Tourism Doing Business Investing in Paraguay
“The potential for opportunities is high, especially for investments such as tourism infrastructure, and product diversification based on innovation and creative economy that will allow incorporating Small and Medium Enterprises (SMEs), rural populations and young people into the tourism value chain as a strategic sector to generate jobs and sustainability."
Executive Director World Tourism Organization (WTO)
In an effort of the continuous series of Tourism Doing Business reports, the World Tourism Organization (UNWTO) has coordinated efforts with the National Secretary of Tourism of Paraguay (SENATUR) to create a guideline, promoting investments into Paraguay. This publication builds a reference for investors by providing valuable information and guidance on the Paraguay’s current investment climate as well as emerging investment opportunities in its tourism sector.
With a population of 7.2 million inhabitants, Paraguay has presented itself as one of the most stable economies in the region. Indeed, despite several turbulences of international financial markets which largely affected many neighboring countries over the past decade, Paraguay sustained a Gross Domestic Product (GDP) growth average of 4% per annum pre-COVID-19. Fundamental factors of this stable economic growth has been the country’s strong monetary and fiscal institution and policies. Indeed, over the past 15 years, Paraguay has been characterized as a fiscally and monetarily responsible country, with a sound central bank, providing predictability in the country's financial system. Paraguay’s attractive 10-10-10 regime (10% corporate tax rate, 10% income tax rate and 10% value added tax rate) has equally caught the attention of international investors and builds one of the main pillars of the country’s attractive business environment.
Growing on average 4.7% per year between 2004 and 2016, Paraguay’s annual GDP growth has been significantly higher than the regional average of 3.2%, positioning the country in the heart of South America as one of the region’s most stable economies. Furthermore, Paraguay has recorded a total GDP of USD 38.3 billion in 2021, a 5.4-fold growth since 1993. Regarding its foreign trade, accounting for 72% of its GDP, soybeans and meat dominate its export matrix. On the other hand, electricity represents about one-fifth of Paraguay’s total export. This said, Paraguay has the highest hydropower per capita in the world and stands out as one of the world's leading producers of renewable. Additionally, Paraguay is a co-owner , with Brazil, of the world's second largest hydroelectric dam, the 14-gigawatt Itaipu.
Regarding foreign direct investments (FDI), Paraguay’s FDI inflows in 2021 and 2020 reached a total of USD 6,302 million and USD 6,881 million respectively, according to the United Nations Conference on Trade and Development (UNCTAD). The country’s strategic attractive 10-10-10 regime (10% corporate tax rate, 10% income tax rate and 10% value added tax rate) plays a significant role in creating an attractive business environment for foreign investors across different industries.
Regarding the tourism sector, Paraguay is an emerging destination with a lot of potential. According to data from the World Tourism Organization (UNWTO), the number of non-resident visitors in 2019 to Paraguay exceeded 1.2 million tourists while 2017 was the year the country welcomed the most tourists with 1.58 million international visitors. The majority of tourists visiting Paraguay come from Argentina and Brazil, representing almost 70% of international tourists.
Paraguay is home to recognizable cultural and natural wealth with a large number of natural tourist attractions. The country is divided by the Paraguay and Paraná river, creating two regions of fundamentally different climates. This offers a rich and diverse flora and fauna with at least 167 species of mammals, 670 species of birds, 230 species of fish, 117 species of reptiles, 63 species of amphibians and more than 100,000 species of invertebrates that inhabit the country. On the other hand, the religious historical heritage stands out as the country's star resource. Paraguay has many pre-Columbian ruins, historical heritage sites and a rich history related to the Jesuit missions.
However, although Paraguay has implemented policies and programs to improve its competitiveness and investment climate, the country faces the challenge of strengthening its tourism ecosystem. Despite the emerging demand of Paraguay as a tourist destination, the tourism sector has a relative contribution to Paraguay’s GDP of 1.9% between 2016 and 2021.
- In the last decade, Paraguay has been developing different monetary and fiscal reforms and policies; modernizing an institutional framework and enabling a stable macroeconomic environment suitable for foreign direct investment. Offering competitive taxes and incentives such as the 10-10-10 tax regime (10% corporate tax rate, 10% income tax rate and 10% value added tax rate) are one of the pillars of the country's business environment that have been key in attracting foreign investors.
- Although the contribution of the tourism sector to Paraguay's Gross Domestic Product (GDP) is around 2%, the sector’s effect on the country's pre-pandemic exports represented around 11%. Hence, the multiplier contribution in the balance of payments is a strategic opportunity to be explored.
- Low energy costs, low taxes and a young workforce can become competitive elements to develop a vocation that responds to the current trends of sustainability and innovation in the region. Indeed, Paraguay has a regional comparative advantage due to its abundance in renewable electricity, its young population and its tax benefits. This creates a crucial potential for the generation of sustainable mobility business models, including the transportation and the development of technology-based ventures focused on tourism.
- This said, Paraguay faces the main challenge of diversifying its current productive apparatus. This will require investments in sustainable infrastructure, strengthening local talent and new capabilities through the incorporation of new technologies, and the development of creativity and innovation programs. This will allow the diversification of new products and services that are based on innovation and the creative economy as well as the incorporation of Small and Medium Enterprises (SMEs), rural populations and young people in the tourism value chain.
- The development of creativity and innovation programs along the tourism value chain is vital to accelerate the adoption of technologies and boost business models through startups in the travel tech and sustainable mobility verticals, which can trigger innovations around cultural, natural and historical heritage assets, especially to empower young populations and generate quality jobs and mechanisms for incorporation into the labor market, broadening its competitive base.
- Given the conclusions above, it is recommended to develop frameworks for investment facilitation and promotion through establishing multi-ministerial or multi-sectoral coordination mechanisms and effective governance mechanisms that establish roles and attributions as well one-stop shops that facilitate interaction between foreign investors and government agencies.
- Lastly, frameworks for investment facilitation not only support the creation of sub-sectoral linkages and the integration of SMEs and Startups into the tourism ecosystem value chain but also attract a wider range of investors focused on sustainability.