Argentina, Chile, Colombia, Peru, Paraguay and Uruguay ...€¦ · Argentina, Chile, Colombia,...

Argentina, Chile, Colombia, Peru, Paraguay and Uruguay Business Handbook 2015

Suhayl Abidi

Handbook - 38/2015

GoG-AMA Centre for International Trade

Argentina, Chile, Colombia, Peru, Paraguay andUruguay Business Handbook 2015

Compiled bySuhayl Abidi

For any queries, please contact: [email protected]

First Published: December 2015

Published byGoG-AMA Centre for International TradeAhmedabad Management AssociationTorrent-AMA Management CentreCore-AMA Management HouseATIRA Campus, Dr. Vikram Sarabhai MargAhmedabad 380 015Phone: +91-79-2630 8601 • Fax: +91-79-2630 5692Email: [email protected] • Website: www.amaindia.org

ContentsClick on country to view contents

Argentina 1

Chile 23

Colombia 41

Paraguay 65

Peru 79

Uruguay 101

ARGENTINA

Highlights 2

Introduction 2

Argentina — Key Economic Factsheet 2014 3

Economic Highlights and Forecast 3

Laws and Policies Relating to Foreign Investment 5

A Magnet for Investment 6

Focus Areas for Investment 7

Infrastructure 11

International Trade 13

Services Industry 15

Investment Risks, Barriers and Challenges 18

Indo-Argentinian Economic Relations 21

Argentina, Chile, Colombia, Peru, Paraguayand Uruguay Business Handbook 2015

Highlights

• Argentina is Latin America’s third-largest economy.

• More than 2,000 multinational companies operating in diverse sectors

• Vast extension of fertile land for agriculture

• Ranked 3rd worldwide in shale oil and shale gas reserves.

• Highest level of public investment in education in the region (equal to 6% of GDP).

• GDP growth paltry 0.5% in 2014

Introduction

Argentina is a country in South America bordering the Southern Atlantic Ocean. Neighbouringcountries include Bolivia, Brazil, Chile, Paraguay, and Uruguay. Argentina’s continental areais between the Andes mountain rage in the west and the Atlantic Ocean in the east. Diversegeographical landscapes produce varying climates from tropical in the north to tundra inthe far south. The government system is a republic. The President is the chief of state andhead of government. Argentina has a mixed economic system in which the economy includesa variety of private freedom, combined with centralized economic planning and governmentregulation. Argentina is a member of the Latin American Integration Association (LAIA) andMercosur.

Argentina is one of Latin America’s largest and wealthiest countries, possessing abundanthuman and natural resources, highly-diversified industries, and a 43 million person market.It has been facing many economic and financial troubles these past few months. Futurepredictions are now showing a poor outlook for its economy, as the country is strugglingwith high inflation, a major decline in the value of the peso against the U.S. dollar, andmore trouble involving disputes with hedge fund and holdout creditors. For a country thathas had a history of economic troubles in this century, none of these things spell anythinggood for Argentina’s future, and it only seems to be getting worse from here.

It’s an election year, Argentina will have a new president in December, and that createshuge expectation among the investment community. Continuous high levels of inflation,restriction on the foreign exchange market, import restrictions and the default generatedby the lack of agreement with the hold-outs, have all positioned Argentina among the LatinAmerican countries with lowest investment in terms of GDP. While countries like Brazil,Chile, Uruguay, Paraguay and Colombia have benefited from the liquidity in the financialmarkets due to low rates, Argentina has had to struggle on. Now this will change. The newadministration will have to solve these imbalances to attract local and foreign investment.

Argentina — Introduction 2


Argentina — Key Economic Factsheet 2014

KEY ECONOMIC FACTS

Income Level (by per capita GNI) High IncomeLevel of Development DevelopingGDP, PPP (current international $) 720.49 billion (2011)GDP Growth (Annual %) 2.93% (2013)GDP per capita, PPP (current international $) 17,674.37 (2011)External debt stocks, total (DOD, current US$) 136,271,863,000.00 (2013)Manufacturing, value added (% of GDP) 15.27% (2013)Current account balance (BoP, current US$) -4.81 billion (2013)Inflation, consumer prices (annual %) 10.03% (2012)Labour force, total 19,092,526 (2013)Unemployment, total (% of total labour force) modelled ILO estimate) 7.50% (2013)Imports of goods and services (current US$) 90.47 billion (2013)Exports of goods and services (current US$) 88.52 billion (2013)

Economic Highlights and Forecast

Argentina entered recession at the beginning of 2014, although activity had already startedto contract towards the end of 2013. Following a slowdown in 2013, household consumptionfell slightly at the beginning of 2014. Real wages are falling and confidence among thepopulation is declining. Exports have fallen steeply, with the reduction in sales of vehiclesto Brazil and new cereal export quotas. As occurred at the end of 2013, the drop in importswas much less marked and the external sector posted a negative contribution to growth.Investment is also falling because of strict import controls and restrictions on foreigncurrencies operations. Inflation is moving upwards, partly because of the devaluation ofthe peso: on the basis of the price index as calculated by university institutions, it is likely toexceed 30% in 2014.

Fragile External Accounts, Loose Budgetary and Monetary Policies

The current deficit, which increased in 2013 as a result of rising energy costs, continued toworsen into 2014 because of the weakening of the surplus in merchandise trade. Thissurplus can no longer offset the deficit in services and income (debt service and repatriationof profits by foreign owned companies), limited in the latter case by foreign exchangecontrols.

Argentina — Economic Highlights and Forecast 3


Monetary policy has tightened since the beginning of 2013 in an attempt to counterinflationary pressures arising from the sharp depreciation of the peso in January (-15%).The government used its foreign currency reserves to try to limit the fall of the peso andthese dropped from US$43 billion in January 2013 to US$26 billion by the end of May2014. The decline of the peso on the black market in recent months points however toexpectations of further depreciation among many Argentines. The exchange rate risktherefore looks substantial, connected with a possible new Argentinean debt default (seebelow) and the worsening of the current balance.

The fiscal balance has also declined at the beginning of 2014: the budget deficit has worsenedas a result of wage increases granted to some government employees at the end of 2013.The reduction in the scale of subsidies (5% of GDP) benefiting the energy and transportsectors is hypothetical. The budget deficit is largely financed through money creation becausethe government cannot access international financial markets. It is also financed throughborrowings on the domestic market: as a result, public debt will exceed 50% of GDP at theend of 2014. The government has been attempting to regain access to the internationalfinancial markets since the end of 2013: an agreement was signed with the public creditorsof the Paris Club and the government compensated Spanish oil and gas company Repsolfollowing the nationalisation of YPF (national oil and gas operator).

Gross Domestic Product (GDP)

Economic Indicators

Argentina — Economic Highlights and Forecast 4


Laws and Policies Relating to Foreign Investment

The GOA has signalled its desire to see continued foreign direct investment (FDI) flows toenhance the nation’s productive capacity and GDP growth potential, and it took actions inthe past year to improve the investment climate in Argentina. To regain investor confidence,the GOA settled several outstanding international arbitral awards, engaged with the IMF toimprove economic reporting data, and compensated the Spanish-firm Repsol for the partialexpropriation of YPF in 2012. Argentina also reached agreements with the Paris Club groupof creditors to repay US$9.7 billion in arrears over the next five years, including US$642million owed to the United States. Argentina has already made two payments in the firstyear. The GOA revamped its hydrocarbon regulations in 2014 with the aim of attractingnew investments to develop Argentina’s world class oil and gas resources.

According to a Presidential decree governing foreign investment in Argentina, foreigncompanies may invest in Argentina without registration or prior government approval, andon the same terms as investors domiciled in Argentina. Investors are free to enter intomergers, acquisitions, green-field investments, or joint ventures. Foreign firms may alsoparticipate in publicly-financed research and development programs on a national treatmentbasis. Central Bank restrictions (both formal and de facto) on the purchase of foreigncurrency limit the ability of a company or investor to remit profits, dividends, or investmentsout of the country.

