Paraguay - Swiss-Paraguayan Chamber of Commerce

About Paraguay

General Information

The Republic of Paraguay is a landlocked country located in the center of South America. It borders Bolivia and Brazil to the north, Brazil and Argentina to the east, Argentina to the south, and Argentina and Bolivia to the west. However, it has a privileged geographical position due to the confluence of the main river system that is part of the Rio de la Plata Basin.
Paraguay has a population of 7.15 million which is almost equivalent to that of Switzerland. The Paraguay River crosses the country from north to south and divides it into two natural parts: the Western Region (Chaco) in the west, which occupies about 60% of the country’s surface area, and the Eastern Region, where more than 97% of the population lives.

The official languages are Spanish and Guarani, making it one of the few bilingual countries in the Americas. Most Paraguayans speak or understand both languages, and Guaraní is predominant in rural areas.

Economic Perspective

The economic activity is mainly based on agriculture, livestock and trade. Industrial development is minimal and related to the production of meat, beverages, tobacco, machinery, equipment and agricultural products.
In Paraguay there is an economic system based on free trade, free import and export and free movement of capital. There are no transfer pricing restrictions or other limitations.

The country has a series of natural and economic conditions that make it attractive for investments:

Economic and political stability

Hydroelectric energy: abundant, clean, renewable and cheap

Low labour cost

Low fiscal costs to other neighboring countries

Free repatriation of capital and profits

Easy access to international markets through the Parana and Paraguay rivers, and a road system with international bridges

In 2017, Paraguay exported 6.82 billion dollars, making it the 97th largest exporter in the world. Over the past five years, Paraguay’s exports have increased at an annualized rate of 5.4 per cent, from $5.22 billion in 2012 to $6.82 billion in 2017. The most significant recent exports are soybean, which accounts for 32.1 per cent of Paraguay’s total exports, followed by soybean flour, which represents 10.9 per cent.

Paraguay had the highest growth rates in all of Latin America in the last two decades, with an average real rate of 4.5% (2004-2018). This is mainly due to three factors:

Increased productivity
Stable monetary policy
Conservative fiscal policy (public debt reached 21.5% of Paraguay’s GDP)

Overall, projections for the country’s outlook are good. By 2020 the IMF expects a real GDP growth rate of 4.0%. However, it is necessary to consider that there are vulnerabilities that could negatively affect this growth. The two main ones are the fall in raw material prices and the weak recovery in neighboring countries, such as Argentina and Brazil. Paraguay is a member of the Mercosur trade bloc which includes Brazil, Argentina, Uruguay and Paraguay. It is the largest trading block in the region with a potential of 200 million consumers, goods, services and production factors. Mercosur concluded a free trade agreement with EFTA (European Free Trade Association) in August 2019 and is due to be ratified in 2020. This provides the ideal opportunity to intensify commercial ties between Paraguay and Switzerland, which still have great potential to be exploited by companies from both countries..

Paraguay’s currency is the Guarani (PYG) which is a free-floating currency. During the last two decades the Guarani was a very stable currency compared to the US dollar. The exchange rate is correlated with the price of soybeans. In the period 2000-2008 marked by the appreciation of the Guarani the price per bushel of soybeans quadrupled from $4 to almost $16. The period 2012-2020 the price of soybeans fell from $16 to $9, marked by the devaluation of the Guarani. Inflation in recent years was around 4%.

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Access to credit for Paraguayan companies, especially in the agricultural sector, is difficult and expensive. Corporate loans in US dollars at rates above 10% are more the rule than the exception. Despite a very stable financial system, 68% of the population has no bank account, the lowest rate in the region. As a result, the majority of salaries are paid in cash. As bancarization is not very advanced in the country, receiving and issuing transfers abroad causes a fixed expense of 38USD independent of the amount transferred, which makes foreign trade difficult, especially for SMEs.

Paraguay is considered a low tax country. The main taxes are 10%:

Corporate income tax
Personal income tax
VAT

However, distributed profits are subject to an additional 5% tax. The government is very interested in attracting foreign direct investment, therefore, there are certain tax exemptions of up to 10 years. Learn more

Social and political perspective

Like all countries in Latin America, Paraguay is a strongly inequitable country. However, this inequality does not generate strong social discontent in the streets or at the polls. In the Mercosur, at the political and social level, Paraguay is the most stable country. Thus, there is no political polarization that can be seen very often in the neighboring countries. Therefore, the presidency has always been occupied by the Colorado Party during the last 70 years with only one exception.

The capital, Asunción, is the largest city in the country where 40% of the population lives. The city in general is very safe compared to other Brazilian cities. Therefore, armed robberies are rare.