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Dispelling the myths about Paraguay

Paraguay's reputation as an investment destination has suffered in recent years but its openness to foreign investment and incentives on offer are making it increasingly appealing to investors, argues Lennart Stahr of Southern Connections Agro Consulting and Management.

Paraguay’s reputation as an investment destination has suffered in recent years but its openness to foreign investment and the tax incentives on offer are making it increasingly appealing, argues Lennart Stahr of family-run Southern Connections Agro Consulting and Management.

Paraguay often carries a reputation of crime and corruption among the investor community outside the Southern Cone region, which is due to a rather complicated history. In recent times, however, the country has received a lot of interest from international strategic investors. This is mainly because of different incentives and a fast growing economy that are making the investment environment attractive and relatively secure.

Regulatory environment

Politically Paraguay leans heavily to the right. Its president is a wealthy business owner who is often accused of running the country like one of his enterprises. But one of the most important features of this government is its friendly approach to foreign investors and apparently lack of hostility to foreign capital investment by the local population.

Paraguay also offers one of the world’s most comprehensive legal systems for foreign investors as they need no governmental approval to invest and there are no discriminations or limitations to foreign investment.

The country’s Foreign Investment Law 117/91 grants foreigners the same guarantees, rights and obligations enjoyed by any local investor. Another important law concerning investment is Law 60/90, which grants tax incentives for investments in regions the government has earmarked for development.

Between 2011 and 2013, Paraguay’s average income per capita increased from $950 to $3,649; a record growth in a country with low price inflation.

Agricultural investments

Paraguay’s Northwestern region is of particular interest to investors that are buying large tracts of land in the Chaco region.

The farmland in this region is relatively low priced compared to elsewhere in the Southern Cone region of South America where land can sell for up to 10 times more than Paraguay in certain high-producing areas.

Due to Paraguay’s improving image and the marketing efforts of local real estate agencies, we have found that farmland is starting to become a target for US and European investors in particular. And increasing foreign investment has started to help push up farmland prices to some extent: over the last 5 years, prices have appreciated at an average of 25 percent annually.

The chart below gives an indication of the growth in price but please note that this movement is based on the fact that the Paraguayan Chaco has experienced very little development and is only now starting to become a target for major agricultural operations. The price is also expected to continue to grow to at least $3,000 a hectare by 2020 as it adapts to farmland prices elsewhere on the continent.

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A well-run livestock production project in the Chaco yields around 6 percent a year in operational returns. The highly-fertile soil generally makes fertilisers or additional feeding unnecessary, meaning that year-round beef production can be accomplished very efficiently and with few inputs. With that in mind, Paraguay offers significant opportunities for the application of modern production technologies and research, as most agricultural operations in the country are still being managed traditionally.

While it might be an over-exaggeration so say that Paraguay is the new Switzerland of South America as some have, there are certainly many benefits for investors that want to expand their geographic focus and accomplish returns that are impossible on more expensive lands. The country might surprise you.