The Paraguayan economy will record the highest growth in the region in 2023, reaching 5.2%, according to the latest World Bank projections released yesterday. After a year complicated by the effects of drought. In this context it should be noted that the figure even exceeds the expectations of the Central Bank of Paraguay (BCP) which forecasts an expansion of the Gross Domestic Product (GDP) of 4.5%.
In Paraguay the presidential elections award victory to “continuism”. With all due respect to any logic of “alternancia”, the conservative Partido Colorado is reconfirmed in power. Former Finance Minister Santiago “Santi” Peña outscored the leader of the centre-left alliance, Efraín Alegre, by a large margin: a result (42.7% to 27.4%) which on the left is attributed to the poor unity in the Concertación nacional. We will focus here on the challenges awaiting the newly elected 44-year-old: a brilliant economist, with a past at the International Monetary Fund (IMF), defined as the dolphin, or puppet, of former head of state Horacio Cartes. Peña is part of the current of Cartes, Honor colorado, opposed to Fuerza republicana of outgoing president Mario Abdo Benítez.
But first, a mention of his relationship with the controversial political godfather, who has recently received accusations, and related sanctions, from the United States. The Washington Treasury Department calls him “significantly corrupt,” and the State Department adds that “Cartes engaged in acts of corruption before, during, and after his tenure as president of Paraguay. Cartes’ political career was based, and continues to depend, on the corrupt media for success.” Well, analysts point out that Peña has not denied his mentor, but continues to express gratitude to him: “Your contribution, president, can only be repaid with the currency of respect and admiration. Thank you for this victory in Colorado.”
The indicators of poverty (especially rural), child malnutrition and economic inequality are decreasing; The World Bank and the IMF have signaled the steady increase in gross domestic product, and the accounts in order. And the United Nations Development Program has praised the “positive trend” of various indicators: first and foremost the Human Development Index, which is now “High”.
The main request of the electorate to the technocrat of Asunción thus has to do with the economy: he will have to ensure the stability of this favorable cycle, reducing the pockets of poverty that still exist, and creating new formal jobs, during the electoral campaign talked about half a million. Yes, because informal workers, those whose incomes are not regulated by law, are as much as 64.2% of the total. Action is also urgently needed in the energy sector: as much as 41% of consumption comes from fossil fuels. And despite a huge production of renewable energy, especially hydroelectricity, which is largely exported. It will then be necessary to reduce the excessive dependence on intensive agriculture, highly conditioned by drought and climate change. While on the international level strong Chinese pressure is announced, since the Guarani state is among the few in the world to recognize Taiwan, rather than the People’s Republic. Finally, the electorate of the Partido Colorado asks Peña to pacify the “state party”, or in any case to avoid, as has happened so far, that conflicts damage the economy.
Main sectors of economy
Paraguay is strengthening its economic engine in the industrial sector, which today has a strong presence among exported products, according to data from the Ministry of Industry and Commerce (MIC). Last year, the sector has seen growth of almost 20%. From January to August 2022, Paraguay’s industrial, manufacturing and agro-industrial sectors exported $3.838 billion, or 67 percent of this year’s total exports, according to the MIC.
The economic report of the Deputy Ministry of Industry states that of the 3.838 billion dollars, 27% (1.018 billion dollars) corresponds to manufactured goods, while 73% (2.82 billion dollars) corresponds to agro-industrial goods. Comparing this figure with that recorded in the same period of 2021, there is a 19% increase compared to the $3,232 million reached last year. From January to August 2022, total exports of manufactured products reached a total of 1.018 billion dollars, 27% more than the 808 million dollars recorded in the months of January to August 2021. 76% of manufacturing exports were destined for the Mercosur countries, with 60% from Brazil, 14% from Argentina and 2% from Uruguay.
Other relevant destinations were: the United States of America, 6%; Chile and Bolivia, 4% each; Germany, Canada, India, Peru and Ecuador, 1% each. In terms of products exported, the manufacturing of garments and automobile parts ranks first with 19% each, followed by aluminum products and their manufactured products and herbicides and fertilizers with 11% and 8% respectively; plastic and its manufactures and iron and its manufactures with 6% each, and paper, cardboard and its manufactures, pharmaceuticals, miscellaneous manufactures with 4% each and, finally, copper with 3%.
As for the export of agro-industrial goods, the statistics show an increase of 16% compared to the same period (January-August) of 2021. The cumulative values of exports report a total value of 2.82 billion dollars, equal to 395 million dollars more than those accumulated in the months of January to August 2021 (2.425 billion dollars). The destination markets for agro-industrial goods were: Chile, 19%; Argentina, 15%; Brazil, 11%; Russia, 8%; Taiwan, 6%; Poland, 4%; Israel, 4%; United States of America, 3%; Uruguay, 3%; United Kingdom, 2%; India, 2%. Together, Mercosur accounts for 29% of total agro-industrial goods exports from January to August 2022.
Taxation for businesses in Paraguay
In September 2019, the Law n. 6380/19 which introduced significant innovations in the country’s tax system. In particular, the main change concerns the adaptation to OECD standards of the discipline on transfer pricing, the creation of a single tax that replaces the tax on commercial and industrial activities and that on the carrying out of agricultural activities and simplifications for medium and small size.
The tax on the income of legal persons is equal to 10%, and is applied to:
- Sole proprietorships;
- Companies, regardless of whether or not they have legal personality;
- Associations and corporations of any kind, public bodies, territorial bodies, branches of foreign subjects operating in the Republic and finally cooperatives.
The Law n. 6380/19 broadened the scope of the tax, including to transparent structures such as, for example, trusts and investment funds and established the accrual criterion for the allocation of income and expenses. Taxable income is that which is obtained by deducting from the gross income the expenses necessary to obtain it, duly documented and inherent to the activity carried out. It is now possible to carry forward the tax losses for the 5 years following that of accrual by deducting these losses within the limits of the capacity of 20% of the annual taxable income.
Investing in Paraguay
It boasts the most competitive tax system in South America and the world. The currency has its own stability with inflation around 5%. The market economy is solid, and growth is around 5% a year.
Ranked first in renewable energy production and second in stevia production, Paraguay is the sixth largest meat exporter in the world. It is also a young country with 70% of the population under the age of 35, which is making every possible effort to earn its place in the sun in Latin America. Young people like it, and not only: just think that in the last three years foreign investments have been 58% of the total, thanks also to administrative and tax simplification policies that attract entrepreneurs and investors.
And which seem destined to expand through a constant fight against bureaucracy. Without forgetting a geographically strategic position, which facilitates trade with the various Latin American realities, including the other regional powers that form the Mercosur (Common Market of South America).
These are the reasons that drive many entrepreneurs to move to Paraguay to open their businesses. Added to this is one of the most advantageous tax systems in the world, so much so that the country can be considered a real paradise in every sense.
As we have said, Paraguay offers many opportunities for entrepreneurs and all those who wish to start a new life. There are many start-ups that it hosts thanks to the policy of welcoming foreigners and which make it an ideal place for investments. In fact, the return on invested capital is equal to 20/22%. Furthermore, Paraguay has a very low inflation rate: less than 5% in the last 5 years.