Paraguay Economy

Febrero 18th 2010 | Postado por Braspar

Paraguay is the fastest growing economy in Latin America in the past 40 years, with an average annual growth of 7.2% since 1972.
The current Paraguayan GNP is USD 56 billion in 2012, according to studies of the actual Paraguay Economic Census 2011/2012 results, which represents about 110% more than the official estimations made so far by the Paraguayan Central Bank.
That means Paraguay’s economy was, in 2012, the 11th biggest in Latin America, and according to BRASPAR studies, it will be the 8th largest by 2015.
The Primary sector represents about 12% of national GNP, and the country is one of the biggest world grain and cattle meat exporters.
By 2013, grain crops will represent about 16-17 million tons, being half of it soybeans.
This year meat exports shell reach another record, reaching above 250,000 tons of exports, and more than USD 1.2 billion in sales.
The Secondary sector represents 21% of Paraguayan economy, remarking the importance of electricity production and exports.
Manufacture is 12% of Paraguayan GNP, and actually local industry is bigger than Uruguayan manufacture. Construction owns a share of 5% of GDP and energy production, 4%.
Tertiary sector represents about 62% of Paraguayan economy, mostly in function of the intense trade between Paraguay and Brazil, once commerce represents 33% of local economy, and services, other 29%.
Finally, internal indirect taxes represent about 5% of local GDP. It is the lowest rate in South America, once Paraguay’s tax pressure if the 5th lowest tax burden in the world, with only 8.2% in 2012.
GDP estimation growth to 2013
BRASPAR estimates 2013 will have a growth between 7%-8%, while in 2012 it reached 3.5%.
Agriculture, construction and manufacture will lead the GDP increase this year, as well as improvement of investments and exports, what will lead to a faster growth of internal consumption.
In 2012, increase of public expenditure was the main factor of internal growth, once Paraguayan agriculture was strongly reached by crops falls in 25%, for the drought which reached the country.
Paraguay Agribusiness
Paraguay is one of world’s leader in grain export, with an estimated 17-18 million tons or production in 2013.
That volume represents about
Paraguay Currency and Stability
Paraguay’s currency is Guarani, the oldest currency in circulation in Latin America, with 70 years of existence.
Guarani’s strength comes from three main historical factors.
1st Paraguay has the most opened economy in South America, which historically helped to control local prices, even when Latin America was submerged in recession and hyperinflation along the 1970’s and 1990’s.
2nd Public expenditures are controlled since the 1960’s, and in 34 of past 40 years, the country got to reach public budget surplus.
3rd Paraguay was the only Latin American country which didn’t come into the foreign debt crisis in the 1980’s, also named lost decade. Therefore, Paraguay is the only one in Latin America which didn’t need IMF loans since 1957.
All that, together with a fast growing economy, helped by ITAIPU construction, agriculture exports, fast industrialization and a big re-export commerce, made the Paraguayan economy the strongest and most stable of the continent in past 40 years.
As example to Paraguayan Guarani strength and stability, since 1975, the Chilean Peso, the second oldest South American currency in circulation, devaluated 65% in relation to Guarani.
The Chilean comparison is made because Chile is considered the most successful economy in South America since the 1990’s.
Finally, Paraguay hast a free currency exchange since 1989, and it is first country in South America to liberate the currency flotation, according to market demand, policy which remains until today, contrary to what happens in other regional economies.
Inflation Rate
For the reasons explained before, inflation rate is under control in Paraguay since 1970’s, and in the past years the average rate has been around 4.5% a year, considered a low rate for South American standards.
In 2013, inflation rate is expected to be around 5%-5.5%, pushed mainly by local food increases.