Government incentives apply to both foreign and domestic firms alike. The federalgovernment, as well as provincial and municipal, offers several incentives to attractinvestment to specific economic sectors such as capital assets and infrastructure, innovationand technological development and energy. More details of these programs can be foundhere: www.inversiones.gov.ar/es/incentivos-la-inversion or www.prosperar. gov.ar/

The GOA has established a number of investment promotion programs. These programsallow for Value-Added Tax (VAT) refunds and accelerated depreciation of capital goods forinvestors and offer tariff incentives for local production of capital goods. They also includesectorial programs, free trade zones, and a Special Customs Area in Tierra del Fuego Province,among other benefits. A complete description of the scope and scale of Argentina’sinvestment promotion programs and regimes can be found at www.industria.gob.ar,www.inversiones. gob.ar and www.mecon.gob.ar/. Information about programs thatspecifically apply to small and medium businesses may be found at www. industria.gob.ar/secretaria-pyme.

The Argentine Ministry of Economy (www.mecon.gov.ar), the Investor’s Information Servicefor Argentina (www.infoarg.org), the Undersecretariat of Investment Development and TradePromotion (www.inversiones.gov.ar), the Embassy of the Argentine Republic in the UnitedStates of America (www.embassyofargentina.us/en/invest-in-argentina.html), and theCentral Bank of Argentina (www.bcra.gov.ar) have additional detailed information oninvestment policies in Argentina.

Argentina — Laws and Policies Relating to Foreign Investment 5


FOREIGN DIRECT INVESTMENT (FDI)

The IMF does not have recent direct investment data on Argentina. Argentina was censuredby the IMF in February 2013 for reporting unreliable economic data.

According to the United Nations Conference on Trade and Development (UNCTAD) WorldInvestment Report 2012, the latest information for Argentina, the total stock of FDI inArgentina at the end of 2012 was estimated at US$110.7 billion. The stock of U.S. FDI inArgentina in 2012 was estimated at US$14.4 billion by the U.S. Bureau of Economic Analysis.In 2012, according to UNCTAD, total FDI inflows were estimated at US$12.5 billion andoutward FDI flows amounted to US$1.1 billion.

A Magnet for Investment

After several years of mismanaged economic and monetary policies that drove investmentaway from the country, the situation is changing. There are several things that make investorsvery optimistic.

Argentina has a highly diversified economy. The primary sector is internationally renownedfor its high productivity levels and use of advanced technologies. The country’s well-developed industrial base showcases key sectors such as agribusiness, automotive,pharmaceuticals, chemicals and petrochemicals, biotechnology and design manufacturing.

The traditional service sectors are well established in the country, gradually developingniche expertise in the most sophisticated segments of the value chain, with notable growthin software and IT services as well as a wide variety of high added-value professionalservices.

Investor confidence remains low in the short-term and is more optimistic with regards tothe medium- and long-term. Argentina’s investment climate is dampened by concernswith Argentina’s currency controls, deteriorating macroeconomic conditions, and unresolvedsovereign debt dispute with litigating U.S. hedge funds. Many established companies inArgentina reported that they are planning to expand investment in Argentina in theimmediate or near future, with more economic stability and policy certainty. Sectors ofheightened interest are energy, mining, agribusiness, telecommunications, technology,financial and infrastructure development. In early 2015, the City of Buenos Aires and nationaloil company YPF raised about US$500 million each through bond issuances, demonstratingsignificant investor demand for Argentine bonds. The bonds were bought mostly by Europeanand U.S. fund managers and hedge funds.

Argentina has a managed float exchange rate policy. Conversion of the peso into foreigncurrency is limited.

Argentina — A Magnet for Investment 6


Focus Areas for Investment

MANUFACTURING

One of the main drivers of Argentina’s growth over the past ten years. One sector that hastransformed as a result of this productive wager on the country´s future is capital goods. Inaddition, the sector´s export performance, which has accompanied output, indicates greatpotential moving forward.

Argentina is undergoing the most important economic growth cycle in its history, concurrentwith a strong increase in investment (22.8% of GDP in 2012). Agriculture, manufacturing,infrastructure development and a wide array of services constitute dynamic economic hubsthat demand increasing quantities of goods and durable equipment items to sustainproductive growth.

A highly qualified workforce is the foundation for growth in the industrial sector. Argentineworkers have the highest educational level and labour productivity in Latin America(according to data provided by ECLAC - United Nations). Trained in the 119 universities andhigher-education institutes throughout the country, Argentine technicians and engineersare recognized worldwide for their creativity, versatility and quality skills.

In 2012, the manufacturing industry contributed almost US$85 billion to Argentina’s GDP,or 18% of the country’s total. The annual accumulated growth for the sector over 2003-2012 was above 6%. Several public policies have fostered the expansion of industries thathave become increasingly strategic to Argentina in recent years, which will allow furtherdiversification of the productive matrix and significant competitive advantages. These activitiesinclude chemistry and petrochemicals, plastic, pharmaceutics, aviation, naval and forestryindustries.

FOOD AND BEVERAGES

Argentina is a world leading producer and exporter of foodstuffs. Argentine products, whichare in markets on six continents, continue to earn the country the highest accolades basedon a wide range of attributes, including innovation and quality, and bring in annual exportsales of over US$25 billion. The sector is in full compliance with the highest internationalhealth and environmental standards, positioned to meet the most sophisticated demandsfrom the worldwide consumers.

A Global Opportunity

Today’s global food market plays a role of paramount importance in world economies. Thedemand for foodstuffs is expanding swiftly spurred by the increase in the global population,the economic growth in emerging markets and the emergence of new high-end consumers.In developed countries, the demand for specialty foods, including organic and gourmetproducts, continues to grow. These structural trends guarantee both an expanding market

Argentina — Focus Areas for Investment 7


for Argentine food products and new business opportunities for the country’s premiumand high added value foodstuffs.

Argentina’s vast expanse of fertile lands, exceptional agro-ecological conditions, benchmarkproductivity levels, highly qualified workers and well developed agro-industrial capabilitiesare pillars of the country position as one of the world’s leading producers and exporters offoodstuffs. The sector is comprised of local and foreign companies with global operations,as well as small innovative companies exploiting attractive market niches.

Argentina has a highly competitive and well consolidated food industry. Sector growth inArgentina is driven by innovative developments and the implementation of new technologies.Furthermore, the country is a regional and global leader in terms of the application ofbiotechnology in the food industry, an increasing trend.

RENEWABLE ENERGIES

Argentina has the resources, capacity and potential to supply the growing global demandfor renewable energies and become the regional leader in the sector.

CommitmentClean energies is one of the most dynamic industries in the world, growing 36% per yearon average over the last six years with investments of US$257 billion in 2011 alone. Over118 countries have set targets for use of renewable energies or have adopted incentivepolicies to encourage the use of renewable energies in an effort to diversify the energymatrix and reduce their dependency on fossil fuels. According to the United Nations, atwentyfold increase in the production of renewable energies will be required worldwideby 2050. Argentina has implemented public policies and incentives to promote thedevelopment of renewable energy sources that are in line with world trends.

Local Response Capacity

Argentina is one of the world’s leading producers and exporters of biofuels. Moreover,given the country’s wealth of natural and technological resources, Argentina has the potentialto continue expanding wind and hydroelectric energy production, as well as to developsecond and third generation biofuels, solar power, wave and geothermal energy, and energygeneration from biogas and biomass.

Extensive Experience and Qualified Workforce

The development of renewable and clean energies in Argentina is bolstered not only bythe country’s extraordinary natural resources and its long standing industrial tradition, butalso thanks to the highly qualified workforce in the areas of engineering and biotechnology.Several local companies are exporting their expertise and experience in the production ofbiofuels, wind energy generation, wind turbines, construction of turnkey hydroelectric andbiofuel production plants, and other related services.



