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Handbook - 38/2015 Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Suhayl Abidi GoG-AMA Centre for International Trade Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Compiled by Suhayl Abidi For any queries, please contact: [email protected] First Published: December 2015 Published by GoG-AMA Centre for International Trade Ahmedabad Management Association Torrent-AMA Management Centre Core-AMA Management House ATIRA Campus, Dr. Vikram Sarabhai Marg Ahmedabad 380 015 Phone: +91-79-2630 8601 • Fax: +91-79-2630 5692 Email: [email protected] • Website: www.amaindia.org Contents Click on country to view contents Argentina 1 Chile 23 Colombia 41 Paraguay 65 Peru 79 Uruguay 101 ARGENTINA Highlights 2 Introduction 2 Argentina — Key Economic Factsheet 2014 3 Economic Highlights and Forecast 3 Laws and Policies Relating to Foreign Investment 5 A Magnet for Investment 6 Focus Areas for Investment 7 Infrastructure 11 International Trade 13 Services Industry 15 Investment Risks, Barriers and Challenges 18 Indo-Argentinian Economic Relations 21 Highlights • Argentina is Latin America’s third-largest economy. • More than 2,000 multinational companies operating in diverse sectors • Vast extension of fertile land for agriculture • Ranked 3rd worldwide in shale oil and shale gas reserves. • Highest level of public investment in education in the region (equal to 6% of GDP). • GDP growth paltry 0.5% in 2014 Introduction Argentina is a country in South America bordering the Southern Atlantic Ocean. Neighbouring countries include Bolivia, Brazil, Chile, Paraguay, and Uruguay. Argentina’s continental area is between the Andes mountain rage in the west and the Atlantic Ocean in the east. Diverse geographical landscapes produce varying climates from tropical in the north to tundra in the far south. The government system is a republic. The President is the chief of state and head of government. Argentina has a mixed economic system in which the economy includes a variety of private freedom, combined with centralized economic planning and government regulation. Argentina is a member of the Latin American Integration Association (LAIA) and Mercosur. Argentina is one of Latin America’s largest and wealthiest countries, possessing abundant human and natural resources, highly-diversified industries, and a 43 million person market. It has been facing many economic and financial troubles these past few months. Future predictions are now showing a poor outlook for its economy, as the country is struggling with high inflation, a major decline in the value of the peso against the U.S. dollar, and more trouble involving disputes with hedge fund and holdout creditors. For a country that has had a history of economic troubles in this century, none of these things spell anything good for Argentina’s future, and it only seems to be getting worse from here. It’s an election year, Argentina will have a new president in December, and that creates huge expectation among the investment community. Continuous high levels of inflation, restriction on the foreign exchange market, import restrictions and the default generated by the lack of agreement with the hold-outs, have all positioned Argentina among the Latin American countries with lowest investment in terms of GDP. While countries like Brazil, Chile, Uruguay, Paraguay and Colombia have benefited from the liquidity in the financial markets due to low rates, Argentina has had to struggle on. Now this will change. The new administration will have to solve these imbalances to attract local and foreign investment. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Introduction 2 Argentina — Key Economic Factsheet 2014 KEY ECONOMIC FACTS Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) High Income Developing 720.49 billion (2011) 2.93% (2013) 17,674.37 (2011) 136,271,863,000.00 (2013) 15.27% (2013) -4.81 billion (2013) 10.03% (2012) 19,092,526 (2013) 7.50% (2013) 90.47 billion (2013) 88.52 billion (2013) Economic Highlights and Forecast Argentina entered recession at the beginning of 2014, although activity had already started to contract towards the end of 2013. Following a slowdown in 2013, household consumption fell slightly at the beginning of 2014. Real wages are falling and confidence among the population is declining. Exports have fallen steeply, with the reduction in sales of vehicles to Brazil and new cereal export quotas. As occurred at the end of 2013, the drop in imports was much less marked and the external sector posted a negative contribution to growth. Investment is also falling because of strict import controls and restrictions on foreign currencies operations. Inflation is moving upwards, partly because of the devaluation of the peso: on the basis of the price index as calculated by university institutions, it is likely to exceed 30% in 2014. Fragile External Accounts, Loose Budgetary and Monetary Policies The current deficit, which increased in 2013 as a result of rising energy costs, continued to worsen into 2014 because of the weakening of the surplus in merchandise trade. This surplus can no longer offset the deficit in services and income (debt service and repatriation of profits by foreign owned companies), limited in the latter case by foreign exchange controls. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Economic Highlights and Forecast 3 Monetary policy has tightened since the beginning of 2013 in an attempt to counter inflationary pressures arising from the sharp depreciation of the peso in January (-15%). The government used its foreign currency reserves to try to limit the fall of the peso and these dropped from US$43 billion in January 2013 to US$26 billion by the end of May 2014. The decline of the peso on the black market in recent months points however to expectations of further depreciation among many Argentines. The exchange rate risk therefore looks substantial, connected with a possible new Argentinean debt default (see below) and the worsening of the current balance. The fiscal balance has also declined at the beginning of 2014: the budget deficit has worsened as a result of wage increases granted to some government employees at the end of 2013. The reduction in the scale of subsidies (5% of GDP) benefiting the energy and transport sectors is hypothetical. The budget deficit is largely financed through money creation because the government cannot access international financial markets. It is also financed through borrowings on the domestic market: as a result, public debt will exceed 50% of GDP at the end of 2014. The government has been attempting to regain access to the international financial markets since the end of 2013: an agreement was signed with the public creditors of the Paris Club and the government compensated Spanish oil and gas company Repsol following the nationalisation of YPF (national oil and gas operator). Gross Domestic Product (GDP) Economic Indicators Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Economic Highlights and Forecast 4 Laws and Policies Relating to Foreign Investment The GOA has signalled its desire to see continued foreign direct investment (FDI) flows to enhance the nation’s productive capacity and GDP growth potential, and it took actions in the past year to improve the investment climate in Argentina. To regain investor confidence, the GOA settled several outstanding international arbitral awards, engaged with the IMF to improve economic reporting data, and compensated the Spanish-firm Repsol for the partial expropriation of YPF in 2012. Argentina also reached agreements with the Paris Club group of creditors to repay US$9.7 billion in arrears over the next five years, including US$642 million owed to the United States. Argentina has already made two payments in the first year. The GOA revamped its hydrocarbon regulations in 2014 with the aim of attracting new investments to develop Argentina’s world class oil and gas resources. According to a Presidential decree governing foreign investment in Argentina, foreign companies may invest in Argentina without registration or prior government approval, and on the same terms as investors domiciled in Argentina. Investors are free to enter into mergers, acquisitions, green-field investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Central Bank restrictions (both formal and de facto) on the purchase of foreign currency limit the ability of a company or investor to remit profits, dividends, or investments out of the country. Government incentives apply to both foreign and domestic firms alike. The federal government, as well as provincial and municipal, offers several incentives to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development and energy. More details of these programs can be found here: www.inversiones.gov.ar/es/incentivos-la-inversion or www.prosperar. gov.ar/ The GOA has established a number of investment promotion programs. These programs allow for Value-Added Tax (VAT) refunds and accelerated depreciation of capital goods for investors and offer tariff incentives for local production of capital goods. They also include sectorial programs, free trade zones, and a Special Customs Area in Tierra del Fuego Province, among other benefits. A complete description of the scope and scale of Argentina’s investment promotion programs and regimes can be found at www.industria.gob.ar, www.inversiones. gob.ar and www.mecon.gob.ar/. Information about programs that specifically apply to small and medium businesses may be found at www. industria.gob.ar/ secretaria-pyme. The Argentine Ministry of Economy (www.mecon.gov.ar), the Investor’s Information Service for Argentina (www.infoarg.org), the Undersecretariat of Investment Development and Trade Promotion (www.inversiones.gov.ar), the Embassy of the Argentine Republic in the United States of America (www.embassyofargentina.us/en/invest-in-argentina.html), and the Central Bank of Argentina (www.bcra.gov.ar) have additional detailed information on investment policies in Argentina. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Laws and Policies Relating to Foreign Investment 5 FOREIGN DIRECT INVESTMENT (FDI) The IMF does not have recent direct investment data on Argentina. Argentina was censured by the IMF in February 2013 for reporting unreliable economic data. According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2012, the latest information for Argentina, the total stock of FDI in Argentina at the end of 2012 was estimated at US$110.7 billion. The stock of U.S. FDI in Argentina in 2012 was estimated at US$14.4 billion by the U.S. Bureau of Economic Analysis. In 2012, according to UNCTAD, total FDI inflows were estimated at US$12.5 billion and outward FDI flows amounted to US$1.1 billion. A Magnet for Investment After several years of mismanaged economic and monetary policies that drove investment away from the country, the situation is changing. There are several things that make investors very optimistic. Argentina has a highly diversified economy. The primary sector is internationally renowned for its high productivity levels and use of advanced technologies. The country’s welldeveloped industrial base showcases key sectors such as agribusiness, automotive, pharmaceuticals, chemicals and petrochemicals, biotechnology and design manufacturing. The traditional service sectors are well established in the country, gradually developing niche expertise in the most sophisticated segments of the value chain, with notable growth in software and IT services as well as a wide variety of high added-value professional services. Investor confidence remains low in the short-term and is more optimistic with regards to the medium- and long-term. Argentina’s investment climate is dampened by concerns with Argentina’s currency controls, deteriorating macroeconomic conditions, and unresolved sovereign debt dispute with litigating U.S. hedge funds. Many established companies in Argentina reported that they are planning to expand investment in Argentina in the immediate or near future, with more economic stability and policy certainty. Sectors of heightened interest are energy, mining, agribusiness, telecommunications, technology, financial and infrastructure development. In early 2015, the City of Buenos Aires and national oil company YPF raised about US$500 million each through bond issuances, demonstrating significant investor demand for Argentine bonds. The bonds were bought mostly by European and U.S. fund managers and hedge funds. Argentina has a managed float exchange rate policy. Conversion of the peso into foreign currency is limited. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — A Magnet for Investment 6 Focus Areas for Investment MANUFACTURING One of the main drivers of Argentina’s growth over the past ten years. One sector that has transformed as a result of this productive wager on the country´s future is capital goods. In addition, the sector´s export performance, which has accompanied output, indicates great potential moving forward. Argentina is undergoing the most important economic growth cycle in its history, concurrent with a strong increase in investment (22.8% of GDP in 2012). Agriculture, manufacturing, infrastructure development and a wide array of services constitute dynamic economic hubs that demand increasing quantities of goods and durable equipment items to sustain productive growth. A highly qualified workforce is the foundation for growth in the industrial sector. Argentine workers have the highest educational level and labour productivity in Latin America (according to data provided by ECLAC - United Nations). Trained in the 119 universities and higher-education institutes throughout the country, Argentine technicians and engineers are recognized worldwide for their creativity, versatility and quality skills. In 2012, the manufacturing industry contributed almost US$85 billion to Argentina’s GDP, or 18% of the country’s total. The annual accumulated growth for the sector over 20032012 was above 6%. Several public policies have fostered the expansion of industries that have become increasingly strategic to Argentina in recent years, which will allow further diversification of the productive matrix and significant competitive advantages. These activities include chemistry and petrochemicals, plastic, pharmaceutics, aviation, naval and forestry industries. FOOD AND BEVERAGES Argentina is a world leading producer and exporter of foodstuffs. Argentine products, which are in markets on six continents, continue to earn the country the highest accolades based on a wide range of attributes, including innovation and quality, and bring in annual export sales of over US$25 billion. The sector is in full compliance with the highest international health and environmental standards, positioned to meet the most sophisticated demands from the worldwide consumers. A Global Opportunity Today’s global food market plays a role of paramount importance in world economies. The demand for foodstuffs is expanding swiftly spurred by the increase in the global population, the economic growth in emerging markets and the emergence of new high-end consumers. In developed countries, the demand for specialty foods, including organic and gourmet products, continues to grow. These structural trends guarantee both an expanding market Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Focus Areas for Investment 7 for Argentine food products and new business opportunities for the country’s premium and high added value foodstuffs. Argentina’s vast expanse of fertile lands, exceptional agro-ecological conditions, benchmark productivity levels, highly qualified workers and well developed agro-industrial capabilities are pillars of the country position as one of the world’s leading producers and exporters of foodstuffs. The sector is comprised of local and foreign companies with global operations, as well as small innovative companies exploiting attractive market niches. Argentina has a highly competitive and well consolidated food industry. Sector growth in Argentina is driven by innovative developments and the implementation of new technologies. Furthermore, the country is a regional and global leader in terms of the application of biotechnology in the food industry, an increasing trend. RENEWABLE ENERGIES Argentina has the resources, capacity and potential to supply the growing global demand for renewable energies and become the regional leader in the sector. Commitment Clean energies is one of the most dynamic industries in the world, growing 36% per year on average over the last six years with investments of US$257 billion in 2011 alone. Over 118 countries have set targets for use of renewable energies or have adopted incentive policies to encourage the use of renewable energies in an effort to diversify the energy matrix and reduce their dependency on fossil fuels. According to the United Nations, a twentyfold increase in the production of renewable energies will be required worldwide by 2050. Argentina has implemented public policies and incentives to promote the development of renewable energy sources that are in line with world trends. Local Response Capacity Argentina is one of the world’s leading producers and exporters of biofuels. Moreover, given the country’s wealth of natural and technological resources, Argentina has the potential to continue expanding wind and hydroelectric energy production, as well as to develop second and third generation biofuels, solar power, wave and geothermal energy, and energy generation from biogas and biomass. Extensive Experience and Qualified Workforce The development of renewable and clean energies in Argentina is bolstered not only by the country’s extraordinary natural resources and its long standing industrial tradition, but also thanks to the highly qualified workforce in the areas of engineering and biotechnology. Several local companies are exporting their expertise and experience in the production of biofuels, wind energy generation, wind turbines, construction of turnkey hydroelectric and biofuel production plants, and other related services. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Focus Areas for Investment 8 BIOTECHNOLOGY A highly qualified workforce and a solid industrial tradition support the industry´s pattern of diversification and re-concentration in production. The biotechnology sector is comprised of a conglomerate of local and multinational companies, including top global names such as BASF, Bayer Crop Science, DOW Agrosciences, Monsanto and Pioneer, as well as successful local companies with international growth potential. Many of these local companies—Amega Biotech, Bioceres, Biogénesis-Bagó, Biosidus, Cassará, Gador, Indear, Pharmadn, Rizobacter and Wiener Laboratories—are developing biotechnology applications aimed at promoting competitiveness through innovation. The combination of increasing public-private efforts, strong R&D capabilities and a pattern of diversification and re-concentration in production place the country as one of the leaders in the biotechnology sector in Latin America, where it excels for its scientific and innovative potential in agricultural application and human and animal health. World-class Scientists Argentina’s scientific professionals are renowned for their outstanding skills and their capacity for innovation rooted in a long tradition of scientific excellence. The qualities they embody endow the country’s biotechnology sector with significant advantages for development. A number of educational institutions recognized worldwide offer programs in biotechnology at both post-graduate and post-doctoral levels. The country has the highest ratio of researchers to the economically active population in Latin America. Diversity and Specialization Argentina offers competitive advantages in various segments of the biotechnology industry, particularly in the fields of agriculture, food, and human and animal health. These advantages result from a production pattern with an export profile and strong international presence comprised of more than 120 companies, 8,000 highly qualified workers and excellent technological institutions and poles, including Leloir Institute Foundation, the Experimental Biology and Medicine Institute and the Biomedicine Research Institute of the Scientific and Technological Pole of Buenos Aires. Public and Private Sector Cooperation Prestigious public institutions—including the National Institute for Agricultural Technology (INTA), the National Institute for Industrial Technology (INTI) and the National Agency for Scientific and Technological Promotion (ANPCYT)—are driving biotechnology development in association with the private sector, contributing to innovation through research and development projects. This synergy between public and private institutions is reflected by more than 100 biotechnology projects co-financed by 40 companies, generating investments of AR$ 150 million, as well as in the successful association between laboratories and universities. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Focus Areas for Investment 9 AUTOMOTIVE INDUSTRY The automotive and auto parts industry represents 9% of the Argentina’s industrial gross production value and is one of the most important and dynamic sectors in the domestic economy. Front-line international automotive manufacturers—Fiat, Ford, General Motors, Honda, Iveco, Mercedes-Benz, PSA Peugeot-Citroën, Renault, Scania, Toyota and Volkswagen—have chosen Argentina as a production and export platform. Plants located in the provinces of Buenos Aires, Córdoba and Santa Fe represent 29,000 direct jobs; while the auto parts sector is growing every day and encompasses over 400 companies and employs more than 65,000 workers. Argentina offers investors an attractive domestic market with over 40 million inhabitants with one of the highest purchasing power per capita in the region. The country also has preferential access to Brazil—one of the main automotive markets in the world—and to other Mercosur member countries. Thanks to the important dynamism of demand and different national and regional programs implemented throughout 2003-2012, automotive production grew 18% on average per year, reaching a new production record of 829,000 units in 2011. Tradition, Capacity and Innovation With a track record of over 60 years, Argentina’s consolidated automotive and auto parts industry ranks second in South America in terms of production volume. Both automotive and auto parts manufacturers have the skills and industrial knowhow to meet the most demanding international standards and to add new products and technologies in line with the latest global trends. Specialized, Skilled Workers The sector’s workforce is comprised of highly skilled and experienced workers, representing the diverse qualifications needed at every stage of the production process. In addition to the wide range of graduate and postgraduate courses in science, industrial design and engineering offered by public and private universities, there are other important training initiatives in places, such as the National Institute of Technological Education and the National Network of Professional Training, a joint initiative between the government and key labour unions. These initiatives promote professional training at national, provincial and municipal levels in the field of automotive mechanics. From Argentina to Mercosur and the World Six of every ten vehicles produced in Argentina are exported to Brazil, thanks to the industry’s preferential access to Mercosur countries. In addition, the industry is benefitted by various favourable trade agreements in place with other countries including Bolivia, Chile, Colombia, Ecuador and Peru, which is why numerous multinational manufacturers have chosen Argentina as their production and export platform for models such as Toyota Hilux, Ford Ranger and Volkswagen Amarok. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Focus Areas for Investment 10 Infrastructure According to BMI Research, after a new government is inaugurated in 2016, we expect gross fixed capital formation (GFCF) will return to real expansion. Businesses will begin construction of fixed assets as expectations for more business-friendly policies, such as tax incentives for investment, are implemented. Further, the end of Fernandez’s administration will improve perceptions about the Argentine government. Reduced restrictions on imports and a weakened peso will reduce the cost for foreign businesses looking to expand in the country’s infrastructure sector. In this context, we forecast construction industry growth to reach 3.7% in real terms in 2016. Our Country Risk team forecasts Argentina’s economy to grow by a significantly stronger 2.5% in 2016, after an estimated 0.7% in 2015. Real gross fixed capital formation will experience significant growth in the coming quarters, in line with our construction industry forecasts. Infrastructure – Construction Industry Forecasts (Argentina 2014-2020) Construction industry value, ARS billion Construction industry value , Real Growth, % y-o-y 2014 2015f 2016f 2017f 2018f 2019f 2020f 222.07 268.80 343.21 395.34 433.61 473.60 512.26 0.60 4.04 3.68 3.19 2.68 2.72 2.16 F = BMI forecast Source: INDEC, BMI Estimate of Infrastructure Needs Argentina will need to invest US$290 billion over the next ten years in order to finance the myriad large-scale infrastructure projects the country needs to either initiate or expand. The estimates from Argentina consulting firm, E&R, which cautions: “reaching an agreement (with the holdouts) would be critical in order to attract the foreign direct investment (FDI) and secure financing for all of the infrastructure projects our country will need over the next decade which will reach approximately US$290 billion. The firm says US$250 billion or 86% of these investments should be channelled toward the holy trinity of local infrastructure: highway construction, electric energy generation and oil and gas exploration. Specifically, the report says hydrocarbons alone will demand investment of US$107 billion. Over the same period, electric energy generation will require US$38 billion of which US$25 billion is for generation and US$13 billion is for distribution. Updating and maintaining these investments will require another US$50 billion. The maintenance and expansion of Argentine highways over the next decade will require another US$58 billion, railroads and subways will demand US$34.5 billion, water/sewer Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Infrastructure 11 projects will cost US$6.5 billion and cellular telephone network upgrades will exceed US$1 billion. The report concludes with words of encouragement for short-term sacrifice and long-term stability: “Reaching an agreement with the holdouts re-opens the possibility for us to return to the global capital markets. Our country risk and financing costs would also come down transforming the country into a good platform for direct foreign investment.” FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are found throughout the country; and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province. Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labour, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs. Under the current law, the GOA may create one FTZ per province, with certain exceptions. More than one FTZ per province may be allowed in sparsely populated border regions (although this provision has not been fully utilized). Thus far, the GOA has permitted FTZs in many of the 23 Argentine provinces. The most active FTZ is in La Plata, the capital of Buenos Aires Province. Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exempt from export taxes. Products manufactured in an SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through an SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives. The SCA program applies only to Tierra del Fuego Province and is scheduled to expire at the end of 2023. In late 2006, the Economy Ministry through Resolution 776 abolished the export tax exemption enjoyed by oil companies operating in Tierra del Fuego Province. The Argentine Congress passed a law in November 2009 establishing value-added tax rates up to 21% on cell phones, televisions, digital cameras and other electronic items not produced in the southern Tierra del Fuego foreign trade zone. According to the government, the bill aims to increase government revenue through higher tax collection, and encourage investment in Tierra del Fuego to promote local Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Infrastructure 12 manufacturing and job growth. Argentina’s import restrictions are often the primary reason that foreign firms choose to assemble electronic products in Argentina. International Trade Argentina - Exports and Imports Data 2010 2011 2012 2013 2014 Exports (US$ billion) 68.2 84.1 80.2 81.7 71.9 Imports (US$ billion) 56.8 74.3 68.0 73.7 65.2 Latin Focus Consensus Forecast panellists expect exports to drop 13.1% in 2015 and they see imports contracting 9.7%, thus pushing the trade surplus to US$3.6 billion. For 2016, the panel expects exports to increase 4.9% and imports to expand 5.6%, with the trade surplus narrowing to US$3.3 billion. Top Argentina Exports 2014 (Value in US$ billion, figures in parenthesis % of total imports) # Commodity 1. Food waste, animal fodder 2. Vehicles 8.3 (12.2%) 3. Cereals 5.2 (7.7%) 4. Animal/vegetable fats and oils 4.3 (6.3%) 5. Oil seed 4.2 (6.2%) 6. Oil 3.2 (4.7%) 7. Other chemical goods 2.2 (3.2%) 8. Gems, precious metals, coins 2.1 (3%) 9. Meat 1.8 (2.7%) 10. Machines, engines, pumps Value 12.8 (18.8%) 1.6 (2.3% Top Argentina Imports 2014 (Value in US$ billion, figures in parenthesis % of total imports) # Commodity 1. Oil 11 (16.9%) 2. Machines, engines, pumps 9.6 (14.7%) 3. Vehicles 8.8 (13.4%) 4. Electronic equipment 7.2 (11%) Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Value Argentina — International Trade 13 # Commodity Value 5. Organic chemicals 3 (4.6%) 6. Plastics 2.6 (3.9%) 7. Pharmaceuticals 2.1 (3.3%) 8. Medical, technical equipment 1.6 (2.5%) 9. Other chemical goods 1.5 (2.4%) 10. Rubber 1.2 (1.8%) Fastest-Growing Argentine Exports # Commodity Growth (from 2010) Value in $ 1. Silk 1,800% 38,000 2. Other manufactured products 503.7% 92.5 million 3. Clocks and watches 476.4% 8.4 million 4. Musical instruments 108.8% 3.6 million 5. Gums, resins 77.4% 6.2 million 6. Paper yarn, woven fabric 63.2% 111,000 7. Coffee, tea and spices 57% 220.8 million 8. Tin 54.2% 37,000 9. Cereal, milk preparations 50.5% 499.2 million 10. Cotton 48.7% 145.4 million 11. Food waste, animal fodder 46.3% 12.8 billion 12. Dairy, eggs, honey 44.6% 1.5 billion 13. Ships, boats 27.4% 48.7 million 14. Modified starches, enzymes 23.7% 310.2 million 15. Pharmaceuticals 22.8% 851.3 million 16. Furskins and artificial fur 22.4% 44.6 million 17. 19.1% 1.6 billion 18. Inorganic chemicals 15.9% 330 million 19. Other chemical goods 14.4% 2.2 billion 20. Cereals 13.3% 5.2 billion Fish Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — International Trade 14 Fastest-Growing Argentine Imports # Commodity Growth (from 2010) Value in $ 1. Railway, tram equipment 2,002% 716.7 million 2. Oil 146% 11 billion 3. Gums, resins 75.8% 78.5 million 4. Salt, sulphur, stone, cement 68.5% 221.9 million 5. Fruits, nuts 67.2% 304.3 million 6. Fish 46.5% 57 million 7. Other food preparations 45.6% 199.7 million 8. Modified starches, enzymes 42.6% 165 million 9. Copper 39.2% 409 million 36% 2.1 billion 11. Tobacco 32.3% 74.9 million 12. Knitted or crocheted fabric 31.8% 170 million 13. Medical, technical equipment 31.4% 1.6 billion 14. Other manufactured products 31.4% 198.9 million 15. Special woven/tufted fabric 30.8% 30.1 million 16. Other chemical goods 29.8% 1.5 billion 17. 