Emerging markets are the most attractive for investors due to the high rates on financial returns. Paraguay has received a better investment grade due to the government’s promotion of attracting foreign investment by creating a stable and secure environment with new laws.
Emerging markets are the most attractive for investors due to the high rates on financial returns and countries with investment grade risk rating are the best demonstration of this. Paraguay - as one of the most emerging economies of Latin America – may soon be rated investment grade and will be installed not only in the financial landscape, but also in lower poverty rates, higher rates of economic growth and decent jobs, resulting in a raise of the standard of living of its inhabitants.
This year, the Heritage Foundation index positioned Paraguay as the 78th freest economy, in the same category with countries such as Uruguay and Peru. On the other hand, Moody’s rated sovereign risk at Ba3 and changed the outlook from stable to positive. S&P and Fitch equally rate Paraguay risk at a similar level.
Government actions have been strongly oriented to reach a higher investment grade. The goal is to provide a high flow of foreign investments to enable greater capital formation and a more advanced development of the stock market. In order to create secure conditions for investors, the government has implemented crucial changes in the legal framework through new laws this past year.
First, investments in infrastructure are expected to rise through the enactment of the “Public Private Partnership Law (Law 5102/13)”. The main objective of this law is to allow the private sector to be part of infrastructure projects urgently needed by Paraguay mainly due to the lack of resources of the government. Through this mechanism, private capital is engaged for the exploitation of public infrastructure and services for a fixed period of time.
Furthermore, the first “Law on Antitrust (Law 4956/13)” has been promulgated in order to promote market competition. It targets anticompetitive agreements, abuse of dominant positions through predatory pricing, and lays down rules for merger notifications taking the rule of reason approach.
Finally, in the field of Intellectual Property the creation of an independent and specialized entity, the National Authority of Intellectual Property (DINAPI), seeks to enhance capabilities especially in the fight against counterfeiting. The entity has power to seek actions against this crime through its separate Enforcement Directors and creates a Counterfeit and Piracy Reporting system.
Economic, political and legal conditions are set with the clear goal to continue with the growth of the country with at stable, secure and sustainable pace.
Now, where Paraguay stands and which are the projections? The following macro-economic factors will give us a guide:
- Productions in the primary and secondary sector: In 2013, the primary sector in conjunction with the secondary sector accounted for 38 % of GDP, mainly of agricultural commodities such as soybeans and meat. More participation from the industry is needed, and there are good prospects since it would be receiving more foreign investment.
- The unemployment rates are stable: For quite a while Paraguay has maintained low unemployment rates. In 2013 it stood at 5.4% and for 2014 is expected to increase slightly to close back at 5.5%. The estimate shows a stable outlook to also close 2015 with 5.5% , according to IMF estimates.
- The high poverty rates tend to decrease (cultural, health, nutrition and habitat): poverty in 2011 was at 32.5% and by 2014 it fell to 24.5%. while extreme poverty fell from 18% in 2011 to 10.7 % in early 2014 . Extreme poverty in 2011 was at 18% and for 2014 decreased to 10.7 %.
- Predicted rates of GDP: From 2003 to 2013 Paraguay averages above 4.9% growth for 2014 the IMF estimates that growth will be 4.8%. The estimate for 2015 reaches 4.5%.
- Low inflation pressure: In 2013 inflation stood at 2.7% , Paraguay stands out for having weathered much better than the region inflationary cycles that South American countries have experienced, and has remained one of the more stable inflations. Since the adoption of inflation targeting schemes it has been reduced further. By 2014 the estimate is 4.7%.
- Added integration into regional and global markets: The main countries for exports are Argentina, Brazil and Uruguay; receiving 42% , the remaining 14% goes to other ALADI countries, the European Union reaching 20% and 9% going to Asia, while Russia closes in 5% and rest of the world 9% of exports.