BIOTECHNOLOGY

A highly qualified workforce and a solid industrial tradition support the industry´s patternof diversification and re-concentration in production. The biotechnology sector is comprisedof a conglomerate of local and multinational companies, including top global names suchas BASF, Bayer Crop Science, DOW Agrosciences, Monsanto and Pioneer, as well as successfullocal companies with international growth potential. Many of these local companies—AmegaBiotech, Bioceres, Biogénesis-Bagó, Biosidus, Cassará, Gador, Indear, Pharmadn, Rizobacterand Wiener Laboratories—are developing biotechnology applications aimed at promotingcompetitiveness through innovation. The combination of increasing public-private efforts,strong R&D capabilities and a pattern of diversification and re-concentration in productionplace the country as one of the leaders in the biotechnology sector in Latin America, whereit excels for its scientific and innovative potential in agricultural application and human andanimal health.

World-class Scientists

Argentina’s scientific professionals are renowned for their outstanding skills and their capacityfor innovation rooted in a long tradition of scientific excellence. The qualities they embodyendow the country’s biotechnology sector with significant advantages for development. Anumber of educational institutions recognized worldwide offer programs in biotechnologyat both post-graduate and post-doctoral levels. The country has the highest ratio ofresearchers to the economically active population in Latin America.

Diversity and Specialization

Argentina offers competitive advantages in various segments of the biotechnology industry,particularly in the fields of agriculture, food, and human and animal health. These advantagesresult from a production pattern with an export profile and strong international presencecomprised of more than 120 companies, 8,000 highly qualified workers and excellenttechnological institutions and poles, including Leloir Institute Foundation, the ExperimentalBiology and Medicine Institute and the Biomedicine Research Institute of the Scientific andTechnological Pole of Buenos Aires.

Public and Private Sector Cooperation

Prestigious public institutions—including the National Institute for Agricultural Technology(INTA), the National Institute for Industrial Technology (INTI) and the National Agency forScientific and Technological Promotion (ANPCYT)—are driving biotechnology developmentin association with the private sector, contributing to innovation through research anddevelopment projects. This synergy between public and private institutions is reflected bymore than 100 biotechnology projects co-financed by 40 companies, generating investmentsof AR$ 150 million, as well as in the successful association between laboratories anduniversities.



AUTOMOTIVE INDUSTRY

The automotive and auto parts industry represents 9% of the Argentina’s industrial grossproduction value and is one of the most important and dynamic sectors in the domesticeconomy. Front-line international automotive manufacturers—Fiat, Ford, General Motors,Honda, Iveco, Mercedes-Benz, PSA Peugeot-Citroën, Renault, Scania, Toyota andVolkswagen—have chosen Argentina as a production and export platform. Plants located inthe provinces of Buenos Aires, Córdoba and Santa Fe represent 29,000 direct jobs; whilethe auto parts sector is growing every day and encompasses over 400 companies andemploys more than 65,000 workers.

Argentina offers investors an attractive domestic market with over 40 million inhabitantswith one of the highest purchasing power per capita in the region. The country also haspreferential access to Brazil—one of the main automotive markets in the world—and toother Mercosur member countries.

Thanks to the important dynamism of demand and different national and regional programsimplemented throughout 2003-2012, automotive production grew 18% on average peryear, reaching a new production record of 829,000 units in 2011.

Tradition, Capacity and Innovation

With a track record of over 60 years, Argentina’s consolidated automotive and auto partsindustry ranks second in South America in terms of production volume. Both automotiveand auto parts manufacturers have the skills and industrial knowhow to meet the mostdemanding international standards and to add new products and technologies in line withthe latest global trends.

Specialized, Skilled Workers

The sector’s workforce is comprised of highly skilled and experienced workers, representingthe diverse qualifications needed at every stage of the production process. In addition tothe wide range of graduate and postgraduate courses in science, industrial design andengineering offered by public and private universities, there are other important traininginitiatives in places, such as the National Institute of Technological Education and the NationalNetwork of Professional Training, a joint initiative between the government and key labourunions. These initiatives promote professional training at national, provincial and municipallevels in the field of automotive mechanics.

From Argentina to Mercosur and the World

Six of every ten vehicles produced in Argentina are exported to Brazil, thanks to the industry’spreferential access to Mercosur countries. In addition, the industry is benefitted by variousfavourable trade agreements in place with other countries including Bolivia, Chile, Colombia,Ecuador and Peru, which is why numerous multinational manufacturers have chosenArgentina as their production and export platform for models such as Toyota Hilux, FordRanger and Volkswagen Amarok.



Infrastructure

According to BMI Research, after a new government is inaugurated in 2016, we expectgross fixed capital formation (GFCF) will return to real expansion. Businesses will beginconstruction of fixed assets as expectations for more business-friendly policies, such as taxincentives for investment, are implemented. Further, the end of Fernandez’s administrationwill improve perceptions about the Argentine government. Reduced restrictions on importsand a weakened peso will reduce the cost for foreign businesses looking to expand in thecountry’s infrastructure sector. In this context, we forecast construction industry growth toreach 3.7% in real terms in 2016.

Our Country Risk team forecasts Argentina’s economy to grow by a significantly stronger2.5% in 2016, after an estimated 0.7% in 2015. Real gross fixed capital formation willexperience significant growth in the coming quarters, in line with our construction industryforecasts.

Infrastructure – Construction Industry Forecasts (Argentina 2014-2020)

2014 2015f 2016f 2017f 2018f 2019f 2020fConstruction industry value, ARS billion 222.07 268.80 343.21 395.34 433.61 473.60 512.26Construction industry value , Real Growth, % y-o-y 0.60 4.04 3.68 3.19 2.68 2.72 2.16

F = BMI forecast

Source: INDEC, BMI

Estimate of Infrastructure Needs

Argentina will need to invest US$290 billion over the next ten years in order to finance themyriad large-scale infrastructure projects the country needs to either initiate or expand.

The estimates from Argentina consulting firm, E&R, which cautions: “reaching an agreement(with the holdouts) would be critical in order to attract the foreign direct investment (FDI)and secure financing for all of the infrastructure projects our country will need over thenext decade which will reach approximately US$290 billion.

The firm says US$250 billion or 86% of these investments should be channelled towardthe holy trinity of local infrastructure: highway construction, electric energy generation andoil and gas exploration.

Specifically, the report says hydrocarbons alone will demand investment of US$107 billion.Over the same period, electric energy generation will require US$38 billion of which US$25billion is for generation and US$13 billion is for distribution. Updating and maintainingthese investments will require another US$50 billion.

The maintenance and expansion of Argentine highways over the next decade will requireanother US$58 billion, railroads and subways will demand US$34.5 billion, water/sewer

Argentina — Infrastructure 11


projects will cost US$6.5 billion and cellular telephone network upgrades will exceed US$1billion.

The report concludes with words of encouragement for short-term sacrifice and long-termstability: “Reaching an agreement with the holdouts re-opens the possibility for us to returnto the global capital markets. Our country risk and financing costs would also come downtransforming the country into a good platform for direct foreign investment.”

FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION

Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which arefound throughout the country; and the more comprehensive Special Customs Area (SCA),which covers all of Tierra del Fuego Province.

Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e.,the rest of Argentina) where neither the inflows nor outflows of exported final merchandiseare subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within aFTZ generally cannot be shipped to the GCA unless they are capital goods not produced inthe rest of the country. The labour, sanitary, ecological, safety, criminal, and financialregulations within FTZs are the same as those that prevail in the GCA. Foreign firms receivenational treatment in FTZs.

Under the current law, the GOA may create one FTZ per province, with certain exceptions.More than one FTZ per province may be allowed in sparsely populated border regions(although this provision has not been fully utilized). Thus far, the GOA has permitted FTZsin many of the 23 Argentine provinces. The most active FTZ is in La Plata, the capital ofBuenos Aires Province.

Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, ifapplicable, only after the goods are exported from the FTZ to a third country destination.Merchandise shipped from the GCA to a FTZ and later exported to another country is notexempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exemptfrom export taxes.