Banking and Finance System
Local finance system is constituted by the, Commercial banks, Saving and Credit cooperatives, Saving and Loan companies and Mortgage companies.
In 2012, the system rate of return was 28%, the highest level in MERCOSUR.
The bank system is formed by 15 institutions, among them, global companies such as BBVA, CITIBANK, BANCO DO BRASIL, ITAÚ and HSBC.
However, local institutions get 62% of Paraguayan deposits and credits, and foreign banks, 38%.
Between 2002 and 2012, local credits rose from USD 1.8 billion to USD 13.5 billion, including loans from banks (76%), save cooperatives (19%) and loan companies (5%).
This was the greatest advance in Latin America financial sector during this period.
Credits represent 23% of Paraguayan GDP, while in Uruguay it is 26%, Argentina 18% and Brazil, 54%, what means there are many opportunities for financial growth in the country.
Local bank default was 3.1% on December of 2012, the lowest rate among MERCOSUR countries. As comparison, in Brazil the default rate ended in 5.4%.
In 2013, it is expected an improvement of 20%-25% in local credits.
The amount of deposit in the system has increased on 25% a year since 2002, reaching USD 14.1 billion on December of 2012.
The main reason of this improvement is the high economic growth in such period.
By December 2012, 35% of deposits were in long term (at least one year), and 65% were in short term.
Another important data is that local currency (Guarani) savings represents 81% of total savings, while, in 2002, savings in USD were about 60% of the total amount.
That change of position is owed to an improvement of local confidence in Paraguayan economy during the past decade, after a stagnation period of 1999-2002.

Foreign trade
In 2012, foreign trade represented about USD 40 billion, equals to 62.5% of its economy.
Exports were about USD 23.5 billion, being USD 7.0 billion in formal sales, including energy exports with about USD 2.3 billion.
Informal Paraguayan industrial exports, mainly to Brazil, represents around USD 1.5 billion, being tobacco 45% of the sales, clothes and pharmaceuticals 30%, and other products 25%.
Informal re-exports from other countries, mainly to Brazil, equals to USD 15 billion annually, according to Economic Census 2011/12.
In the other hand, formal imports equals to USD 11 billion in 2012.
However, according to Economic Census, there is an under registration of imports of about USD 6 billion a year, what means real total foreign trade represents about USD 40 billion a year. M
Main Paraguayan Products Exports 2012 millions of USD
1st Electricity 2.200
2nd Soybean 1.582
3rd Cereals 1.044
4th Cattle meat 796
5th Tobacco (cigarettes) 780
6th Others 2.021
Re-exports 15.000
Total exports 23.423
Paraguayan Import 2012
1st Capital Goods 3.685
2nd Row and fuel 3.638
3rd Not durable goods 2.613
4th Durable goods 752
5th Other products to re-export 6.000
Total 16.688
Paraguayan Manufacture Industry
Manufacture industry counts 320,000 workers in 2012, according to Population Census 2012.
The manufacture electricity consume was of two million GW/h in 2012, according to ANDE, the local electrical distribution company.
With a growth rate of nearly 6.7% a year since 1990, Paraguayan manufacture became larger than the traditional Uruguayan industry, once Paraguay represents, actually, a better place to produce to export, mainly to Brazilian market.
Paraguay has the lowest labor cost among MERCOSUR partners, as well as the smallest electricity cost.
Besides, it is the only country in MERCOSUR which counts a Maquila Law, similar to Mexican one.
That means industries can produce anything in the country paying only 1% tax on local added value, as well as imports material rows from anywhere without paying any tax. The same happens to capital goods imports. No income tax is paid by Maquila Law either.
Maquila Law, plus internal fast growth, and economic stability, are helping a fast industrialization of Paraguayan economy.
Besides, local and foreign companies are investing heavily in processing local raw.
The main processed products are food, pharmaceutical, chemistry, tobacco and beverage, clothes (apparel) and shoes, fabrics, motorcycle, auto parts, ship building, and fuel alcohol.
In 2012, industrial area received about USD 800 million investments from fiscal benefits, and about 50% of these investments were made by foreign companies.
Important companies as Japanese Fujikura (auto parts) and Glocal Company (build shipping), American ADM, Russian Louys Dreyfus and Korean Hyundai Group, and Brazilian AMBEV (brewery), Camargo Correa (cement), XPLAST (plastics), as dozens of other industries, have made multimillionaire investments in the country, to take advantage of Paraguay’s industrial competitiveness.

