RIO DE JANEIRO, BRAZIL – Paraguay is not among the main export destinations, but it is the fifth supplier of imports; its low tax burden and macroeconomic stability make it attractive; it displaced Uruguay as the nation with more Argentine business franchises.
Paraguay does not appear among the countries that lead the purchases of Argentine products – it is part of the 44.7% classified as “others” by the National Institute of Statistics and Censuses (Indec) -, while 5% of Argentine imports come from there; it occupies the fourth position behind China, Brazil, and the United States. For the last three years, this country has been growing in the interest of Argentine business people as a base to internationalize their companies.
The reasons? Macroeconomic stability, low inflation, and the “triple 10″ (10% corporate income tax, 10% personal income tax, and 10% Value Added Tax).
“We did not look at Paraguay, we considered it risky, but that started to change -says businessman Horacio Biga. More and more Argentines are coming here on business trips; they are discovering it. I don’t know if all of them will stay or not because it is hard to leave the comfort zone”. Biga arrived from Santa Fe, Argentina, in 1998; he settled and founded a seed genetics company whose brand, in 2014, he sold to Bayer Germany. Completed the non-compete agreement with the company, he returned to that business with the Great Seed brand.
Biga, who is building a US$50 million commercial center in Encarnación (the third-largest Paraguayan city) and is moving forward with a nutraceuticals business, through genetic engineering in Uruguay -in collaboration with the Louis Pasteur Institute in Montevideo-, in which he has already invested US$7 million, stresses that the market is Argentina: “Paraguay is a market of 5 million people, it is interesting for agribusiness and to produce at lower costs, which allows exporting from here. It takes at least four years to set up a structure and grow; another thing is to come to trade”.
From the law firm Montt Paraguay, Fabiola Bordón confirms that they receive “many” inquiries from Argentine companies and that a good number of them have already established themselves, especially in sectors such as cargo transportation, IT security, and real estate development. “There is interest from Argentineans, Chileans, and Uruguayans”, she points out.
She emphasizes that the low internal taxes are an “advantage”; 10% is charged on corporate income and 10% on personal income (reaching shareholders, businessmen, and professionals). Meanwhile, the tax on dividends and profits for the closing of the fiscal year is 8% for locals, while foreigners pay 15% under the non-resident modality. VAT is 10% for all products and services.
“Taxes are fairly distributed, making the country competitive compared to others in the region. Last year there was tax reform, but not of substance; there were some denomination changes. There is legal stability, which is also attractive,” Bordón added.
In Paraguay, there are several provisions that, through tax advantages, seek to attract foreign capital or encourage local investment, such as the free zone, the Maquila (goods, products, or services can be introduced into the country to be assembled, repaired, improved or processed for subsequent export, once the Paraguayan added value has been incorporated) and 69/90 (includes several tax exemptions). There are also other regimes of a specific application.
BETTER OFF
A World Bank report notes that Paraguay is one of the countries best able to cope with the Covid-19 pandemic due to its “macroeconomic stability and discipline.” However, it increased its debt to 35.5% of Gross Domestic Product (GDP) in 2021 and has “enormous challenges” in improving its human capital indices.
Between 2003 and 2019, the country averaged 4.1% annual growth while maintaining low public and external debt and low and stable inflation. The proportion of the population living below the international poverty line of US$5.5 per day fell from 39.3% to 15.4% during that period, faster than the regional average.
As measured by the Gini coefficient, inequality also fell by nine points. Nevertheless, “poverty and inequality remain high by regional standards.”
The agency notes that structural reforms are needed to improve the delivery of public services and the accountability of public institutions to make growth “more stable, sustainable and inclusive.”
Rubén Ramírez, economist and former foreign minister of Paraguay, told this newspaper that the country maintains a “disciplined conduct” in its macroeconomic policy: “The macro has been solid for 15 years, with sustained growth. This year inflation has shot up due to external factors and is in the order of 6%. GDP growth of 4.5% is expected after the 6% drop when the fiscal deficit reached 4%. Last year it was reduced to 3%”.