Products manufactured in an SCA may enter the GCA free from taxes or tariffs. In addition,the government may enact special regulations that exempt products shipped through anSCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCAprogram provides benefits for established companies that meet specific production andemployment objectives. The SCA program applies only to Tierra del Fuego Province and isscheduled to expire at the end of 2023. In late 2006, the Economy Ministry throughResolution 776 abolished the export tax exemption enjoyed by oil companies operating inTierra del Fuego Province. The Argentine Congress passed a law in November 2009establishing value-added tax rates up to 21% on cell phones, televisions, digital camerasand other electronic items not produced in the southern Tierra del Fuego foreign tradezone. According to the government, the bill aims to increase government revenue throughhigher tax collection, and encourage investment in Tierra del Fuego to promote local

Argentina — Infrastructure 12


manufacturing and job growth. Argentina’s import restrictions are often the primary reasonthat foreign firms choose to assemble electronic products in Argentina.

International Trade

Argentina - Exports and Imports Data

2010 2011 2012 2013 2014

Exports (US$ billion) 68.2 84.1 80.2 81.7 71.9

Imports (US$ billion) 56.8 74.3 68.0 73.7 65.2

Latin Focus Consensus Forecast panellists expect exports to drop 13.1% in 2015 and theysee imports contracting 9.7%, thus pushing the trade surplus to US$3.6 billion. For 2016,the panel expects exports to increase 4.9% and imports to expand 5.6%, with the tradesurplus narrowing to US$3.3 billion.

Top Argentina Exports 2014(Value in US$ billion, figures in parenthesis % of total imports)

# Commodity Value

1. Food waste, animal fodder 12.8 (18.8%)

2. Vehicles 8.3 (12.2%)

3. Cereals 5.2 (7.7%)

4. Animal/vegetable fats and oils 4.3 (6.3%)

5. Oil seed 4.2 (6.2%)

6. Oil 3.2 (4.7%)

7. Other chemical goods 2.2 (3.2%)

8. Gems, precious metals, coins 2.1 (3%)

9. Meat 1.8 (2.7%)

10. Machines, engines, pumps 1.6 (2.3%

Top Argentina Imports 2014(Value in US$ billion, figures in parenthesis % of total imports)

# Commodity Value

1. Oil 11 (16.9%)

2. Machines, engines, pumps 9.6 (14.7%)

3. Vehicles 8.8 (13.4%)

4. Electronic equipment 7.2 (11%)

Argentina — International Trade 13


# Commodity Value

5. Organic chemicals 3 (4.6%)

6. Plastics 2.6 (3.9%)

7. Pharmaceuticals 2.1 (3.3%)

8. Medical, technical equipment 1.6 (2.5%)

9. Other chemical goods 1.5 (2.4%)

10. Rubber 1.2 (1.8%)

Fastest-Growing Argentine Exports

# Commodity Growth (from 2010) Value in $

1. Silk 1,800% 38,000

2. Other manufactured products 503.7% 92.5 million

3. Clocks and watches 476.4% 8.4 million

4. Musical instruments 108.8% 3.6 million

5. Gums, resins 77.4% 6.2 million

6. Paper yarn, woven fabric 63.2% 111,000

7. Coffee, tea and spices 57% 220.8 million

8. Tin 54.2% 37,000

9. Cereal, milk preparations 50.5% 499.2 million

10. Cotton 48.7% 145.4 million

11. Food waste, animal fodder 46.3% 12.8 billion

12. Dairy, eggs, honey 44.6% 1.5 billion

13. Ships, boats 27.4% 48.7 million

14. Modified starches, enzymes 23.7% 310.2 million

15. Pharmaceuticals 22.8% 851.3 million

16. Furskins and artificial fur 22.4% 44.6 million

17. Fish 19.1% 1.6 billion

18. Inorganic chemicals 15.9% 330 million

19. Other chemical goods 14.4% 2.2 billion

20. Cereals 13.3% 5.2 billion

Argentina — International Trade 14


Fastest-Growing Argentine Imports

# Commodity Growth (from 2010) Value in $

1. Railway, tram equipment 2,002% 716.7 million

2. Oil 146% 11 billion

3. Gums, resins 75.8% 78.5 million

4. Salt, sulphur, stone, cement 68.5% 221.9 million

5. Fruits, nuts 67.2% 304.3 million

6. Fish 46.5% 57 million

7. Other food preparations 45.6% 199.7 million

8. Modified starches, enzymes 42.6% 165 million

9. Copper 39.2% 409 million

10. Pharmaceuticals 36% 2.1 billion

11. Tobacco 32.3% 74.9 million

12. Knitted or crocheted fabric 31.8% 170 million

13. Medical, technical equipment 31.4% 1.6 billion

14. Other manufactured products 31.4% 198.9 million

15. Special woven/tufted fabric 30.8% 30.1 million

16. Other chemical goods 29.8% 1.5 billion

17. Vegetable/fruit preparations 27.4% 126.6 million

18. Milling products 26.3% 16.4 million

19. Explosives, pyrotechnics 25.1% 26.5 million

20. Soaps, lubricants, candles 19.7% 371.1 million

Services Industry

FINANCIAL SERVICES

Argentina has a relatively sound banking sector. The largest bank is the Banco de la NaciónArgentina. In recent years, the GOA has imposed a range of policies that have negativelyaffected business conditions and banks’ financial strength, including dividend paymentand foreign exchange market restrictions, caps on lending rates and fees, and lendingrequirements to targeted sectors. However, non-performing private sector loans constituteless than 2% of banks’ portfolios. The ten largest private banks have total assets ofapproximately ARS 564 billion (US$64 billion). Total financial system assets are approximatelyARS 1.230 trillion (US$140 billion).

Argentina — Services Industry 15


HUMAN CAPITAL

Argentina has the highest English language proficiency in Latin America. English is mandatoryat state schools in the City of Buenos Aires and the Province of Buenos Aires. Many privateschools are bilingual and attract many middle class students.

4.9 million netbooks have been given to children through the government programme‘Conectar Igualdad’.

There is demand for:

• educational software

• English Language Teaching (ELT) products

• joint ventures with local institutions for corporate and higher education programmes

HEALTHCARE

Argentina has one of the highest doctor to population ratios in Latin America (3.8 per 1000inhabitants). The Argentine healthcare system is split into 3 distinct markets:

• Public Health Service for 17 million people

• Social Security for 18 million people

• Private Health Service for 4.6 million middle-high income users

Argentina is the second largest market in Latin America for medical devices. However, only25% of the equipment is manufactured locally. There is demand for:

• imaging diagnostic equipment

• orthopaedic implants

• cardiology surgery supplies

• in-vitro and organ transplant instruments

• telemedicine and other top end solutions

TOURISM

Argentina’s tourism industry is booming, with the number of foreign visitors rising to oversix million in 2014. Currency devaluation seems to have contributed to the increase intourism, as the Argentine peso has decreased more than 60% against the dollar in the pastyear. The tourism sector is the third biggest employer in Argentina, with foreign touristsspending US$4.8 billion in the country last year.

Investors are waiting for elections in October 2015 for the present disastrous governmentto go and then real estate and travel industry hope to recover.

INFORMATION AND COMMUNICATION TECHNOLOGY

A lattice of 3,800 firms, ranging from globally consolidated multinationals to a growingnetwork of highly innovative small and medium-sized enterprises, makes up the global



software and IT services sector. Argentine companies’ global projection is expanding asone quarter of its production is exported to international markets.

Professional Talent

Argentina’s IT workforce is comprised of highly qualified professionals and specializedtechnical experts with excellent English-language skills. Some 85,000 students are currentlyenrolled in IT courses at 79 education centres throughout the country. Education levels arecomparable to developed countries, surpassing standards in most other Latin Americancountries. There is also an outstanding level of research in exact sciences.

Optimal Price-quality Ratio

A favourable relative cost structure helps to ensure advantageous costs in terms ofcommunications and other basic inputs required by software and IT companies (officespace, electricity, equipment, etc.). The cost-quality ratio of Argentine human resources isparticularly attractive in relation to regional and international competitors.

Encouraging Scenario

Argentina offers businesses a range of clear advantages over other emerging markets. Itstime zone (GMT-3) is highly valued by companies, especially those requiring real timecommunications with clients or headquarters in North America and Europe. With one ofthe highest rates of broadband penetration in the region, Argentina’s moderntelecommunications system ensures access to a technological platform needed to competeon a global level.

