With an economic development model aimed at the promotion of international inclusion, Uruguay is an ideal destination for foreign 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 percent after 10 years of continuous growth. Between 2003 and 2012, Uruguayan GDP increased by 5.2 percent, 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 four percent.
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.
The path to investment
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 $2.8bn, i.e. 5.4 percent of GDP.
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 percent 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 percent (1983-2004) to 20 percent (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 percent 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 percent 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 local-foreign capital associations. It is estimated that the energy restructuring process will result in investments of over $7bn, accounting for 13 percent of GDP.
For 2015, the energy matrix is expected to be 15 percent wind power generation and 13 percent 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 percent to 100 percent.
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 percent wind power generation and 13 percent 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.
Banco República
The success of Banco República’s model has been supported by a healthy and sound national banking system, within which it has been playing a leading role. With assets of almost $14bn and a market share of over 40 percent, Banco República is an essential partner in Uruguay’s investment landscape.
With active and strong support to projects in a wide range of sectors, Banco República is the leading bank in long-term financing in Uruguay, and is particularly concerned with the social and environmental features of projects. As a consequence, the bank is strongly involved in investments compatible with environmental care and respect, especially those related to alternative energy sources and eco-efficient projects.
http://www.worldfinance.com/banking/uruguay-makes-the-investment-grade
