Paraguay: a high rated investment market

By Alexander Berkemeyer, Berkemeyer Attorneys & Counselors

Since the beginning of 2015 Paraguay has been improving its investment ratings and is today considered to have one of the best investment climates. Institutions such as CEPAL have ranked the country number 2 in Latin America based on return on investment. This is mainly due to the country’s stable average growth of 4.5% over the past 10 years.

Recently also The Financial Times ranked Paraguay’s capital (Asuncion) in the first place in America in the category of cost-effective to invest, among 421 cities studied, including Orlando, Denver (US) and San Luis of Mexico. Meanwhile local specialists prefer to be cautious and engage in issues such as predictability and promote local attractions abroad.

The country's performance is also being recognized by risk rating agencies. S & P, Moody's and Fitch Ratings gave recent improvements to Paraguay's country risk ratings. Standard and Poor’s upgraded Paraguay’s rating from stable to positive confirming a BB rating. Furthermore, Fitch Ratings also ranked a BB missing two steps to reach investment grade, equal to that of developed countries in Europe and North America; while Moody's recently improved it to Ba1.


This upgrade is mainly supported by the implementation of a package of laws in 2013, which include fiscal responsibility law, a law extending the VAT to the agricultural sector and a law on public-private partnership (PPP), as well as efforts to diversify the economy, exports and improving institutional capacity.


Furthermore, a particular fact such as the entry of Paraguay to the world of international finance in 2013, with two sovereign bond issues made in the stock exchange in New York, contributed to visibility of the country and its outstanding macroeconomic performance guaranteed return investment. This also encouraged private companies to issue corporate bonds abroad.


On the other hand, public and private initiatives are improving the diversification of the economy by developing light manufacturing industries and increasing the added value of agricultural exports. Another element to note is adequate capacity of the Paraguayan economy to withstand external shocks related to commodity prices and the economic situation in neighboring countries.

As a result this improves the integration of Paraguay in the regional supply chain, by encouraging the installation of maquilas, auto parts manufacturers, among others. It is likely that the expansion of light manufacturing industries continue thanks to the competitive advantages of Paraguay including low labor and energy costs and a more favorable tax environment.


Excess of clean energy and young labor are some of the comparative advantages of Paraguay. It is the number one producer of renewable energy in the world, with production of Itaipu and Yacyreta, and the only country in the region with an energy surplus. In the case of the population, unlike some European and Asian countries where scarce labor force, 75% of the Paraguayan population is under 35 years and still detract from 4 decades of demographic transition which will continue to increase the EAP.
  

GDP growth and stability of macroeconomic indicators and policies, the availability of resources, and recognition of the outstanding performance of the overall economy shows that these are interesting times for Paraguay and they have put it in the spotlight. It should take advantage of this situation by taking appropriate measures to promote this young country as a good investment destination and consolidate its position in the world strategies.