Furthermore, the public sector is playing an active role to stimulate the development ofthis industry with new funding and promotion efforts, while working towards greaterproductivity and integrity, a commitment reflected by the country’s forefront position inareas like data protection legislation.

Argentina is an early adopter of ‘big data’ and other sophisticated technologies. It has thehighest number of mobile phones per capita in the Americas and higher also than the UK.Its fibre-optic broad band network will increase by 300% by end 2015.

There are opportunities for:

• supply mobile phone carriers with technology to improve network capacity

• provide content for the broadband networks

• enter joint ventures to develop software for processing big data

TECHNICAL AND PROFESSIONAL SERVICES IN ARGENTINA

Argentina offers unique opportunities for companies dedicated to offshore outsourcing ofprofessional services. Many international companies representing diverse areas of expertisedevelop services in Argentina and export them. Today, companies work in several higher-



sophisticated sectors, earning Argentina a reputation as one of the most highly ratedoutsourcing destinations in Latin America. Buenos Aires places 15th in the world ranking ofoutsourcing cities and 7th among the top emerging developing countries (TholonsConsulting).

Talented, Creative and High-qualified Technicians and Professionals

A growing highly qualified labour force is one of the key reasons for the success of thissector in Argentina. Argentine professionals and technicians are internationally renownedfor the quality of their solid training, talent and creativity. Argentina has one of the highestEnglish-language levels in Latin America, while many Argentines are fluent in French,Portuguese, Italian and German, among other languages.

Competitive Operative Costs and Excellent Communication Network

Operating costs in this local sector are highly favourable regionally and globally. In addition,Argentina boasts a thriving telecommunications system developed within the frameworkof a modern and highly competitive market. Argentina has the highest density of mobiletelephone lines in Latin America and one of the highest broadband and land line penetrationrates in the region. The city of Buenos Aires has the largest concentration of wireless hot-spots in Latin America, reaching levels comparable to many European cities

Strategic Location

Argentina’s ease-of-access and cultural proximity to Mercosur (Southern Common Market),a regional market with 279 million people and with a joint GDP of US$3.6 trillion, is anotherimportant attribute. A similar time zone (GMT-3) to most cities throughout South andNorth America is another key factor held up by companies in this sector when designingtheir global location strategy. Argentina is repeatedly chosen as the top global destinationby multinational companies carrying out projects throughout Latin America.

Investment Risks, Barriers and Challenges

Strengths

• Abundant agricultural (soya, cereals, beef, fruit), energy (gas, oils, hydraulic) and mineralresources (gold, silver, copper)

• Skilled labour force: Education level above the regional average• Democratic political system

Weaknesses

• Dependence on agricultural raw materials and therefore on climatic conditions

• Pro-cyclical fiscal policy

Argentina — Investment Risks, Barriers and Challenges 18


• Mediocre business environment

• Poor financial intermediation

• Inadequate investment in energy and transport

• Controls on imports and capital movements

• Tenuous access to international financing

• Poverty, strong social disparities and social tensions

POLITICAL AND SECURITY

The popularity of the government is declining. A corruption scandal involving the Vice-President exacerbated has made the matter even worse. The government is also facing anincreasingly structured political opposition (including parts of the ruling Peronist Party),which is criticising the President Kirchner over her handling of the “vulture” funds crisis.Social tensions are on the rise in spring 2014, resulting in strikes by workers of the crisis-hitautomobile and steel industries, as well as in other sectors (teachers, bus drivers, bankemployees, etc.). The popular discontent is being relayed by the powerful unions. It isabove all being stoked by rising inflation, which led to a reduction in real earnings since thebeginning of 2014. In this context, as the economy enters into recession, the possibility ofanother social conflict is quite high.

GOVERNANCE

Longstanding concerns regarding the lack of transparency in government policymakingalso diminish the attractiveness of prospective investments in Argentina. Decisions thataffect both foreign and domestic companies are frequently made without industry inputand are rarely open to a consultation period. GOA actions to curb the remittance of profitsabroad limit foreign companies’ ability to repatriate earnings, causing some companies toreconsider locating new business ventures in Argentina. Currency controls delay companies’access to dollars to pay suppliers while recently amended laws allow the GOA to set profitmargins and the prices of goods in the private sector in certain circumstances. Businessesand investors also report concerns about Argentina’s currency exchange rate policies, whichaffect the competitiveness of Argentine goods internationally and delay investment decisions.

According to the World Bank’s worldwide governance indicators, corruption remains anarea of concern in Argentina. In the latest Transparency International Corruption PerceptionsIndex (CPI) that ranks countries and territories by their perceived levels of corruption,Argentina ranked 107 out of 175 countries. Lack of transparency, autonomy, and clear rulesin the selection of judges as well as inefficiencies and pervasive delays compromise thejudicial system and create the potential for political influence. According to TransparencyInternational, weak enforcement of anti-corruption measures remains Argentina’s greatestcorruption weakness.



ECONOMIC

Argentina is still dealing with issues related to its 2001 default on nearly US$100 billion indebt, the largest sovereign debt default in history. In late 2013 and early 2014, thegovernment of Argentina (GOA) made some progress in normalizing its relations with theinternational financial community. The GOA settled several outstanding international arbitralawards, engaged with the International Monetary Fund (IMF) to improve economic reportingdata, and compensated the Spanish firm Repsol for the partial expropriation of YPF in2012. Argentina also signed bilateral agreements to repay nearly US$10 billion in arrearswith the Paris Club group of creditors.

Argentina’s refusal to comply with a U.S. court ruling ordering the GOA to pay a group ofU.S. creditors who sued the country for the full value of their defaulted Argentine bondholdings continues to restrict Argentina’s ability to service some of its sovereign debt bothat home and abroad. Argentina’s limited access to international financial markets willcontinue to discourage investment until the issue is settled.

After several years of publishing non-credible statistics, Argentina’s official statistics agency(INDEC) released substantially revised inflation and GDP growth data in 2014 and 2015that are closer to private estimates. The IMF had formally censured Argentina in February2013 because of the manipulation of inflation and GDP data, a breach of obligation to theFund under the Articles of Agreement.

The World Trade Organization (WTO) in January 2015 ruled that the GOA’s all-encompassingimport licensing system violated international trade norms. The GOA affirmed that it willcomply with the WTO decision, but did not specify a timeframe for adjustment. In themeantime, the system remains in place and reportedly causes shortages and complicatesthe operations of businesses that are reliant on the importation of goods for productionand distribution. Factories and distributors occasionally sit idle while the GOA delays grantingapproval to move inputs through customs, a process that can be restrictive and unpredictable

ARGENTINA’S STATUS IN GLOBAL ECONOMIC RANKINGS

The World Bank “Doing Business Ranking” 2015

Doing Business 2015 is the 12th in a series of annual reports benchmarking the regulationsthat affect private sector firms, in particular small and medium-size enterprises. The reportpresents quantitative indicators on 11 areas of business regulation for 189 economies.

Argentina 124 out of 189 countries

India 142 out of 189 countries



Other Rankings

Index RankCorruption Perceptions Index 106/173E&Y Globalization Index Score 53/60Global Competitiveness Report 103/147Global Enabling Trade Report 87/138Global Manufacturing Competitiveness Index (GMCI) 26/38Global Services Location Index 38/51Index of Economic Freedom 169/178International Logistics Performance Index (LPI) 60/160Inward FDI Potential Index 60/139KOF Index Globalization 85/186Networked Readiness Index (NRI) 97/145Open Budget Index 25/102

Indo-Argentinian Economic Relations

Bilateral trade for the last 6 years is as follows:

Year Export to Growth Export from Growth Total Trade GrowthIndia India Turnover

2010 2033 — 496 — 25292011 1214 -40% 561 13% 1174 -30%2012 1264 4% 573 2% 1837 -4%2013 1105 -13% 695 21% 1801 -2%2014 2032 84% 602 -13% 2633 46%

Source: Mercosur on Line

India’s Exports to Argentina

Organic Chemicals, Vehicles and Auto parts, Lubricants, Machinery, Sound and Image Devicesand Garments, among others.

