Please provide me with an overview of the entrepreneurship ecosystem in Paraguay.
Hello! Thanks for your question about the entrepreneurship ecosystem in Paraguay. The most useful sources I found to answer your question are “Latin America: Paraguay to focus on trade at IDB” and “AMB Country Risk Report—Paraguay.” The short version is that the environment for entrepreneurship in Paraguay is mostly positive. There are some concerns and limitations, primarily in the political and security environment. Many startups are in technology areas, but there are also opportunities in agriculture, manufacturing, and logistics. Below you will find a deep dive of my findings.
FAVORABLE ENTREPRENEURSHIP ENVIRONMENT
Horacio Cartes became Paraguay’s president in 2013. He has done much to enhance the environment for entrepreneurship, pushing a free trade agenda. Free trade agreements have already been established with Chile, Columbia, and Peru. President Cartes is pursuing agreements with additional countries, and hopes to soon attain full membership in the Pacific Alliance. Efforts are also underway for Latin American countries to resume free trade negotiations with the European Union.
One of President Cartes’ economic initiatives was lowering business taxes and incentives for entrepreneurs and investors who establish exporting operations in Paraguay. In addition to lower corporate and income tax rates, President Cartes has promoted a “business-friendly regulatory environment”, which is positive for both entrepreneurs and investors in existing companies.
President Cartes' ultimate goal is a diverse economy, expanding beyond the traditional foundations of agriculture and food production. At the same time, Paraguay’s government has supported developing technology and innovation in agriculture and food production. The government has also supported exports of new categories of produce beyond the traditional staples grown in Paraguay.
Paraguay has taken steps to improve its financial environment. A fiscal responsibility law was passed in 2015 to “strengthen its fiscal framework and encourage fiscal discipline.” This law has improved accountability and transparency within Paraguay’s fiscal environment. Additional laws are being considered that would give the Central Bank of Paraguay more power over financial supervision and regulation.
All of these government actions are providing an environment that is very encouraging for entrepreneurship in Paraguay. The strategy has proven effective for Paraguay’s economy. Currently, Paraguay exports to over 80 countries. Asia and the Middle East are rapidly expanding trade markets for Paraguay.
Since 2013, Paraguay's Latin American neighbors, particularly Brazil and Argentina, have seen their economic growth rates severely decline. During this same time frame, Paraguay’s GDP has grown at 4.2% per year.
The government of Paraguay has also established a procedure called Maquila. Maquila provides tax incentives to Paraguayan companies (Maquila companies) which have a contract with a company outside Paraguay (head office). The Maquila company produces tangible and/or intangible products for the international market. The Maquila company can also subcontract to other “SubMaquila” companies located in Paraguay for production of all or part of their products.
The benefits for the Maquila and SubMaquila companies are great. The Head Office in another country provides raw material, capital equipment, tools, technology, processes, and other goods to the Maquila company. These goods are allowed to enter Paraguay from anywhere in the world. Depending on the nature of the goods, they may remain in Paraguay for up to one year, with the exception of capital equipment which can remain for the life of the Maquila project.
The primary benefit for the Maquila company is that any normal duties or taxes on these goods imported into Paraguay is suspended. The Maquila company may also acquire goods, services, and labor in Paraguay.
The significant incentive for entrepreneurship is obvious. Entrepreneurs in Paraguay can partner and contract with foreign sponsors, thereby receiving financial support as well as training and expert advice. The cost of doing business is decreased because of the suspension of any import taxes or duties. The Maquila provision provides a very favorable entrepreneurship environment for start-ups and fledgling companies in Paraguay.
INTER-AMERICAN DEVELOPMENT BANK (IDB)
The Inter-American Development Bank (IDB) will hold its annual meeting in Asuncion, Republic of Paraguay from March 30, 2017 to April 2, 2017. Paraguay is a member country in the IDB. Special events at the meeting will include “Demand Solutions” and a “Business Forum.” The IDB may help provide a positive environment for entrepreneurship in Paraguay and other member countries.
Mr. Santiago Pena, Paraguay’s minister of finance, says that the IDB meeting will focus on the economic mission of the IDB. He expects that Paraguay’s free trade model will soon be adopted by other Latin American countries.
Mr. Pena has a close relationship with the finance ministers of Uruguay and Argentina. He believes that they, along with the finance minister of Brazil, will be able to push forward economic policies which will benefit the people of Latin American countries, including Paraguay.
CHALLENGES TO ENTREPRENEURSHIP
There are some challenges and obstacles to entrepreneurship in Paraguay, according to an A. M. Best (AMB) assessment. AMB issues a “Country Risk Report” which details economic, financial, and political risks for companies operating in that country.