27.4% 126.6 million 18. Milling products 26.3% 16.4 million 19. Explosives, pyrotechnics 25.1% 26.5 million 20. Soaps, lubricants, candles 19.7% 371.1 million 10. Pharmaceuticals Vegetable/fruit preparations Services Industry FINANCIAL SERVICES Argentina has a relatively sound banking sector. The largest bank is the Banco de la Nación Argentina. In recent years, the GOA has imposed a range of policies that have negatively affected business conditions and banks’ financial strength, including dividend payment and foreign exchange market restrictions, caps on lending rates and fees, and lending requirements to targeted sectors. However, non-performing private sector loans constitute less than 2% of banks’ portfolios. The ten largest private banks have total assets of approximately ARS 564 billion (US$64 billion). Total financial system assets are approximately ARS 1.230 trillion (US$140 billion). Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Services Industry 15 HUMAN CAPITAL Argentina has the highest English language proficiency in Latin America. English is mandatory at state schools in the City of Buenos Aires and the Province of Buenos Aires. Many private schools are bilingual and attract many middle class students. 4.9 million netbooks have been given to children through the government programme ‘Conectar Igualdad’. There is demand for: • educational software • English Language Teaching (ELT) products • joint ventures with local institutions for corporate and higher education programmes HEALTHCARE Argentina has one of the highest doctor to population ratios in Latin America (3.8 per 1000 inhabitants). The Argentine healthcare system is split into 3 distinct markets: • Public Health Service for 17 million people • Social Security for 18 million people • Private Health Service for 4.6 million middle-high income users Argentina is the second largest market in Latin America for medical devices. However, only 25% of the equipment is manufactured locally. There is demand for: • imaging diagnostic equipment • orthopaedic implants • cardiology surgery supplies • in-vitro and organ transplant instruments • telemedicine and other top end solutions TOURISM Argentina’s tourism industry is booming, with the number of foreign visitors rising to over six million in 2014. Currency devaluation seems to have contributed to the increase in tourism, as the Argentine peso has decreased more than 60% against the dollar in the past year. The tourism sector is the third biggest employer in Argentina, with foreign tourists spending US$4.8 billion in the country last year. Investors are waiting for elections in October 2015 for the present disastrous government to go and then real estate and travel industry hope to recover. INFORMATION AND COMMUNICATION TECHNOLOGY A lattice of 3,800 firms, ranging from globally consolidated multinationals to a growing network of highly innovative small and medium-sized enterprises, makes up the global Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Services Industry 16 software and IT services sector. Argentine companies’ global projection is expanding as one quarter of its production is exported to international markets. Professional Talent Argentina’s IT workforce is comprised of highly qualified professionals and specialized technical experts with excellent English-language skills. Some 85,000 students are currently enrolled in IT courses at 79 education centres throughout the country. Education levels are comparable to developed countries, surpassing standards in most other Latin American countries. There is also an outstanding level of research in exact sciences. Optimal Price-quality Ratio A favourable relative cost structure helps to ensure advantageous costs in terms of communications and other basic inputs required by software and IT companies (office space, electricity, equipment, etc.). The cost-quality ratio of Argentine human resources is particularly attractive in relation to regional and international competitors. Encouraging Scenario Argentina offers businesses a range of clear advantages over other emerging markets. Its time zone (GMT-3) is highly valued by companies, especially those requiring real time communications with clients or headquarters in North America and Europe. With one of the highest rates of broadband penetration in the region, Argentina’s modern telecommunications system ensures access to a technological platform needed to compete on a global level. Furthermore, the public sector is playing an active role to stimulate the development of this industry with new funding and promotion efforts, while working towards greater productivity and integrity, a commitment reflected by the country’s forefront position in areas like data protection legislation. Argentina is an early adopter of ‘big data’ and other sophisticated technologies. It has the highest number of mobile phones per capita in the Americas and higher also than the UK. Its fibre-optic broad band network will increase by 300% by end 2015. There are opportunities for: • supply mobile phone carriers with technology to improve network capacity • provide content for the broadband networks • enter joint ventures to develop software for processing big data TECHNICAL AND PROFESSIONAL SERVICES IN ARGENTINA Argentina offers unique opportunities for companies dedicated to offshore outsourcing of professional services. Many international companies representing diverse areas of expertise develop services in Argentina and export them. Today, companies work in several higher- Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Services Industry 17 sophisticated sectors, earning Argentina a reputation as one of the most highly rated outsourcing destinations in Latin America. Buenos Aires places 15th in the world ranking of outsourcing cities and 7th among the top emerging developing countries (Tholons Consulting). Talented, Creative and High-qualified Technicians and Professionals A growing highly qualified labour force is one of the key reasons for the success of this sector in Argentina. Argentine professionals and technicians are internationally renowned for the quality of their solid training, talent and creativity. Argentina has one of the highest English-language levels in Latin America, while many Argentines are fluent in French, Portuguese, Italian and German, among other languages. Competitive Operative Costs and Excellent Communication Network Operating costs in this local sector are highly favourable regionally and globally. In addition, Argentina boasts a thriving telecommunications system developed within the framework of a modern and highly competitive market. Argentina has the highest density of mobile telephone lines in Latin America and one of the highest broadband and land line penetration rates in the region. The city of Buenos Aires has the largest concentration of wireless hotspots in Latin America, reaching levels comparable to many European cities Strategic Location Argentina’s ease-of-access and cultural proximity to Mercosur (Southern Common Market), a regional market with 279 million people and with a joint GDP of US$3.6 trillion, is another important attribute. A similar time zone (GMT-3) to most cities throughout South and North America is another key factor held up by companies in this sector when designing their global location strategy. Argentina is repeatedly chosen as the top global destination by multinational companies carrying out projects throughout Latin America. Investment Risks, Barriers and Challenges Strengths • • • Abundant agricultural (soya, cereals, beef, fruit), energy (gas, oils, hydraulic) and mineral resources (gold, silver, copper) Skilled labour force: Education level above the regional average Democratic political system Weaknesses • Dependence on agricultural raw materials and therefore on climatic conditions • Pro-cyclical fiscal policy Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Investment Risks, Barriers and Challenges 18 • Mediocre business environment • Poor financial intermediation • Inadequate investment in energy and transport • Controls on imports and capital movements • Tenuous access to international financing • Poverty, strong social disparities and social tensions POLITICAL AND SECURITY The popularity of the government is declining. A corruption scandal involving the VicePresident exacerbated has made the matter even worse. The government is also facing an increasingly structured political opposition (including parts of the ruling Peronist Party), which is criticising the President Kirchner over her handling of the “vulture” funds crisis. Social tensions are on the rise in spring 2014, resulting in strikes by workers of the crisis-hit automobile and steel industries, as well as in other sectors (teachers, bus drivers, bank employees, etc.). The popular discontent is being relayed by the powerful unions. It is above all being stoked by rising inflation, which led to a reduction in real earnings since the beginning of 2014. In this context, as the economy enters into recession, the possibility of another social conflict is quite high. GOVERNANCE Longstanding concerns regarding the lack of transparency in government policymaking also diminish the attractiveness of prospective investments in Argentina. Decisions that affect both foreign and domestic companies are frequently made without industry input and are rarely open to a consultation period. GOA actions to curb the remittance of profits abroad limit foreign companies’ ability to repatriate earnings, causing some companies to reconsider locating new business ventures in Argentina. Currency controls delay companies’ access to dollars to pay suppliers while recently amended laws allow the GOA to set profit margins and the prices of goods in the private sector in certain circumstances. Businesses and investors also report concerns about Argentina’s currency exchange rate policies, which affect the competitiveness of Argentine goods internationally and delay investment decisions. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI) that ranks countries and territories by their perceived levels of corruption, Argentina ranked 107 out of 175 countries. Lack of transparency, autonomy, and clear rules in the selection of judges as well as inefficiencies and pervasive delays compromise the judicial system and create the potential for political influence. According to Transparency International, weak enforcement of anti-corruption measures remains Argentina’s greatest corruption weakness. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Investment Risks, Barriers and Challenges 19 ECONOMIC Argentina is still dealing with issues related to its 2001 default on nearly US$100 billion in debt, the largest sovereign debt default in history. In late 2013 and early 2014, the government of Argentina (GOA) made some progress in normalizing its relations with the international financial community. The GOA settled several outstanding international arbitral awards, engaged with the International Monetary Fund (IMF) to improve economic reporting data, and compensated the Spanish firm Repsol for the partial expropriation of YPF in 2012. Argentina also signed bilateral agreements to repay nearly US$10 billion in arrears with the Paris Club group of creditors. Argentina’s refusal to comply with a U.S. court ruling ordering the GOA to pay a group of U.S. creditors who sued the country for the full value of their defaulted Argentine bond holdings continues to restrict Argentina’s ability to service some of its sovereign debt both at home and abroad. Argentina’s limited access to international financial markets will continue to discourage investment until the issue is settled. After several years of publishing non-credible statistics, Argentina’s official statistics agency (INDEC) released substantially revised inflation and GDP growth data in 2014 and 2015 that are closer to private estimates. The IMF had formally censured Argentina in February 2013 because of the manipulation of inflation and GDP data, a breach of obligation to the Fund under the Articles of Agreement. The World Trade Organization (WTO) in January 2015 ruled that the GOA’s all-encompassing import licensing system violated international trade norms. The GOA affirmed that it will comply with the WTO decision, but did not specify a timeframe for adjustment. In the meantime, the system remains in place and reportedly causes shortages and complicates the operations of businesses that are reliant on the importation of goods for production and distribution. Factories and distributors occasionally sit idle while the GOA delays granting approval to move inputs through customs, a process that can be restrictive and unpredictable ARGENTINA’S STATUS IN GLOBAL ECONOMIC RANKINGS The World Bank “Doing Business Ranking” 2015 Doing Business 2015 is the 12th in a series of annual reports benchmarking the regulations that affect private sector firms, in particular small and medium-size enterprises. The report presents quantitative indicators on 11 areas of business regulation for 189 economies. Argentina 124 out of 189 countries India 142 out of 189 countries Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Argentina — Investment Risks, Barriers and Challenges 20 Other Rankings Index Corruption Perceptions Index E&Y Globalization Index Score Global Competitiveness Report Global Enabling Trade Report Global Manufacturing Competitiveness Index (GMCI) Global Services Location Index Index of Economic Freedom International Logistics Performance Index (LPI) Inward FDI Potential Index KOF Index Globalization Networked Readiness Index (NRI) Open Budget Index Rank 106/173 53/60 103/147 87/138 26/38 38/51 169/178 60/160 60/139 85/186 97/145 25/102 Indo-Argentinian Economic Relations Bilateral trade for the last 6 years is as follows: Year 2010 2011 2012 2013 2014 Export to India 2033 1214 1264 1105 2032 Growth — -40% 4% -13% 84% Export from India 496 561 573 695 602 Growth — 13% 2% 21% -13% Total Trade Turnover 2529 1174 1837 1801 2633 Growth -30% -4% -2% 46% Source: Mercosur on Line India’s Exports to Argentina Organic Chemicals, Vehicles and Auto parts, Lubricants, Machinery, Sound and Image Devices and Garments, among others. India’s Imports from Argentina Soybean oil, Petroleum, Copper, Sunflower oil, Leather, Wool, Ferroalloys among others. Investments, Joint Ventures and Business Delegations Almost thirteen Indian Companies have established operations in Argentina with investment totalling to US$930 million. Indian companies include TCS, CRISIL, Bajaj, Cellent, Cognizant Technologies, United Phosphorus Ltd. (UPL), Sintesis Quimica, Glenmark, Godrej etc. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Argentinian Economic Relations 21 Argentinian investment in India stands at US$120 million. TECHINT, which is one of the largest seamless steel tubes manufacturers in the world, has offices in Delhi employing about 200 people. ONGC (OVL) has signed a MoU with ENARSA, their Argentine counterpart for possible joint ventures in Argentina for oil exploration. Indian company, Sonalika Pvt. Ltd. has signed a joint venture with Argentina company Apache of Santa Fe for manufacturing tractors and Indian Bajaj motorbikes has signed a joint venture with Corven Argentina to produce and sell motorbikes in the local market. During 2014, IMPLATEC Argentina developed a strategic alliance with the Indian company Appasamy Associates, a global leader in the ophthalmological market and both companies have inaugurated the first producing plant of intraocular lenses in Argentina with a manufacturing capacity of 20,000 lenses monthly. Halal India and Halal Argentina have started a joint venture for production and exportation of halal meat. Ishka Renewable Farms Private Lt from Kerala signed a joint venture with Cooperative Al Caparras to cultivate 1000 acres of capers in the next 10 years in the Argentine province of Santiago del Estero Argentina. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Argentinian Economic Relations 22 CHILE Highlights 24 Introduction 24 Chile — Key Economic Factsheet 2014 25 Economic Highlights and Forecast 25 Laws and Policies Relating to Foreign Investment 28 A Magnet for Investment 30 Focus Areas for Investment 30 Infrastructure 32 International Trade 33 Services Industry 36 Investment Risks, Barriers and Challenges 38 Indo-Chilean Economic Relations 39 Highlights • Largest copper producer in the world • World’s third largest fruit and nuts exporter • World’s fourth largest seafood exporter • Strongest sovereign bond rating in South America. • Chile and 11 other countries reach deal on Trans-Pacific-Partnership • First South American country to join the OECD • World’s 11 largest recipient of FDI in 2012. • Stable political environment • 15/144 in Global Competitiveness Index • $7 billion. opportunities in infrastructure projects Introduction Chile is a country in South America that borders the South Pacific Sea. Neighbouring countries include Argentina, Bolivia, and Peru. Chile has a strategic location relative to sea lanes between Atlantic and Pacific Oceans including the Strait of Magellan, Beagle Channel, and Drake Passage. Chile occupies a long, narrow coastal strip between the Andes Mountains to the east and the Pacific Ocean to the west and thus the geography is varied. The government system is a republic. The chief of state and head of government is the President. Chile has a market-oriented economy in which the prices of goods and services are determined in a free price system. Chile is a member of Asian Pacific Economic Cooperation (APEC) and Latin American Integration Association (LAIA). Chile and 11 other countries reached an agreement on the Trans-Pacific-Partnership (TPP) deal, which aims to liberalize and boost trade among the member countries. The deal still needs to be approved by lawmakers in all countries before implementation. The economy of Chile is ranked as a high-income economy by the World Bank, and is considered one of South America’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Introduction 24 Chile — Key Economic Factsheet 2014 Population Population Growth Rate Age Dependency Ratio Urban Population Infant Mortality Rate Life Expectancy at Birth Total Area Land Area Water Area Coastline Capital 17,762,647 (2014) 1.057 annual % (2014) 45.27 % of working-age population (2014) 89.356 % of total (2014) 7 per 1,000 live births (2015) 79.837 years (2013) 756,102 sq. km 743,812 sq. km 12,290 sq. km 6,435 km Santiago Key Economic Facts Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) (modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) High Income Developing 396.92 billion (2014) 1.89% (2014) 22,345.96 (2014) 96,24,880,000.00 (2011) 12.36% (2014) -3.00 billion (2014) 4.40% (2014) 8,603,142 (2013) 6.00% (2013) 83.34 billion (2014) 87.17 billion (2014) Economic Highlights and Forecast After a sharp slowdown in 2014 the economy is projected to gradually recover in 2015 and 2016. The pick-up in activity will initially be driven by higher public spending, but will increasingly be supported by stronger external demand for industrial goods from the United States and Europe. Growth of 1.9% in 2014 was the lowest since the global financial crisis erupted. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Economic Highlights and Forecast 25 As the exchange rate has stabilised, inflation is moderating, although it remains above the central bank’s target band. Since inflation expectations remain well anchored, monetary policy can continue to support growth in the near term, before moving to a more neutral stance as growth strengthens. The underlying stance of fiscal policy is expected to be expansionary in 2015, but then to become neutral in 2016 as the government remains committed to achieve a zero structural balance by 2018. The large decline in copper prices in the aftermath of the commodity super-cycle has affected the investment plans of mining companies, which have significantly reduced investment since 2012. This decline is perceived to be to a large extent permanent, and mining investment is therefore not expected to recover very strongly, even in the medium term. Therefore, advancing the Productivity Agenda, which is meant to broaden the base of the economy, is essential. Structural reforms to open market further to competition will be particularly important to boost investment outside the mining sectors, increasing and making growth more inclusive. Gross Domestic Product (GDP) The Central Bank sees year-end inflation at 2.8% in 2015. Panellists participating in the Latin Focus Consensus Forecast expect inflation to close 2015 at 4.5%, which is up 0.2 percentage points from last month’s forecast. For 2016, the panel sees 3.4%. Panellists also expect the peso to trade at 685 CLP per US$ at the end of 2015. Next year, the panel sees the currency trading at 680 CLP per US$. The government announced an abrupt downward revision in economic growth estimates to 2.5% for 2015, having initially predicted 3.6% in this year’s budget. Latin Focus Panellists Consensus Forecast project Chile’s economy to grow 2.2% in 2015 and 2.6% in 2016. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Economic Highlights and Forecast 26 CHILE’S ECONOMY BRIGHTENS AMID POLITICAL GLOOM Financial Times, London 20 Apr 2015 While most countries in Latin America are still struggling to adjust to the end of the boom in commodity prices that propelled growth in the resource-rich region over the past decade, there are signs that Chile’s economy may be turning the corner. “If Chile’s recovery turns out to be sustainable, then there is light at the end of the tunnel for some of its neighbours who are just entering the adjustment, like Colombia,” says Luis Arcentales, an economist at Morgan Stanley. “Chile has undergone the bulk of the adjustment,” Mr Arcentales says. He adds that after a period of weak domestic demand when business confidence was hit by Ms Bachelet’s reforms, the economy is now improving, helped by a weak currency that has boosted exports and easing inflation that has spurred consumption. After gross domestic product growth fell to 1.8% in the fourth quarter of 2014, which saw Chile’s slowest growth since the global financial crisis, well below an average of 4.2% over the past decade, economists at Barclays expect 2.8% growth this year, and potential growth of 3.5% in the medium term. Chile, the world’s top copper exporter, was the first country in the region to be hit hard by the end of the so-called commodities “supercycle”, because copper prices began to fall earlier than prices of other commodities like oil. So it makes sense that Chile’s economy should also be the first to recover, says Mario Castro, an economist at Nomura. But the health of Chile’s economy, often regarded as the best run in the region, is also attributed to the strength of its institutions and its free trade model, untrammelled by the heavy-handed state interventionism that has distorted the economies of countries like Argentina and Venezuela. “Chile is an example of how credible institutions can smooth the economic cycle and make adjustments less traumatic,” said Mr Castro, pointing to its widely respected and independent central bank and a well-established “fiscal rule” that gave officials the freedom to implement counter-cyclical policies. The resulting depreciation of the peso, as Chile adapts to lower potential growth rates after the commodity boom, has provided a boost for exporting industries outside the mining sector. Mr Castro expects this boost in competitiveness for “tradable” sectors such as Chile’s successful wine and salmon industries to be permanent. Nevertheless, if Chile’s economy is indeed on the upswing, the benefits have yet to be felt either by the president or the average citizen. “If you look at the newspapers here, the story is not about economic recovery, it’s about political corruption,” says Robert Funk, a political scientist at the University of Chile. In any case, he says that “Chileans have become used to a certain level of economic stability that Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Economic Highlights and Forecast 27 other countries are jealous of”, so Ms Bachelet will need more than good economic results to boost her wilting popularity. Furthermore, Mr Funk says that there is still “a lot of nervousness” about the effect of the government’s tax reform approved last year, which aims to collect an extra $3 billion each year mainly from businesses, and pending labour market reforms expected to make trade unions more powerful. “We just don’t know what will come out of this process. It may be very healthy, but it may also have unpredictable effects,” he said. Indeed, many local economists question the optimism held by Wall Street analysts. “There are signs of the green shoots of recovery, yes. But it could turn out to be a dead cat bounce,” says Michèle Labbé, chief economist at Econsult in Santiago, referring to market jargon for a temporary recovery in a declining stock. She worries that without enough spare capacity in the economy, expansive fiscal and monetary policies could end up fuelling only inflation, not growth as well. Crucially, investment remains low because of uncertainty over the outcome of Ms Bachelet’s reforms, which are aimed at reducing inequality. Until the reform process has been completed — and many fear that it is being stalled by the political crisis — businesses may continue to refrain from making serious investment commitments. And even if Chile’s economy is outperforming the rest of the region, for many Chileans that is not enough. “We are always going to look good if we compare ourselves to the rest of Latin America, which always makes the same old mistakes,” says Ms Labbé, who adds that Chile does not come off so well when comparing itself to the world’s best-performing countries. “It’s best to compare Chile with itself, and the truth is we could be doing a lot better.” Laws and Policies Relating to Foreign Investment On June 16, 2015, Chile enacted Law 20,780, on foreign investment. The law originated as Bill 9899-05 and was sent to the legislature by the administration on January 30, 2015. The new legislation replaces the statute on foreign investment enacted as Decree Law 600 of 1974, which will be abolished as of January 1, 2016. (Carlos Gutiérrez, Chile: New Statute for Foreign Investment Enacted, TAX NEWS SERVICE (June 18, 2015), International Bureau of Fiscal Documentation online subscription database; Boletín 9899-05: Establece una ley marco para la inversión extranjera directa en Chile y crea la institucionalidad respectiva (Bulletin 9899-05: Establishing a Framework Law for Foreign Direct Investment in Chile and Creating Related Institutions) (Jan. 30, 2015), Chilean Senate website; Foreign Investment Statute: Decree Law 600 (unofficial translation, Dec. 2010), CIE CHILE.) The new Law establishes a Committee of Ministers for the Promotion of Foreign Investment, to give the President strategic advice on foreign investment. The legislation also creates an Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Laws and Policies Relating to Foreign Investment 28 Agency for the Promotion of Foreign Investment, which will advise the Committee and implement the Committee’s strategies. (Gutiérrez, supra) The Law also prescribes that foreign investors will be guaranteed: • access to the exchange market once they have fulfilled tax obligations; • free repatriation of both capital and profits, once tax obligations are met; and • protection against arbitrary discrimination. (Id.) • Any rights and obligations of a foreign investor established in existing contracts with the government, under the provisions of the 1974 Decree Law, will continue to be guaranteed. (Id.) Foreign investors will have the opportunity after January 1, 2016, to sign four-year contracts with the government. They may then opt to pay a fixed overall tax rate of 44.45%. Previously this rate for foreigners was 42%; the general non-resident income tax rate for those not signing four-year contracts is 35%. The new law also specifies that new procedures will be adopted to exempt from value-added tax the imports of capital assets by foreign investors. (Id.) FOREIGN DIRECT INVESTMENT (FDI) The flows of foreign direct investment (FDI) in Chile, which had been growing since 2010, have now reached the country’s record levels. In 2014, FDI flows increased to US$23.3 billion, a 15% increase compared to 2013. Chile is the second most attractive country in South America in terms of FDI, after Brazil. However, foreign investment is very irregular because it is often linked to projects in the mining sector. According to UNCTAD, in 2014 Chile ranked 17th in terms of FDI attractiveness, which represents a loss of 6 places. Chilean economic policies, which are founded on the principle of capital transparency and nondiscrimination against foreign investors, comprise one of the country’s strengths. Investors are also attracted by the richness of Chile’s natural resources, the stability of its macroeconomic system and its growth potential, its juridical security, the country’s low level of risk and the high quality of its infrastructure. The country ranks 41 out of 189 countries in the 2015 Doing Business report issued by the World Bank. Chili ranks fifth among the countries that are the most open to imports and foreign investments in the world. The United States is the largest investor in the country. Foreign Direct Investment 2012 2013 2014 FDI Inward Flow (mn. US$) 25,021 16,577 22,949 191,280 198,628 207,678 88 99 65 FDI Inwards (in % of GFCF****) 39.4 25.0 40.3 FDI Stock (in % of GDP) 72.2 71.8 80.5 FDI Stock (mn. US$) Number of Greenfield Investments Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Laws and Policies Relating to Foreign Investment 29 A Magnet for Investment According to the Business Environment Rankings of the Economist Intelligence Unit (EIU), Chile is one of the 20 most attractive economies in which to do business between 2010 and 2014 and leads Latin America in this field. Chile is also an attractive country in which to do business because of its high level of free trade. It is, indeed, one of the world’s ten freest countries, according to the Index of Economic Freedom 2013, published by the Heritage Foundation and the Wall Street Journal. With a score of 79 points, it took 7th place in the ranking, ahead of all other Latin American countries. Between 2012 and 2013, Chile’s score increased by 0.7 points, due principally to progress as regards investment and freedom to do business. The significant increase in FDI seen in recent years has made a decisive contribution to boosting the growth of the Chilean economy and its gains in productivity. • • Growth of FDI explains over 18% of the acceleration of GDP growth between 2010 and 2012. Around 15% of the growth of employment in Chile since 2010 – or, in other words, 119,600 new jobs – was thanks to higher FDI. Focus Areas for Investment Details of projects are available at: http://www.ciechile.gob.cl/en MINING • • • • • Chile accounts for 28% of global copper reserves (USGS). It is the world’s principal producer of copper (32%), nitrates (100%), iodine (58%) and lithium (45%) and the sixth largest silver producer. Mining companies plan to invest US$104,000 million in Chile over the next eight years. Mining companies spent over US$21,000 million in Chile in 2011. Chile has some 4,000 mining suppliers who include world-class companies. Opportunities • • • • • Equipment and spares Engineering and consultancy services Construction Production support services Establishment of regional offices by mining suppliers as base for exporting and diversifying areas of activity. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Focus Areas for Investment 30 ENERGY • • • Chile has an installed capacity (net power) of 17.6 GW. In 2012, gross electricity generation in the SIC and SING (the two main transmission systems) reached a total of 65,547 GWh, up by 5.8% on 2011. In 2012, hydroelectricity (excluding mini-plants of less than 20 MW) accounted for 29.3% of generation, coal for 41%, gas for 19%, diesel for 5.9% and alternative renewable energies (ARE) for 4.8%. As a result, 65.9% of the country’s electricity was generated from fossil fuels. The country’s projected economic growth implies increased demand for electricity which is forecast to rise by around 5% a year through to 2020, creating opportunities for investment in generation and transmission. Opportunities • • • Generation: Over 8,000 MW in new projects will be required by 2020. Chile offers advantageous conditions for the development of alternative renewable energies. The country has pending transmission challenges. AGRICULTURE AND FOOD • • • • • • In 2012, agribusiness exports reached US$13,775 million, with foods accounting for more than 17% of the country’s total exports. Chile has a range of advantages for food production: Its location permits counter-season supply of the large consumer markets of the Northern Hemisphere. Chile contains one of the world’s only five macrozones with a Mediterranean climate, offering excellent conditions for fruit growing. In addition, the country’s length and diversity of climates permit year-round production as well as supporting the different forms of animal and vegetable life that underpin the diversity of its agricultural industry. It is a pest-free country thanks to the natural barriers that protect it and transform it into a phytosanitary and zoosanitary island – the Atacama Desert in the north, the Andes Mountains to the east, the Pacific Ocean to the west, and the ice fields of the south. A coastline that stretches for over 4,300 km offers a variety of conditions for aquaculture, including Chile’s emblematic salmon of which it is the world’s second largest producer. International Market Chilean products are present in markets around the world and each day: • • • • 16.9 million people drink a glass of Chilean wine; 6.0 million people eat a piece of Chilean salmon; 8.6 million people drink a glass of Chilean fruit juice; 8.5 million people eat canned Chilean fruit and vegetables; Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Focus Areas for Investment 31 • • 4.9 million people eat a piece of dehydrated Chilean fruit; 1.7 million people eat frozen Chilean fruit. Opportunities Fruit: Chile is the world’s leading exporter of grapes, plums and blueberries and among the three leading exporters of avocadoes, kiwis, raspberries and apples. New Opportunities • • • Berries Cherries Walnuts Wine: Chile is the world’s fifth largest wine producer. New Opportunities • • Organic wine “Functional” foods based on grape by-products. Salmon: Chile is the world’s second largest producer of farmed salmon. New Opportunities • • Salmon feed Caging services Infrastructure • • • Over the past thirty years, Chile has achieved an important leap forward in connectivity. This is largely the result of public efforts accompanied by the private sector’s participation through the Concessions System created in 1991. Chile’s Concessions System has become a reference internationally, offering 71 tenders of which 66 have already been awarded. The concession company builds and operates the infrastructure. PUBLIC WORKS CONCESSIONS SYSTEM (PUBLIC-PRIVATE PARTNERSHIPS, PPP) • • • The concession company finances the infrastructure and recoups the investment over the long term through: charges to users and/or state subsidies. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Infrastructure 32 Opportunities Chile has a portfolio of public tenders worth US$7,000 million that includes highways, airports, hospitals and urban infrastructure. SPECIAL ECONOMIC ZONES Chile boasts three FTZs which provide excellent manufacturing infrastructure for foreign companies willing to incorporate in Chile. There are several incentives available for companies in Chile’s free trade zones. Duty free zone of Iquique free trade zone (ZOFRI) Punta Arenas free trade zone Arica free trade zone Iquique free trade zone is Chile’s most ambitious tax-free zone. It is located the northern part of the country, with an area of 240 hectares, providing large warehouses, serviced area, and financial area; Companies operating in Iquiqe enjoy i) 100% exemption from corporate tax ii) 100% exemption from custom duties iii) 0% VAT on their first sales iv) and 0.8% import tax; This free zone invites multinationals from both commercial and industrial sectors such as imports, exports, retail, assembly, manufacturing, and industrial processing. International Trade Chile — Trade Statistics Exporter Rank Importer Rank Balance Trade Rank Exports (US$ billion) Imports (US$ billion) 2010 71.1 55.2 40/124 36/124 56/124 2011 81.4 70.4 Top 10 Export Goods (by HS Code) # 74 26 08 03 47 44 Commodity Copper Ores Fruit & Nuts Seafood Wood Pulp Wood Export Value ($) 22,077,902,126 19,756,843,052 5,765,783,888 4,954,010,675 2,891,710,500 2,502,552,218 Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 2012 77.8 75.5 2013 76.5 74.7 2014 75.7 67.9 Top 10 Import Goods (by HS Code) # 27 84 87 85 39 40 Commodity Oil & Mineral Fuels Industrial Machinery Motor Vehicles & Parts Electrical Machinery Plastics Rubber Import Value ($) 15,328,259,636 8,729,472,991 7,962,535,910 6,869,672,984 2,434,566,267 1,547,927,771 Chile — International Trade 33 # 22 28 71 84 Commodity Beverages Inorganic Chemicals Precious Stones & Metals Industrial Machinery Export Value ($) 1,897,594,368 1,596,183,714 1,279,608,371 986,398,169 # 62 73 61 72 Commodity Apparel: Non Knit Iron & Steel Articles Apparel: Knit Iron & Steel Top 10 Export Partners Country China United States Japan Korea, South Brazil Netherlands India Italy Peru Spain Export Value ($) 18,218,437,909 9,629,779,824 8,384,025,735 4,551,494,722 4,294,356,174 2,738,538,401 2,586,434,912 2,012,960,941 1,812,783,786 1,615,721,005 Import Value ($) 1,445,138,826 1,382,326,708 1,367,157,723 1,265,288,652 Top 10 Import Partners Country United States China Argentina Brazil Germany Mexico Korea, South Japan Colombia Ecuador Import Value ($) 18,203,691,811 14,432,125,565 5,283,345,763 5,186,180,536 2,861,679,563 2,607,575,932 2,603,951,641 2,596,367,384 2,184,752,167 2,154,892,722 Fastest Growing Chilean Exports 2014 # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Commodity Nickel Zinc Railway, tram equipment Ships, boats Other manufactured products Animal/vegetable fats and oils Aircraft, spacecraft Wool Fish Cereal, milk preparations Raw hides excluding furskins Rubber Modified starches, enzymes Pharmaceuticals Lead Salt, sulphur, stone, cement Tobacco Cork Aluminium Vegetable/fruit preparations Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Growth (from 2010) 6395% 839.3% 281.6% 226.1% 201.7% 183.9% 109.6% 99.9% 94.9% 85.3% 77% 76.4% 76.3% 69.9% 64.9% 60.8% 54.7% 47.7% 46% 46% Value in $ 3.9 million 1.1 million 4.3 million 357.6 million 38.2 million 244.6 million 30.5 million 65.7 million 5 billion 266.6 million 57.5 million 427.4 million 31.7 million 205.6 million 28.6 million 12.6 million 88.3 million 12.3 million 120.7 million 724.9 million Chile — International Trade 34 Fastest-Growing Chilean Imports 2014 # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Commodity Dairy, eggs, honey Live trees and plants Gems, precious metals, coins Fish Vegetable/fruit preparations Arms, ammunition Explosives, pyrotechnics Other manufactured products Alcoholic beverages Fruits, nuts Food waste, animal fodder Copper Meat and seafood preparations Headgear Oil seed Salt, sulphur, stone, cement Pharmaceuticals Animal/vegetable fats and oils Other animal-origin products Gums, resins Growth (from 2010) 183.5% 121.4% 120.7% 86.2% 83.2% 82.8% 81.8% 79.1% 77.4% 76.6% 71% 69.4% 65.7% 64.2% 62.8% 63.6% 57.6% 48.8% 48.1% 47.3% Value in $ 203.2 million 29.4 million 90.4 million 61.3 million 220.2 million 14.3 million 63.2 million 246.6 million 379.6 million 183.4 million 1.2 billion 103.9 million 172.6 million 49.1 million 152.2 million 275.9 million 1.2 billion 639.3 million 37.4 million 32.2 million CHILE’S BILATERAL AND MULTILATERAL ECONOMIC AGREEMENTS Chile’s open economy, combined with an active policy of bilateral, regional and multilateral trade agreements, has underpinned a sustained increase in foreign trade in goods and services and in the country’s international competitiveness, consolidating its position as an active international partner. Internationally integrated Free Trade Agreements: Australia, Canada, Central America, China, Colombia, EFTA (Norway, Switzerland, Iceland and Liechtenstein), Malaysia, Mexico, Panama, Peru, South Korea, Turkey and the United States. Economic Association Agreements: European Union (EU), Japan and P4 (New Zealand, Singapore and Brunei Darussalam as well as Chile). Economic Complementation Agreements: Bolivia, Ecuador, MERCOSUR (Argentina, Brazil, Paraguay y Uruguay) and Venezuela. Partial Scope Agreements: India and Cuba. Agreements negotiated (but not yet in force): Vietnam, Hong Kong and Thailand. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — International Trade 35 Services Industry FINANCIAL SERVICES Chile’s banking sector has a rising likelihood for merger and acquisition activity, which could consolidate some of the country’s middle-tier banks, says Fitch Ratings. The maturity and quality of Chile’s banking sector, the opportunity created by the possible sale of smaller banks, and a shifting landscape in the country’s consumer financing market may bring more investment from regional and international foreign banks, which Fitch believes could be a positive for target banks. The Chilean market is viewed as attractive due to its history of stability and steady growth, as well as a solid regulatory framework and strong supervision. Chile’s middle tier banks face some competitive disadvantages with larger peers given their weaker funding and increasing competition from non-bank lenders and large retailers that offer banking services. Chile has the second-highest banking penetration in Latin America, behind Panama; nonetheless, Fitch still sees solid long-term growth prospects for the Chilean market. HUMAN CAPITAL Foreign investors often highlight human capital as one of Chile’s main comparative advantages, drawing attention to the high standards achieved by the country’s universities and, particularly, its business schools. According to the National Education Council (CNED), Chile’s higher education system currently comprises a total of 163 institutions of which 60 are universities, 44 are professional training institutes and 59 are technical training centres (offering two-year courses). As of 2012, a total of 74,888 teachers were working in the higher education system of whom 27% held a master’s degree and 13% a PhD. Chile is also noted for the quality and tradition of its universities. In the Academic Ranking of World Universities (ARWU), published since 2003 by the Centre for World-Class Universities (CWCU) of Shanghai Jiao Tong University, two Chilean universities – the Universidad Católica de Chile (PUC) and the Universidad de Chile – ranked among the best 500 in the world in 2012, taking 8th and 10th place, respectively, in Latin America. In the specific case of MBA programs, Chile has ten business schools with leading positions in the 2012 MBA Ranking of Latin American Business Schools published by the América Economía business magazine. Three are, moreover, among the top ten in the region – those of the Universidad Adolfo Ibáñez (1st), the Universidad Católica de Chile (7th) and the Universidad de Chile (10th). In line with Chile’s progress as regards educational indicators, the country’s labour force reached a total of 8.2 million people in the first quarter of 2013 out of whom 93.8% were employed, including over 64% in the services sector. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Services Industry 36 On the quality of its labour force, Chile took 31st place out of 60 economies in the Global Talent Index 2011-2015 used by the Economist Intelligence Unit (EIU) and Heidrick & Struggles to measure support for talent and entrepreneurship. HEALTHCARE The principal healthcare delivery service is TOURISM • 3,554,279 overseas tourists visited Chile in 2012, up by 13.2% on 2011. • Spending by overseas tourists in Chile rose by 17.1% to US$2,712.6 million. • In the last ten years, the portfolio of investment projects in the sector reached US$528 million (2003-2013 according to FDI Markets). • Chile ranks 57th internationally (out of 139 countries) on tourism competitiveness (WEF, 2013) and second in South America after Brazil. Opportunities • Opportunities and tourist attractions across all the country’s regions • Development of hotel and leisure projects in areas of interest • Development of sustainable tourism in protected areas under state concessions • Development of special interest tourism projects. INFORMATION AND COMMUNICATION TECHNOLOGY Chile is a country that, from primary schools through to businesses and public services, is ready to adopt new technologies. Numerous studies, in fact, identify Chile as a “wired” country that has already achieved important progress as regards digital connectivity and information and communications technologies (ICTs). Network readiness: In the Networked Readiness Index 2013, published by the World Economic Forum (WEF), Chile took 34th place out of 144 economies and, with a score of 4.59 points, ranked ahead of all other Latin American countries. It was, moreover, among the top 20 countries globally on indicators that included mobile network coverage, ICT use and government efficiency and e-participation. This Index assesses a country’s degree of preparation to benefit from the development of ICTs as reflected in its regulatory and economic climate, the level of use of these technologies and their socioeconomic impact. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Services Industry 37 Investment Risks, Barriers and Challenges Strengths • Mining (leading copper producer), agricultural, fishery and forestry resources • Climatic diversity and seasonality opposite to that of developed countries • Numerous free-trade agreements • Satisfactory budget situation • Free floating currency • Favourable business situation and political and institutional stability • International companies operating in distribution, air transport and paper • Member of the OECD and the Pacific Alliance Weaknesses • Small and open economy, vulnerable to external shocks • Dependent on copper and the Chinese economic situation • Structural external deficit • Vulnerability of road network and electricity grid, and high energy prices • Exposure to climate and earthquake risk • Income disparity and poor education system • Relatively high private debt POLITICAL AND SECURITY Chile’s economic recovery is faltering as business confidence is undermined by President Michelle Bachelet’s reform programme and a political crisis triggered by corruption scandals, one including her son. That only quickened the slide in Ms Bachelet’s popularity, which has also been hit by discontent over Chile’s sluggish economy. Her approval ratings reached a new low of 27% in June according to local pollster Adimark, after declining from 54% at the beginning of her second presidential term over a year ago. GOVERNANCE In Transparency International’s 2012 Corruption Perceptions Index, Chile obtained a score of 72 points, ranking among the 20 best-placed economies out of the 176 countries included in the Index. In recent years, Chile has steadily improved its score, leading Latin America and enjoying the transparency standards of a developed country. A key step in that process is improving relations with the business sector, which was a vocal critic of a big rise in corporate taxes last year to fund increased spending on education. Businesses have also been deeply unnerved by plans to initiate a constitutional reform Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Chile — Investment Risks, Barriers and Challenges 38 process in September, as well as a labour reform bill being discussed by the senate that would give greater power to trade unions. ECONOMIC With exports representing one third of GDP, of which primary products, either unprocessed or relatively unprocessed account for 70% and a banking system 40% owned by foreign (mainly Spanish) institutions, Chile is very exposed to the global economy. THE WORLD BANK “DOING BUSINESS RANKING” 2015 Doing Business 2015 is the 12th in a series of annual reports benchmarking the regulations that affect private sector firms, in particular small and medium-size enterprises. The report presents quantitative indicators on 11 areas of business regulation for 189 economies. Chile India 41 out of 189 countries 142 out of 189 countries Other Ranks Index Rank Corruption Perception Index 21/173 E&Y Globalization Index Score 28/60 Global Competitiveness Report 33/147 Global Enabling Trade Report 8/138 Global Services Location Index 12/51 Index of Economic Freedom 7/178 International Logistics Performance Index (PLI) 42/160 Inward FDI Potential Index 52/139 KOF Index of Globalization 39/186 Networked Readiness Index (NRI) 34/145 Open Budget Index 27/102 Indo-Chilean Economic Relations Bilateral trade has grown substantially to reach record levels each way. Chilean exports to India had grown steadily from 2009 to 2012. Indian exports to Chile have also grown by 36.9%, 22.6% and 40.9% respectively over the same period. In 2012, Indo-Chilean bilateral trade was US$3.29 billion. In 2013, bilateral trade was US$2.88 billion and in 2014 it was 3.19 billion. Following table gives the bilateral trade between India and Chile in million US Dollars: Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Chilean Economic Relations 39 Year 2009 2010 2011 2012 2013 2014 Exports from India (CIF) 278.07 380.91 467.03 658.45 693.90 619.84 Imports from Chile (FOB) 908.35 1581.95 1964.99 2636.82 2182.70 2571.74 Total Bilateral Trade 1186.42 1962.86 2432.02 3295.27 2876.60 2191.59 The above bilateral trade figures do not include India’s exports to the Free Trade Zone of Iquique, which amounted to US$39.2 million in 2010, US$42.9 million in 2011, US$60.8 million in 2012, US$45.4 million in 2013 and US$34.18 million in 2014; and India’s service exports, which too amount to some US$20 million, Six percent of the companies working in Zofri Zone in Iquique are of Indian origin. Top 10 Chile Exports to India Top 10 Chile Imports from India Chile’s exports to India amounted to $2.6 billion or 3.5% of its overall exports. 1. Ores, slag, ash $2.3 billion 2. Copper $91.9 million 3. Wood pulp $60.9 million 4. Inorganic chemicals $52.4 million 5. Fruits, nuts $35.7 million 6. Oil $32.5 million 7. Ships, boats $6.5 million 8. Iron and steel $5.7 million 9. Oil seed $4.8 million 10. Organic chemicals $2.7 million India’s exports to Chile amounted to $619.9 mn. or 0.9% of its overall imports. 1. Vehicles $190.6 million 2. Pharmaceuticals $47.2 million 3. Clothing (not knit or crochet) $36.7 million 4. Leather, animal gut articles $34.8 million 5. Organic chemicals $32.6 million 6. Machines, engines, pumps $29.3 million 7. Other textiles, worn clothing $27.5 million 8. Electronic equipment $22.5 million 9. Footwear $17 million 10. Iron or steel products $14.4 million High value-added Indian items such as commercial vehicles (Telco, Mahindra), motor cars (Tata Motors, Suzuki Maruti, Hyundai), two wheelers, and bulk pharmaceuticals have entered the Chilean market. Other traditional items being imported by Chile are garments, handicrafts, textiles, carpets, and hand tools. India’s imports from Chile are predominantly copper, iodine, chemical wood pulp, molybdenum concentrates, and fresh apples. The Godrej Group recently approved the acquisition of the balance 40% stake in Cosmetica Nacional, a market-leading hair colour and cosmetics company in Chile. GCPL had acquired a 60% stake in Cosmetica Nacional in January 2012. Indian Chile Free Trade Agreement is near conclusion and signing. To the Preferential Tariff Agreements operational with Chile and the five-nation Mercosur, India´s Ministry of Commerce is seeking to add Colombia, Peru and perhaps Mexico. These countries are seeking to conclude economic and commercial agreements with India to avail of its stable regime and steady growth for their mineral and agricultural products, as well as their processed goods. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Chilean Economic Relations 40 COLOMBIA Highlights 42 Introduction 42 Columbia — Key Economic Factsheet 2014 43 Economic Highlights and Forecast 43 Laws and Policies Relating to Foreign Investment 46 A Magnet for Investment 46 Focus Areas for Investment 47 Infrastructure 52 International Trade 53 Services Industry 55 Investment Risks, Barriers and Challenges 59 Indo-Colombian Economic Relations 62 Highlights • • • • • • • • • · Third largest economy in Latin America GDP growth 4.8% in 2015 Rose to 34th place from 53 in ‘Doing Business’ ranking Largest coal reserves in Latin America Over 200 foreign companies registered in last 5 years IMF Endorses the Country’s Economic Direction Per capita GDP tripled in last decade 4th largest producer of palm oil Invited to become full member of OECD To invest $50 billion in infrastructure Introduction Colombia is a country in north-western South America that borders the Pacific Ocean and the Caribbean Sea. Neighbouring countries include Brazil, Ecuador, Panama, Peru, and Venezuela. The geography of Colombia is diverse with flat lowlands and high Andes Mountains. The government system is a republic in which the executive branch dominates government structure. The chief of state and head of government is the President. Colombia has a pro-market economic system in which the prices of goods and services are determined in a free price system. Colombia is a member of the Andean Community (CAN) and the Latin American Integration Association (LAIA). Colombia’s reputation as a gateway to the South and launch pad to the North is becoming cemented in a country that has long lived in the shadow of the drugs lord Pablo Escobar. More than two decades after Escobar was shot dead by police on a Medellín rooftop, the stereotype of a country ridden by drugs, cartels, kidnapping and violence is finally starting to fade. Colombia’s middle class is on the rise, climbing from 16% of the population in 2002 to 27% in 2011. The poverty rate – defined by the World Bank as anyone living on less than $1.25 (81p) a day – has fallen from almost 50% to 34% over the same period. While policymakers have more to do, Colombians are lifting themselves out of poverty. In the past too, Colombia had many strengths – a well-educated labour force, a strong business class – but they were not visible, because of the veil of terrorism and violence. Today, Free trade agreements have been pursued aggressively. The country has secured a dozen deals around the world, including with the UK through the EU, America and Switzerland. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Introduction 42 Columbia — Key Economic Factsheet 2014 Key Economic Facts Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) (modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) Upper Middle Income Developing 638.36 billion (2014) 4.55% (2014) 13,357.15 (2014) 91,978,384,000.00 (2013) 13.00% (2014) -19.78 billion (2014) 2.88% (2014) 23,900,105 (2013) 10.50% (2013) 81.19 billion (2014) 60.58 billion (2014) Economic Highlights and Forecast Oil is Columbia’s chief export, and the 14-month crude-price collapse has pushed the peso down 37% and the COLCAP stock index down 53%. Obscured by these devastated markets, though, there’s evidence to suggest that Colombia, with a population greater than Spain’s and more land than France, is the dark horse among international investors. Colombia remained the growth leader among the biggest Latin American economies even while expansion slowed to 4.6% in 2014 from 4.9% in 2013. Its growth is estimated to decline to a 3.2% rate this year before rebounding in the following two years, according to data compiled by Bloomberg. The relative stability of peso-denominated debt, which shares none of the weakness of a currency that has lost most of its purchasing power since June 2014, shows there is still confidence in Colombia’s prospects. The yield on benchmark government 10-year bonds is little changed from early 2014. That investor confidence suggests that the currency debacle is likely to abate, exports should rebound and the current economic setback will be temporary. The unprecedented infrastructure and housing development policies of President Juan Manuel Santos Calderon, and his commitment to secure peace with FARC revolutionaries, also augurs well. Colombia’s central bank has kept inflation – which currently stands at 3.8% – close to its target of 3% for more than half a decade. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Economic Highlights and Forecast 43 Gross Domestic Product (GDP) Growth remains dynamic in 2014, slightly exceeding its potential (4.5%). Household consumption (65% of GDP), facilitated by falling unemployment and the rise in credit, has retained its dynamism, as has investment (23%). Exports of coal and agricultural products are rising, whereas those of oil are affected by guerrilla attacks on the oil pipelines and conflicts with the indigenous people. At the same time, imports of capital goods required for mining investments are increasing more rapidly, the contribution of trade to growth will remain negative. Construction (9% of GDP) is greatly benefiting from this favourable environment due to the development of social housing and the acceleration in infrastructure spending. Manufacturing (13% of GDP), mining activity (9%), and services (39%) are not far behind. Agriculture (7%) would have benefited more, if its potential had not been reduced by the presence of armed groups in the countryside, which has dissuaded farmers from investing. A Low Public Deficit and Declining Debt Despite the increase in infrastructure, education and healthcare spending, the public sector deficit will remain weak. The central government structural deficit is expected to fall gradually to 1% by 2022, in order to comply with the 2011 Balanced Budget Act. Accomplishing this should be easy and the overall balance is likely to be achieved well before this. Public sector debt (41% of GDP) is expected to continue to fall. Close to 20% of this corresponds to public companies’ liabilities whose operating is profitable overall. Government debt is distributed between the domestic market (60%) and the international market. This satisfactory state of public finances has been achieved despite low revenue (17% of GDP), 20% of which comes from oil. These weak resources and the authorities’ desire to improve fiscal ratios have resulted in low levels of public investment (3% of GDP) and the need to make use of private sector partnerships to develop the inadequate infrastructures. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Economic Highlights and Forecast 44 A Repetitive Current Account Deficit Funded by Foreign Investments The current account deficit has stabilised above 3% of GDP, due to a small trade surplus (0.5%) achieved thanks to oil (50% of exports), coal (15%), gold and coffee (each 5%). With sugar, commodities represent 80% of sales, 37% of which were to the United States. China and Venezuela absorb respectively 6% and 4%. Because of their composition, exports are highly sensitive to the state of the world economy. This sensitivity must, however, be seen in perspective because exports account for only 17% of GDP. Conversely, imports of capital goods, intermediate products, foodstuffs and textile articles are buoyed by the vigour of domestic demand. Revenue exchanges are in deficit by 4%, reflecting the extent of dividend repatriations by foreign companies. The current account deficit is amply funded by massive foreign direct investments (4% of GDP), incidentally making it possible to beef up the foreign currency reserves covering 8 months of imports. This funding, which does not lead to debt, explains why the country’s foreign debt represents only 22% of GDP, 60% of it issued by the public sector. Like tourism income, foreign direct investments are expected to increase as the security situation improves and as the infrastructure develops. However, though the level of foreign investment is pretty stable, investment flows are likely to slow if there is a fall in the price of the raw materials in which they are concentrated. There’s similar underlying strength in the stock market, where Colombia has been among the worst in emerging markets. While compared with 201 companies in Latin America, Colombian companies are expected by analysts to have the greatest return during the next 12 months. Investors are also showing renewed interest in the largest U.S.-based exchangetraded funds focusing on Colombia. Among Colombian companies, banks are the most important in determining the outlook because there is no economy that can prosper without a robust financial industry. While the nation’s banks have underperformed their Latin peers the past three years, they benefit from the fastest-growing interest income, loan and mortgage growth during the last four quarters and they have the lowest debt-to-assets ratio among their Latin peers. There’s similar underlying strength in the stock market, where Colombia has been among the worst in emerging markets. While compared with 201 companies in Latin America, Colombian companies are expected by analysts to have the greatest return during the next 12 months. Investors are also showing renewed interest in the largest U.S.-based exchangetraded funds focusing on Colombia. Among Colombian companies, banks are the most important in determining the outlook because there is no economy that can prosper without a robust financial industry. While the nation’s banks have underperformed their Latin peers the past three years, they benefit from the fastest-growing interest income, loan and mortgage growth during the last four quarters and they have the lowest debt-to-assets ratio among their Latin peers. Bloomberg, 18 Aug 2015 For 2016, the Focus-Economics panel projects economic growth of 3.0%. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Economic Highlights and Forecast 45 Laws and Policies Relating to Foreign Investment Foreign capital investments are allowed in Colombia, including the acquisition of real estate. However, certain specific sectors are forbidden for foreign investments, for example: foreign investments in the national security or defence activities or in activities related to the processing and disposal of toxic, hazardous or radioactive waste produced abroad. MAJOR REGULATIONS • • • • • • Law 9 of 1991 (Known as ¯ “Framework Law”) Law 31 of 1991 (Central Bank) Decree 1735 of 1993 for currency exchange purposes). International Investment Code – Decree 2080 of 2000 and its modifications. Exchange Regime Code – External Resolution 8 of 2000 issued by the Central Bank and its modifications. Exchange Regime Manual – External Circular DCIN-83 and its modifications (includes, among others, exchange forms and exchange item numbers to identify transactions). FOREIGN DIRECT INVESTMENT (FDI) A boom in foreign direct investment (FDI) between 2010 and 2013 has come to an end as the government announces an expected drop in foreign investment for both 2014 and 2015. During 2013, while the FDI of Latin America decreased 6%, flows to Colombia increased 8% due to cross-border merges and acquisitions in electricity and banking industries, according to the United Nations Conference on Trade and Development. Between 2010 and 2013, foreign investment grew from $6.8 billion to $16.8 billion. According to economic newspaper Portfolio, experts said that FDI to Colombia could drop to between $10 and $13 billion in 2015, at best 23% less than last year. Experts cited by the newspaper blame the steep drop in oil prices for the drop in investment. According to the Central Bank, oil investments represent up to 70% of the total FDI. A Magnet for Investment • • A country with investment-grade rating awarded by Standard & Poor’s, Moody’s and Fitch on Colombia’s sovereign debt in 2011. In July 2014, Moody´s was the last rating agency in improving Colombia´s rating due to two key drivers: 1. Positive growth forecast thanks to 4G infrastructure. 