India’s Imports from Argentina

Soybean oil, Petroleum, Copper, Sunflower oil, Leather, Wool, Ferroalloys among others.

Investments, Joint Ventures and Business Delegations

Almost thirteen Indian Companies have established operations in Argentina with investmenttotalling to US$930 million. Indian companies include TCS, CRISIL, Bajaj, Cellent, CognizantTechnologies, United Phosphorus Ltd. (UPL), Sintesis Quimica, Glenmark, Godrej etc.



Argentinian investment in India stands at US$120 million. TECHINT, which is one of thelargest seamless steel tubes manufacturers in the world, has offices in Delhi employingabout 200 people.

ONGC (OVL) has signed a MoU with ENARSA, their Argentine counterpart for possible jointventures in Argentina for oil exploration. Indian company, Sonalika Pvt. Ltd. has signed ajoint venture with Argentina company Apache of Santa Fe for manufacturing tractors andIndian Bajaj motorbikes has signed a joint venture with Corven Argentina to produce andsell motorbikes in the local market. During 2014, IMPLATEC Argentina developed a strategicalliance with the Indian company Appasamy Associates, a global leader in theophthalmological market and both companies have inaugurated the first producing plantof intraocular lenses in Argentina with a manufacturing capacity of 20,000 lenses monthly.Halal India and Halal Argentina have started a joint venture for production and exportationof halal meat. Ishka Renewable Farms Private Lt from Kerala signed a joint venture withCooperative Al Caparras to cultivate 1000 acres of capers in the next 10 years in the Argentineprovince of Santiago del Estero Argentina.


CHILE

Highlights 24

Introduction 24

Chile — Key Economic Factsheet 2014 25





Infrastructure 32




Indo-Chilean Economic Relations 39


Highlights

• Largest copper producer in the world

• World’s third largest fruit and nuts exporter

• World’s fourth largest seafood exporter

• Strongest sovereign bond rating in South America.

• Chile and 11 other countries reach deal on Trans-Pacific-Partnership

• First South American country to join the OECD

• World’s 11 largest recipient of FDI in 2012.

• Stable political environment

• 15/144 in Global Competitiveness Index

• $7 billion. opportunities in infrastructure projects

Introduction

Chile is a country in South America that borders the South Pacific Sea. Neighbouring countriesinclude Argentina, Bolivia, and Peru. Chile has a strategic location relative to sea lanesbetween Atlantic and Pacific Oceans including the Strait of Magellan, Beagle Channel, andDrake Passage. Chile occupies a long, narrow coastal strip between the Andes Mountainsto the east and the Pacific Ocean to the west and thus the geography is varied. Thegovernment system is a republic. The chief of state and head of government is the President.Chile has a market-oriented economy in which the prices of goods and services aredetermined in a free price system. Chile is a member of Asian Pacific Economic Cooperation(APEC) and Latin American Integration Association (LAIA). Chile and 11 other countriesreached an agreement on the Trans-Pacific-Partnership (TPP) deal, which aims to liberalizeand boost trade among the member countries. The deal still needs to be approved bylawmakers in all countries before implementation.

The economy of Chile is ranked as a high-income economy by the World Bank, and isconsidered one of South America’s most stable and prosperous nations, leading LatinAmerican nations in competitiveness, income per capita, globalization, economic freedom,and low perception of corruption.

Chile — Introduction 24


Chile — Key Economic Factsheet 2014

Population 17,762,647 (2014)Population Growth Rate 1.057 annual % (2014)Age Dependency Ratio 45.27 % of working-age population (2014)Urban Population 89.356 % of total (2014)Infant Mortality Rate 7 per 1,000 live births (2015)Life Expectancy at Birth 79.837 years (2013)Total Area 756,102 sq. kmLand Area 743,812 sq. kmWater Area 12,290 sq. kmCoastline 6,435 kmCapital Santiago

Key Economic Facts

Income Level (by per capita GNI) High IncomeLevel of Development DevelopingGDP, PPP (current international $) 396.92 billion (2014)GDP Growth (Annual %) 1.89% (2014)GDP per capita, PPP (current international $) 22,345.96 (2014)External debt stocks, total (DOD, current US$) 96,24,880,000.00 (2011)Manufacturing, value added (% of GDP) 12.36% (2014)Current account balance (BoP, current US$) -3.00 billion (2014)Inflation, consumer prices (annual %) 4.40% (2014)Labour force, total 8,603,142 (2013)Unemployment, total (% of total labour force) (modelled ILO estimate) 6.00% (2013)Imports of goods and services (current US$) 83.34 billion (2014)Exports of goods and services (current US$) 87.17 billion (2014)


After a sharp slowdown in 2014 the economy is projected to gradually recover in 2015 and2016. The pick-up in activity will initially be driven by higher public spending, but willincreasingly be supported by stronger external demand for industrial goods from the UnitedStates and Europe. Growth of 1.9% in 2014 was the lowest since the global financial crisiserupted.

Chile — Economic Highlights and Forecast 25


As the exchange rate has stabilised, inflation is moderating, although it remains above thecentral bank’s target band. Since inflation expectations remain well anchored, monetarypolicy can continue to support growth in the near term, before moving to a more neutralstance as growth strengthens. The underlying stance of fiscal policy is expected to beexpansionary in 2015, but then to become neutral in 2016 as the government remainscommitted to achieve a zero structural balance by 2018.

The large decline in copper prices in the aftermath of the commodity super-cycle hasaffected the investment plans of mining companies, which have significantly reducedinvestment since 2012. This decline is perceived to be to a large extent permanent, andmining investment is therefore not expected to recover very strongly, even in the mediumterm. Therefore, advancing the Productivity Agenda, which is meant to broaden the base ofthe economy, is essential. Structural reforms to open market further to competition will beparticularly important to boost investment outside the mining sectors, increasing and makinggrowth more inclusive.


The Central Bank sees year-end inflation at 2.8% in 2015. Panellists participating in theLatin Focus Consensus Forecast expect inflation to close 2015 at 4.5%, which is up 0.2percentage points from last month’s forecast. For 2016, the panel sees 3.4%.

Panellists also expect the peso to trade at 685 CLP per US$ at the end of 2015. Next year,the panel sees the currency trading at 680 CLP per US$.

The government announced an abrupt downward revision in economic growth estimatesto 2.5% for 2015, having initially predicted 3.6% in this year’s budget. Latin Focus PanellistsConsensus Forecast project Chile’s economy to grow 2.2% in 2015 and 2.6% in 2016.



CHILE’S ECONOMY BRIGHTENS AMID POLITICAL GLOOM

Financial Times, London 20 Apr 2015

While most countries in Latin America are still struggling to adjust to the end of the boomin commodity prices that propelled growth in the resource-rich region over the past decade,there are signs that Chile’s economy may be turning the corner.

“If Chile’s recovery turns out to be sustainable, then there is light at the end of the tunnelfor some of its neighbours who are just entering the adjustment, like Colombia,” says LuisArcentales, an economist at Morgan Stanley.

“Chile has undergone the bulk of the adjustment,” Mr Arcentales says. He adds that after aperiod of weak domestic demand when business confidence was hit by Ms Bachelet’sreforms, the economy is now improving, helped by a weak currency that has boostedexports and easing inflation that has spurred consumption.

After gross domestic product growth fell to 1.8% in the fourth quarter of 2014, which sawChile’s slowest growth since the global financial crisis, well below an average of 4.2% overthe past decade, economists at Barclays expect 2.8% growth this year, and potential growthof 3.5% in the medium term.

Chile, the world’s top copper exporter, was the first country in the region to be hit hard bythe end of the so-called commodities “supercycle”, because copper prices began to fallearlier than prices of other commodities like oil. So it makes sense that Chile’s economyshould also be the first to recover, says Mario Castro, an economist at Nomura.

