Paraguay: An Investment Primer - 15

PARAGUAY FDI

Launching pad
Paraguay expects economic stability and business-minded policies will translate into
increased foreign direct investment in the coming years
TAKING OFF
Paraguay's maquiladoras exports from 2013 to 2017
500
450
400
export amount ($m)

In 2013, Paraguay's then President
Horacio Cartes traveled to neighboring
Brazil with a bold proposal.
"He said, 'I want to substitute 10% of
what you import from China,'" recalls Conor
McEnroy, chairman of of the Paraguayan
lender Sudameris Bank. "'I want to be able
to make what you currently buy from China
in Paraguay and export seamlessly to Brazil
with no economic or administrative tariffs.'
And Brazil bought it!"
As a result, Paraguay is now the home
to almost every electric component manufacturer for the car industry. "And they are
happy in Paraguay," McEnroy says.
Fujikura, a Japanese cable supplier for
the automotive industry, was the first to set
up shop in Paraguay, opening a facility in
Ciudad del Este near the Brazilian border
at the beginning of the decade. "We were
looking for a low-cost country in the region
to supply Volkswagen, our global customer,
and we selected Paraguay," says Tatiana
Mursa, vice president of Fujikura in South
America.
Fujikura now has two plants and 1,200
employees in Paraguay. Its sells products to
Volkswagen and leading suppliers like Valeo
and Mahle. Costs in Paraguay are some
40% lower than they are in Brazil, but Mursa
says she is concerned that Paraguay and
Brazil need to renew a bilateral trade agreement to avoid taxes on the other side of the
border. Paraguay's new president Mario
Abdo Benítez assures exporters that it is no
cause for concern.

350
300
250
200
150
100
50
0

2013

2014

2015

2016

2017

Source: ProBusiness Consulting

The maquila regime

Fujikura is part of the so-called maquila
regime, a structure that first emerged in
Mexico late last century. The model consists
of attracting manufacturers with low tax
and labor costs in order to set up an export
platform.
Paraguay's domestic market is small
- the population is just over 7 million - so
foreign manufacturers only locate there if
they can export products to the rest of South
America. "Paraguay has become a very
competitive platform in the region, thanks to
investment incentives," says Liz Cramer, the
minister of industry and commerce.

Today, more than two thirds of the 173
maquilas registered in Paraguay come from
Brazil. They have sold $2.6 billion in exports
since 2000, according to the industry and
commerce ministry, although their widespread development has been quite recent.
While foreign investment originally
focused on agriculture and export commodities, including a strong presence of international powerhouses like Cargill, Paraguay
has displayed early signs of industrialization
in recent years. "We have started with motorcycles and trucks. Then we may be able to
assemble cars here. First, we supply electric
cables, soon we are going to do plastics and

A Supplement to LatinFinance - September/October 2018

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