In an August 2016 report, AMB rated Paraguay as a Risk Category 4 (high risk) on a scale of 1 (low) to 5 (very high). The report recognized that Paraguay’s economy was performing better than economies of neighboring countries.
The AMD report concluded that there were some economic and financial risks for Paraguay. The report cited challenges in the region, including lowered external demand, volatile exchange rates, high inflation, income inequality, and tight financial conditions generally. The report also saw a need to decrease economic structure problems to create jobs and increase investment. Paraguay has some advantage, in that their central bank has been able to control inflation, meeting targets since 2011.
A January, 2017 report said that Paraguay’s Moody’s rating for bonds was Ba1, with a rating-based default spread of 2.89% and a total equity risk premium of 9.24%. For comparison, the United States’ Moody’s rating is Aaa, with a rating-based default spread of 0.00% and a total equity risk premium of 5.69%.
Paraguay’s neighbor, Argentina, had a B1 rating, rating based default spread of 7.51%, and total equity risk premium of 14.94%, much worse than Paraguay. Other neighbors, including Uruguay, Peru, and Brazil, had risk close to that of Paraguay.
The AMD report saw some political risk in that Paraguay’s President Cartes is currently limited to one five-year term. President Cartes was elected in 2013, and has been very pro-business, creating a positive environment for business in general, and for entrepreneurship in particular. Political efforts are underway to change the constitution so that he would be able to continue after his term expires in 2018. The risk is that, if the constitution is not changed, a president could be elected who is less pro-business than President Cartes.
Other political risks in Paraguay include dissension over wage inequality, corruption, and security concerns. There have been protests over low and unequal wages, with some protesters being killed. As for corruption, Paraguay was ranked 130th of 168 countries by Transparency International in 2015.
The primary security concern is the insurgent guerrilla group EPP, which normally targets rural areas such as ranches. There are also concerns about organized crime and drug violence.
In March 2016, Eric Dijkhuis of Paraguay, was one of the attendees from Latin America at a conference in Seattle sponsored by the Young Leaders of the Americas initiative. These young entrepreneurs spent two weeks consulting with Seattle-area technology companies and receiving training and advice from CoMotion Incubator (University of Washington) and 9Mile Labs.
Mr. Dijkhuis described his work in founding Po Paraguay, which builds prosthetic arms and hands with a 3D printer. Since Po Paraguay was a non-profit project, Mr. Dijkhuis raised money for his start-up through Indiegogo’s Generosity site.
Although Generosity is trustworthy, Mr. Dijkhuis said that it was initially difficult because people in Paraguay are often hesitant to provide credit card information online. To overcome this, Mr. Dijkhuis made a video on how to donate, which resulted in added trust and increased donations.
Videos have proven to be an important tool for start-ups in Paraguay, providing a vital educational element on websites and other technology. Mr. Dijkhuis said that he and other members at Po Paraguay learned much from YouTube as well as The CAD Academy (Instructables). Membership in a prosthetic group on Google Plus yielded helpful support and information.
CURRENT STATUS OF PARAGUAY’S ENTREPRENEURSHIP
Entrepreneurship is active in Paraguay. Startupblink.com provides a map showing startups in Paraguay. Many of these startups are in the technology industry, providing products and services in areas such as online commerce, mobile apps, social media, and instant messaging. Angel.com also provides a listing of some startups in Paraguay, most of which are also concentrated in the technology industry.
Deal Street Asia predicts that some manufacturing will move from China to South America, including Paraguay. This movement will be caused by rising wages and standard of living in China. Paraguay and other South American countries will increasingly become manufacturing destinations. Along with increased manufacturing will come opportunities in transportation and logistics.
All of these expansions will offer opportunities for entrepreneurs in Paraguay.
To wrap it up, the environment for entrepreneurship in Paraguay is mostly positive. Since 2013, the government has sought to improve the economic and regulatory environment in ways which encourage entrepreneurship and investment. The entrepreneurship environment does face some political and economic challenges, and is not yet mature. Many startups are focused in the technology sector, but opportunities exist in agriculture, manufacturing, and logistics. The Maguila company law should encourage support of local entrepreneurship by foreign investors. Paraguay’s economy is performing better than most of the region, with over 4% annual growth in GDP. Free trade expansion, along with government initiatives to improve business conditions, should improve Paraguay’s opportunities in global markets as well as local economies. I was not able to identify major players, as far as individuals, but was able to provide the sectors which provide the best opportunities for entrepreneurship.
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