2. A sound fiscal management that will continue in the future Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — A Magnet for Investment 46 • It has the second lowest perceived risk in the region, measured by the behaviour of 5year Credit Default Swaps. • Technology infrastructure supported by five underwater cables and a national fibreoptic ring that connects 300 municipalities in the country. • Easy access to global markets thanks to its privileged geographical location and developed logistics infrastructure. In 2015, Colombia’s economy is expected to triple its size from a decade ago, according to the International Monetary Fund. Other nations in Latin America have made similar progress, but they don’t have the notorious background Colombia has had to wrangle off its back. Colombia’s murder rate is still high, but it’s at its lowest point in a decade, the government reports. Colombia’s middle class grew by 50% last decade, according to a World Bank report. That growth is attracting corporate America’s attention. Starbucks (SBUX) opened up its first cafe in Bogota last July with plans to open 50 more in five years. Car companies like Ford (F) and GM (GM) see sales surging in Colombia. The Fords, the GMs, Mitsubishis see Colombia as a growth market. People have money to spend. Between 2007 and 2012, Colombia’s tech industry grew 177% to $6.8 billion, according to the government. Along with big-name arrivals such as Microsoft, Facebook and Google, Colombians are also leading their country’s tech surge. Many say the country’s diversifying economy and open policy to foreign investment is the secret sauce to the turnaround. U.S. exports to Colombia have increased nearly 400% since 2003. It’s signed trade agreements with America, Canada and Europe. The country is part of the Pacific Alliance, a Latin American trade group that promotes ties with Asia. Like other regional economies Colombia still relies on oil, coffee and sugar exports to support its economy. But, experts say, the growth of tech and other service sectors is why American businesses are going to Colombia. Focus Areas for Investment AGRIBUSINESS Biofuels: Ethanol and biodiesel production in Colombia has been increasing over the past years due to the mandatory blend policy. Ethanol production reached 368 million litres in 2012; meanwhile in the same year the output of biodiesel was 489 thousand tons. The permanent increase in the production of biofuels will be conducive to a surplus market; Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Focus Areas for Investment 47 Colombia could meet the needs of those countries which don´t satisfy their domestic demand. Horticulture: Colombia is a tropical country with a variety of ecosystems where over 95 different types of fruit are grown. This includes native species and other species introduced from other continents and other equatorial areas. Colombian Fruit and Vegetables compared with those from other subtropical countries, in the northern and southern hemispheres, are naturally better in terms of physical quality regarding the organoleptic characteristics, principally, colour, flavour, aroma, higher contents of soluble solids, and Brix grades. According to the FAO, Colombia is the third country in Latin America with the largest number of hectares allocated to the production of fruits accounting for 10.5% the equivalent of 748,604 hectares while being the fifth largest producer in the region with 7.2% the equivalent of 7.5 million tons. According to FAO, Colombia is the seventh largest producer of vegetables in Latin America, consisting of 4,2% of the cultivated area, representing 107,694 ha; and 4,2% agricultural production an equivalent of 1,738,662 tons. Colombia is the third country in Latin America with the largest precipitation rates, (2.612 mm per year). Cocoa: Colombia has a potential for 2 million hectares for growing cocoa crops according to a study of various regions (scale: 1:100.000) based on edaphic and climate criteria. (Corpoica, Fedecacao y el Ministerio de Agricultura y Desarrollo Rural, 2011) Colombia has a strategic geographical position. As an equatorial tropical country, Colombia enjoys strong sunlight all year round. In addition, Colombia boasts a variety of climates and abundant water resources. MARS Incorporated has forecasted an international deficit of 1 million tons of cocoa for 2020. Investing in Colombian cocoa represents a business opportunity to meet the world demand for fine and flavoursome cocoa. (MARS Incorporated, 2012) Colombian Cocoa is grown in regions with an altitude between 0 and 1,100 meters, at temperatures within 24-28°C, and with annual rains among 1.800-2.600 mm. With an average of 2.612 cubic meters of water per capita per year, the country sits above the South American average and above other regions such as North America, Europe and Asia. (FAO and Instituto Geográfico Agustín Codazzi (IGAC) Aquaculture: During the 1980s and 1990s, Colombia’s shrimp harvesting industry reached peak levels, pushing the country into the world’s spotlight as a major shrimp producer and exporter. Colombia has increased both in the productivity levels of fish breeding and its fish culture areas. Fish breeding production focuses mainly on tilapia, trout, and cachama. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Focus Areas for Investment 48 • In 2012, shrimp production yields in Colombia reached a total of 8,500 tons, mainly in the states of Sucre (65%), Bolivar (32%), and Nariño (5%). (Ministry of Agriculture and Rural Development) • Colombia’s fish production has shown a steady growth over the last 10 years, rising from 28,956 tons in 2002 to 80,609 tons in 2012, showing a total increase of 278%. (Ministry of Agriculture and Rural Development) • Geographical Location: The area is free from hurricanes and typhoons and is close to the main consumption hubs. • Lack of Seasons: Weather and water temperature are fairly constant, making production possible all year round. • International Recognition: Stemming from the sector’s wide experience in foreign markets, its high quality products, qualified expert personnel and the genetic enhancement program it has received widespread international acclaim. • Available Lands: Aquaculture regions include an estimated area of 370,658 acres available for production. MANUFACTURING Automotive: Colombia is the ideal destination to develop a platform for manufacturing and for the assembly vehicles, trucks, buses and automotive components destined to supply both the domestic and regional markets. Presently, Colombia has a fleet of around 3.5 million units of vehicles, of which 57% are imported. It is expected that by 2020 this fleet will double (BBVA, 2012). • Colombia is the fourth largest vehicle producer in Latin America using 2.5 % of the country’s workforce in the manufacturing industry. • Colombia ranks second in the production of motorcycles in the region, behind only Brazil, with an annual production of 515,000 units (BBVA, 2012) • In 2012, vehicle sales for the second year running exceeded 300 thousand units. A total of 315 968 vehicles were sold in 2012 (ANDI, 2013). • The automotive industry and related businesses account for a workforce of 22,705 graduates ranging from technicians and professionals. There are competitive salaries for staff positions within the industry. • The industry enjoys tax benefits and incentives in businesses working with deposits and in assembly and manufacturing. Cosmetics and Toiletries: Colombia offers excellent conditions for development within this sector and transforming it into a world class player. As a result, foreign investors can take advantage of several opportunities to establish research and development centres, distribution centres and manufacturing plants. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Focus Areas for Investment 49 Some of the advantages in investing in this sector include the demand for natural ingredients, the existence of government policies aimed at developing biotechnology, an outstanding market dynamic and the possibility of using Colombia as an export platform. • Colombia has a strategic location which enables access to more than 1.500 million consumers across the world. • Colombia has a vast amount of protected areas and is the second most bio diverse country in the world. • Colombia has financial and tax incentives in place that not only promote research and development projects, but also protect intellectual property. • Colombia’s Commercial Balance is in surplus within the sector. • There is a significant growth of the Colombian market and one of the highest female labour markets within the Latin American region. • This is one of the priority sectors for the government and the private sector in Colombia. Building Material: During the last five years the demand for materials increased by an average of 5.8%, driven principally by building construction and accounting for approximately 42% of production, with infrastructure requiring about 32% (DANE, 2013). Exports of construction materials grew 8% in 2012 compared to the previous year reaching values of U.S. $ 370 million. The construction industry in Colombia is the third largest in Latin America and the Caribbean. Over the last five years the size of the construction sector grew at an average rate of 16.8% per year, well above the average growth in the region, which was 10.2%. • Construction has increased in the country driven by investment in infrastructure • The government hopes to double the investment budget for infrastructure projects in 2014, reaching a budget of over U.S. $ 6,500 million. • Housing construction grew 12.7% per year while non-residential building construction reached annual growth rates of 9.7%. • The Government is committed to addressing the national housing shortage; in that sense it has begun the breaking ground of 1 million new homes by 2014. Fashion Systems: The Colombian Fashion Sector reported dynamic export growth at an annual rate of 8.4% over the past ten years, with the third highest rates of exportations in the region after Brazil and Peru, and higher than those of countries like Chile and Mexico. TradeMap (2013). • 13 free trade agreements that provide tariff benefits and stability for long-term investments. • Potential access to over 1,500 million consumers given the easy access to markets due to the country’s geographical location and the various free trade agreements in force with the countries of the Andean Community, NAFTA, Mercosur, the United States, the European Union, the Northern Triangle and Canada. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Focus Areas for Investment 50 • 10 Agreements for the promotion and reciprocal protection of Investments. Ministry of Industry, Trade and Tourism, (2013). • Colombia is strategically located on the continent, with easy access to world markets through more than 700 direct international flights per week, and over 4,900 domestic routes per week. • Competitive access to the U.S. market with transport costs on average 3 times lower than those incurred from China. OIL AND GAS SUPPORT SERVICES Colombia ranks alongside the first twenty oil-producing countries in the world producing over a million barrels of oil per day, making it a great place to invest in oil goods and services firms that cater to the extraction, exploration and production processes in the oil sector. Oil is the global energy economy’s driving force, boosting economic growth and increasing demand. Nonetheless, this is a limited resource and is becoming more scarce. In Colombia, over 30% of explored wells are successful, and more than 50% of the total territory is as yet unexplored. Colombia is the only country in South America with access to both the Atlantic and the Pacific oceans allowing international firms to reach different countries worldwide. • From 2007 to 2012, Colombia increased its daily oil production by 77%. ANH 2013. • The 2012 Colombia Round (Ronda Colombia 2012), organized by the National Agency of Fossil Fuels (Agencia Nacional de Hidrocarburos, ANH), yielded positive results after 50 concessions were allocated, of which 5 concessions belonged to non-conventional fossil fuels and 6 belonged to offshore concessions. This will represent 2.600 billion US$ in investments to conduct explorations in the coming years. • Colombia became the 4th largest oil producer in Latin America, above Argentina, Ecuador, Peru, and Chile. International Energy Agency, 2013 & BP Statistical Review of World Energy 2013. • The priority for Colombia is to increase its confirmed oil reserves. In 2012, 133 new exploratory wells were drilled versus 126 in 2011. This surveying activity is a key element to ensure a long-term supply. • In 2014, 570 new exploratory wells are expected to be drilled. Ministerio de Minas y Energía, 2012. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Focus Areas for Investment 51 Infrastructure Colombia President Juan Manuel Santos encouraged investors this year when he started awarding contracts for the first road projects in the $25 billion highway plan, a building program Moody’s Investors Service cited when it increased the nation’s credit rating to Baa2, the highest ever. Partnerships between the government and private sector for improvements to ports, roads and airports may need an additional $25 billion, according to Ricardo Jaramillo, head of investment banking at Bancolombia SA, the nation’s biggest bank by assets. Road Quality Colombia ranks 130th out of 148 economies judged by the quality of roads, behind Venezuela and Madagascar on the World Economic Forum’s global competitiveness index. Santos’s road program, known as the Fourth Generation, will try to cut travel times between major population canters by as much as 47% while reducing the cost of transporting raw goods and finished products between industrial zones in the Andes Mountains and major ports. Fundraising for Colombian infrastructure got a boost last year with new rules allowing the $75 billion pension industry to invest in debt funds and join banks in syndicated loans to finance projects. Large infrastructure concessions have the potential to boost gross domestic product growth to between 5% and 5.5% during the next five to 10 years, compared with an estimated 4.8% currently, Moody’s said when it raised Colombia’s rating in July. SPECIAL ECONOMIC ZONES Extensive range of free trade zones with more than 100 authorized permanent and special permanent zones. Multi-company Free Trade Zones (called “special permanent free trade zones” in the regulation) are areas within the national territory, managed by an operator user, in which new companies that establish their projects are benefited with a special tax and customs treatment. The Single Company Free Trade Zone regime enables the declaration of a FTZ in favour of a specific new company, in any location within the country, for the development of an investment project with high economic and social impact. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Infrastructure 52 International Trade Colombia - Exports and Imports Data Exports (US$ billion) Imports (US$ billion) 2010 39.7 38.2 2011 56.9 51.6 2012 60.1 56.1 2013 58.8 56.6 2014 54.8 61.1 Panellists participating in the Latin Focus Consensus Forecast expect that exports will fall 15.5% in 2015 and expand 8.6% in 2016. Top Colombian Exports to the World (Value in US$, figures in parenthesis % of total imports) # Commodities 1. Oil 2. Coffee, tea and spices 2.5 billion (4.6%) 3. Gems, precious metals, coins 1.8 billion (3.4%) 4. Plastics 1.6 billion (3%) 5. Live trees and plants 1.4 billion (2.5%) 6. Fruits, nuts 918.8 million (1.7%) 7. Sugar 819.6 million (1.5%) 8. Iron and Steel 772.5 million (1.4%) 9. Vehicles 550.1 million (1%) 10. Pharmaceuticals Value 35.8 billion (65.5%) 524.2 million (1%) Top Colombian Imports from the World (Value in US$, figures in parenthesis % of total imports) # Commodities 1. Machines, engines, pumps 8.2 billion (12.8%) 2. Oil 7.6 billion (11.8%) 3. Electronic equipment 6.6 billion (10.5%) 4. Vehicles 6.2 billion (9.7%) 5. Plastics 2.7 billion (4.2%) 6. Pharmaceuticals 2.4 billion (3.7%) 7. Organic chemicals 2.4 billion (3.7%) 8. Aircraft, spacecraft 2.4 billion (3.7%) 9. Iron and steel 10. Medical, technical equipment Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Value 2 billion (3.1%) 1.9 billion (2.9%) Colombia — International Trade 53 Fastest Growing Colombian Exports 2014 # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Commodity Railway, tram equipment Collector items, art, antiques Tin Ships, boats Cereals Paper yarn, woven fabric Meat Other manufactured products Tobacco Other animal-origin products Furskins and artificial fur Live animals Wood pulp Animal/vegetable fats and oils Musical instruments Gums, resins Fertilizers Cocoa Milling products Raw hides excluding furskins Growth (from 2010) 1038.5% 927.5% 800% 349.2% 346.4% 318.3% 279.2% 239.3% 197.8% 195.1% 167.2% 162.7% 124.2% 121.5% 118.9% 113.9% 103.3% 102.2% 85.7% 75.5% Value in $ 1.7 million 4.1 million 54000 19.1 million 21.9 million 435000 50 million 217.6 million 54.2 million 16.7 million 5.3 million 58.3 million 1.9 million 347.9 million 116000 1.9 million 133.6 million 145.9 million 43.4 million 216.1 million Fastest Growing Colombian Imports 2014 # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Commodity Diary, eggs, honey Meat Oil Cork Fish Tobacco Knitted or crocheted fabric Clothing (not knit or crochet) Coated textile fabric Lead Knit or crochet clothing Headgear Ships, boats Collector items, art, antiques Vegetable/fruit preparations Salt, sulphur, stone, cement Gems, precious metals, coins Leather, animal gut articles Paper, yarn, woven fabric Feathers, artificial flowers, hair Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Growth (from 2010) 965.3% 387.7% 263.3% 237.8% 186.9% 171.2% 159.2% 144.8% 144.7% 132.7% 132.2% 125.6% 121.4% 114.7% 114.3% 111.7% 105.1% 103.6% 93.5% 91.1% Value in $ 121.1 million 242.1 million 7.6 billion 1.8 million 262.6 million 68.3 million 161.1 million 404 million 69.9 million 31.5 million 383.7 million 48.7 million 326.8 million 1.9 million 142.7 million 238.2 million 100 million 193.1 million 11.2 million 12.4 million Colombia — International Trade 54 Services Industry FINANCIAL SERVICES One of the Colombian banking sector’s biggest economic strengths is a near-oligopolistic grip on the local market. Grupo Sura’s biggest local rival, Bogotá-based Grupo Aval, with $72 billion of assets, has nearly a third of local market share alone, while Bancolombia holds nearly 25% of Colombia’s market. The sector’s concentration has prompted the criticism, even from officials at the finance ministry, that there is still not enough competition in Colombia. There are a few new foreign entrants such as Canada’s Nova Scotia bank and Chile’s Corpbanca, but they have a smaller market share than the locals. In a December report on Andean banks, Fitch Ratings says that although Colombian banks have to “digest their latest acquisitions”, something that could put pressure on capital ratios, they “have sustainable profitability, which, coupled with ample loan loss reserves and adequate capitalisation, constitute a cushion against unexpected losses”. For some, this international diversification is a sign that Colombian financiers believe their golden days at home can only exist for so long before they face greater competition and deepening domestic capital markets that allow local companies to raise bond finance more easily. Private Equity According to the 2013 LAVCA Scorecard on the Private Equity and Venture Capital Environment, Colombia maintained its fourth place among 12 Latin American and Caribbean countries due to its favourable conditions for development of the PEF industry. There is government support with the Bancóldex Capital program, created to promote and develop the private equity industry in Colombia, and with the Colombian Association of Capital Funds (COLCAPITAL), created by Bancoldex and the Multilateral Investment Fund of the Inter-American Development Bank, to promote and strengthen the private equity industry in Colombia. Private Equity funds are clearly a very important financing alternative for Colombian entrepreneurs. • • • In 2012, Colombia accounted for 1% of all total funds raised in Private Equity and Venture Capital in Latin America, and this in turn accounted for 5% globally. According to LAVCA, one of Colombia’s strengths is its attractive regulatory framework for the establishment and management of private capital funds. There is an excellent opportunity to procure local equity resources from institutional investors such as in pension funds and insurance companies, which have shown great returns in the last few years. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Services Industry 55 • The Latin American Integrated Market (MILA), formed by the stock exchanges of Colombia, Chile and Peru, has become an excellent exit strategy for private equity funds, offering a greater diversification to investors and access to the capital market. HUMAN CAPITAL One of the countries with the largest annual increase in availability of human resources according to the 2012 IMD Workforce Growth Rate. More than 200 thousand students graduated every year from higher education, 53% undergraduate and 28% post-graduates of the country’s universities are amongst the best in the world. R&D Colombia is betting on innovation as a cross-cutting component for the transformation of products and services that generate added value and skilled employment. For that reason, the national government has included innovation as one of the driving engines in its 20102014 National Development Plan. HEALTHCARE In terms of healthcare, Colombia boasts high standards. The 2010 World Health Report ranked its healthcare system 22nd in the world, and it claims 8 of the top 35 most highly ranked medical institutions in Latin America. Medical tourism from the USA to Colombia is on the rise due to the perceived high quality care for a fraction of the domestic price. No wonder, therefore, that Colombia is increasingly catching the eye of pharmaceutical companies wishing to leverage this dynamic and growing market. For example, the recently departed CEO of Sanofi, Chris Viehbacher, remarked in 2012, “Places like Colombia have become extremely interesting in terms of growth”. The Healthcare Environment Today, Colombia’s healthcare system broadly follows the Bismarck model, based on insurance systems funded by employers and employees through salaried contributions. Universal healthcare was written into the constitution in 1993, with the landmark ‘Law 100’ which aimed to expand the provision of healthcare to cover all citizens. Just over 20 years on, 96% of Colombia’s population are estimated to have some form of coverage. ‘Law 100’ unified private and public systems and aimed to stimulate competition and prevent monopolies by enabling a large number of private and public providers to administer healthcare. These health promoting entities (‘EPS – Entidades Promotoras de Salud’) compete for the enrolment of the population onto their respective insurance schemes. There are currently 70 active EPS organisations, which contract delivery of healthcare to their designated health providers (‘IPS – Instituciones Prestadoras de Salud’). On top of these is privately funded healthcare, which often involves ‘top up’ plans offered by EPS in addition to the basic schemes, expanding benefit entitlements and enabling access to leading private facilities. As Colombia’s middle classes have grown, so too have the numbers purchasing such plans. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Services Industry 56 An essential drug list (‘POS – Plan Obligatorio de Salud’) is drawn up to cover the medicines to which Colombians are entitled under the EPS. However for those subsidized ‘EPS-S’ patients, they may only access a restricted subset of this list. Another special government scheme, FOSYGA, has been set up to directly reimburse the healthcare providers for certain high cost treatments not included on this list. Colombia is firmly establishing itself on the radar of pharmaceutical companies as a ‘second tier’ Latin American market, given its growing proportion of middle classes and rapid economic growth, which in recent years has consistently outperformed the continental average. While poverty and inequality remain key challenges, decline in armed FARC rebel conflict and organized drug crime have facilitated an increasingly favourable environment in which to do business. TOURISM The main benefits for investments in this sector include an income tax exemption for a period of 30 years. This exemption applies to new hotel projects and also for those of remodelled and/or expansion projects which began between 2003 to December 2017. Colombia’s tourism industry is dynamic and is growing at a fast pace. The arrival of foreign tourists in Colombia rose from 600 thousand in the year 2000 to 1.7 million in 2012, showing an average annual growth of 10%. This figure is three times higher than the world’s average, and is among the most impressive in the region. (Immigration Department of Colombia – Ministry of Trade, Industry and Tourism, 2013). • • • • • • • • The impressive performance of the Colombian economy. The increase of international tourism arriving to Colombia is above the world’s average. Appealing incentives for hotel project investments. Strategic location and accessible air connectivity. Increasing hotel demand and supply. Committed workers with outstanding training and education. Colombia’s tourist destinations are renowned around the world and provide unique experiences. More hotel project ventures as a result of the arrival of more multinational companies. INFORMATION AND COMMUNICATION TECHNOLOGY The Government is committed to support and advance the services sector through the Productive Transformation Program. This is a consolidated strategy for growth and development, which in recent years as a result of the adequate environment it has created, the program has earned a global recognition. With the online government programs, the strengthening of the IT Industry and Vive Digital -through the Ministry of Information and Technology - the Colombian government is working to promote the use of these tools and networks. These programs open up a wide range of opportunities for the Hardware and IT Services in the country thanks to the large use of technology, industry and population growth that look for these goods and services. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Services Industry 57 • • • • • • Between 2007 and 2012 the revenue of the IT sector in Colombia grew by 177%, reaching U.S. $ 6,803 billion, according to IDC. Between 2007 and 2012, the software industry in Colombia grew 3.79 times due to the strengthening of the sector as a result of the government programs (IDC, 2013). Hardware continues to lead the technology market with 58% of the total market share, followed by software with 12% and lastly services with 30% (IDC, 2013). Over the last 10 years, 1.9 million professionals have graduated from a higher education degree in Colombia. 22.8% have an engineering degree, of which 58% have a university degree, 12% a postgraduate degree (specialization, master’s or doctorate) and 30% with technical training (Ministry of Education, 2013). The Government has earmarked through its Digital Talent initiative (Iniciativa Talento Digital) U.S. $19 million so that Colombians can study for free technical, technological, professional and related postgraduate degrees that are related to Information Technology. Up until 2012, close to 1,277 non-repayment loans have been granted and in 2014 a total of 4,661 loans will be given (MinTic, 2013). Colombia has an infrastructure capable of handling world-class operations, with 6 submarine cables that allow the use of 4G technology (MinTic, 2013). Colombia-received-173-BPO-Software-and-IT-Investment-Projects-between-2010-2014 Based on information from the Central Bank of Colombia Balance Of Payments, the sector gathers 22% of the foreign investment share in Colombia during the last five years with $7.23 billion US$, and is one of the main drivers behind job creation with a total of 368,282 jobs created. According to FDI Markets, Spain is the top foreign investor, with 29.5% of the foreign companies operating in the sector, followed by the United States with 21.48%, France with 7.38%, and the United Kingdom and Argentina with 6.04% each. “Foreign investment in BPO, Software and IT grew by 28% in the last five years. Starting in 2010, ProColombia’s efforts brought 80 new BPO, Software and IT initiatives with business operations worth $949 million US$ that, according to entrepreneurs, are expected to create 53,433 new jobs”, stated Maria Claudia Lacouture, President of Pro Colombia. A survey by MVS-Tholons revealed that 71% of investors chose Colombia encouraged by the quality and qualifications of its professionals, as well as the incentives and costs available in the country. Success stories about new investors in this sector include Holcim, IBM, and AIG, companies that installed shared service infrastructures or expanded their Data Centres. Lacouture said that Colombia, in addition to its call centre capabilities, is creating custom products thanks to its highly qualified work force. “Human talent in Colombia is prepared to provide E-Commerce services, credit management, risk and collection services, helpdesk, back office, telemedicine as well as engineering and market surveys”. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Services Industry 58 BPO and Outsourcing These factors illustrate to foreign investors about the investment opportunities that are available in Colombia in regards to the BPO sector, offshore, nearshore, KPO and shared services in this growth market that has an abundant competitive workforce and a strategic location to provide regional and global services. By 2012, according to the Colombian Association of Contact Centres and BPO (ACDCB) and ANDI, the operating revenues in the sector were U.S. $ 2,513 billion; this represented an increase of 78% over 2010. BPO exports grew 77% between 2010 and 2012. In 2012, the main sectors include telecommunications (43.06%), banking and financial services (15.35%), government (5.12%) and insurance (4.88%), among others, according to the Colombian Association of Contact Centre and BPO (ACDCB) and the National Association of Entrepreneurs in Colombia (ANDI). • • • According to official figures from the Ministry of Education, in the last 10 years, over 1.9 million professionals have graduated from a higher education degree in Colombia. 