As of last November, Paraguayan foreign trade accumulated US$24.7 billion, 27.4% more than in the same period of 2020, with a positive result of the trade balance of about US$1 billion. The country, the world’s fourth-largest exporter of soybeans, reaches some 140 destinations globally with its products. Shipments of soybean oil and soybean meal have been growing (together, they already equal the foreign currency generated by soybeans), while foreign sales of meat are around US$1.5 billion per year (reaching Kuwait, Chile, Russia, Italy, Hong Kong, Russia, Taiwan, among other markets).
It is also positioning itself strongly in producing and exporting auto parts and textiles.
“The improvement of exports and the prudence in indebtedness allows us to have US$10 billion in reserves and a debt of US$8 billion”, says Ramírez, who emphasizes that, in addition to the primary sectors, there is “continuous progress” in areas such as construction, technology, and auto parts.
According to him, Paraguay is a country with predictability and certainty challenged by achieving more social inclusion to improve income. Informality is around 40%.
Regarding Paraguay’s tax structure, Ramírez points out that public policies should focus on improving the mechanisms that facilitate operations for taxpayers. “It is necessary to reduce the high bureaucracy and generate highly competitive conditions; we must continue improving authorizations, certifications, and incorporation of companies.”
For Ramírez, Argentina is a strategic ally of Paraguay since 78% of its exports go to Buenos Aires’ ports for shipment to the final destination, besides being the channel for key imports, such as fuels. He is convinced that intense work must be done for Mercosur to gain more dynamism.
“It is not oblivious to the differences in ideological visions and local, regional, and global polarization. It is necessary to rethink it as a structure. We have not been able to perfect the customs union; today, tariffs are individually adjusted, making progress very complex.” He points out that there is no room for discussion on supranational institutions or the coordination of macro policies.
The former official emphasizes that the decision to develop private port initiatives more flexible allowed Paraguay to have 75 private projects in the sector and the third-largest fleet in the world after China and the United States.
GAINING PRESENCE
Alejandro Gatti, sales manager of José M. Alladio e Hijos SA, a company based in Córdoba, Argentina, manufactures two out of every three washing machines sold in Argentina and says that the household appliance market in Paraguay has been growing in recent years.
Sales are concentrated in Asunción and Greater Asunción (75% to 80%), but Ciudad del Este and Encarnación are also important regions.
The company went from exporting 80,000 automatic washing machines in 2016 to 120,000 in 2021; it indicates that the participation is equal parts of European and Eastern systems and that there is a presence of all international brands competing with some “very strong” local ones. Alladio does so with its own brand Drean and, in addition, as a supplier of the leading local brands.
In the semi-automatic segment, there were about 120,000 units in 2021 -a similar figure to 2019- and the main suppliers are from Argentina (Alladio), Brazil, and China. Gatti points out that it is a segment that has remained stable in recent years.
The dishwasher market is barely 1,200 units per year, so it has “a lot” left to grow, and in centrifuges, between 35,000 and 40,000 are sold per year; the company from Córdoba is present with Drean.
An example of the interest generated by Paraguay is that it is the country with the largest number of Argentine franchises: 128.
Leading by the number of stores is the ice cream parlor Grido, the work and corporate clothing brand Pampero, and the Havanna coffee shops. The consultant Carlos Canuda remarks that it even surpassed Uruguay, historically the strongest country.
The “stable” economy and the lower tax burden are added to Paraguayans’ excellent reception for international and regional brands.
“Many went to settle there because of the benefits; since 2018, there has been a strong movement led by the gastronomic ones, but that also expanded to other sectors”, he says.
He adds that, due to the coronavirus pandemic, there were no brands that withdrew, although some closed stores, “but not as much as in Argentina”. He stresses that, despite the growth, the country still lacks more investment in infrastructure and services.