But the health of Chile’s economy, often regarded as the best run in the region, is alsoattributed to the strength of its institutions and its free trade model, untrammelled by theheavy-handed state interventionism that has distorted the economies of countries likeArgentina and Venezuela.

“Chile is an example of how credible institutions can smooth the economic cycle and makeadjustments less traumatic,” said Mr Castro, pointing to its widely respected and independentcentral bank and a well-established “fiscal rule” that gave officials the freedom to implementcounter-cyclical policies.

The resulting depreciation of the peso, as Chile adapts to lower potential growth rates afterthe commodity boom, has provided a boost for exporting industries outside the miningsector. Mr Castro expects this boost in competitiveness for “tradable” sectors such as Chile’ssuccessful wine and salmon industries to be permanent.

Nevertheless, if Chile’s economy is indeed on the upswing, the benefits have yet to be felteither by the president or the average citizen.

“If you look at the newspapers here, the story is not about economic recovery, it’s aboutpolitical corruption,” says Robert Funk, a political scientist at the University of Chile. In anycase, he says that “Chileans have become used to a certain level of economic stability that



other countries are jealous of”, so Ms Bachelet will need more than good economic resultsto boost her wilting popularity.

Furthermore, Mr Funk says that there is still “a lot of nervousness” about the effect of thegovernment’s tax reform approved last year, which aims to collect an extra $3 billion eachyear mainly from businesses, and pending labour market reforms expected to make tradeunions more powerful. “We just don’t know what will come out of this process. It may bevery healthy, but it may also have unpredictable effects,” he said.

Indeed, many local economists question the optimism held by Wall Street analysts. “Thereare signs of the green shoots of recovery, yes. But it could turn out to be a dead catbounce,” says Michèle Labbé, chief economist at Econsult in Santiago, referring to marketjargon for a temporary recovery in a declining stock. She worries that without enoughspare capacity in the economy, expansive fiscal and monetary policies could end up fuellingonly inflation, not growth as well.

Crucially, investment remains low because of uncertainty over the outcome of Ms Bachelet’sreforms, which are aimed at reducing inequality. Until the reform process has been completed— and many fear that it is being stalled by the political crisis — businesses may continue torefrain from making serious investment commitments. And even if Chile’s economy isoutperforming the rest of the region, for many Chileans that is not enough.

“We are always going to look good if we compare ourselves to the rest of Latin America,which always makes the same old mistakes,” says Ms Labbé, who adds that Chile does notcome off so well when comparing itself to the world’s best-performing countries. “It’s bestto compare Chile with itself, and the truth is we could be doing a lot better.”


On June 16, 2015, Chile enacted Law 20,780, on foreign investment. The law originated asBill 9899-05 and was sent to the legislature by the administration on January 30, 2015. Thenew legislation replaces the statute on foreign investment enacted as Decree Law 600 of1974, which will be abolished as of January 1, 2016. (Carlos Gutiérrez, Chile: New Statutefor Foreign Investment Enacted, TAX NEWS SERVICE (June 18, 2015), International Bureauof Fiscal Documentation online subscription database; Boletín 9899-05: Establece una leymarco para la inversión extranjera directa en Chile y crea la institucionalidad respectiva(Bulletin 9899-05: Establishing a Framework Law for Foreign Direct Investment in Chileand Creating Related Institutions) (Jan. 30, 2015), Chilean Senate website; ForeignInvestment Statute: Decree Law 600 (unofficial translation, Dec. 2010), CIE CHILE.)

The new Law establishes a Committee of Ministers for the Promotion of Foreign Investment,to give the President strategic advice on foreign investment. The legislation also creates an

Chile — Laws and Policies Relating to Foreign Investment 28


Agency for the Promotion of Foreign Investment, which will advise the Committee andimplement the Committee’s strategies. (Gutiérrez, supra)

The Law also prescribes that foreign investors will be guaranteed:

• access to the exchange market once they have fulfilled tax obligations;

• free repatriation of both capital and profits, once tax obligations are met; and

• protection against arbitrary discrimination. (Id.)

• Any rights and obligations of a foreign investor established in existing contracts withthe government, under the provisions of the 1974 Decree Law, will continue to beguaranteed. (Id.)

Foreign investors will have the opportunity after January 1, 2016, to sign four-year contractswith the government. They may then opt to pay a fixed overall tax rate of 44.45%. Previouslythis rate for foreigners was 42%; the general non-resident income tax rate for those notsigning four-year contracts is 35%. The new law also specifies that new procedures will beadopted to exempt from value-added tax the imports of capital assets by foreign investors.(Id.)


The flows of foreign direct investment (FDI) in Chile, which had been growing since 2010,have now reached the country’s record levels. In 2014, FDI flows increased to US$23.3billion, a 15% increase compared to 2013. Chile is the second most attractive country inSouth America in terms of FDI, after Brazil. However, foreign investment is very irregularbecause it is often linked to projects in the mining sector. According to UNCTAD, in 2014Chile ranked 17th in terms of FDI attractiveness, which represents a loss of 6 places. Chileaneconomic policies, which are founded on the principle of capital transparency and non-discrimination against foreign investors, comprise one of the country’s strengths. Investorsare also attracted by the richness of Chile’s natural resources, the stability of its macro-economic system and its growth potential, its juridical security, the country’s low level ofrisk and the high quality of its infrastructure. The country ranks 41 out of 189 countries inthe 2015 Doing Business report issued by the World Bank. Chili ranks fifth among thecountries that are the most open to imports and foreign investments in the world. TheUnited States is the largest investor in the country.

Foreign Direct Investment 2012 2013 2014

FDI Inward Flow (mn. US$) 25,021 16,577 22,949

FDI Stock (mn. US$) 191,280 198,628 207,678

Number of Greenfield Investments 88 99 65

FDI Inwards (in % of GFCF****) 39.4 25.0 40.3

FDI Stock (in % of GDP) 72.2 71.8 80.5

Chile — Laws and Policies Relating to Foreign Investment 29



According to the Business Environment Rankings of the Economist Intelligence Unit (EIU),Chile is one of the 20 most attractive economies in which to do business between 2010and 2014 and leads Latin America in this field. Chile is also an attractive country in which todo business because of its high level of free trade. It is, indeed, one of the world’s ten freestcountries, according to the Index of Economic Freedom 2013, published by the HeritageFoundation and the Wall Street Journal. With a score of 79 points, it took 7th place in theranking, ahead of all other Latin American countries. Between 2012 and 2013, Chile’s scoreincreased by 0.7 points, due principally to progress as regards investment and freedom todo business.

The significant increase in FDI seen in recent years has made a decisive contribution toboosting the growth of the Chilean economy and its gains in productivity.

• Growth of FDI explains over 18% of the acceleration of GDP growth between 2010 and2012.

• Around 15% of the growth of employment in Chile since 2010 – or, in other words,119,600 new jobs – was thanks to higher FDI.


Details of projects are available at: http://www.ciechile.gob.cl/en

MINING

• Chile accounts for 28% of global copper reserves (USGS).• It is the world’s principal producer of copper (32%), nitrates (100%), iodine (58%) and

lithium (45%) and the sixth largest silver producer.• Mining companies plan to invest US$104,000 million in Chile over the next eight years.• Mining companies spent over US$21,000 million in Chile in 2011.• Chile has some 4,000 mining suppliers who include world-class companies.

Opportunities

• Equipment and spares• Engineering and consultancy services• Construction• Production support services• Establishment of regional offices by mining suppliers as base for exporting and diversifying

areas of activity.

Chile — Focus Areas for Investment 30


ENERGY

• Chile has an installed capacity (net power) of 17.6 GW. In 2012, gross electricity generationin the SIC and SING (the two main transmission systems) reached a total of 65,547GWh, up by 5.8% on 2011.

• In 2012, hydroelectricity (excluding mini-plants of less than 20 MW) accounted for29.3% of generation, coal for 41%, gas for 19%, diesel for 5.9% and alternative renewableenergies (ARE) for 4.8%. As a result, 65.9% of the country’s electricity was generatedfrom fossil fuels.

