The hit of the global economic crisis coupled with the harsh and extended drought has transformed the once-vulnerable Paraguay, with its rich agricultural industry and extensive hydro-electricity resources, into an attraction for foreign investors
Canadian entrepreneurs and investors Neal De Florio and Daniel Wang, Principals of Monarca Capital, are smitten with Paraguay’s stable economy, high incentives, low taxes and abundance of water, extensive arable land and clean electricity, oil and gas. “The strategic geographic location of Paraguay, nicknamed the ‘Heart of South America’ is at the ‘heart’ of the highest income region of the continent, which accounts for almost 50% of South America`s GDP,” say the investors.
Wang and De Florio are in for the long run. They have worked diligently to identify a number of investment opportunities in Paraguay in the banking, agricultural, real estate ,and infrastructure sectors. De Florio says, “Our first priority is to find the ‘right’ partners in Paraguay, then we focus on the opportunities that are available to us in each of the specific sectors we have earmarked. Doing business with honest and ethical people is paramount to long-term success in foreign markets.”
Monarca’s long-term aim is to develop funds for multiple sectors with foreign equity combined with traditional debt and/or fixed income securities. According to Wang, investments into Paraguay would be best suited for the mid-sized institutional investor or high net worth private investors. He says, “You won’t necessarily find deep discount opportunities as you would in the United States after the financial crisis, but you will find exceptional opportunities below their intrinsic value and at discounts compared to its neighbouring countries of Argentina and Brazil.”
The stigma of corruption in its banking sector can’t be easily dismissed, but Wang believes the Paraguayan banking sector is solid due to much improved and notably stricter regulations under the direction of the Central Bank. “The development of inter-banking systems has resulted in increased interest from international banks such as Banco Regional, which is 40% owned by Rabobank, HSBC, and Citbank,” he says. The entrepreneurs are also encouraged by a recent press release announcing Paraguay’s two largest banks—InterBanco, a unit of Brazil’s Itaú Unibanco (NYSE: ITUB), and the local subsidiary of Spain’s BBVA (NYSE: BBV)—both posting “the biggest profits in the system from January to August of this year.”
While Paraguay enjoys the backing of its international banking partners, it cannot be denied that only 20% of its population has access to financial services due to its extensive rural areas. De Florio and Wang have identified an opportunity in the very need to shift banking from the current 75% dominant ‘sight deposits’ (similar to that of ‘chequing accounts’) to medium- to long-term financing and broaden banking participation. “There are plenty of development opportunities to fill that gap. Paraguayan banks and the government are committed to achieving widespread access to financial services in the country,” says De Florio.
In the real estate sector, De Florio and Wang strongly believe developing low- to middle-income housing is an opportunity to ‘cash in’ on a strong demand to alleviate the housing shortage.
Nothing could be more surprising than Paraguay’s recent historical milestone. After a decade, Brazil decided to increase Paraguay’s compensation from $120 million to $360 million for its share in operating the world’s largest energy-generating plant, the Itaipu Hydroelectric Power Plant, jointly owned by Paraguay and Brazil on the Parana River. Paraguay will soon enter into the Brazilian energy market as the agreement will allow Paraguay to sell its unused power in Brazil. Investors can look forward to infrastructural developments with the replacement of obsolete electric transmission lines by 2012. The powerful lines will increase Paraguay’s current 10% generating capacity to correspond with its industrial growth. While other emerging agricultural sectors could account for a deficit because of inadequate water supply, Paraguay’s advantage of having extensive water reserves and arable land together with low energy costs will continue to boost agricultural investment incentives.
For Monarca, Paraguay is a country with unlimited growth potential and unrivaled benefits. With Paraguay’s equidistance to Brazil and the Atlantic Ocean and to Chile and the Pacific Ocean, and with Rio Parana’s natural borders to Brazil and Argentina, Paraguay enjoys access to main commercial centres, free ports, regional ports, barges and transatlantic ships.. It is a land where the VAT is, at 10%, the lowest of all South American countries; a land where 0% is applied to import tariffs on capital goods, capital transfer for investments of more than $5 million, and payments of interest on foreign loans. And, Paraguay is the ideal country for a business platform for logistics and distribution centres, IT, call centres, financial services, light manufacturing, vehicle and machinery yards and tourism offices.
For other foreign investors, Paraguay awakens an anxious attraction. Moving in the direction of greater investment transparency, stricter guidelines and minimized risks and costs, Paraguay is positioned to break down its barriers and could prove to be among the first in Latin America to emerge as “paradise found.”