI, highlighting that it has “historically conveyed confidence to investors,” citing events such as the 2002 crisis: “It paid its debt even in bad times, and that builds trust.”
“Uruguay remains investment grade, has achieved inflation within the target range, and is doing its homework. Low inflation in pesos and a peso that has strengthened against the dollar are factors investors can clearly see,” he emphasized.
For his part, Gutiérrez identified “predictability in an uncertain global context” as the country’s main asset, grounded in “an investment environment based on legal certainty and regulatory stability.” Referring to these “clear rules of the game that transcend political and electoral cycles,” he added that investment-grade status positions Uruguay as “a fly-to-quality refuge,” facilitating access to financing on competitive terms.
He also highlighted existing instruments such as the Investment Promotion Law and the Free Trade Zone regime, which he described as “powerful mechanisms for attracting capital, prioritizing asset protection and fiscal predictability.” These tools are central as Uruguay repositions its economy in an increasingly demanding investment landscape.
On the downside, he identified the cost structure as “the fine print” of the economy. Uruguay is a dollar-expensive country, a reality that constantly erodes the profitability of the export sector and tourism. The so-called ‘exchange-rate lag,’ along with high energy and labor costs, is a barrier to entry that is difficult to ignore,” he analyzed.
He also pointed to a “scale limitation,” noting that “the domestic market is small, which forces any ambitious investment project to be export-oriented from the outset, since local consumption alone cannot justify large volumes.” To a lesser extent, he highlighted the need to “monitor labor market rigidity, which often reduces the agility required to compete with more flexible economies.”
Global conditions and the Mercosur–EU agreement
Regarding the tense global outlook, the Nobilis analyst indicated that key risks include “the high level of debt in developed economies, particularly the United States and Japan; geopolitical tensions between the U.S. and China, including episodes of tariff wars and competition for technological leadership; and a potential inflationary surprise that could force a reassessment of monetary policy.”
“This context tends to increase volatility in financial markets and reinforces the need to adopt more selective and defensive strategies, with proper diversification and active risk management,” he added.
Meanwhile, Babic emphasized that the signing of the Mercosur–EU agreement could serve as a catalyst. “In Latin America, countries are predominantly exporters, and any free trade agreement will generate more business, more jobs, and more companies setting up in the region. That’s positive, because the more business and opportunities there are, the more everyone benefits,” he summarized.
Can tax changes affect investment?
When asked about tax changes linked to the national budget, Gutiérrez argued that they “do not alter the fundamental drivers that explain Uruguay’s attractiveness as an investment destination.” He contrasted this by noting that “more than the specific tax level, investors assess a predictable and stable fiscal framework, which is central to medium- and long-term decision-making.”
While he stated that Uruguay “retains a relative advantage in the region,” he urged close monitoring of “the marginal impact that any tax adjustment might have, especially when competitiveness is a sensitive factor.”
Babic acknowledged that “there have been client inquiries regarding the changes,” but clarified that, being only the third week of January, “it is too early to draw meaningful conclusions.” Nonetheless, he emphasized that “both the Ministry of Economy and Finance (MEF) and the Central Bank of Uruguay (BCU) are aligned in continuing to promote investment in pesos, and they are demonstrating this through concrete actions.”
Sectors expected to gain momentum
When identifying the sectors expected to be most dynamic, the Balanz advisor pointed to real estate, stating that “the property market has become very strong in recent times,” and highlighted the development potential of the local capital market. “Increasingly, what used to be purely dollar-based investment is now possible in pesos.”
“Since the peso is a trusted currency, it offers that opportunity, and there are more and more alternatives for companies. The BCU is also promoting peso-denominated investments, and at Balanz we have already helped finance several companies and will continue working to expand the market,” he noted.
In parallel, Gutiérrez combined “opportunities with a more selective and defensive approach,” predicting that “the economy will be driven by infrastructure investment linked to artificial intelligence, although with uneven expectations across different market participants.”
For a moderate-risk investor, he recommended “prioritizing fixed income, particularly sovereign and corporate investment-grade bonds, supported by a scenario of more contained inflation and potential rate cuts.” He added that “higher-credit-risk debt, including high-yield and emerging market debt, can complement portfolios, provided it is carefully selected.”
By contrast, in equities, he advised “controlled exposure, with a stronger focus on value stocks in the United States and other developed markets,” while urging caution in technology segments linked to artificial intelligence. Finally, he suggested that “alternative assets such as private credit, infrastructure, and real estate can provide diversification and help reduce portfolio volatility,” reinforcing the strategic adjustments underway as Uruguay repositions its economy.