Investing in Uruguay August 2013
Content General overview Macroeconomic Outlook
Uruguay at a glance General Overview. Population: 3,3 million Market size (GDP) USD 50 billion GDP per capita: 15.000 USD/year (second in South America) Low inequality. High human development. Solid democratic institutions. Low corruption. Bank secrecy. Globalized and integrated economy. Investment Grade. Openness (X+M/GDP):56%. No financial constraints to capital flows. Friendly with FDI: 5% of GDP, second country in South America. Investment promotion regime, both for local and foreign capitals. No restrictions on profit transfer or capital flows. Dollarized economy US Dollar denominated deposits: 74% Foreign currency public debt: 45% 3
Uruguay: small rich country in South America» GDP per capita: 2nd place in Latin America 4
Uruguay at the top of the region» Political Stability: 1st place in Latin America 5
Political stability and parties rotation Three major parties that have alternated in government in 20 years. All Presidents in recent history have peacefully finished their mandate, a remarkable difference compared to other countries in the region. Party in Government: Broad Front (FA- Frente Amplio in Spanish), a left-wing party. Current President: José Mujica» Political Stability: 1st place in Latin America (Worldwide Governance Indicators 2010, World Bank) The FA integrates the block of so called social democratic parties (together with Workers Party in Brazil and the Socialist Party in Chile), distinguished from populist left-wing parties for being integrated into competitive, multi-party democracies and pursuing economic growth and social inclusion. FA s governments have implemented orthodox macroeconomic policies, respected private property and promoted local and foreign investment, while increasing social public expenditure in areas such as education, health and welfare programs. 6
Sound institutional framework The Global Competitiveness Report 2013-2014 Institutions Rank Uruguay is a country with a stable and comprehensive legal framework, and a respect for property rights and contracts. Both the Legislative and Executive branches operate properly and the judicial institutions act independently. In the same line, the Global Competitiveness Report of the World Economic Forum puts Uruguay as the country with the lowest incidence of crime and violence in business within Latin America. Uruguay is recognized internationally as having a reduced level of corruption and its incidence in business operations 7
Social stability Economic growth in the last decade has been an inclusive process from the social point of view, generating positive leakages on the population s standard of living. Unemployment has systematically decreased since 2003 to reach around 6% of the active population while real wages increased at an annual rate of 4% in the same period, thus systematically reducing poverty and extreme poverty.» Human Development 2012: top 3 in Latin America (United Nations Development Program) Additionally, policies introduced by FA s government such as cash transfer programs to unemployed people and the redesign of the public health system, contributed to the reduction of social vulnerabilities. Regardless this recent process of social inclusion, Uruguay has a long lasting tradition as a peaceful, developed and educated society. Primary education is secular, free, compulsory and publicly funded. Citizens have access to free education from pre-kindergarten through University. Recently, Uruguay was one of the first countries in the world to develop social and digital inclusion through the initiative one laptop per child. Plan Ceibal program provides free laptop to public school children in primary and early secondary studies. 8
Strong Incentives to Investment (I) Free Zones Regime Tax exemptions to export oriented activities, both services and manufacturing. Tax exemptions (income and wealth tax) up to 100% of the invested amount. ALL kind of investments in ALL industries are eligible. Tax benefits on ALL Investment Projects Free Port Regime Tax exemptions to export oriented services, mainly storage, packaging and logistic. 9
Strong Incentives to Investment (II) COMAP is the commission which grants tax benefits for investments. 10
Content General overview Macroeconomic Outlook
Brief economic history 60s: stagflation 70s: dictatorship, deregulation, openess 1982: FX, debt and banking crisis 80s: low growht and price instability 90s: fixed FX, inflation<10% 1985: democracy 2003: debt swap 2002: FX, debt and banking crisis 2004-12: high growth period» Average growth in second half of 20th century: 1,7% 12
Last decade s growth well above historical records Leading growth industries: Agriculture Grains Forestry - cellulose pulp Logistics and Transport, for export-oriented industries. Logistics and professional services for the region. Technology and communications. Tourism - Hotels and Restaurants. Chemical and Pharmaceutical. Between 2004 and 2012 Uruguay grew 5,8% per year, tripling the average growth of second half of the twentieth century. Economy slowed in 2012 consistently with lower global growth and the region s cooling. Growth in 2013 would be "toned" by extraordinary factors (Montes del Plata and reversal of rainfall). Without them, growth would be around 3% 13
Exports boosted economic growth Exports above USD 13 billion; a fivefold increase in last decade, most of it is price effect Exports volume grew by 2,5 times. Exports are mainly primary based. Food commodities and derivatives stand for 2/3 of exports of goods: beef, soybeans, cellulose and dairy are main export products. Soybeans area grew by 10 times in last decade. Exports of beef quadrupled in 10 years. 14
Uruguay s FDI: second country in Latin America Fuente: en base al BCU Uruguay received USD 13.400 million in FDI between 2001 and 2011. Construcción was the main destiny, reaching 35% in 2011 Argentina is the main origin: 25% of total Uruguay has has one of the highest FDI/GDP ratios in the region 15
Unemployment at record lows» Unemployment has declined consistently since 2003 to settle at around 6%. Labor market withouth idle capacity puts pressure on labor costs. To improve productivity is key to growth and maintain margins. 16
Adequate debt management reduced vulnerabilities Debt/GDP ratio reduction, dollar reserve increases, and a policy of public debt dedollarization have been key elements to reduce economic vulnerabilities 17
Uruguay was granted back with investment grade in 2012 Investment Grade in the region The upgrade is based on Uruguay s sound economic growth prospects and improving external and fiscal indicators, as foreign direct investment strengthens and improves economic diversification. Standard & Poor s April 2012 18
Significant reduction in inflation since the 1990s, but still high compared to current global levelssobre precios Uruguay showed a significant improvement in monetary policy since 1990, when inflation climbed up to 100%. High GDP growth and real wages increase pressured inflation during last decade. Inflation has remained above Central Bank target (4% to 6%). Government has showed a firm commitment with inflation below 10%. 19
RER appreciation of the peso has reduced competitiveness Throwing back RER appreciation is the main macroeconomic short term challenge. RER appreciation drive rising CA imbalances, that must be corrected in the medium term. 20
2 major medium term challenges Infrastructure: o Roads o Train o Ports o Energy Human Capital: o Slow growth rates. o Quality: Uruguay needs reforming education system. 21
Edificio FERRERE Juncal 1392 +598 2900 1000 Montevideo, 11000 Uruguay www.cpa.com.uy