Paraguayan President Horacio Cartes is trying to turn his country into “Latin America’s China” with the help of Brazilian investments. With fiscal incentives, Cartes has attracted Brazilian companies to manufacture their goods across the border.
Paraguay’s manufacturing program, or “maquila” law, guarantees a tax maximum of 1 percent to factories which export 100 percent of their goods. The program has seen its greatest success since Cartes took office in 2013, precisely when Brazil’s economic started to tank.
Brazilian companies have opened 78 factories and created 6,700 jobs in Paraguay since 2014, with further growth projected in 2017. Meanwhile, unemployment in Brazil has reached a record high of 11.9 percent. Furthermore, the economy hit the industrial sector particularly hard, which has lost 1.4 million jobs over the last year.
The Paraguayan president hopes to substitute the rising prices of Chinese-manufactured goods with cheaper labor from just across the border. Cartes is counting on the country’s young and able workforce, with over 70 percent of Paraguayans under 30. While a large part of the young population works under the table, this program provides a way to earn a steady – and taxable – pay.
Cartes, in turn, tossed a number of social programs. The Paraguayan head of state holds one of the lowest among Latin American presidents at 23 percent. (Brazil’s own President Temer recorded an all-time low of 13 percent in his December approval rating.)
Business crosses the border
Companies that produce cheap goods normally imported from Asia, such as clothes, plastic toys, and other manufactured goods, have the most to gain with Brazilian businesses.
One Paraguayan company benefiting from foreign business is Texcin, which makes clothes for the Brazilian brand Riachuelo. While Texcin currently exports 300,000 articles of clothing, production should increase to 1 million exported items in 2017. The clothing manufacturer also plans to more than triple its workforce. Brazilian shoe manufacturers Bracol and Fujiwara moved to Paraguay in 2014. Brazilian plastic company X-Plast recently moved its operations across the border to Paraguay as well.
Moreover, it’s not just Brazilian businesses that are crossing the border. Foreign companies have also opened factories in Paraguay to supply pieces to their assembly lines in Brazil. The German electrical wiring company Leoni moved six supply factories to Paraguay with the guidance of Brazilian businessmen. Meanwhile, the company continues to send pieces to assembly lines across the border.
For better or for worse, Paraguayan goods are already known in Brazil to be cheap. Due to the country’s high levels of contraband exports, Brazilians often say a poorly made product, or a fake brand, is “from paraguay” (“é do paraguai”).