South AmericA’S New emergiNg LeAder
With the lowest taxes in the region, and competitive labor and energy costs, Paraguay offers one of South America’s highest returns on investment. These attractive conditions are driving the country’s largest wave of foreign and domestic investment to dat
Paraguay today has a new self-confidence. Nestled between Brazil, Argentina and Bolivia, this small landlocked country of almost 7 million is emerging as a regional success story.
When a fall in global commodity export prices crippled neighboring economic giants Brazil and Argentina, Paraguay’s stable macroeconomic framework and prudent fiscal policies helped it weather the storm to maintain sustainable growth. Annual GDP growth for the past decade has averaged 4.8%, driven by robust agricultural and hydroelectric power exports and a rapidly expanding industrial base. By minimizing economic volatility, the country has recently reduced poverty levels, increased prosperity and become a regional leader.
At the forefront of Paraguay’s transformation is President Horacio Cartes, who took office in 2013, ushering in a new era of Paraguayan economic success. Throughout his five-year term, which will end in August 2018, Cartes and his team have modernized the economy and pushed Paraguay onto the world stage.
At home, Cartes launched the country’s first National Development Plan for 2014-2030, focused on poverty reduction, social development, inclusive economic growth and the insertion of Paraguay into the global economy. His administration has successfully legislated for greater government transparency and tighter fiscal responsibility in a serious bid to tackle public-sector corruption and inefficiency. Along with other reforms implemented over the
International rating agencies have consistently upgraded the country’s sovereign risk ratings; Paraguay should achieve Investment Grade in 2018.
past decade, such as inflation targeting and the creation of a Fiscal Advisory Council, Paraguay has cemented its country’s price index and exchange rate stability and consolidated public debt as one of the region’s lowest at 22% of GDP, according to the World Bank.
Investors are taking note. International rating agencies have consistently upgraded the country’s sovereign risk ratings, and Paraguay should achieve Investment Grade in 2018. The Brazil-based think tank Getulio Vargas Foundation ranked Paraguay as the Best Investment Climate in South America for 2016 and 2017, and recent sovereign bonds issuances in 2017 were oversubscribed and achieved near-investment grade spreads of 4.7%. “We are successfully accessing international capital markets and have major U.S. funds as our investors, which is an excellent sign,” explains Cartes.
Key to the Cartes government’s success has been the diversification of the country’s economic base beyond its traditional reliance on agricultural — mainly soy, meat and corn — and electricity exports, boosting industrial activity to 9.5% of GDP in 2017. Until 2012, agriculture contributed nearly one-quarter of GDP, with industry and construction representing just over 6%. Today, agribusiness generates 15% of GDP, and industry and construction have grown to 20%, according to Finance Minister Lea Gimenez.
In addition, Cartes has built a regulatory framework to encourage public-private partnerships as a path to meeting the country’s infrastructure deficit, further stimulating investment in the sector.
“Several aspects contribute to making Paraguay a very attractive country,” he explains. “We have a lot of young people — more than 70% of our population is under 40 years old. We have to take this into consideration when comparing Paraguay with neighboring countries. Our young people want to work, and they are eager for opportunities. They are also very efficient.”
That efficiency also applies to the Paraguayan government. As one of Paraguay’s leading businessmen, the president brought to office an entrepreneurial vision and a team of highly trained ministers to drive his ambitious agenda, reducing waste and heightening accountability in government.
“We targeted job creation and better economic conditions for all Paraguayans. But to do this, the public sector has had to perform its duties just as well as the private sector. I believe that, in this respect, we are in the forefront of the region,” he says.
In a bid to reduce poverty, Cartes also launched an unprecedented social housing program, building over 20,000 homes, with 10,000 more to be delivered by the end of his term. “We have everything we need to house and feed our population. We have no excuse for poverty here,” says Cartes.
The president has also boosted education with programs offering scholarships for study and training abroad. “Sending our best students to study science and technology in the leading universities in the world has been one of our best legacies,” he says. “This has meant great change and remarkable improvements in our universities and the education of our population. When these students enter the Paraguayan workforce, they’ll apply their innovation to the nation’s products and processes.”