Paraguay Sept 2014.Indd
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September 2014 www.euromoney.com Paraguay opens for business Published in conjunction with: PARAGUAY PRIMARY COMPETITIVE ADVANTAGES AGROINDUSTRIAL POTENTIAL TOOF THEFEED BUSINESS ENVIRONMENTTHE WORLDIN PARAGUAY In addition of GSP+, PARAGUAY offers THE FOLLOWING COMPETITIVE ADVANTAGE 2012 salary cost ($ / hour) Industrial Sector - Energy Cost2012 ¿WHY INVEST IN PARAGUAY? without social security ($ / MWh without tax) -68% 29% -81% -0% 74% 54% 21,9 216 12,9 124 • World-class food producer and 4,2 6,0 57 57 exporter. • Abundance of clean and renewable Income tax 2012 Value Added Tax 2013 energy, and electricity. -71% -71% -62% -52% -51% -53% 35% 34% 21% 20,5% 21,4% • Macroeconomic and financial 26,3% stability. 10% 10% • One of the best investment Source: ANDE, Eurostat, CIER, US Bureau of Labor Statistics, KPMG statistics, climates in the region. and analysis Oanda Arthur D. Little • The most competitive tax scheme Brasil in the region. 1 hour • Strategic location. Chile • Access to regional and 2 hours international markets. Argentina • Young and trainable labor force. 1 hour 1° 2° 3° 3° RENEWABLE STEVIA YERBA MATE BARGES ENERGY PRODUCER PRODUCER AND EXPORTER FLOATING 4° 4° 4° 5° SOYBEAN SOYBEAN OIL YUCA STARCH SOY PELLET EXPORTER EXPORTER EXPORTER EXPORTER 6° 6° 7° 10° SOY CORN MEAT WHEAT PRODUCER EXPORTER EXPORTER EXPORTER www.rediex.gov.py • [email protected] Contents A simple and serious message Backed by rising growth rates and successful capital market deals, Paraguay is telling the world it is very much open for business 2 Providing a solid base An interview with Carlos Fernandez Valdovinos, president of the central bank of Paraguay 3 Diversification: building a broader-based economy An ambitious infrastructure plan is central to the government’s plans to diversify the economy away from agriculture and increase its capacity to export 6 International strategy: at the centre of things Once seen as isolated and hostile to foreign investment, Paraguay now portrays itself as being at the centre of Latin America, trading on its 10 strengths as a low-cost location on the fringe of the vast Brazilian market Agriculture: building on core strengths The production of food commodities is where Paraguay excels. Government plans focus on reducing the impact of volatility on the agricultural industry through the use of technology, improved transport links and increased processing capacity 12 Capital attraction: raising the profile Paraguay’s two recent capital markets deals succeeded both in securing much-needed funds for infrastructure investment and 14 in raising awareness among international investors Paraguay’s rising score trend is more than just an economic story Paraguay’s rising score in Euromoney’s Country Risk survey reflects a fundamental shift in the political and structural outlook since the new president took office last year 16 This special report is for the use of professionals only. It states the position of the market as at the time of going to press and is not a substitute for detailed local knowledge. Euromoney does not endorse any advertising material or editorials for third-party products included in this publication. Care is taken to ensure that advertisers follow advertising codes of practice and are of good standing, but the publisher cannot be held responsible for any errors. Euromoney Trading Ltd Nestor House Playhouse Yard London EC4V 5EX Telephone: +44 20 7779 8888 Facsimile: +44 20 7779 8739 / 8345 Chairman: Richard Ensor Directors: Sir Patrick Sergeant, The Viscount Rothermere, Christopher Fordham (managing director), Neil Osborn, John Botts, Colin Jones, Diane Alfano, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany, Andrew Ballingal, Tristan Hillgarth Advertising production manager: Amy Poole Journalists: Rob Dwyer and Andrew Mortimer (ECR) Printed in the United Kingdom by: Wyndeham Group © Euromoney Trading Ltd London 2014 Euromoney is registered as a trademark in the United States and the United Kingdom. Introduction A simple and serious message Backed by rising growth rates and successful capital market deals, Paraguay is telling the world it is very much open for business AFTER SPENDING SOME time in Paraguay, business travellers administration, which began in August 2013 after the elections (whose numbers have been increasing in recent months) may in April 2013, has wasted little time in addressing systemic be struck by two thoughts. First, the country’s opportunity is weaknesses that have continued to hold the country back. considerable: it is blessed with rich farmland and a climate Horacio Cartes, a successful billionaire businessman turned that aids agricultural productivity with an average of 310 days politician, is reforming the country to increase its attractiveness of sunshine per year; it has abundant (surplus) and low-cost as a business destination. The president’s vision is to reduce energy; and it has a favourable demographic profile. Paraguay poverty through job creation. The first year of