Foreign Direct Investments
American investments still lead Foreign Direct Investments in Paraguay
By 3rd trimester of 2012, the Stock of Foreign Direct Investment increased to USD 3,936 billion, what means an improvement of 12% over the same period of 2011, what is an important data, once the international crisis decreased the FDI flow in most countries.
During past five years, Brazilian industrial investments grew up 250% in Paraguay, and actually important Paraguayan industrial sectors are dominated by Brazilian companies, such as packing plants, sugar mills, shoes makers and apparel.
Despite this improvement, American capital still leads FDI stock in the country, representing 49.3% of total amount.
Brazil comes next with 13.7%, and Argentina in 3rd, 7.5%
By sector, manufacture leads the FDI stock, with 24.3%, followed by banking, with 24.4% and commerce, 23%.
Evolution of FDI in Paraguay in millions of USD
Transportation and Communication
Paved roads cover about 35% of Paraguayan national road system, which counts about 29,500 km. In the whole country there are about 29,500 km of roads, primary, secondary and tertiary.
Asphalt roads totalize 5,400 km on December 2012, reaching 885km per 1,000, almost the same rate of Brazil, with 935 km/1,000.
In 2013, the main road, uniting the two biggest urban areas – 336 km- , Asunción (capital) and Ciudad del Este, will be duplicated.
The estimated time for its end is two years.
Four international paved roads connect Paraguay to Paraguayan free ports in the Atlantic and Pacific oceans by paved roads, though connections with Argentina, Bolivia and Brazil.
The road I, uniting Asunción-Encarnación- Buenos Aires (Argentina). The road II uniting Asunción_Ciudad del Este-Paranaguá (Brazilian port). The road ___, uniting Asunción-Salto del Guairá-Santos and Paranaguá (port in Brazil). The road ___ uniting Asunción-Pedro Juan Caballero-Santos (Brazilian port), and road Transchaco uniting Asunción-Bolivia_Argentina-Iquique (Chile) and Mejillones (Perú).

The most important Paraguayan international commerce way is the Hydro way Paraná-Paraguay, which takes, along fluvial way, the Paraguayan goods until free Atlantic ports of Montevideo (Uruguay) and Buenos Aires (Argentina).
Through this way, Paraguay has a direct connection with the sea, saving 60% of freight cost, in relation to road transportation.
For this reason, in 2012 Paraguayan naval fleet transported about 20 million tons of import/export goods, what means about 1,200% more than in 1994.
Waterways ports are private, in a total of 25 operational ports until December 2012.
Paraguayan naval fleet counts 2,500 ships, and naval construction is one of leading industries actually in the country, attracting important companies from Japan, South Korea and Vietnam.
By 2020, through waterways it is expected to achieve 40 million tons transported.
International Airports
Paraguay has three international airports with paved track with more than 3,400 meters long.
Two of them are operational.
Asunción International Airport connects the country directly with the main Latin American countries and the USA, with an international passenger’s move of 985,000 in 2012. This airport counts a track of 3,400 meters long.
The other operational international airport is at Ciudad del Este – Guarani Airport, with 3,450 meters long, specialized in cargo transportation.
The other international airport, with 3,800 meters long, stays in Chaco’s major city Mariscal Estigarribia. This airport was built initially to be a military base during Stroessner government, and it was deactivated after 1989 re-democratization.
The main international airlines operating in Paraguay are American Airlines, COPA Airlines and TAM Airlines, which has its head office in Paraguay. There were eight international airlines operating in Paraguay by December 2012.
Despite the fact Paraguay was the second country in South America counting a railroad line, starting to operate in 1853, actually the national railroad is completely deactivated.
South Korean KOICA and private investors are finishing viability studies to build a production railroad uniting Paraguay’s main production areas to Pacific ports in Chile, through 800 km of railroad.
And there is a viability study made by local and Austrian investors to reactivate the passengers and cargo railroad from Asunción to Encarnación, in the border with Argentina.