Diversifying The Economic Matrix
The Paraguayan investment and export agency and one-stop shop for investors, REDIEX, is spearheading Paraguay’s economic transformation. In 2017, it launched Paraguay’s new country brand, focusing on Paraguay’s “fertile economy.”
“We have identified four economic motors ripe for investment and growth,” explains Industry and Trade Minister Gustavo Leite. “Exporting food for the world, building factories for the region, creating a regional logistics hub, and promoting forestry and green energy.”
Paraguay currently produces food for around 80 million people, predominately from meat, corn and soy production. But the government plans to triple this number, making Paraguay a key breadbasket for the world. Through incorporation of technology, better territorial planning and increased foreign investments in the sector, Paraguay is rapidly industrializing and modernizing its cooperative farming culture to meet world export standards.
Meanwhile, Paraguayan beef, already famous globally for its quality, should be approved for U.S. sale in 2018. “This is a big step for Paraguay,” says Juan Carlos Pettengill, president of the Paraguayan Meat Chamber. “We currently export around 300,000 tons of beef per year to 73 markets, and once we obtain access to the U.S., we plan to also begin exports to Hong Kong, Japan and Korea.”
One of Paraguay’s greatest challenges has been providing efficient logistics for exports. Blessed with one of the world’s largest river networks and the third-largest river fleet, Paraguay is adopting international logistics standards to become an important fluvial hub for the region and upgrading key highways, the international airport and its digital infrastructure.
“We are expanding our matrix beyond soy, beef and electricity production and starting an industrial takeoff of historic proportions. Paraguay is a serious investment destination.” — GUSTaVo LeITe, Industry and Trade Minister
“Paraguay is in the heart of South America and an excellent platform for international companies to springboard to the rest of the region. The opportunities for investment in infrastructure and logistics are abundant,” says Fabian Sesto, the Paraguayan representative for multinational Imperial Logistics.
Another pillar of the Cartes administration is its support for manufacturing facilities, known as “maquilas.” The Maquila law offers competitive conditions for international companies to assemble their goods in Paraguay for export. Over 150 companies operate in Paraguay under the law — 70% since 2013 — producing everything from car parts to shoes and toys.
“This is a star program; it is the low-hanging fruit for economic diversification,” says Leite. “Sixty percent of the companies are Brazilian, because we have the most competitive conditions for manufacturing in the region, offering competitive energy and labor costs, low taxes and a youthful workforce. We are Brazil’s China.” Ninety percent of maquila exports go to Brazil; however, with President Cartes’ successful re-entry of Paraguay into Mercosur (a South America trade bloc established in 1991), exporters now have improved access to Uruguay and Argentina.
Green energy and forestry also hold excellent potential for Paraguay, which is the world’s biggest renewable energy supplier via two binational hydroelectric dams, Itaipu and Yacyreta, and has among the world’s best conditions for tree growth for biomass energy.
“Itaipu Dam is a world leader, not only in energy production, but also in environmental conservation,” says Itaipu Managing Director Dr. James Spalding. “In June 2017, we were the first hydroelectric power plant to be included in UNESCO’s world network of biosphere reserves. We provide 75% of Paraguay’s energy demand and 15% of Brazil’s. Itaipu’s original loan will be paid off in 2023, providing a multibillion-dollar windfall equivalent to 17% of Paraguay’s annual external debt to be reinvested in social and infrastructure programs.”
Meanwhile, Yacyreta is also investing in environmental preservation and has created five conservation areas in Paraguay covering 20,000 hectares promoting tree-planting programs and public awareness campaigns.
The Paraguayan government is also working with Finnish experts to map out the future for the forestry and biomass sectors, and how best to encourage further foreign investment.
Stephan Winkler is a foreign investor in Paraguay’s fastgrowing forest industry and is chairman of EFISA, one of the country’s leading fully integrated forestry services and wood processing companies, with a particular focus on biomass for energy. “With ideal conditions for photosynthesis, and very low production costs, the potential for Paraguay’s forestry industry is huge,” says Winkler. “A tree in Paraguay can be used for biomass in four years and saw timber in eight years. This is one of the most productive locations in the world. It is also an industry which has the potential to protect and ultimately restore Paraguay’s native forests, in keeping with the government’s long-term sustainability goals.”
Low land prices and over a million hectares of available land for forestation are the key for ongoing growth in the sector. According to Eduardo Almeida of the IDB (Inter-American Development Bank), 45% of the energy matrix is biomass. “With growing demands for energy from a growing population, even with better transmission from the dams, this demand for biomass should not decrease,” he says.