his administration also now has a pro-business government that is lowering taxes has been focused on creating the conditions for capital and and bureaucracy and building on the country’s recent stable foreign direct investment to flow in to create business, jobs and macro-economic track record. wealth. At the same time, local businesses are also receiving Even the longstanding challenge of its geographical position greater financial support, and are benefiting from more business- in the centre of Latin America – it is landlocked – is becoming a friendly regulations. strength, or at least less of a disadvantage. The Brazilian territory Most important, however, is the country’s ambitious near the border has been transformed by new agricultural infrastructure programme, which envisages $16 billion of development and accompanying logistics have aided Paraguay’s public and private investment in the next four years. This regional integration. The country’s waterways offer cost-efficient plan is central – and crucial – to the aim not only to develop export and import of goods. To the west, a passage to Chile the construction industry but also to enable all Paraguayan through Bolivia offers a Pacific port, facing growing export industry to increase productivity and competitiveness. The scale markets for what Paraguay does best: produce commodities, and of the programme, which covers road, rail, river and airport food in particular. improvement projects, will present significant implementation The second thought is: why hasn’t this potential been challenges but a new public-private partnership law – among developed before? The country has an atmosphere akin to that others – is creating the necessary transparency and financial of a ‘start-up’ business. Paraguay first tapped the international conditions for effective management and oversight. capital markets in January 2013 – and the deal was an exceptional success, with investor demand outstripping supply Getting noticed 11 times. This year it went back and added a liquid 30-year Already investors are taking notice. So are the rating agencies benchmark that priced inside its ratings peer group. But why is – all three leading agencies have increased Paraguay’s rating this momentum only becoming apparent now? and/or outlook. The international bond deals clearly show Ultimately, the inertia of the past is only really pertinent institutional investors’ positive views, and the authorities have if its causes are likely to be instructive to the country’s future been quick to use the deals’ successes as part of their marketing performance. A mix of short-term policies, mismanagement, efforts, which reinforce the message that Paraguay may be corruption, insecurity and a lack of the rule of law (Alfredo relatively small and landlocked, but it is ambitious and at the Stroessner’s dictatorship lasted 35 years, until 1989), previously heart of the continent. In an interview with Euromoney for prevented Paraguay developing its prestigious natural gifts. this guide, the governor of the central bank, Carlos Fernandez GDP per capita in 2013 was just $6,823 – poverty and the lack Valdovinos, clearly articulates why Paraguay is intent on of social inclusion is a serious issue. The country’s logistics presenting itself to the world as an open, business-friendly Latin infrastructure is old and a hindrance to new growth while American market. current investment rates in relation to GDP have been low, “With the changes in global financial conditions, the amount albeit increasing in the past decade. of money available for emerging markets is going to be lower,” says Fernandez Valdovinos. “We need to fight to differentiate New outpaces the old ourselves – to show to everyone that this is a country where But things are changing. First, the country has already been there is no discrimination against foreign investors and that growing at a rapid pace since 2003 – bankers and businessmen ideologically we are not against businesses coming here and talk of old and new Paraguays, which are separated by that year. making money. We have so many needs, and we know that we The old Paraguay had annual GDP growth of around 1.8%, need to be aggressive in attracting the human and financial the new around 4.8%, thanks to the introduction of sound capital that we need in order to ensure that Paraguay grows at a macro-economic policies and management. Second, the Cartes rate that enables it to meet its considerable potential.” 2 SPECIAL REPORT : PARAGUAY · September 2014 www.euromoney.com Providing a solid base An interview with Carlos Fernandez Valdovinos, president of the central bank of Paraguay PARAGUAY’S ECONOMY IS dependent on commodities: primary goods accounted for 24% of GDP in 2013, and agricul- ture 18%. This leads to volatility in GDP growth, especially in recent years, when a poor harvest in 2012 led to a contraction in GDP of 1.2%, but growth bounced back last year with a 13.6% increase in GDP. Moody’s estimates that growth in 2014 will be 4.8%, which is in line with the average for the past 10 years.