30.69% have business, economics and / or accounting experience, of which 48% have a university degree, 26% a postgraduate degree (specialization, master’s or doctorate) and 26% have technical training. Through the Productive Transformation Program, the Government has designed a plan to strengthen the industry by providing an emphasis on high value-added activities through human capital development, conducting business matchmaking forums and acquiring sectorial studies that can help in the development of strategies. The National Learning Service (SENA) is the government institution in charge of technical training to every citizen; it provides free education in technical and skills related to the industry that is in demand where software and services are relevant areas of the training curriculum. Investment Risks, Barriers and Challenges Strengths • • • • • • • Facing two oceans Big population (nearly 50 million) Abundant natural resources (agricultural and mineral) Considerable tourism potential Prudent economic policy Institutional stability Sound banking system Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Investment Risks, Barriers and Challenges 59 Weaknesses • • • • • • • • Sensitivity to raw materials prices and the American economy Inadequacies of road and port infrastructures Problematic security situation linked to drug trafficking Shortcomings in education and health Large informal sector (60% of jobs) Lack of skilled labour and low productivity Slow legislative, judicial and administrative procedures and corruption Structural unemployment, poverty and inequality POLITICAL AND SECURITY After decades of bloody conflict Colombia’s government may finally be close to brokering a peace agreement with the leftist FARC guerrilla army. The peace process is significant both for Colombia’s residents and for companies looking to do business in one of South America’s biggest economies. The government has announced that a peace deal would be completed within six months by March 23, 2016. GOVERNANCE Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and other laws cover such broad areas as banking and credit, bankruptcy/reorganization, business establishment/ conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases. Many multinationals have ceased production in Colombia and moved elsewhere, especially to Mexico. It’s precisely with regard to the tax burden that Colombia stumbles. Every company must pay 75.4% of their annual earnings, while in Latin America the average is 48.3%, and 41.3% for OECD countries. This is not the only obstacle for Colombian wealth creators. The ranking puts Colombia 93 out of 189 countries in terms of ease of international trade. As such, another reason is presented for the exodus: companies are leaving Colombia to avoid exorbitant import and export costs. Yet the Colombian government insists on making the same mistakes. To allay consumer fears, President Juan Manuel Santos spreads the partial falsehood that the companies are leaving simply due to cyclical occurrences in the business world. It’s true that these are Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Colombia — Investment Risks, Barriers and Challenges 60 everyday decisions for large companies, but it’s false that this is the simple law of the market in action, independent of any action or omission by the authorities. ECONOMIC Colombia’s greatest challenge today is not its internal conflict with the FARC, which is winding down, but the global macroeconomic situation including a weakening Chinese economy, rising US dollar, reduced commodity prices and a political-economic disaster in neighbouring Venezuela that threatens Colombia, one of its key trading partners. These macro issues have placed downward pressure on the value of Colombia’s currency, today among the weakest in the world in recent years. Still, Colombia’s growth levels remain as one of the highest in the region with GDP targets for the close of 2015 still pushing 3%, compared with less than 1% for Latin America as a whole. At the UN General Assembly meeting in NYC earlier this month, President Santos said that conservative estimates calculate a peace deal could boost growth by at least 1.5%. GLOBAL ECONOMIC RANKING The World Bank “Doing Business Ranking” 2015 Doing Business 2014 is the 11th in a series of annual reports benchmarking the regulations that affect private sector firms, in particular small and medium-size enterprises. The report presents quantitative indicators on 11 areas of business regulation for 189 economies. Colombia India 34 out of 189 countries 134 out of 189 countries Other Rankings Index Corruption Perceptions Index E&Y Globalization Index Score Global Competitiveness Report Global Enabling Trade Report Global Manufacturing Competitiveness Index (GMCI) Global Services Location Index Index of Economic Freedom International Logistics Performance Index (LPI) Inward FDI Potential Index KOF Index Globalization Networked Readiness Index (NRI) Open Budget Index Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Rank 93/173 40/60 68/147 67/138 31/38 43/51 28/178 97/160 93/139 80/186 60/145 29/102 Colombia — Investment Risks, Barriers and Challenges 61 Indo-Colombian Economic Relations In the recent years, India has become one of the bigger destinations for Colombia’s exports. Similarly, Indian exports have also increased. India-Colombia business organizations have been interacting on regular basis and number of business delegations mainly from India from export promotions councils such as EEPC, EPCH, TEXPROCIL, SRPTC, CHEMEXIL, PLEXCONCIL, Spice Board of India, Electronic and Software Council, CAPEXIL and AEPC and Chambers of Commerce like CII have visited Colombia in the last 5 years. With the support of the Embassy a Colombia-India Chamber of Commerce [CICC] was formed in Bogota in September 2008 by Indian and Colombian firms to promote bilateral business interest. India-Colombia Trade: Trade between India and Colombia has increased consistently. India’s total trade with Colombia which was about US$946.95 mn in 2009 has reached US$4036.33 million in 2014. In 2014 Colombian export to India was US$2.738.97 million and import from India was 1.297.36 million. Main Export Items: The main items of export consisted of Motorcycles in CKD form, Vehicles other than railways, Cotton yarn and woven fabrics of cotton, Organic chemicals and Iron and Steels. Main Import Items: The main items of import were Mineral fuel, minerals oils, Natural or Cultívated Pearls, Natural or Cultivated Pearls, Plastics articles thereof, Wood and Steel articles of wood. Top 10 Colombian Exports to India Top 10 Colombian Imports from India Colombia’s exports to India amounted to $2.6 billion or 4.7% of its overall exports India’s exports to Colombia amounted to $1.4 billion or 2.1% of its overall imports 1. Oil $2.5 billion 1. Vehicles $158.4 million 2. Gems, precious metals, coins $37.6 million 2. Cotton $130.7 million 3. Iron and steel $21.3 million 3. Organic chemicals $114.1 million 4. Plastics $14.8 million 4. Iron and steel $82.6 million 5. Wood $14.4 million 5. Electronic equipment $66.5 million 6. Machines, engines, pumps $2.1 million 6. Pharmaceuticals $65.4 million 7. Aluminium $1.2 million 7. Aluminium $42.9 million 8. Other base metals $1 million 8. Machines, engines, pumps 9. Sugar $800,000 9. Plastics $614,000 10. Manmade staple fibres 10. Raw hides excluding furskins Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 $42 million $41.2 million $36.1 million Indo-Colombian Economic Relations 62 Indian Companies in Colombia: Many Indian Companies have established operations in Colombia. Some of the known companies which are present in Colombia are: • • • • • IT (TCS, Mahindra Conviva and Mann India), Pharmaceuticals (IPCA and CIPLA, Aurbindo, Dr. Reddy´s) Agro-Chemicals (United Phosphorus), Automobiles and tractors (TVS, Bajaj, Hero, Sonalika and Mahindra), Mining (Renuka energy). In oil exploration, ONGC Videsh has on-going exploration and production operations in Colombia. It´s joint venture with Chinese company SINOPEC called Mansarovar Energy owns a producing asset which produces around 40000 barrels per day. Praj industries have constructed 6 ethanol plants in Colombia with capacity of 1.05 million litres per day. It is constructing now it´s 7th plant. Hero Moto Corp. has laid the foundation stone for the plant to manufacture motor-cycles in Cali on 06 July, 2014. The plant which will have investment of US$70 million will be producing 78,000 motorcycles initially and will lead to direct and indirect employment of 2500 persons. India and Colombia provide model for increased trade between Asia and Latin America For three years, India and Colombia have been responsible for an exponential increase in their bilateral commercial relations. Experts have classified this growing trade as an ‘example’ of the increasing economic integration between Latin America and Asia. During this period, a dozen Indian businesses have moved to Colombia each year, which has increased and diversified Colombian exports to the Asian nation. Currently, a total of 36 Indian companies — from the automobile, information, and energy sectors — can be found in Colombia. Before 2010, the country was home to less than half a dozen Indian companies. One of the most recent large businesses to establish itself in Colombia is the technology firm Genpact, an outsourcing outfit, which opened its offices in Bogotá a year and a half ago. ‘We are in other Latin American nations like Brazil, Mexico, and Guatemala, but due to its geographic location and stable political climate we have chosen Colombia for our headquarters in the Americas,’ said Genpact founder, Pramob Bashin. Alongside the increased number of Indian firms, Colombia has doubled its exports to the Asian subcontinent. The total value of exports to India increased from US$632 million in 2009 to over $1.3 billion in 2012. While oil still accounts for the vast majority (90%) of these exported products, Colombia has begun to introduce other goods to the Indian market, including flowers and coffee. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Colombian Economic Relations 63 This increase in exports has allowed Colombia to possess a trade surplus with India, which sells around US$1.055 million in products to Colombia each year. According to Ash Naraim Roy, director of the New Delhi Institute of Social Studies, these trade relations should serve as ‘a model for other countries’ in Asia and Latin America. ‘The two countries have discovered a network of trade relations that is very fruitful for both,’ Roy asserted. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Colombian Economic Relations 64 PARAGUAY Highlights 66 Introduction 66 Paraguay — Key Economic Factsheet 2015 67 Economic Highlights and Forecast 67 Laws and Policies Relating to Foreign Investment 68 A Magnet for Investment 70 Focus Areas for Investment 71 Infrastructure 72 International Trade 73 Services Industry 74 Investment Risks, Barriers and Challenges 76 Indo-Paraguay Economic Relations 78 Highlights • • • • • • • • • • • • GDP growth rate over 5-6% since 2002 Highest economic growth in South America. Least violent country in Latin America-UN 94% literacy World’s third biggest electricity exporter Most stable currency in Latin America Second highest return-on-investment for the private sector in Latin America. Lowest tax burden in the region Upgraded by Moody’s from Ba3 to Ba2 Assessed at first place in the Latin America Economic Climate Index World’s fourth largest producer of soybeans World’s seventh largest exporter of meat. Aims to become No.5 by 2018 Introduction Paraguay is a country in South America. Neighbouring countries include Argentina, Bolivia and Brazil. Paraguay lies on both banks of the Paraguay River, which runs through the centre of the country. The government system is a constitutional republic. The chief of state and head of government is the President. Paraguay has a free market system in which the prices are set by the market. Paraguay is a member of the Latin American Integration Association (LAIA) and Mercosur. With nearly 7 million inhabitants, Paraguay is a country of vast natural resources. It is crisscrossed by several rivers that form the River Plate Basin, enabling clean energy to be produced by the binational hydroelectric plants of Itaipú and Yacyretá, a leading economic activity in the country. Other key activities include highly automated agriculture and livestock production. The Paraguayan economy is small and open, with an average growth rate of 5% over the past decade, despite the volatility of that period. This growth has been based mainly on the heavy dependence on agricultural production and foreign trade, particularly soybean and beef, which comprised 38% of exports in the first eight months of 2015. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Introduction 66 Paraguay — Key Economic Factsheet 2015 Population Population Growth Rate Age Dependency Ratio Urban Population Infant Mortality Rate Life Expectancy at Birth 6,552,518 (2014) 1.334 annual % (2014) 57.304 % of working-age population (2014) 59.416 % of total (2014) 17.5 per 1,000 live births (2015) 72.273 years (2013) Key Economic Facts Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) Upper Middle Income Developing 58.28 billion (2014) 5.35% (2014) 8,894.34 (2014) 13613,429,752.00 (2013) 11.91% (2014) 0.62 billion (2013) 5.03% (2014) 3,131,976 (2013) 5.20% (2013) 12.95 billion (2014) 14.00 billion (2014) Economic Highlights and Forecast In June 2015, the Central Bank of Paraguay adjusted economic growth forecasts downward for 2015, to approximately 4.0% annually rather than the 4.5% originally estimated. This reduction mainly reflects the decline in international commodity prices, which directly affects the value of Paraguayan exports. Another contributing factor is the lower volume of beef and electric power production due to adverse weather conditions, in addition to the fall in re-exports to Brazil given that country’s currency devaluation and increased border controls. Moreover, China and Latin America are experiencing an economic slowdown and growth forecasts for many countries in the region are now lower than they were six months ago. Although economic growth is expected to approach its potential (between 4% and 5%), the deceleration of emerging economies and the less dynamic regional performance pose major challenges for the Paraguayan economy in the coming years. The weight of Brazil Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Economic Highlights and Forecast 67 and Argentina in Paraguayan exports (totalling 39% in August 2015) and foreign direct investment in the country could have a significant impact on growth. Over the past decade, the country has made significant progress on the macroeconomic front to address these challenges with the implementation of major social reforms. For example, international reserves continue at historically high levels, totalling more than US$6.8 billion in late August 2015. Noteworthy social reforms include free access to primary health care and basic education and the expansion of conditional cash transfer programs to benefit vulnerable populations. World Bank, Sep 2015 Gross Domestic Product (GDP) Panellists participating in the Latin Focus Consensus Forecast see the economy growing 3.7% in 2015, which is down 0.2 percentage points from last month’s estimate. For 2016, the economy is expected to grow 4.1%. Laws and Policies Relating to Foreign Investment The Government of Paraguay (GOP) encourages foreign investment and most sectors are open for private investment. Paraguay guarantees equal treatment of foreign investors under law 117/91 and permits full repatriation of capital and profits under law 60/90. Paraguay has historically maintained the lowest tax burden in the region, with a 10% corporate tax rate and a 10% Value-added Tax (VAT) on most goods and services. 60/90 Investment Law • • • Nil Import tariff of Capital Goods (machinery, equipment) raw materials and other inputs) Nil Value Added Taxes (VAT) On import and (local) acquisition of Capital Goods Nil Taxes on remittances and payments made abroad in terms of capital, interests and commissions.(applied for investments of more than US$5 million) Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Laws and Policies Relating to Foreign Investment 68 • Nil Taxes on dividends and delivery of profits abroad (applied for investments of more than US$5 million for 10 years) There are no restrictions on the conversion or transfer of foreign currency. Law 60/90 permits the repatriation of capital and profits. There are no controls on foreign exchange transactions, apart from bank reporting requirements for transactions in excess of US$10,000. FOREIGN DIRECT INVESTMENT (FDI) FDI flows to Paraguay remain weak compared to flows towards its neighbours, but have increased substantially. After dropping in 2013 due to an institutional crisis, which rocked the country, FDI inflows rebounded in 2014, increasing by 230% compared to 2013. They reached US$236 million, which remains far below their 2012 level (US$738 million). Most sectors are open to foreign investment; however, several remain under public monopoly. Paraguay offers a total repatriation of capital. Moreover, real estate and energy prices are relatively low. Despite reforms to the public sector and strengthened legal protections, the business climate remains difficult due to high corruption and insecurity linked to drug trafficking. The political climate, the poor condition of infrastructure and the lack of transparency in regulations are major obstacles for investors. Paraguay ranks 92nd in the 2015 Doing Business report published by the World Bank, up 17 places since last year. The 2013 election of President Horacio Cartes, a renowned entrepreneur, was seen as a positive sign for foreign investors. New investments have been in the automobile, logistics and manufactured goods sectors. Brazil is the primary market for these investments. In addition, Paraguay is able to offer low cost electricity and seeks to become, in the longterm, a centre of integration between the Pacific and the Atlantic. The reforms, recently implemented by the government, such as the law regulated public-private partnerships (PPP), should lead to greater investments. The majority of foreign investments go the food industry. Paraguay’s main investment partners are the United States, Brazil and the Netherlands. Foreign Direct Investment 2012 2013 2014 FDI Inward Flow (million US$) 738 72 236 5,287.8 5,075.8 5,380.9 Number of Greenfield Investments 8.0 8.0 10.0 FDI Inwards (in % of GFCF) 19.5 1.7 5.3 FDI Stock (in % of GDP) 21.2 17.9 18.1 FDI Stock (million US$) Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Laws and Policies Relating to Foreign Investment 69 A Magnet for Investment Ironically, for a country that has not engaged in any significant infrastructure projects over the past 30 years, it is home to the largest dam in the world in terms of electricity production, surpassing the Three-Gorges dam in China. Sitting on the border, and shared 50/50 with Brazil, the Itaipu Dam generated more than 98Twh of electricity in 2013 (83Twh for the Three-Gorges). However, considering its size and needs, Paraguay only uses some 10% of its 50% share in that production and exports the rest to its partner. The same goes for the Yacyreta Dam, sitting on the border of Argentina and Paraguay. Today the country is one of the world’s largest exporters of electricity (see Fig. 2). Considering that another five areas have been identified as viable dam projects within the country itself, clean energy production is not going to be an issue for the foreseeable future. Equally important for the coming years, Paraguay sits on the second largest reservoir of fresh water in the world, the Guarani aquifer, providing a reliable source of fresh water for responsible farming. Paraguay’s agriculture has the capacity to triple its food production output, having more than eight million hectares still available for mechanised agriculture. However, more efforts need to be put in land rehabilitation and implementation of the current environmental laws to prevent more deforestation. Paraguayan agricultural successes can easily be measured. In just under 10 years, it managed to become the first exporter of organic sugar, the second largest exporter of stevia, the fourth largest exporter of soy, the fourth largest exporter of starch, the fifth largest exporter of chia, the sixth largest exporter of corn, the eighth largest beef exporter and the 10th largest exporter of wheat. In addition to its agriculture potential, the country has not tapped its underground wealth that, if we consider its geographical location between Bolivia, Brazil and Argentina, is likely to be composed of significant mineral and energy resources. As a production centre, Paraguay is getting more and more attractive to countries facing growing production costs and higher taxes. A number of companies are expressing interests in relocating part of their operations in Paraguay under some of the very attractive tax regimes offered to foreign investors. Electrical parts manufacturing companies for the auto industry, for example, have already installed production facilities in the country to serve the Brazilian market. Other industries should follow. The geographical location of the country, which can be a challenge for the movement of goods in and out of the country, is also a blessing. In the heart of South America, it is a natural hub between all its neighbours and beyond. It doesn’t suffer from natural disasters such as tornadoes, hurricanes or earthquakes, and its topography makes it a country with massive swath of land ready to use for production. New investments have been in the automobile, logistics and manufactured goods sectors. Brazil is the primary market for these investments. In addition, Paraguay is able to offer low Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — A Magnet for Investment 70 cost electricity and seeks to become, in the long-term, a centre of integration between the Pacific and the Atlantic. The reforms, recently implemented by the government, such as the law regulated public-private partnerships (PPP), should lead to greater investments. The majority of foreign investments go the food industry. Paraguay’s main investment partners are the United States, Brazil and the Netherlands. Focus Areas for Investment FOOD PROCESSING Meat Export The country of Paraguay offers optimal conditions for efficient, cost effective, and secure food production. There are abundant investment opportunities in beef production and processing facilities in the country, but due to the region’s difficult history these available opportunities have not gotten the attention they deserve, remaining mostly unrealized and therefore completely undervalued. Meat is one of the most competitive sectors in Paraguay, reaching to diverse international markets. Poultry The potential of investment in this sector is very important due to its low cost in production and the expansion of local consumption. Leather Leather is the 7th main export item in Paraguay Strengths • • • Paraguay has abundant livestock resources - a) suitable areas for grazing and b) good organization both in private and government sectors, contributing to the development of the industry. Various Usage - leather is a product that is used in various sectors (e.g., production of clothing, footwear, furniture, etc.). Also, during the process food animals; chemicals for cosmetics and photographic; and fertilizers are obtained. AGRICULTURE SECTOR Meanwhile, agriculture has proven to be the most important sector in Paraguay, stimulating 50% growth for the country last year. The Minister of Agriculture, Jorge Gattini, confirms that “we have two economies in agriculture. One is highly competitive, driven by prime materials, grains and cereals, and the other is on a smaller scale, which, under suitable Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Focus Areas for Investment 71 conditions, can also be very competitive. We are heavily backing our small-scale agriculture through investment in production infrastructure in irrigation, with the funding of between 5,000 and 8,000 greenhouse constructions,” he says. “Irrigation is fundamental in increasing productivity and minimizing fluctuation in supply caused by drought, flooding or torrential rain. Currently we have a comparative advantage from the production of the prime sector of grains, cereals and prime materials, which in turn makes the country more competitive in the production of quality animal protein.” Fruits and Vegetables: Fruit and vegetable sector is one of the largest generators of employment, mainly at the level of small producers in Paraguay. Main products are n bananas, pineapples and watermelons. Forest Products: Paraguay has a comparative advantage in forest production. This sector has been one of the most important sectors in development of the country . Paraguay has many incentives as follows. Know-how of the business: Paraguay’s know-how of the forest industry (especially in wood flooring.) Short payback period: Paraguay’s payback period in this wood industry is only 12 years (In general, it takes over 40 years in other countries.) Unique species of wood materials: Paraguay has unique wood material (e.g.: tajy - Tabebuia Hepthapylla, yvyraro - Pterogyne nitens, ybyrapyta - Peltophorum dubium, kurupay Piptadenia macrocarda, etc.) Natural Conditions: Ideal temperatures and high precipitation regime makes Paraguay an excellent location for agriculture and forestry. • • • Average yearly temperature is 24 degrees Celsius. Average yearly rainfall is 1,200 mm. Lower Risk of Natural Disasters (i.e., volcano eruption risk, earthquake risk, Tsunami risk, etc.) Infrastructure Paraguay depends heavily on land and water transport, but both modes of transportation require urgent investment in improvements, expansion and modernisation. Only 6.8% of the country’s inter-urban network is paved, and waterways, especially the widely used Parana– Paraguay waterway, require urgent dredging and continued maintenance. The government has decided to structure a PPP model under a new law that will serve as the Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Infrastructure 72 legal basis for future infrastructure projects. Little is known about the upcoming project pipeline, but it is clear that Paraguay will rapidly become one of the markets to watch. The Public and Private Alliance law (APP), designed to tackle infrastructural issues, is being seen as a primary solution to funding of infrastructure projects. The country is proposing $800 million worth of projects, more than four times anything that has been on the table before. From 2015, the government intend to propose a budget of more than $1 billion a year, which is expected to meets the requirements for the development of its infrastructure. Hydropower - The largest exporter of clean, renewable energy, setting energy prices at half the price of its neighbours for industrial clients. As Paraguay only uses about 10% of what it produces, its capacity to provide competitively priced electricity in the future remains very strong. Its ability to increase the volume and the quality of agro-industrial production with the nascent, but fast growing, industrialisation of the country, provides Paraguay with a strong growth outlook over the next few decades. SPECIAL ECONOMIC ZONES Paraguay is a landlocked country with no sea ports. However, it has been granted free trade ports and warehouses in neighbouring countries’ sea ports for the reception, storage, handling, transshipment, etc. of merchandise transported to and from Paraguay. The Paraguayan Port Authority manages its existing free trade ports and warehouses, but Paraguay has expressed interest in private sector concessions to develop and manage new free trade ports. Paraguayan free trade ports are located in Argentina (Buenos Aires and Rosario)~ Brazil (Paranagua, Santos, and Rio Grande do Sul)~ Chile (Antofagasta)~ and Uruguay (Montevideo and Nueva Palmira). To date, only the Brazilian free trade ports and one in Nueva Palmira, Uruguay, are operating normally. In early 1995, the government approved a law permitting free trade zones in Paraguay, but its application depends on ongoing discussions within Mercosur. International Trade Paraguay - Exports and Imports Data Exports (US$ billion) Imports (US$ billion) 2010 10.5 9.6 2011 12.6 11.8 2012 11.7 11.1 2013 13.6 11.9 2014 13.1 12.1 Trade Statistics Exporter Rank Importer Rank Trade Balance Rank Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 75/124 74/124 86/124 Paraguay — International Trade 73 Top 10 Export Goods (by HS Code) # 12 27 02 23 10 15 41 85 39 17 Commodity Oil Seeds Oil & Mineral Fuels Meat Animal Feeds Cereals Fats & Oils Hides & Leather Electrical Machinery Plastics Sugar & Confectionery Export Value ($) 2,445,829,152 2,222,077,172 1,369,840,153 1,139,941,275 614,696,893 534,797,800 195,891,132 111,365,931 110,465,180 80,222,804 Top 10 Export Partners Country Brazil Russia Argentina Germany taly Chile Spain Peru United States Israel Export Value ($) 2,851,557,879 703,992,676 604,294,712 430,450,106I 234,601,092 187,187,997 179,599,479 161,267,623 154,739,246 142,130,249 Top 10 Import Goods (by HS Code) # 27 85 84 87 31 39 38 95 72 40 Commodity Oil & Mineral Fuels Electrical Machinery Industrial Machinery Motor Vehicles & Parts Fertilizers Plastics Chemical Products Toys & Sport Equipment Iron & Steel Rubber Import Value ($) 1,875,494,014 1,624,919,559 1,549,494,919 1,213,493,644 560,987,132 393,366,360 383,443,984 340,231,126 339,433,066 245,629,882 Top 10 Import Partners Country China Brazil Argentina United States Japan Korea, South Germany Mexico Uruguay Russia Import Value ($) 3,183,812,982 2,714,512,050 1,895,705,946 933,111,077 311,216,416 276,497,276 207,048,210 169,624,199 168,296,552 165,370,310 Services Industry FINANCIAL SERVICES The country’s growth to-date has not been sourced through the government’s funding or subsidies, but mainly through the development of the private financial sector. Bank assets grew six-fold in the past 12 years, thanks to the solidity of the Central Bank of Paraguay and its Superintendence for Banks. Strong regulation has allowed the sector to attract interest from multilateral institutions as well as various development banks from the US and Europe that have helped by providing long-term funding to the local financial institutions at a time when domestic deposits would not average more than 12 months. Change in the funding profile of the financial sector has been promised through pension fund reform. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Services Industry 74 Key aspects of the banking regulation have been centred on provisions and minimum capital requirements. Paraguay is ahead of Europe in its implementation of Basel III rules, especially in terms of solvency ratios. Local regulation has already established a minimum of 12% for total solvency and 8% for Core Tier I capital. HUMAN CAPITAL The potential of the higher education business has led to the sprouting of universities in Paraguay’s capital, although not all of the institutions offering masters and doctoral degrees are accredited by the government. In the first four years after enactment of “very permissive” legislation in 2006, more than 30 new universities appeared without being required to submit their curricula and abide by the rules in effect under the previous legislation. Foreign students from Portuguese speaking countries such as Angola are flocking to Paraguay. TOURISM Tourism is gaining greater prominence in the Paraguayan economy and general conditions in the country are paving the way for a successful tourism sector. Infrastructure projects being executed by the public sector, hotel investments, improved connectivity, and new links being forged between tourism and culture, sports, and international events conducted by scientific or professional associations are all factors elevating the level of tenders and subsequent response from potential visitors. From present half million visitors, the country is expecting one million visitors in 2018. Total revenue is expected to rise from $240 million to $500 million. Increasing demand of not massive tourisms linked to nature, ethnography and new experiences. Universal awareness movement on environmental issues as favouring destinations with higher state natural resources conservation. INFORMATION AND COMMUNICATION TECHNOLOGY The local CC and BPO industry now employs close to 5,000 people. The number of local executives is also expected to grow by around 15% during 2015. Still, most of the outsourcing services (at least 80% overall) are being demanded by local clients, while there is a portion that are being exported (primarily to Argentina). Growing its offshore participation seems to be the greatest opportunity for Paraguay in the short and medium term. By leveraging its very-cost-competitive offerings in Spanish, the country will be in position to start seriously competing for basic voice-services outsourcing in this language. As a matter of fact, some Argentineans’ calls are already being routed to Paraguay, especially within the telecom segment. While Paraguay’s major advantage seems to be its competitive and qualified workforce, the nation’s technology infrastructure remains its biggest weakness. Government fiscal policies and double taxation also remain an impediment for those exporting services, as many of the existent players argued (including Avanza, CIDESA, Skytel, and Voicenter). Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Services Industry 75 Investment Risks, Barriers and Challenges Strengths • • • • • Agricultural sector (soya and beef) Abundant hydroelectric resources Prospecting for exploitation of world’s largest titanium deposits associated with iron ore Discovery of oil Prudent economic policies Weaknesses • • • • • • • One of the poorest countries in the region (50% of the population is poor) Landlocked situation Inadequate infrastructures (waterways, roads, electricity lines) Dependence on agricultural sector and neighbouring markets (60% of exports) Weak governance (corruption and cronyism) and insecurity linked to drug trafficking Smuggling with Argentina and Brazil Scale of the informal economy (40%) POLITICAL AND SECURITY After two years of an interim government following the controversial deposition of President Lugo, Horacio Cartes, a businessman, took over the functions of president in August 2013. His party, the conservative Partido Colorado (PC), will have only briefly (2008 -2012) been removed from the power that it had held since 1946. However, the PC holds only a relative majority in the Senate while, in the Chamber of Deputies, the president needs the support of the centrists of the Partido Liberal Radical Auténtico and of Avanza Pais on the centreleft. The presidential programme is very ambitious commensurate with the shortcomings it is intended to tackle: reduction of widespread rural poverty by improving health and education infrastructures, enabling farmers to increase productivity by providing them with fertilizer, assistance with irrigation, marketing and transport of their crops. It plans to restore efficiency to the public sector by combatting cronyism (patronage appointments, fanciful salaries) and by making use of the private sector. The publication of the salaries of public sector employees has begun. The building of social housing has commenced. To increase public revenues, which represent only 18.5% of GDP (4.5% of it from dues paid by the dam operators), to increase the capacity for public action without degrading ratios, a 10% tax on the profits of the big farmers and agricultural businesses has just been introduced, as well as a 5% tax on their exports. Up to now, the sector’s contribution to the budget has represented only 1% of GDP. However, fallow or under-exploited landholdings are exempt at a time when access to land remains a major bone of contention in the countryside, to the point of provoking at times lethal clashes with the security forces. Finally, opposition to the reforms is appearing within the PC, reluctant to agree to privatisation, partnerships Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Paraguay — Investment Risks, Barriers and Challenges 76 with the private sector and the transparency of public bodies, which could force the president to negotiate or find short-lived majorities. However, even though the bills have been passed, full implementation is far from assured, given the levels of corruption. GOVERNANCE Judicial insecurity hinders Paraguay’s investment climate. Many investors find it difficult to adequately enforce contracts and are frustrated by lengthy bureaucratic procedures and limited transparency and accountability. Regulatory agencies supervisory functions over telecommunications, energy, potable water, and the environment are inefficient and opaque. Politically motivated changes in the leadership of regulating agencies negatively impact firms and investors. Corruption is common in these institutions as time consuming processes provide opportunities for front-line civil servants to seek bribes to accelerate the paperwork. ECONOMIC Growth is highly dependent on agricultural production, which contributes 20% of GDP and 70% of exports, which themselves represent 60% of GDP. The economy is therefore very sensitive to climatic conditions and to movements in world prices, as demonstrated in 2012 when production fell due to drought. The non-agricultural sector, services and industry (respectively 46% and 11% of GDP) will be less dynamic, due to a less buoyant fiscal policy in support of households, whose consumption accounts for nearly 70% of GDP. The sluggish state of the economy in Brazil and Argentina, added to the depreciation of these countries’ currencies against the guaraní, does not favour the traditional clandestine exports to these countries. PARAGUAY’S STATUS IN GLOBAL ECONOMIC RANKINGS The World Bank “Doing Business Ranking” 2015 Compares Business Regulations for Domestic Firms in 189 Economies Paraguay India 8 out of 189 countries 92 out of 189 countries Other Rankings Index Corruption Perceptions Index Global Competitiveness Report Global Enabling Trade Report Index of Economic Freedom International Logistics Performance Index (LPI) Inward FDI Potential Index KOF Index Globalization Networked Readiness Index (NRI) Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Rank 149/173 118/147 105/138 83/178 78/160 106/139 78/186 99/145 Paraguay — Investment Risks, Barriers and Challenges 77 Indo-Paraguay Economic Relations BILATERAL TRADE Paraguay Exports to India -2014 Code Product Label Total All products 15 Animal, vegetable fats and oils, cleavage products, etc. 33 Essential oils, perfumes, cosmetics, toiletries 72 Iron and steel 41 Raw hides and skins (other than furskins) and leather 05 73 76 79 Products of animal origin, nes Articles of iron or steel Aluminium and articles thereof Zinc and articles thereof Paraguay Imports from India -2014 Value 210,979 206,762 2,167 1,094 385 298 145 93 34 Value in US$ ‘000 Code Product Label Value Total All products 115811 87 Vehicles other than railway, 33421 tramway 24 Tobacco and manufactured 15854 tobacco substitutes 29 Organic chemicals 9434 72 Iron and steel 8850 30 Pharmaceutical products 8229 85 Electrical, electronic equipment 7772 39 Plastics and articles thereof 5985 38 Miscellaneous chemical products 5256 27 Mineral fuels, oils, distillation 3839 products, etc. Crompton Greaves (CG), a Avantha Group Company, has signed a contract with Administracion Nacional de Electricidad (ANDE), the national power utility of Paraguay, for the design, manufacturing, testing and supply of 245 kV, 72.5 kV and 23 kV switchgear equipment. Crompton Greaves has won orders from ANDE to the tune of over $ 25 million since 2014, cumulatively. These include the supply of high voltage Power products and Automation solutions, customised to enhance the reliability of ANDE’s transmission network. The contract was won through a competitive international public bidding process. Crompton Greaves was selected for this prestigious order due to its successful track record in Paraguay, backed by global recognition of its technical expertise in manufacturing and supplying diversified switchgear products under one roof. Tata vehicles (light trucks, pick-ups, Tata Sierra vans) have been introduced in the Paraguayan market by a local company. Mahindra and the Indian two-wheeler company, Hero Motors have appointed distributors in Paraguay. A consortium of Indian edible oil companies is exploring the possibility of acquisition of farm land in Paraguay to grow oilseeds and food crops. An Indian IT Company, Flatworld Solutions, in collaboration with a local company, runs a call centre employing around 1300 Paraguayans. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Paraguay Economic Relations 78 PERU Highlights 80 Introduction 80 Peru — Key Economic Factsheet 2014 81 Economic Highlights and Forecast 81 Laws and Policies Relating to Foreign Investment 83 A Magnet for Investment 85 Focus Areas for Investment 85 Infrastructure 89 International Trade 91 Services Industry 93 Investment Risks, Barriers and Challenges 97 Indo-Peruvian Economic Relations 99 Highlights • • • • • • • • • • • • Fastest growing economy in South America, averaging 6.4% GDP growth over the last ten years. GDP growth 76% since 2010. GDP per capita highest in Latin America. Third-largest producer of copper and the sixth-largest producer of gold in the world. World’s top producer of fishmeal, fresh asparagus, paprika and organic bananas World’s second largest producer of grapes Poverty rate dropped by 23% since 2002. Second best country for doing business in Latin America (Forbes). Second best country in credit ratings in Latin America (Forbes). Ranked 42/189 countries in Ease of Doing Business (World Bank) GDP acceleration in 2016, 6% Peru will be the 26th largest economy in the world in 2050, Grant Thornton. Introduction Peru is a country in South America. It has a coastline on the Pacific Ocean and is bordered by Bolivia, Brazil, Chile, Colombia, and Ecuador. The Andes Mountains run parallel to the Pacific Ocean and many Peruvian rivers originate in the peaks and eastern lowlands contain tropical forests part of the Amazon basin. The government system is a constitutional republic. The chief of state and the head of government is the President. Peru has a mixed economic system in which the economy includes a variety of private freedom, combined with centralized economic planning and government regulation. Peru is a member of the Asian Pacific Economic Cooperation (APEC), Latin American Integration Association (LAIA), and the Andean Community (CAN). From the beginning of the new millennium through 2013, Peru has achieved an impressive cumulative growth of 113% of its Gross Domestic Product (GDP) accompanied by a cumulative inflation during the same period of just 48%, the best rates of their kind in all of Latin America. In monetary terms, poverty has been reduced by half in recent years, with more Peruvians living in better conditions, with a brighter future. Nowadays, Peru is a true economic miracle nearly 20 years after the end of its history of hyperinflation and terrorism, which have given way to the best possible conditions of stability, respect, and promotion of investment in the Region. Peru’s economy reflects its varied geography. The abundance of resources is found mainly in mineral deposits in the mountainous regions, while its extensive maritime territory has Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Introduction 80 always traditionally yielded excellent fishing resources. Despite the fluctuations of the world economy, the administration has resisted pressures for fiscal spending and has used the savings generated by the high prices of commodities between 2006 and 2008, investing in 2011 and 2012 in infrastructure, paying off part of the public debt, and increasing assets. Peru has achieved significant progress in its macroeconomic performance in recent years, with very dynamic GDP growth rates, stable currency exchange rates, and low inflation. In fact, over the past decade, the Peruvian economy has had the lowest annual average inflation rate in Latin America, at 2.9%. Peru — Key Economic Factsheet 2014 Key Economic Facts Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) Upper Middle Income Developing 371.35 billion (2014) 2.35% (2014) 11,989.33 (2014) 56,661,391,000.00 (2013) 14.85% (2012) -9.13 billion (2013) 3.23% (2014) 16,665,986 (2013) 3.9% (2013) 48.46 billion (2014) 45.17 billion (2014) Economic Highlights and Forecast After a considerable slowdown in 2014, a recovery in economic growth is projected for 2015 and 2016. This recovery will be driven by the reversal of the adverse supply shocks that affected the economy in 2014 – climate factors caused temporary disruptions in mining, fishing and agriculture – and by a fiscal stimulus. Meanwhile, it is expected that new mines become operational as well as new important infrastructure projects which will boost growth by the end of this year and the next one. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Economic Highlights and Forecast 81 Inflation is currently at the upper bound of the target band (2% +/- 1%). However, the absence of demand pressures, a negative output gap and lower dynamism in the labour market will contribute to a gradually decline towards the midpoint target. The exchange rate pressures limit the scope for new reductions in the interest rate by the monetary authority. Contrary, fiscal policy is projected to be expansionary in 2015 supporting the recovery in activity. The end of the commodities super-cycle poses the necessity to implement structural policies to diversify the economy, boost productivity, sustain potential growth and continue moving forward in social inclusion. Gross Domestic Product (GDP) Economic activity has shown a poor performance mainly as a result of three factors. First, private consumption slowed down due to lower dynamism in the labour market which reduced job creation and increased the unemployment rate. Furthermore, food prices have risen and some surveys have revealed that more households face difficulties to pay their debts. Second, growth was adversely hit by the contraction in public investment, especially by the drop of approximately 50% of sub-national government investments, which implement more than half of all public investment. Finally, private investment also fell due to the worsening of business expectations. This suggests that investment will continue being sluggish in 2015. The Central Bank decided to keep the reference rate at 3.50% at its 12 November monetary policy session, meeting market expectations. The Bank hiked the rate from 3.25% to its current level in a surprise move at its meeting in September, but refrained from making a move in October and now in November amid expectations that inflation will moderate going forward and an upcoming interest rate hike by the U.S. Federal Reserve. The official currency of Peru is the Nuevo Sol (S/.). The country has a free-floating exchange rate regime, with the government occasionally intervening for purposes of stabilization. As Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Economic Highlights and Forecast 82 of December 31, 2013, banks were buying U.S. Dollars at S/.2.798 and selling them at S/.2.800. The grey market has very similar exchange rates. According to estimates as of the end of 2013, the Nuevo Sol is one of the least volatile currencies in the world, exhibiting firmness in the face of international market and currency fluctuations. The Central Reserve Bank of Peru (BCRP) implements fiscal stimulus and liquidity control measures. There are no restrictions or limitations on the number of bank accounts in foreign currency or the remittance of funds abroad that an individual or legal entity may make. According to the Central Bank, inflation pressures have fallen somewhat and the impact of higher prices for food and currency depreciation is diminishing. Inflation moderated from 3.9% in September to 3.7% in October, although this still exceeds the upper limit of the bank’s target range of 1.0%–3.0%. However, the Bank stated that inflation expectations converge toward the target and monetary authorities are confident that the current interest rate will help reduce inflation further. The longer-term outlook is more favourable, with investment and exports expected to rebound in 2016. Focus-Economics Panellists see the economy growing 3.5% next year. OECD & Focus-Economics, 2015 Laws and Policies Relating to Foreign Investment Peru seeks to attract both domestic and foreign investment in all sectors of the economy. To achieve this, it has taken the necessary steps to establish a consistent investment policy that eliminates any barriers that foreign investors may face. As a result, Peru is considered a country with one of the most open investment systems in the world. Peru has adopted a legal framework for investments that requires no previous authorization for foreign investment. Additionally, it establishes the necessary regulations to protect the economic stability of investors from arbitrary changes in legal terms or conditions applicable to their projects and reduces government interference in economic activities. The Peruvian government guarantees legal stability to foreign investors with regard to the legislation governing income tax and distribution of dividends. Foreign investors with the right to obtain legal and tax stability are those willing to invest in Peru for a period of no less than two (2) years and for a minimum amount of US$10 million in the Mining and/or Hydrocarbons sectors, or US$5 million in any other economic activity, or those who acquire more than 50% of the shares in a company in the process of privatization. Peru’s laws, regulations, and practices do not discriminate between domestic and foreign companies. Foreign investors receive equal treatment. There are no restrictions on repatriation of profits, international transfers of capital, or foreign exchange practices. The remittance of interest and royalties is also not restricted in any way. Foreign currency may be used to acquire goods or cover financial obligations, provided the operator complies with Peruvian tax laws. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Laws and Policies Relating to Foreign Investment 83 Special Regimes: Legal Stability Agreements Regime whereby the Peruvian Government guarantees: Stability of regulations regarding non-discriminatory treatment. • • • • • • • • • • • • • • • • • • • Stability of income tax regime applicable to dividends. Stability to use freely the most favourable exchange rate available in the market. Stability of the free availability and remittance of foreign currency, dividends and royalties regime. Peru offers a favourable legal framework for foreign investment Non-discriminatory treatment: Foreign investors receive the same treatment as local investors. Unrestrictive access to most economic sectors (Investments that require authorization: Located within 50 km in the frontier line and those destined to arms, ammunitions and explosive. Likewise, a principal local partner for investments in maritime sabotage as well as in air transport is required.) Free transfer of capital. Free competition. Guarantee for Private Property. Freedom to purchase stocks from locals. Freedom to access internal and external credit. Freedom to collect royalties. Network of investments agreements and member of ICSID and MIGA. Peru participates in the Investment Committee of the Organization for Economic Cooperation and Development (OECD) – It promotes the implementation of the Guidelines for Multinational Enterprises. Granting the return of the Value Added Tax during the pre-productive stage of the project (minimum 2-year term). Applicable to all economic sectors For agricultural activity it is not necessary to meet a minimum investment amount. For other activities the minimum investment amount is US$5 million. The project can be divided into stages, phases or similar. FOREIGN DIRECT INVESTMENT (FDI) Historical high growth has attracted large amounts of foreign direct investment in the country, totalling $22.6 billion in 2013. This has been led by Spanish investment, totalling $4.5 billion, followed by British ($4.3 billion) and American ($3.9 billion). The extractive industries account for 12% of the country’s GDP and are the principle beneficiary of foreign investment; receiving $5.4 billion in 2013. Unsurprisingly China leads the foreign investment in this industry; Chinese interests own 33% of the copper industry in Peru. Chinese impact on this sector is illustrated by the acquisition of Las Bambas copper mine in the Apurímac region by a Chinese consortium led by MMG Limited, partially backed by Beijing, for $5.85 billion Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Laws and Policies Relating to Foreign Investment 84 A Magnet for Investment The Peru Investment Agency Proinversión’s project portfolio can be viewed at: www. proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer= 5892&sec=30 Focus Areas for Investment MINING Foreign Investment Fuels Peru’s Mining Industry Peru is currently the third-largest producer of copper and the sixth-largest producer of gold in the world. Peru’s mining industry is booming and government officials expect copper production to double by 2015. Forecasts indicate that by 2015, investment in the mining sector will make up close to 50% of total investments in Peru. Currently, China consumes the majority of Peruvian mineral exports, which raises some concerns as China faces a potential economic slowdown. Executives, however, have dismissed these concerns because they are confident in Peru’s diversification of its mineral export destinations. Despite emerging market capital outflows in the region, specifically in Venezuela and Argentina, Peru continues to grow economically at a steady rate. Interest rates are likely to remain stable in 2014 and the mining and hydrocarbons sector is expected to experience the highest percentage growth of all of Peru’s sectors over the next two years. AGRO-BUSINESS Peru’s large biodiversity makes possible the development of various native crops that are of interest to the international market. Many of these crops have found a position in the market and they constitute niches for potential investments. • • • Peru, especially in the Andes, produces various types of cereals, such as kiwicha, quinoa, tarwi or cañihua, among others, which have high levels of proteins and nutritional values. There is also a potential market for vegetables, such as broad beans and corns, as well as for potatoes, with a diversity in the country of over two thousand varieties, most of which are not known outside Peru. Another segment with great potential is aromatic herbs and native plants of medicinal use and high nutritional value. Most of these come from the Andes and the Amazon rainforest. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Focus Areas for Investment 85 • The rainforest also offers exotic fruits such as cocona, soursop, aguaje and camucamu, that are becoming quite popular in Asian countries. Back to Nature: Organic Food • The growing demand for organic products in the international market has generated an increase in the number of hectares destined for these types of crops in Peru. The demand of certificates for these products is also increasing. • Two of the most outstanding crops are coffee and organic banana. Both have become star products, making Peru the top exporter worldwide. • There are also other products, such as cacao, cotton, quinoa and mango. These products are mainly delivered to the European Union and the US. • The optimum natural conditions and an expanding market generate interesting business and investment opportunities in this sector. • Peru is the top exporter of asparagus, coffee, cacao and organic banana worldwide. • Peru’s strategic location in the southern hemisphere allows it to supply off-season products to European and North American markets before the competition. • Peru’s excellent profitability per hectare is possible thanks to its pleasant tropical climate and the Andes mountain range, which produces a natural greenhouse effect throughout the coast. • Fruit and vegetable crops can be scheduled to profit from seasons when international prices are higher. • Peru trades over US$4.000 billion in fresh and processed products to over 148 countries (with many of which Peru has signed free trade agreements.), thanks to the local knowhow on crops and logistic networks. Appetite for New Investments • • • Peru is the third largest country in South America, and has 7.6 million hectares with agricultural potential. According to FAO, 4 million of these hectares are not developed. Peru has 84 of the 117 life zones recognized in the world and 11 natural eco-regions, which makes possible to produce a diversified food portfolio, with the possibility of allyear-round production. Water prices for agriculture are competitive, even in the new irrigation projects. Diversified Exports • • • In Europe and North America, Peruvian products are beginning to appear in supermarkets, specially mangos and asparagus “from Peru”. Peru has become world leader in the export of organic coffee, obtaining good recognition due to the quality and variety of this product. Likewise, Peru’s diversity of climates and soils makes possible to grow foreign crops: asparagus, mangos, grapes, artichokes, avocado and paprika. These products reach high yields and have made Peru a renowned food exporter worldwide. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Focus Areas for Investment 86 • • • Exports from agriculture exceeded US$4.000 billion, consolidating Peru as a reliable supplier of vegetables and fruits to Europe and the US. The projection shows a large presence in South America and Asia. The objective is to continue doubling the exports level every five years (which has happened up to date). In order to achieve this objective, the rol that the big irrigation projects fulfil is important like Majes (in the South Coast), Olmos and Chavimochic (in the North Coast),which will give new hectares to the Agro-export sector. MANUFACTURING Manufacturing is the sector with highest weight (15.98%) in the formation of Peruvian GDP. According to recent declarations of the president of the National Society of Industries (Sociedad Nacional de Industrias) Luis Salazar, manufacturing generates 11% of employment and is more than 70% of non-traditional exports with higher added value. During 2013, period of January-November, it was this sector that registered the lowest growth rate in the national production (1.4%) mainly affected by the International situation that drastically reduced imports of textile products and clothing, parts and pieces for automotive industry and several products of the metal mechanic industry, among others. One of the emblematic sub sectors of our national production is textile and clothing which has a long tradition of professionalism of workforce which has allowed the development of an efficient comprehensive productive process, which includes activities of cotton crop or vicuña and alpaca breeding and shearing, and spinning, dyeing, weaving, sewing and finishing of garments. Before countries which are focused in competing by volume, Peru differs for aiming to compete in the segment of design garments, prepared in short periods of time and with replacement capacity within a single season. Greater Investments to Support Growth Two important elements to foresee a recovery of the manufacturing production levels in 2014 and following years are: the recovery of the economies of the main countries of destination of our exports and the greater demand of the internal market of intermediate goods that shall supply requirements for the execution of great projects of infrastructure to be developed. The Central Reserve Bank (Banco Central de Reserva) in its publication Inflation Report – December 2013 registers announcements of major investments in the industrial sector for the period 2014-2015: • • • • Repsol YPF: Extension of the La Pampilla Plant. Vale do Rio Doce: Bayovar II. Hochschild Mining, Mitsubishi and Cementos Pacasmayo: Phosphates Project. Hochschild Group: New cement plant in Piura. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Focus Areas for Investment 87 • • Siderperú: Modernization of Rolling Mill Plant and Nuevo Horno. PilkingtonLimited Group: Plant for float glass manufacturing. PETROCHEMICALS • Resource availability allows the development of petrochemical activities in Peru, an important industry due to the diversity of products that may be obtained from methane and ethane and which are the base of several production chains. • Peru has abundant hydrocarbon wealth (oil and gas) in diverse areas of its territory, mainly the continental shelf and the rainforest. • For petroleum, as of December 31, 2013, there were 74 valid contracts in an area of 30.38 million ha, with investment commitments that reach US$1.250.53 billion. • Peru has over 15.4 quintillion cubic feet of gas in the basins within its territory. Camisea is the main natural gas deposit, currently under exploration and exploitation. • Natural gas production has increased at a sustained pace during the last 10 years, reaching in total 430,559 billion cubic feet as of 2013. The factors that drove this growth are the increase of the demand of the power generation plants and an increased consumption of domestic and commercial vehicular natural gas (GNV). • In order to address the high cost of transporting and transforming natural gas in developed countries, petrochemical production has been moved to countries with their own natural gas sources. • Peru has a large natural gas reserve that surpasses 15.4 quintillion cubic feet proven reserves, 10.6 QCF of those have been develop. Additionally, there are 7.7 QCF proven reserves, 5.1 QCF possible reserves and 79.8 QCF resources. • The Peruvian State promotes the development of the three Petrochemical Poles (in Marcona, Ilo and Pisco). This will make Peru the only source of ethane in the South American Pacific coast with enough capacity to supply petrochemical projects at an international competitive scale. • Its geographical location gives it advantage for supplying countries of the Pacific coast, particularly the United States, Mexico and Central America, as well as Asia-Pacific countries. • Similarly, diverse transport routes have been developed (such as the Southern InterOceanic Highway) to facilitate trade of inputs and products with Brazil and other countries of the Atlantic basin. • The internal demand for petrochemical products (fertilizers and plastics) is met with imported products, mostly urea—over 365,000 up to December 2013—and ammonium nitrates, with approximately 44,000 up to August 2013. The imports for those products exceed the US$155 billons CIF in 2013. • The basic and intermediate petrochemical industry established in the Petrochemical Poles has a legal framework for promotion that includes tax incentives and benefits for plant installation, operation and maintenance. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Focus Areas for Investment 88 ENERGY Great energy potential: The wide availability of water resources and natural gas has enabled to meet the growing electricity demand in the country. • • • • • In 2014, 92% of the population had access to electricity. The 2013 energy matrix comes principally from hydro generation (52%) and natural gas (46%). The remaining 2% comes from other renewable sources. Resources to be discovered and exploited: There are other renewable energy sources to be explored such as solar, wind, biomass and geothermal sources. Energy production has grown at an average rate of 6.7% in the past 10 years, led by thermal generation, which grew by an average annual rate of 14.6%, while hydro Energy grew 2.7%. The main economic groups of power generation are: Endesa, GDF Suez, Globeleq, Statkraft and Duke Energy Infrastructure It is estimated that Peru currently has a $90 billion infrastructure gap, which is the difference between infrastructure needs and the resources that the government has historically invested in meeting those needs. An infrastructure deficit of this magnitude can lead to lower productivity and reduced competitiveness – two characteristics that repel investors. TRANSPORT TO THE FUTURE Peru has prioritized the development of an ideal infrastructure to increase competitiveness and to form a geographic space that can be integrated to the world, specially the AsiaPacific economic region. The Free trade Agreement (FTA), subscribed by Peru, has consolidated its opening and economic integration toward new markets. During this process and simultaneously, important investment to the development and modernization of the transport, railway, port and airport infrastructure had been made. Nowadays in the Transport Infrastructure given in concession, there are 31 projects with a current investment commitments for US$13,755 billion dollars, (up November 2014). Additionally it is planned to continue with the expansion of the sector, up until 2016; implementing an investment program with new projects, for US$19,290 billion dollars (between public works and PPP); producing attractive opportunities of investment for the new contractors and operators. In this new scene, Peru thanks to its modern transport infrastructure, will invigorate the connectivity between the markets and will facilitate the movement of the transport of Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Infrastructure 89 goods; acting as a productive commercial bridge between South America, Asia and the United States; joining to the free trade zone that will soon form in the frame of the TransPacific Partnership (TPP). In this framework, Peru’s strategic location as regional hub for trade has to be highlighted, thanks to the development of new alternatives to bioceanic routes that link the South American Atlantic coast to the Asia-Pacific region. Integration Axes: See You in Brazil • Northern IIRSA Highway (955 km, investments for US$510 million): connects the Peruvian ports of Paita and Bayovar to the Brazilian ports of Manaus, Santarem, Macapa and Belem. • Southern IIRSA Highway (2,594 km – investments for US$2.261 billion): connects the Peruvian ports of San Juan de Marcona, Matarani and Ilo to the Brazilian ports of Santos and Paranagua. • Central IIRSA Highway (section 2,377 km, investments for US$100 million): it will connect the Callao port to Brazil through Cruzeiro do Sul. Structuring Axes and Logistic Corridors: Development Routes • Two structuring axes and 22 logistic corridors with multi-modal interconnection have been identified. They will permit increasing logistic competitiveness, favouring a greater exchange of goods to be delivered to national and international consumption centres. • The multi-modal connectivity infrastructure links logistic corridors to duty-free areas (CETICOS and ZOFRATACNA) located in Paita, Matarani, Ilo and Tacna. CETICOS, demarcated geographic spaces, are currently a competitive platform to boost business and generate new investments in Peru. The companies operating there enjoy preferential regimes that grant tax and customs exemptions, entering at the same time, to a large market of 4 billion people, thank to the FTA, in force with countries whose joint GDP represents more than US$56 trillion. Peru as a Hub: The World within Reach • The infrastructure developed up until now, will be completed on 2016, with a new investment program,(Public Works, public private partnerships, PPP); with an amount that exceeds US$19,200 billion dollars; according to the Ministry of Transport and Telecommunications. Its execution will count with the participation of the public and private sector; producing important investment opportunities for contractors and operators of infrastructure. • Peru is thus positioned as a logistic hub in the South American Pacific coast, facilitating transportation of cargo containers towards Asia and America’s west coast. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Infrastructure 90 International Trade In the 12 months up to August, the trade balance posted a record deficit of US$2.9 billion. The trade balance peaked at a record-high surplus of US$9.9 billion in February 2012. It has narrowed almost uninterruptedly since then and shifted to deficit in April 2014. This trend has been driven by falling global demand and decreasing prices for traditional Peruvian exports, such as copper and gold. Panellists participating in the Latin Focus Consensus Forecast see exports contracting 6.7% this year. For 2016, the panel sees overseas sales expanding 8.0%. Peru - Exports and Imports Data Exports (US$ billion) Imports (US$ billion) 2010 35.8 28.8 2011 46.4 37.2 2012 47.4 41.1 2013 42.9 42.2 2014 39.5 40.8 Trade Statistics Exporter Rank Importer Rank Trade Balance Rank 50/124 51/124 28/124 Top 20 Exports in 2014 Code Total ‘26 ‘71 ‘27 ‘74 ‘08 ‘23 ‘61 ‘09 ‘03 ‘79 ‘07 ‘20 ‘39 ‘80 ‘15 Product label All products Ores, slag and ash Pearls, precious stones, metals, coins, etc. Mineral fuels, oils, distillation products, etc. Copper and articles thereof Edible fruit, nuts, peel of citrus fruit, melons Residues, wastes of food industry, animal fodder Articles of apparel, accessories, knit or crochet Coffee, tea, mate and spices Fish, crustaceans, molluscs, aquatic invertebrates nes Zinc and articles thereof Edible vegetables and certain roots and tubers Vegetable, fruit, nut, etc. food preparations Plastics and articles thereof Tin and articles thereof Animal, vegetable fats and oils, cleavage products, etc. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Value (US$ thousand) 38459251 10558451 6078895 4753053 2417073 1536396 1517472 1093034 854173 805835 633387 595741 576944 566686 547351 489826 Peru — International Trade 91 Code ‘25 ‘16 ‘84 ‘28 ‘18 ‘10 Product label Salt, sulphur, earth, stone, plaster, lime and cement Meat, fish and seafood food preparations nes Machinery, nuclear reactors, boilers, etc. Inorganic chemicals, precious metal compound, isotopes Cocoa and cocoa preparations Cereals Value (US$ thousand) 422857 327319 284107 270272 234171 220820 Top 20 Imports in 2014 Code Total ‘84 ‘27 ‘85 ‘87 ‘39 ‘72 ‘10 ‘73 ‘38 ‘40 ‘30 ‘90 ‘23 ‘48 ‘29 ‘31 ‘15 ‘33 ‘64 ‘52 ‘94 ‘62 Product label All products Machinery, nuclear reactors, boilers, etc Mineral fuels, oils, distillation products, etc Electrical, electronic equipment Vehicles other than railway, tramway Plastics and articles thereof Iron and steel Cereals Articles of iron or steel Miscellaneous chemical products Rubber and articles thereof Pharmaceutical products Optical, photo, technical, medical, etc apparatus Residues, wastes of food industry, animal fodder Paper and paperboard, articles of pulp, paper and board Organic chemicals Fertilizers Animal,vegetable fats and oils, cleavage products, etc Essential oils, perfumes, cosmetics, toileteries Footwear, gaiters and the like, parts thereof Cotton Furniture, lighting, signs, prefabricated buildings Articles of apparel, accessories, not knit or crochet Top 10 Export Partners County China United States Switzerland Canada Japan Chile Export Value ($) 7,848,973,378 6,516,617,362 5,074,455,343 3,445,338,660 2,575,332,389 2,028,313,129 Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Value (US$ thousand) 42193570 6318773 5983804 4590101 3983421 2219734 1494869 1365477 1187854 812786 765579 713915 706079 703425 698232 570247 550045 456227 451488 378370 372193 363931 363898 Top 10 Import Partners Country United States China Brazil Ecuador Argentina Mexico Import Value ($) 8,020,504,095 7,807,487,496 2,581,026,748 2,012,396,315 1,951,278,811 1,675,051,248 Peru — International Trade 92 County Germany Spain Korea, South Brazil Export Value ($) 1,866,208,049 1,842,755,105 1,545,351,975 1,402,931,398 Country Korea, South Colombia Japan Germany Import Value ($) 1,648,402,153 1,567,001,549 1,503,229,965 1,367,902,164 BILATERAL AND MULTILATERAL ECONOMIC AGREEMENTS 17 Free Trade Agreements and 29 Bilateral Investment Treaties. Most important one FTA with European Union started in 2012. Services Industry FINANCIAL SERVICES The high level of concentration in Peru’s banking sector is hindering market growth, according to BNamericas’ latest financial services Intelligence Series report. In Peru’s banking sector, four entities - Banco de Crédito del Perú, Banco Continental, Scotiabank Perú and Interbank - account for over 80% of loans and deposits, while in the insurance sector just two companies account for around 60% of premiums. This high level of concentration is a legacy of Peru’s 1998 economic crisis, which saw the number of banks in the country fall from 27 in 1997 to just 15 in 2006. Nevertheless, growth in the sector has been robust over the last decade, keeping pace with economic growth that has helped the middle class rise from 26% of the population in 2005 to 50% today. Despite a slowdown in the economy last year, total direct loans expanded 14.8%, deposits 18.4% and equity 11.2%. The high growth potential of the local market has spurred a number of foreign banks including Santander, Banco Falabella, Banco Azteca, Deutsche Bank, GNB Sudameris, Banco Ripley, Banco Cencosud and the Industrial and Commercial Bank of China (ICBC) - to enter or reposition themselves’ in the Peruvian market. But the high level of concentration has inhibited direct competition with Peru’s major existing banks. “No player has decided to compete in all business segments with the biggest banks,” Leyla Krmelj, head of financial analysis at rating agency Equilibrium in Lima, told BNamericas. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Services Industry 93 “That’s hard to do because these big banks already have a strong presence throughout the country, and a new player that comes in and wants to start offering credit from scratch, and not through the purchase of assets of an existing entity, would face a very difficult task that would take time.” That was the lesson learned by HSBC, which entered Peru in 2006, only to sell its local unit to Colombian group GNB last October, with a 1.56% share of loans and 1.75% of deposits. Another problem is that there is a lack of M&A regulation, allowing the big banks to acquire more assets. While concentration levels may decrease in future years because the two leading companies plan to exit some unprofitable business lines, analysts agree that if this does happen it will be a very gradual process. HUMAN CAPITAL Peru is a fast developing, tropical, Andean, and Pacific Rim country whose education sector is going through a tectonic shift. Those changes, some of which raise constitutional questions, have unsettled segments of Peruvian society, yet may signal opportunity for international educators and agents to serve students’ needs. At the secondary level, the country fell in the OECD’s 2012 PISA tests two places from 63 to 65, when measured against 2009 results. Peru also ranks poorly across all sectors in English language proficiency (though higher than its Andean neighbours Chile, Ecuador, Venezuela, and Colombia). Peru does have several quality universities, including the privately-funded Pontificia Universidad Católica del Perú, which QS University Rankings rates 30th in South America, and the public Universidad Nacional Mayor de San Marcos, rated 57th. For yet more encouraging news, one need look no farther than Peru’s economy. Economic growth often means more money for the middle class to spend on education, as well as more demand for quality education both at home and abroad. Peruvian growth rates once topped 6%, and though the economy has cooled due to falling mineral exports, current forecasts still predict 4% growth in 2014, not bad compared to many countries in the region. There are good opportunities in English language and vocational courses for boosting employment opportunities. HEALTHCARE The government is encouraging private investment in healthcare facilities on PPP model. Till today, over $3 billion has been invested in national, regional hospitals (36) and health centres (170). The Government has opened the sector to foreign investment to Design, build and equipping new Hospitals and Infrastructure and equipment Management. A list of healthcare projects can be accessed at: www.geominsa.minsa.gob.pe/geominsa/ Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Services Industry 94 TOURISM Thanks to its amazing archaeological monuments, its large biodiversity and internationally renowned gastronomy, Peru has become a world-class tourism destination, attracting growing numbers of investors. Eleven Peruvian attractions are classified by UNESCO as world cultural and natural heritage. The citadel of Machu Picchu was chosen as one of the “New Seven Wonders of the World”, an online contest organized by the New Open World Corporation. Country Brand Index listed Peru as the third world destination of inbound tourism, and Spain’s INMARK consultancy firm highlights Peru as the most authentic destination in Latin America due to its cultural wealth and history, as well as the warmth of its people. The Latin American Travel Association (LATA) recognized PROMPERU as the Best Tourist Board of Latin America, Reserva Amazónica Inkaterra (Cuzco) as the Best Jungle Lodge, Aqua Expeditions (Amazon River – Loreto) as the Best Luxury Cruise, and Cadena Orient Express (with hotels in Lima, Cuzco and Arequipa) as the Best Chain Hotel. There are numerous investment opportunities in the development of new local attractions, such as Choquequirao archaeological site, or the inclusion of new services in existing destinations. The greatest connectivity of the Peruvian aviation market with the rise of new weekly frequencies in international flights allows more connections to the various tourist destinations with more and better travel options. An interesting option is the increase of the experience’s quality of the tourist: possibility to include travel by helicopter, customized luxury services or participation in ancestral or mystical activities. The quality on the accommodation services for the commodity and satisfaction of the tourist that visits Peru has been characterized during the last years by the arrival of major hotel chains of international level, between them we have: Accor, Decamerón, Hilton, Orient Express, QP Hotels & Resorts Westin, among others. The number of tourist that visit Peru has doubled during the last decade, according to estimated figures by MINCETUR, from 1,5 billion people in 2005 it reached 3.08 billion to 2013. This generated 3,641 billion dollars for receptive tourism in the last year. This demonstrated that the country is growing as a touristic destination in the international market, which opens opportunities for the promotion of tourist attractions. INFORMATION AND COMMUNICATION TECHNOLOGY The local market’s growth and dynamism, the availability of top-class labour, and a strategic location to provide services to Latin America and Western Europe are some factors that Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Services Industry 95 make Peru an excellent alternative for developing investments in the shared services, BPO and KPO sectors. The local capital and investment market has strengthened and become more sophisticated thanks to investment growth, which exceeds US$40 billion annually. Local and transnational companies located in the country increasingly demand more specialized services. This encourages the creation of shared services centres and attracts outsourcing service providers both for global and local clients. Operating cost competitiveness, neutral accent (Spanish with no accent), quality, proactivity, kindness of Peruvian personnel and technological infrastructure availability are some of the features that favour investment in contact centres and BPO in Peru. Over 50 contact centres from Spain, Argentina, USA, India and France, among others, have already been installed. Consequently, over 36,500 jobs have been created. During 2011 the exports made by call centres increased in 35% according to the previous year. Peru shows an average low cost labour for operator in comparison with other offices in Latin America (380 dollars). This is a determining factor in the transaction of the call centres, because it involves an area where 60% of the costs are spend in human resources. Broad infrastructure and technological services availability, and low real estate costs. Exports of contact centre services, data processing, IT applications, and similar activities are exempted from VAT payment. Peru’s location in the GMT -05 Time Zone allows communication with New York or Miami using the same time. There is a 6-hour difference with Madrid, facilitating business with Europe. The implementation of the Data Protection Law (approved in 2011) will strengthen the companies’ position and drive greater business relations. There is a considerable human resources inventory for the sector’s development. 42% of post-graduate students are related to business and engineering. Inbound and outbound services supply, both local and international, is specialized in customer service and multi-channel sales. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Services Industry 96 Investment Risks, Barriers and Challenges Strengths • • • • • • Strong growth potential Member of the Pacific Alliance Mineral, energy, agricultural and halieutic resources Low level of public debt and balanced budget Independent central bank and healthy banking sector Tourist appeal Weaknesses • • • • • • Dependence on raw materials and Chinese demand Vulnerability to climate and seismic events Regional disparities (poverty in the Andean and Amazonian regions) Shortcomings in infrastructure, company credit, healthcare and education Scale of coca growing and cocaine production Huge grey sector (60% of employment), not favourable to training POLITICAL AND SECURITY Ollanta Humala, President and from a centre-left party, is facing criticism as the reforms implemented have failed to satisfy popular expectations. In addition, Gana Perú, the presidential coalition, does not have a majority in Congress although it does have more seats than the leading opposition party Fuerza Populat. This lack of a majority could prove to be a hindrance in particular in gaining approval for the government s proposed cut in corporation tax. The guerrillas continue to make use of coca production to retain control in the mountainous regions in the East of the country. The effectiveness of the civil service, the police and the courts leave something to be desired despite a reduction in corruption. The business climate has been improving with an easing in bureaucratic procedures and the privatization being undertaken by the government is promising for attracting foreign investors. GOVERNANCE Peru has been given good forecasts by the best-known risk rating agencies, which have not only ratified the country’s investment grade but have also raised the Peruvian sovereign credit rating. The factors that back this rating are the solid economic prospects reflected in a minimum growth estimate of 5.0% of the GDP for 2013, and an estimated 6.0% for 2014. These economic forecasts are backed by the rapid growth in investment and the significant drop in fiscal and external vulnerabilities, all within the context of several sources of growth, with low inflation and strong macroeconomic fundamentals. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Peru — Investment Risks, Barriers and Challenges 97 Obtaining the investment grade has permitted Peru to attract a great deal of international attention. Recently, an increasing number of multinational corporations have been looking at Peru with greater interest. The subsequent increase in jobs and decrease in poverty will predictably help improve social wellbeing. Peru has recently achieved the position of the third most globalized country in Latin America, according to the Globalization Index established by EY. Five elements are considered within this index: openness to foreign trade, capital flows, exchange of technology and ideas, international movement of workers, and cultural integration. Additionally, in early February 2012 Bloomberg Markets positioned Peru as the third emerging market with the greatest international projection in 2012, based on the country’s advantages, such as low share prices and their possible increase in the future. ECONOMIC The mining sector accounts for 56% of exports. The falling prices of copper and gold resulted in a worsening in the balance of trade and the current account balance in 2014. There is a deficit in the trade in services (despite satisfactory earnings from tourism) because of the repatriation of profits by foreign companies. In 2015, there should be a reduction in the current account deficit as copper production and exports increase following the opening of new mines. This deficit is fully financed by foreign investments. Whilst the central bank is able to make use of very considerable currency reserves (16 months of imports), it will continue to monitor the normalization of rates in the United States, expected in 2015, in order to prevent excessive exchange rate volatility. The risk for Peru of a major capital outflow is not high as the capital financing is stable and long term. Growth in 2014 slowed, mainly because of the knock-on of reduced Chinese demand on the mining sector and the stagnation of private sector wages. The Peruvian economy should get back to its growth rates of recent years in 2015, boosted by household consumption (63% of GDP) and the mining sector. The start of production from new copper mines, the country being one of the world leaders in copper (as well as silver, zinc, tin and lead), should further support growth. PERU’S STATUS IN GLOBAL ECONOMIC RANKINGS The World Bank “Doing Business Ranking” 2015. Compares Business Regulations for Domestic Firms in 189 Economies Peru India 45 out of 189 countries 142 out of 189 countries Other Rankings Index Corruption Perceptions Index E&Y Globalization Index Score Global Competitiveness Report Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Rank 84/173 38/60 68/140 Peru — Investment Risks, Barriers and Challenges 98 Index Global Enabling Trade Report Index of Economic Freedom International Logistics Performance Index (LPI)71/160 Inward FDI Potential Index KOF Index Globalization Networked Readiness Index (NRI) Open Budget Index Rank 45/138 47/178 86/139 59/186 87/142 8/102 Indo-Peruvian Economic Relations Trade between India and Peru is growing, with trade crossing the US$1 billion mark for last four years. During 2013-14, the total trade was US$1.145 billion. Indo-Peruvian Trade (US$ million) India’s exports India’s imports Total trade 2012-13 637.927 561.320 1199.247 2013-14 620.569 524.213 1144.782 Growth -2.72% -6.61% -4.54% 2014-15 819.818 590.395 1410.213 Growth 32.11% 12.63% 23.19% 2015-16 Apr 2015 58.795 32.601 91.396 Source: DGCI&S, Department of Commerce, Government of India India’s main exports to Peru are automobiles, motorcycles and three-wheelers, iron and steel products, polyester and cotton yarns, pharmaceuticals, pipes, etc. Main Indian imports from Peru are copper minerals, gold, phosphates of calcium, zinc and lead minerals, fish flour, synthetic cables, fresh grapes etc. # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Top 10 Peruvian Imports from India Top 10 Peruvian Exports to India India’s exports to Peru amounted to $836.8 million or 2% of its overall imports. Peru’s exports to India amounted to $320.8 million or 0.8% of its overall exports Commodity Vehicles Cotton Iron and steel Plastics Pharmaceuticals Manmade filaments Electronic equipment Machines, engines, pumps Manmade staple fibres Rubber Export Value ($) 180.9 million 138.3 million 68.3 million 54 million 43.7 million 36.2 million 36.1 million 32 million 28.3 million 25.8 million Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Commodity Import Value ($) Ores, slag, ash 130.1 million Gems, precious metals, coins 92.9 million Salt, sulphur, stone, cement 78.2 million Zinc 4.6 million Inorganic chemicals 2.6 million Fruits, nuts 1.9 million Raw hides excluding furskins 1.5 million Cocoa 1.3 million Manmade staple fibres 1.1 million Machines, engines, pumps 1.1 million Indo-Peruvian Economic Relations 99 Investments Five Indian companies have currently invested in the mining sector in Peru. It is estimated that their present investment is to the tune of US$30 million. This will continue to grow every year as the mines reach more advanced stages. Many more mining companies are in the process of scouting/finalizing the acquisition of mining assets. In addition, IFFCO has a major stake in a large phosphate mining operation in northern Peru. Similarly, Zuari Agro, partnering with Mitsubishi, has a 30% stake in a large rock phosphate reserve in the same area. Zuari’s investment share in the development of this project will be about US$36 million. Tata Consultancy Services, Aegis, Wipro have opened their offices in Peru. Reliance too has a representation. All the major Indian pharmaceutical companies have their representative offices or local subsidiaries here. AJE Peru has opened a subsidiary in Maharashtra, AJE India Pvt. Ltd. manufacturing soft beverages. The operations started in December 2010. They have invested US$15 million so far and plan to increase this in the future. A major Peruvian company, Resemen S.A.C., which specializes in mining machinery, has opened a subsidiary in New Delhi by the name of Reliant Drilling Ltd., following a major contract it has won from Hindustan Zinc Ltd. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Peruvian Economic Relations 100 URUGUAY Highlights 102 Introduction 102 Uruguay — Key Economic Factsheet 2014 103 Economic Highlights and Forecast 103 Laws and Policies Relating to Foreign Investment 104 A Magnet for Investment 105 Focus Areas for Investment 108 Infrastructure 110 International Trade 111 Services Industry 112 Investment Risks, Barriers and Challenges 115 Indo-Uruguay Economic Relations 117 Highlights • The only country in the Americas that managed to avoid a recession during the global financial crisis of 2008-2009. • Economy grew 3.5% in 2014, completing 12 years of uninterrupted expansion. • Geographical centre of South America. • Highest income per capita of the continent. • Highest percentage of renewable energy in its energy grid in Latin America. 2015: + 90% renewable energy • One of the few countries in the world where tourists outnumber locals • All children in public education centers are receiving a laptop with a wireless internet connection Introduction Uruguay is a country located in South America bordering the Southern Atlantic Ocean. Neighbouring countries include Argentina and Brazil. The geography of Uruguay includes mostly rolling grassland and a dense network of rivers. The government system is a constitutional republic. The chief of state and head of government is the President. Uruguay has a mixed economic system in which there is a variety of private freedom, combined with centralized economic planning and government regulation. Uruguay is a member of the Latin American Integration Association (LAIA) and Mercosur. Uruguay is a market-oriented economy in which the State still plays a significant role. Following a deep crisis in 1999-2002, Uruguay’s economy grew robustly from 2003-2013 led by private consumption – fuelled by full employment, rising wages and a weak dollar– and exports related to record-high commodity prices. Growth decelerated from an annual average of 6.0% in 2004-2008 to 5.2% in 2009-2013, and is expected to be about 3.0% in 2014. Growth performance, foreign trade and investment, and the banking system were largely unaffected by the 2009 global financial crisis. In mid-2012 Uruguay regained investment grade status by major risk rating agencies. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Introduction 102 Uruguay — Key Economic Factsheet 2014 Key Economic Facts Income Level (by per capita GNI) Level of Development GDP, PPP (current international $) GDP Growth (Annual %) GDP per capita, PPP (current international $) External debt stocks, total (DOD, current US$) Manufacturing, value added (% of GDP) Current account balance (BoP, current US$) Inflation, consumer prices (annual %) Labour force, total Unemployment, total (% of total labour force) modelled ILO estimate) Imports of goods and services (current US$) Exports of goods and services (current US$) High Income Developing $71.41 billion (2014) 3.50% (2014) $20,884.26 (2014) $14,349,584,000.00 (2011) 14.09% (2014) -$2.51 billion (2014) 8.88% (2014) 1,750,387 (2013) 6.60% (2013) $14.68 billion (2014) $13.43 billion (2014) Economic Highlights and Forecast Uruguay’s GDP expanded a strong 3.5% during 2014 over the previous year, with positive activity in most sectors of the Mercosur member economy, according to the latest report from the Central bank. The result was in line with government officials expectations of 3% growth last year. Private analysts had also anticipated a healthy performance despite the significant slowdown in mid-year when the economy was steaming ahead at 5.1%. The complicated situation in neighbouring countries and Mercosur associates Argentina and Brazil, plus a fall in demand and prices for commodities impacted in foreign trade dependent Uruguay. The Central bank report indicates that most sectors had a positive performance during the twelve months with the exception of “retail, repairs, restaurants and hotels mostly because of a slowdown in commercial services activities, and construction, since the housing market seems to have reached a plateau”. The most active and contributing sectors to the global outcome, according to the report include manufacturing, exports, transport, storage and inventories and communications because of the surge in telecommunications and other sub-sectors. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Economic Highlights and Forecast 103 “All sectors have seen an increase in activity and positive growth rates, with the exception of construction. The most dynamic sectors were transport, storage and communications and manufacturing industries” underlines the central bank release with graphics to support it. With this latest report Uruguay has experienced one of its longest and solid growth periods in recent history, beginning in late 2003, following on the banking crisis of 2002 as a consequence of the melting of the Argentine economy. Since then the Uruguayan economy has not ceased to expand speared by the commodities boom and a massive influx of foreign capital looking for higher dollar yields as a result of the US Federal Reserve quantitative easing policies. Gross Domestic Product (GDP) Low prices and volumes for imports will help keep Uruguay’s import bill in check, and offset some of the deterioration in exports, however growth will still be impacted by the slowdown in Brazil and Argentina. Panellists surveyed for this month’s Latin Focus report revised down Uruguay’s 2015 growth forecast by 0.3 percentage points amid on-going external challenges. They expect GDP growth of 2.1% in both 2015 and 2016. Panellists participating in the Latin Focus Consensus Forecast expect inflation to close 2015 at 9.1%, which is up 0.1 percentage points from last month’s projection. For 2016, panellists see inflation easing to 8.6%, which is up 0.2 percentage points from last month’s forecast. Laws and Policies Relating to Foreign Investment FOREIGN DIRECT INVESTMENT (FDI) Uruguay received FDI inflows of US$2,731 million in 2014. This was the second highest value in the country’s history, despite being lower than 2013. Consequently, the country Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Laws and Policies Relating to Foreign Investment 104 remains the second largest recipient in the region, just behind Chile, with incoming FDI flows of around 5% of GDP well above the average of both the region (2.9%) and the Mercosur (2.2% of GDP). In terms of economic sectors, manufacturing is the primary recipient of FDI in Uruguay, which is mainly explained by two mega investments, UPM and Montes del Plata’s pulp mills. The latter, is the largest investment in the country’s history, with an estimated value that exceeds US$2.1 billion. Construction is the second destination of FDI, followed by the Trade and Services sector. Besides, there was a recovery in FDI inflows to the agricultural sector. This industry has been particularly dynamic in the last decade. A Magnet for Investment Uruguay, one of the smallest countries in South America, with a population of around 3,400,000, has in recent years become an attractive destination for foreign investment, building a reputation worldwide as a safe and profitable country in which to carry out projects and businesses. Located between two South American colossi – Brazil and Argentina – and a member of Mercosur (South America’s trade agreement – the biggest regional market in the world, with 270 million potential consumers) Uruguay has, besides its strategic geographical location, political, economic and social conditions that have aroused interest all over the world. In 2012, the Uruguayan economy grew by 3.9% after 10 years of continuous growth. Between 2003 and 2012, Uruguayan GDP increased by 5.2%, the highest growth rate in its history, above the average level in Latin America. Uruguay’s national forecasts agree with the international ones: that the economy will continue to grow during 2013 by around 4%. The reliability and responsibility of the country’s macroeconomic management made it easier for Uruguay to overcome the strong shock waves coming from external upheavals and volatility, which reflects a decrease in vulnerability to external events. As a consequence of this stability and economic dynamism and the trust that it inspires, in April 2012 the rating agency Standard and Poor’s assigned Uruguay the Investment Grade, which was also later assigned by Moody’s and Fitch. Over the last decade, local and foreign investment has shown a strong growing trend, quadrupling in the last six years to reach an all-time high. In 2012, in a world scenario of economic slowdown and uncertainty, Uruguay remained among the top countries in the region in terms of FDI and GDP, after Chile and Peru. In particular, the flow of foreign direct investment reached $2.8 billion, i.e. 5.4% of GDP. