Paraguay has launched a charm offensive in Washington to present its small but fast growing economy as the “little China” of South America.
“This is exactly what we think, and this is why we see so many large companies moving to Paraguay,” Lea Gimenez, deputy economy and integration minister of Paraguay, told Emerging Markets.
Paraguay officials have argued that the country could produce 10% of the $70bn that Brazil imports from China annually. This would in turn help Paraguay diversify its commodity-based economy. “[Paraguay] could be very well a province of China,” said Santiago Peña, Paraguay’s finance minister, also speaking to Emerging Markets.
Companies in Brazil, Paraguay’s big neighbour and the largest economy in the region, have started relocating some plants there in search of lower tax and cheap labour. This is also intended to substitute some Chinese imports by goods made in Paraguay. “It almost seems like the Brazilian investors realise what a jewel they have next to them. Paraguay offers them a young labour force, low tax rates and cheap and clean energy. This is an irresistible offer and we are next to them,” she said.
Paraguay has experienced growth since Horacio Cartes was elected president in 2013. He appointed a group of young US-trained economists who have implemented orthodox policies.
Car part manufacturers, such as Fujikura, were the first to move some plants from Brazil to Paraguay three years ago. Now, some 80 industries have moved over there, according to Gimenez. In recent weeks, the Brazilian toy company Estrela announced that it was investing in a Paraguayan plant to cut its imports from China. “We are cutting jobs in China and employing Paraguayans instead,” said Carlos Tilkian, the CEO of Estrela.
The textile manufacturer Guararapes, which opened a plant last year in Paraguay, now intends to double its capacity. JBS, one of the world’s largest meat packers, has recently opened its fourth plant in Paraguay. “You will continue to see those companies moving to Paraguay. This goes beyond the macroeconomic stability that we have been offering in the past 15 years,” Gimenez said.
“We have to be a bit more forward looking and show Paraguay as a hub of production for the whole of the southern cone [of South America],” Carlos Fernandez, Paraguay’s central bank governor, told EM.
Paraguay has been growing steadily in spite of the collapse of commodity prices that affected its soy and meat export revenues, and also in spite of the recession in Brazil and Argentina. The Paraguayan central bank is currently revising its GDP forecast from 3.5% to 4% this year. If this is confirmed, this could be the highest growth rate in South America.