Paraguay’s small size and relatively poor economic record mask, has led to what has been one of the fastest growing economies on the planet today. For example, according to the CIA World Factbook, in 2010 Paraguay experienced the largest economic expansion in Latin America and the second fastest in the world, only after Qatar, with a growth rate of 14.5%. Landlocked Paraguay has a market economy distinguished by a large informal sector, featuring re-export of imported consumer goods to neighboring countries, as well as the activities of thousands of small businesses and urban street vendors. Between 1970 and 2009 the country had the highest economic growth of South America, with an average rate of 7.2% per year. So far it sounds like business in Paraguay has been going good, but let’s take a look at the other factors that go into deciding whether or not it’s a good idea to do business in Paraguay.
Paraguay’s Industrial Sector
The industrial sector produces about 25% of Paraguay’s gross domestic product (GDP) and employs about 31% of the labor force. Output grew by 2.9% in 2004, after five years of declining production. Traditionally an agricultural economy, Paraguay is showing some signs of long-term industrial growth. The pharmaceutical industry is quickly supplanting foreign suppliers in meeting the country’s drug needs. Paraguayan companies now meet 70% of domestic consumption and have begun to export drugs. Strong growth also is evident in the production of edible oils, garments, organic sugar, meat processing, and steel. Nevertheless, capital for further investment in the industrial sector of the economy is scarce. Following the revelation of widespread financial corruption in the 1990s, the government is still working to improve credit options for Paraguayan businesses. According to the Library of Congress, Paraguay has the economic advantages of a young population and vast hydroelectric power but has few very bad mineral resources, and political instability has undercut some of the economic advantages present. As a result, the most important component of the Paraguayan economy continues to be the farming sector, which contributed 27% to GDP in 2006. The services sector made up nearly 50 percent of Paraguay’s gross domestic product in 2004 and employed about 19 percent of Paraguay’s working population. The importation of goods, especially from Argentina and Brazil, for sale and illegal reexportation creates service industry jobs. The services sector had a moderate growth rate of 0.9 percent from 1990 to 2003. Overall, though the prospects for Paraguay still look promising.
Business in Paraguay – The Economy Factor
According to the World Bank, the Paraguayan economy expects a 4.5% to 6% growth for 2011. The economy has expanded 4.6% in the first quarter of this year and this expansion has been driven mainly by private and public consumption on the demand side, and agricultural production and the service industry on the supply side. However, in terms of indicators on the Ease of Doing Business Report, published annually by the World Bank Group, Paraguay ranks at 100 for Ease of Doing Business in 2011. It doesn’t fare too well across other indicators as well. Ranking at 65 for Protecting Investor Property and a low 106 for Ease of Enforcing Contracts. You can read the whole report on Paraguay at this url
The one bright spot in the rankings is the ease of getting electricity, where Paraguay ranks at 23. However, that is a more minor detail and can’t change the perception that there are clearly some problems that investors and small businesses will face when doing business in Paraguay.
The Paraguayan market still holds a good level of promise for investors who are willing to take some risks. Since, the market is clearly growing quite fast in terms of wealth of the population. As the market grows richer, they are likely to demand more goods and services, which is something that foreign businesses have the opportunity to take advantage of. The most favorable areas of investment are probably Agriculture and Consumer goods, since these two sectors are likely to be the growing bright spots in Paraguay’s economy well into the future. For more in-depth information about Paraguay’s economy, you can visit the Paraguayan Ministry of Industry and Commerce website at this url. (http://www.mic.gov.py/v1/index.php)