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — A Magnet for Investment 105 The reliability and responsibility of the country’s macroeconomic management made it easier for Uruguay to overcome the strong shock waves coming from external upheavals In 2012, fixed investment grew by 19.4% in Uruguay, above official forecasts, and estimates indicate that it will continue to grow strongly. The global investment rate has also registered a growing trend in recent years. On average, the investment rate grew from 14.7% (19832004) to 20% (2005-2012). In this regard, and in view of the investments made in the short term, a new increase of the investment rate to 21% has been forecast for the next five-year period. These investments involve major development projects in different economic sectors, such as agro-industry, infrastructure, mining and tourism. Some of the main projects include innovative ventures in the dairy industry; new forestry projects, such as the setting up of a new pulp mill; new grain terminals; regeneration of railways; power generation from renewable energy sources; iron extraction; construction of hotels and tourist centres, among others. Special reference should be made to the renewable energy sector, which has captured – mainly through the generation of wind power – a significant flow of productive capital in recent years. Uruguay is one of the countries that have most strongly fostered the development of alternative energy sources, driven by an intention to change the structure of its energy matrix. Since 2009, the renewable energy sector has enjoyed a series of specific tax incentives that have proven to be extremely successful in attracting foreign investments. Within this framework, the government has called for bids for the establishment of wind parks, which has resulted in substantial investments by transnational companies. In 2012, almost 80% of the projects promoted by the Investments Law Application Committee were in relation to wind power generation projects, mostly financed by foreign companies or else by localforeign capital associations. It is estimated that the energy restructuring process will result in investments of over $7 billion, accounting for 13% of GDP. For 2015, the energy matrix is expected to be 15% wind power generation and 13% biomass generation. Likewise, for 2016, Uruguay is expected to become the country with the largest share of wind power generation in its energy matrix worldwide. Investment Incentives The renewable energy sector is not the only one to benefit from these kinds of incentives. Uruguay has also encouraged and strongly supported productive investment – national as well as foreign – an essential driver for economic growth and development. Based on a reliable regulatory framework with clear rules, the current Investment Promotion Regime provides for an equal treatment of both foreign and local investors. Incentives include a series of tax exemptions and benefits, such as the business income tax exemption on a percentage of the capital invested ranging from 20% to 100%. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — A Magnet for Investment 106 Other benefits are the free repatriation of capital and the free access to the exchange market, facilitated by a sound and reliable banking system that operates in national as well as foreign currency. Uruguay also offers free zones, temporary admission and free ports and airports. Furthermore, it is worth pointing out that investment promotion and protection agreements have been entered into with 30 countries, such as Spain, the US, Finland, France and the UK, among others. For 2015, the energy matrix is expected to be 15% wind power generation and 13% biomass generation Finally, with the approval in 2011 of the legal framework for the regulation of public-private partnership agreements, a new impulse has been given to the promotion of investment projects in infrastructure, which is a crucial sector for sustainable development. Law No. 18,786 provides for investment projects in infrastructure for road, rail, port and airport works; energy infrastructure works; waste treatment and disposal works; social infrastructure works, including prisons, health centres, educational centres, social interest housing, sports centres, and urban improvement in facilities and development. Economic dynamism and specific investment incentives are not the only elements that explain the investment phenomenon in Uruguay. In order to understand the reasons supporting this phenomenon, a series of factors related to social and political circumstances should be considered – for example, the soundness of the institutions, public and legal security, and the level of education of the local population. Uruguay’s social and political stability has been acknowledged by the most prestigious international organisations and was placed at the top of South America’s Democracy Index 2012 according to The Economist’s Intelligence Unit, the Prosperity Index (Legatum Institute 2012), Political Stability Index (World Bank 2012), Quality of Living (Mercer Quality of Living City 2012), and Low Corruption (Transparency International 2012). Furthermore, it holds second place in Economic Freedom (Heritage Foundation 2012) and the third-place in Latin America in the World Bank’s Doing Business’ ranking 2013, which measures the ease of doing business. Uruguay’s investment climate is generally positive. A decree passed in 2007 and modified in 2012 provides significant incentives, mainly corporate income tax cuts, to local and foreign investors. Foreign and national investors are treated alike; there is free remittance of capital and profits, and investments are commonly allowed without prior authorization. Overall, U.S. firms have not identified corruption as an obstacle to investment. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — A Magnet for Investment 107 Focus Areas for Investment ENERGY Uruguay features a favourable business climate, great social stability, legal security, tax incentives for investors and strong corporate accountability. Both the State and private stakeholders have made large investments in the industry in excess of US$7 billion on aggregate. This means the country has invested more than 3% of the annual GDP in energy infrastructure. Uruguay has a long-term energy policy unanimously approved by a multi-party committee. This shows the significance of the issue and supports the State policy status of energy policy. Energy policy features a strong hope for renewable energy, with important introduction goals in the short term and material tax benefits for this type of undertakings. Energy policy further includes a commitment to diversification and non-reliance on external sources, which has resulted in investments in onshore and offshore hydrocarbon exploration activities. Wind Energy Seven wind farms with a total installed capacity of 340 megawatts to come online between April and June of 2015 adding that by 2015, it expects wind sources to generate 30% of the country’s energy. The development of wind energy is part of Uruguay’s strategy to completely decarbonize its electricity sector, and with strong winds and a favourable policy framework, the up to 900 megawatts of wind energy currently envisaged will supply Uruguay with reliable, very affordable and ‘inflation proof’ electricity. LOGISTICS Uruguay has become a regional hub in the Southern Cone due to the large advantages it offers for the development of logistic activities. Uruguay is the regional hub par excellence for the Southern Cone: it offers important advantages for the location of Regional Distribution Centres (RDCs). Uruguay has a brand new airport which became operative in 2009, deep water ports - with top level infrastructure - and the busiest highway network of Latin America. Uruguay is geographically located at a privileged area featuring two ports in the main gateway to the Southern Atlantic coast with access to Parana-Paraguay-Uruguay waterway. The richest cities of the continent can be reached in 12 to 96 hours by land and 1 to 3 hours by air. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Focus Areas for Investment 108 The Uruguayan legal framework provides major advantages to logistics operations, with highly strong incentives to the setup of RDCs and the handling of goods in transit. This includes Duty-Free Zone, Free Port and Airport, bonded warehouses and temporary admission regimes. Logistics in Uruguay has its own institutional framework. In 2010, the National Institute for Logistics (INALOG) was created by Law as a means for public/private participation and coordination of logistics development. VEHICLE AND AUTO PARTS Over the last years, foreign investments have been made in the Uruguayan automotive industry, both in the assembly of vehicles and in the manufacturing of auto parts. The industry exports reached US$483 million in 2014. According to the Investment Promotion Act, companies may be eligible for 100% deduction of the invested amount from the Corporate Income Tax, along with other tax benefits. The industry exports receive a benefit of 10% reimbursement on the FOB value by means of credit certificates issued by the State’s Tax Authority. Uruguay has a Temporary Admission regime in place for machinery and input included in the exported goods, so import taxes are not applicable to these products (customs duties and others). The import of parts (CKD kits) for vehicle assembling intended for the domestic market is applied reduced tariffs (2%). Uruguay has free access to the Argentinean, Brazilian and Mexican market for automotive products, with more favourable terms for new models. Uruguay also boasts preferences when entering other regional markets, such as: Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela. PHARMACEUTICALS Pharmaceutical sales in Uruguay have increased significantly in recent years, amid an expanding economy and rising salaries. The country’s pharmaceutical market saw a compound annual growth rate of 12% between 2003 and 2013, reaching $510 million. Concurrently, exports rose to $130 million. The most important export markets are in Latin America, but the level of concentration is quite low—none of the most important markets represents even 20% of total exports—and France and South Africa are included among the top-ten buyers. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Focus Areas for Investment 109 Infrastructure Much of the country’s historic development can be attributed to port activity. Today, owing to Uruguay’s geographically strategic position and easy access to the Atlantic Ocean, foreign trade is higher than ever, resulting in unprecedented development of the country’s maritime infrastructure. The Port of Montevideo has been the driving force behind the history and development of the country thanks to its rapid growth that has remained consistent at an average annual rate of 14%. This success is in part down to its geographical position and its access to the Atlantic Ocean and also down to an increase in foreign trade in the area. Alberto Díaz Acosta, President of Uruguay’s National Port Authority, says the port plays an important role in the country’s economy: “The port stands out because of the support of institutions working in the country. There is a common strategy between the Ministry of Economy, the Ministry of Livestock, Transport, and the ANP and Customs. “The infrastructure that we have is not bad. The returns that are in operation in some cases are even the best in the South Atlantic. There are operations that are done very quickly, very efficiently and there is adequate infrastructure for that dynamic.” Movements of goods have been growing dramatically since 2004, with 50% of the activities being exports to Argentina and Paraguay, as well as Argentinean, Brazilian, and Paraguayan imports. Through direct government investment and private investment, the upgrading of the Port of Montevideo has continued. The government is now promoting two other projects that are vital for the growth of the area. “One is the Fishing Terminal in Capurro area,” Mr. Jacob explains. “The purpose of this project is to better logistics capacities to all fishing operations of the South Atlantic. “The other project is the Punta Sayago where the Ministry of Transport and Public Works has assigned 96 hectares for the development of other projects. Simultaneously there is the regasification plant, Gas Sayago, which is under construction.” These projects will in turn boost Montevideo port by increasing operations at the port and create jobs in several areas that are connected with these projects. Work has also begun on utilizing Puerto de la Paloma to the east of Montevideo. “The port was underutilized,” says Mr. Jacob, “and from the investment effort we have made with state support, we have managed to recover berthing docks so that vessels could operate.” The Public-Private Partnership Act offers incentives and sets a framework for investment in infrastructure works through joint ventures. By virtue of this law, road, rail, port, airport, Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Infrastructure 110 energy infrastructure, waste disposal and treatment and social infrastructure works can be undertaken. Law 18,795 promotes investment in the development of housing aimed at low and lower middle income sectors, through strong tax exemptions. Several projects have been introduced under this Law, allowing for the construction of more than 4,000 dwellings. In the next few years, significant construction developments are in the pipeline, most notably road and energy projects, port development, among others. A list of infrastructure projects can be viewed at: www.uruguayxxi.gub.uy/invest/wp-content/ uploads/sites/4/2015/08/Base oportunidades-inversion-web-Ingl%C3%A9s-24-8-15.pdf FREE TRADE ZONES Uruguay has open and solid financial and banking systems and offers a business-friendly environment. No wonder why the country and its more than 10 free zones are attractive for many multinationals and investors. In order to boost investment and international commercialisation, Uruguay has many free zones located at strategic points. These zones count on vast and modern resources and high technology, and are aimed at high-value sectors. Private zones are managed by individuals authorised by the administration. Through the General Trade Bureau – Free Trade Zone Area, the Uruguayan administration manages the state free zone and monitors and controls all the systems. Uruguay has a beneficial and modern Investment Promotion and Free Trade Zone Act applicable for both national and foreign investors. Because of this and many other benefits, important multinational companies of different sectors such as tourism, automotive, pharmaceutical, alternative energy, alimentary and real estate have settled in the country during the last couple of years. International Trade Uruguay: Trade Statistics Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Exporter Rank 72/124 Importer Rank 73/124 Trade Balance Rank 72/124 Uruguay — International Trade 111 Top 10 Export Goods (by HS Code) Code 12 02 04 10 44 39 41 87 51 11 Product Oil Seeds Meat Dairy Products Cereals Wood Plastics Hides and Leather Motor vehicles and parts Wool Milling products Export Value ($) 1,878,004,130 1,496,296,173 913,019,120 893,019,120 527,160,130 296,231,609 289,793,637 283,675,036 260,710,396 228,469,829 Top 10 Export Partners County Brazil China Argentina Venezuela Russia United States Germany Chile Israel Mexico Export Value ($) 1,688,294,254 796,244,254 504,313,168 415,365.034 393,508,731 331,427,046 256,466,890 208,233,766 176,632,975 147,385,575 Top 10 Import Goods (by HS Code) Code 27 87 84 85 39 38 31 29 30 40 Product Oil and Mineral Fuels Motor vehicles and parts Industrial machinery Electrical machinery Plastics Chemical products Fertilizers Organic chemicals Pharmaceuticals Rubber Import Value ($) 2,147,950,452 1,279,801,823 1,274,130,197 944,405,730 599,164,295 346,356,480 329,858,651 269,584,056 245,306,528 236,534,378 Top 10 Import Partners Country Brazil Argentina China United States Venezuela Russia Nigeria Mexico Germany France Import Value ($) 2,096,831,517 1,741,407,069 1,662,458,370 1,046,785,117 826,841,071 589,164,498 342,548,116 292,768,565 247,653,838 189,138,848 Services Industry FINANCIAL SERVICES Moody’s Investors Service is maintaining its stable outlook for the Uruguayan banking system, according to “Banking System Outlook: Uruguay,” published on 2 Jun 2015. “While we expect Uruguay’s economy to slow slightly to 2.6%, domestic demand, a strong labour market and investments in export-oriented projects in the pulp, dairy and agriculture sectors will support stable loan growth at a similar pace in 2014,” said Valeria Azconegui, a Moody’s assistant vice president. “These dynamics will be complemented by legislation passed in 2014 that will result in a gradual increase in local-currency deposit taking and lending.” Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Services Industry 112 Uruguay’s banking sector benefits from a stable operating environment, and its asset quality and capitalization are stable. Household debt remains moderate, employment is favourable and households’ purchasing power continues to grow. In addition, system liquidity is high, because of loan growth that still lags deposit growth and depositors’ preference for US$-denominated demand deposits, which provides the banks with ample low-cost funding. Furthermore, credit risks are offset by the banks’ healthy capitalization and the high reserves mandated by Uruguay’s strict provisioning, which discourage the banks from expanding rapidly. However, the banking system remains highly dollarized, and further devaluation of the Uruguayan peso in 2015 will limit any sudden shift towards local-currency deposits in the near term. Foreign currency lending is largely concentrated in corporate loans to exporters, which help somewhat mitigate banks’ foreign currency risk. The government-owned banks have a dominant position, resulting in a highly concentrated banking system that somewhat limits business opportunities for the privately owned banks. Furthermore, growing competition, rigid personnel expenses, inflation adjustments, and equity taxes will continue to limit earnings in 2015, despite the banks’ conservative growth strategies to contain risks. HUMAN CAPITAL Uruguay was the last country in Latin America to authorize private higher education institutions. Current regulatory and financing arrangements contribute to a still rather limited private-public competition but that may be changing, and the graduate level is a key locus of such new competition. A New Private Sector Private higher education was not allowed in Uruguay until 1985, when the government authorized the founding of the Catholic University. Ten years later, a new regulation was passed, opening the way for ample private growth. Since 1995, 17 private higher education institutions have been recognized by the state. In the past 10 years, the sector has expanded and now offers 98 academic programs at the undergraduate and graduate levels. Uruguay’s private sector now holds 12% of total national enrolments, although this percentage remains far below the private sector’s share in Chile, Brazil, and other countries in the region, some of which have more than half the enrolments in the private sector. The venerable University of the Republic (Universidad de la República) is the country’s only public university. It has a rather open admissions policy, and it does not charge tuition. As a consequence, the private sector is constrained in its ability to attract students, especially from low- and middle-income families. This dual nature of the system, in terms of finance, is the main reason why private-public competition at the undergraduate level remains limited. HEALTHCARE According to BMI Research, Growth potential within Uruguay’s healthcare market remains highly positive as the country becomes increasingly proactive toward public-private partnerships within the sector, as well as the result of improving medical services and Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Services Industry 113 accessibility nationwide. Efforts to develop Uruguay’s healthcare system will continue over the long-term, driven by the country’s tremendous burden of non-communicable conditions. These are namely neuropsychiatric conditions, diabetes, and cardiovascular diseases, which will dominate the country’s long-term epidemiological profile, ensuring revenue generation through hiking medicine demand. This, combined with Uruguay’s status as 65 out of 190 countries ranked according to health sector appeal by the World Health Organization, solidifies the country’s attractiveness for multinational health companies and drug-makers. Uruguay’s healthcare market will more than double over the next decade, growing from UYU112 billion (US$5 billion) in 2014 to UYU296 billion (US$9 billion) in 2024, equating to a compound annual growth rate (CAGR) of 10.2% and 6.2% in local currency and US dollar terms, respectively. Over our 10-year forecast period, per capita medical spending will rise from US$1,411 to US$2,490, while health expenditure as a proportion of GDP will fall from 8.4% to 7.0%. Public healthcare will retain its dominance over the next decade as its percentage of total health spending grows from 68% to 74%, leaving private services the minority health provider. Between 2014 and 2024, pharmaceutical sales as a proportion of total health spending will grow from 6.7% to 7.0%. TOURISM Uruguay boasts a dynamic services sector with tourism as its largest source of revenue. With a population of slightly under 3.4 million, Uruguay welcomes about 2.5 million tourists a year, mainly from within the region, though increasingly from Mexico, the U.S. and Europe. A favourable business climate, with tax incentives for investors, cause tourism to account for 7% of the Uruguayan GDP and to generate more than 90,000 direct jobs. The country offers very attractive natural conditions for different types of tourism, all located a very few kilometres away from each other. In addition to the traditional sun-and-beach and urban tourism, the country also offers tourism involving rural spaces and nature, hotsprings and leisure, nautical, congress and events destination, and social tourism, among others. The significant progress as regards infrastructure, connectivity and related services over the last years create favourable conditions for tourism and multiply opportunities. The sector is granted important tax benefits, including Income Tax exemptions from the regulation of tourism promotion as well as a specific investment promotion system for Condo-Hotels. INFORMATION AND COMMUNICATION TECHNOLOGY The Chamber of Uruguayan IT companies, CUTI, notes that 700 IT organisations currently operate in Uruguay. It states this is partly because the sector is constantly promoted and developed by the government and the software produced for export isn’t subject to profit tax or VAT. And adds that a Harvard University study identifies it as one of the most advanced software development centres in Latin America. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Services Industry 114 This means many ambitious tech entrepreneurs are flocking to the tech hub in Uruguayan capital, Montevideo, in the southern tip of the country. And some people are specifically coming to Uruguay to start tech-related businesses. Some reasons for optimism for further development of IT sector are: Excellent availability of skilled workers. Its professionals are internationally acknowledged in several areas of knowledge. High penetration of Internet, PC and cell phone, reliable power supply, much of which comes from renewable energies. Cultural affinity, time zone between USA and Europe, which is also an excellent supplement to global services rendered from other more distant locations. Important tax incentives for activities related to Shared Service Centres, Call Centres, Software and Biotechnology, among others. The Uruguayan Government is developing the “Support Program for Global Services Export” for the purposes of contributing to the development of the global export service market in Uruguay and, in particular, increasing investment, exports and employment in the sector. Investment Risks, Barriers and Challenges Strengths • Plentiful agricultural and forestry resources • Social homogeneity and political stability • Active reforming policy (business climate, public finances, social protection) • Comfortable currency reserves and sizeable foreign direct investment • Member of Mercosur, favoured trading relations with the EU and the United States Weaknesses • Economy vulnerable to external shocks • Inadequate transport infrastructures • Dependence on Argentine and Brazilian economies, as well as on agricultural markets • High level of public debt, but being reduced • Competitiveness being reduced by high inflation • Vulnerable banking system Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Investment Risks, Barriers and Challenges 115 POLITICAL Tabaré Vázquez, previously President between 2005 and 2010, was elected (with 52.8% of the votes) in the presidential elections in November 2014. His party, Frente Amplio (FA), won a majority in both houses of Congress. The continuation of the left in power is due to the significant social advances made (universal sickness insurance, welfare payments for the poor) and the improvement in the country’s economic indicators. The newly elected President, with a term of office starting in March 2015, is committed in particular to the issues of education, infrastructures and security. The continuation of an expansionist policy, in particular for social spending, would seem problematic because of the slowing of the Uruguayan economy. The country does however continue to enjoy proven institutional and political stability. GOVERNANCE Uruguay has little corruption; it is one of the 20 top countries that were ranked as having the lowest perceived levels of corruption in 2013. Government procurement and bidding processes are generally transparent, but slow. The bureaucracy for obtaining official investment information and procedures can be sluggish at times. ECONOMIC Uruguayan economic growth in 2014 suffered as a result of the slowing in the Brazilian economy and the Argentinian recession, its two leading trading partners. The outlook for an upturn in activity in 2015 is not much better because of the slow pace of economic growth for the region as a whole. Whilst remaining moderate, the economic expansion is an encouraging sign that the country is less exposed to the problems being faced by Argentina during the 2001 crisis. In terms of internal demand, this is likely to be held back by the slowdown in investment, The absence of major construction projects (completion of the Montes del Plata pulp mill), the decline in house building linked with weaker demand, together with the easing back in foreign direct investment (Argentinian and Brazilian in particular) will slow the country’s economic growth. Its tourist sector will also struggle because of smaller numbers of visitors from its neighbours, which will also hit the retail sector. Household consumption however should remain relatively dynamic thanks to an improving jobs market and the indexing of wages against food prices. The contribution from exports is likely to be smaller, with the decline in sales of manufactured products (clothing and textiles, building materials) being partly offset by higher sales of wood and pulp. On the supply side, industrial performances will remain mediocre, despite the increase in production with the new paper mill on the Uruguay River. The depreciation of its currency, the indexing of wages as well as the lack of credibility of its Central Bank, (inflation running above the 3-7% target for more than three years) will add to the inflationary pressures. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Uruguay — Investment Risks, Barriers and Challenges 116 URUGUAY’S STATUS IN GLOBAL ECONOMIC RANKINGS The World Bank “Doing Business Ranking” 2015 Compares Business Regulations for Domestic Firms in 189 Economies Uruguay India 88 out of 189 countries 142 out of 189 countries Other Rankings Index Corruption Perceptions Index Global Competitiveness Report Global Enabling Trade Report Global Services Location Index Index of Economic Freedom International Logistics Performance Index (LPI) Inward FDI Potential Index KOF Index Globalization Networked Readiness Index (NRI) Rank 216/173 73/140 56/138 42/51 43/178 91/160 87/139 55/186 40/142 Indo-Uruguay Economic Relations Trade turnover was US$119 million for 2013 and during the first ten months of 2014 (JanuaryOctober) stands at US$129 million. Indian exports to Uruguay account for US$114 while Indian imports account for US$15 million. India´s exports to Uruguay Chemicals, garments, vehicles, sound and image devices, pharmaceuticals, iron and steel, synthetic yarn, equipments and machinery India´s imports from Uruguay Wool, Leather and Timber. INDIAN INVESTMENTS TCS has established a Global Delivery Centre in Montevideo employing 800 local staff besides about 60 Indians. This was the first IT Centre opened by TCS in Latin America in 2002. Indian IT company Geodesic Ltd acquired a Uruguayan software company in Montevideo in May 2009. The Uruguayan company has a staff of 40 persons and specializes in Instant Messaging solutions and applications for mobile phones and companies. Zamin Resources, an NRI company promoted by Mr. Pramod Agarwal has entered into an iron ore Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Uruguay Economic Relations 117 mining project. The total cost of the project is over a billion dollars. The company has already spent several million dollars in the preparatory stage and has an office in Montevideo. Arcelor Mittal has acquired (Dec 2007) a Uruguayan stainless steel tube producer CINTER S.A., with sales of US$47 million employing about 200 people. A consortium of Indian vegetable oil companies is exploring opportunities for investment in agribusiness in Uruguay. Olam, a NRI company based out of Singapore has acquired a Dairy farm in Uruguay for over 150 million dollars. Olam has also started rice farming in Uruguay. Other Indian companies have shown interest in investment in pharma and agri-business sectors. A number of Indian companies, including Reliance and Sakti pumps, use the bonded warehouse facilities of ‘GrupoRas’, which is keen to provide the facility to other Indian companies as well as marketing support. Carlos Ott, the famous architect of Uruguay was the architect for the 250 million dollar IT park of TCS in Chennai, the largest software development centre in the world, employing 24000 professionals. This was inaugurated by the Uruguayan Vice President in February 2011. Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015 Indo-Uruguay Economic Relations 118