• The country’s projected economic growth implies increased demand for electricity whichis forecast to rise by around 5% a year through to 2020, creating opportunities forinvestment in generation and transmission.

Opportunities

• Generation: Over 8,000 MW in new projects will be required by 2020.• Chile offers advantageous conditions for the development of alternative renewable

energies.• The country has pending transmission challenges.

AGRICULTURE AND FOOD

• In 2012, agribusiness exports reached US$13,775 million, with foods accounting formore than 17% of the country’s total exports.

• Chile has a range of advantages for food production:• Its location permits counter-season supply of the large consumer markets of the Northern

Hemisphere.• Chile contains one of the world’s only five macrozones with a Mediterranean climate,

offering excellent conditions for fruit growing. In addition, the country’s length anddiversity of climates permit year-round production as well as supporting the differentforms of animal and vegetable life that underpin the diversity of its agricultural industry.

• It is a pest-free country thanks to the natural barriers that protect it and transform itinto a phytosanitary and zoosanitary island – the Atacama Desert in the north, theAndes Mountains to the east, the Pacific Ocean to the west, and the ice fields of thesouth.

• A coastline that stretches for over 4,300 km offers a variety of conditions for aquaculture,including Chile’s emblematic salmon of which it is the world’s second largest producer.

International Market

Chilean products are present in markets around the world and each day:

• 16.9 million people drink a glass of Chilean wine;• 6.0 million people eat a piece of Chilean salmon;• 8.6 million people drink a glass of Chilean fruit juice;• 8.5 million people eat canned Chilean fruit and vegetables;

Chile — Focus Areas for Investment 31


• 4.9 million people eat a piece of dehydrated Chilean fruit;• 1.7 million people eat frozen Chilean fruit.

Opportunities

Fruit: Chile is the world’s leading exporter of grapes, plums and blueberries and amongthe three leading exporters of avocadoes, kiwis, raspberries and apples.

New Opportunities

• Berries• Cherries• Walnuts

Wine: Chile is the world’s fifth largest wine producer.

New Opportunities

• Organic wine• “Functional” foods based on grape by-products.

Salmon: Chile is the world’s second largest producer of farmed salmon.

New Opportunities

• Salmon feed• Caging services

Infrastructure

• Over the past thirty years, Chile has achieved an important leap forward in connectivity.This is largely the result of public efforts accompanied by the private sector’s participationthrough the Concessions System created in 1991.

• Chile’s Concessions System has become a reference internationally, offering 71 tendersof which 66 have already been awarded.

• The concession company builds and operates the infrastructure.

PUBLIC WORKS CONCESSIONS SYSTEM (PUBLIC-PRIVATE PARTNERSHIPS, PPP)

• The concession company finances the infrastructure and recoups the investment overthe long term through:

• charges to users• and/or state subsidies.

Chile — Infrastructure 32


Opportunities

Chile has a portfolio of public tenders worth US$7,000 million that includes highways,airports, hospitals and urban infrastructure.

SPECIAL ECONOMIC ZONES

Chile boasts three FTZs which provide excellent manufacturing infrastructure for foreigncompanies willing to incorporate in Chile. There are several incentives available for companiesin Chile’s free trade zones.

Duty free zone of Iquique free trade zone (ZOFRI)Punta Arenas free trade zoneArica free trade zone

Iquique free trade zone is Chile’s most ambitious tax-free zone. It is located the northernpart of the country, with an area of 240 hectares, providing large warehouses, servicedarea, and financial area; Companies operating in Iquiqe enjoy i) 100% exemption fromcorporate tax ii) 100% exemption from custom duties iii) 0% VAT on their first sales iv) and0.8% import tax; This free zone invites multinationals from both commercial and industrialsectors such as imports, exports, retail, assembly, manufacturing, and industrial processing.

International Trade

Chile — Trade Statistics

Exporter Rank 40/124Importer Rank 36/124Balance Trade Rank 56/124

2010 2011 2012 2013 2014Exports (US$ billion) 71.1 81.4 77.8 76.5 75.7Imports (US$ billion) 55.2 70.4 75.5 74.7 67.9

Top 10 Export Goods (by HS Code) Top 10 Import Goods (by HS Code)

# Commodity Export Value ($) # Commodity Import Value ($)74 Copper 22,077,902,126 27 Oil & Mineral Fuels 15,328,259,63626 Ores 19,756,843,052 84 Industrial Machinery 8,729,472,99108 Fruit & Nuts 5,765,783,888 87 Motor Vehicles & Parts 7,962,535,91003 Seafood 4,954,010,675 85 Electrical Machinery 6,869,672,98447 Wood Pulp 2,891,710,500 39 Plastics 2,434,566,26744 Wood 2,502,552,218 40 Rubber 1,547,927,771

Chile — International Trade 33


# Commodity Export Value ($) # Commodity Import Value ($)22 Beverages 1,897,594,368 62 Apparel: Non Knit 1,445,138,82628 Inorganic Chemicals 1,596,183,714 73 Iron & Steel Articles 1,382,326,70871 Precious Stones & Metals 1,279,608,371 61 Apparel: Knit 1,367,157,72384 Industrial Machinery 986,398,169 72 Iron & Steel 1,265,288,652

Top 10 Export Partners Top 10 Import Partners

Country Export Value ($) Country Import Value ($)China 18,218,437,909 United States 18,203,691,811United States 9,629,779,824 China 14,432,125,565Japan 8,384,025,735 Argentina 5,283,345,763Korea, South 4,551,494,722 Brazil 5,186,180,536Brazil 4,294,356,174 Germany 2,861,679,563Netherlands 2,738,538,401 Mexico 2,607,575,932India 2,586,434,912 Korea, South 2,603,951,641Italy 2,012,960,941 Japan 2,596,367,384Peru 1,812,783,786 Colombia 2,184,752,167Spain 1,615,721,005 Ecuador 2,154,892,722

Fastest Growing Chilean Exports 2014

# Commodity Growth (from 2010) Value in $1. Nickel 6395% 3.9 million2. Zinc 839.3% 1.1 million3. Railway, tram equipment 281.6% 4.3 million4. Ships, boats 226.1% 357.6 million5. Other manufactured products 201.7% 38.2 million6. Animal/vegetable fats and oils 183.9% 244.6 million7. Aircraft, spacecraft 109.6% 30.5 million8. Wool 99.9% 65.7 million9. Fish 94.9% 5 billion10. Cereal, milk preparations 85.3% 266.6 million11. Raw hides excluding furskins 77% 57.5 million12. Rubber 76.4% 427.4 million13. Modified starches, enzymes 76.3% 31.7 million14. Pharmaceuticals 69.9% 205.6 million15. Lead 64.9% 28.6 million16. Salt, sulphur, stone, cement 60.8% 12.6 million17. Tobacco 54.7% 88.3 million18. Cork 47.7% 12.3 million19. Aluminium 46% 120.7 million20. Vegetable/fruit preparations 46% 724.9 million



Fastest-Growing Chilean Imports 2014

# Commodity Growth (from 2010) Value in $1. Dairy, eggs, honey 183.5% 203.2 million2. Live trees and plants 121.4% 29.4 million3. Gems, precious metals, coins 120.7% 90.4 million4. Fish 86.2% 61.3 million5. Vegetable/fruit preparations 83.2% 220.2 million6. Arms, ammunition 82.8% 14.3 million7. Explosives, pyrotechnics 81.8% 63.2 million8. Other manufactured products 79.1% 246.6 million9. Alcoholic beverages 77.4% 379.6 million10. Fruits, nuts 76.6% 183.4 million11. Food waste, animal fodder 71% 1.2 billion12. Copper 69.4% 103.9 million13. Meat and seafood preparations 65.7% 172.6 million14. Headgear 64.2% 49.1 million15. Oil seed 62.8% 152.2 million16. Salt, sulphur, stone, cement 63.6% 275.9 million17. Pharmaceuticals 57.6% 1.2 billion18. Animal/vegetable fats and oils 48.8% 639.3 million19. Other animal-origin products 48.1% 37.4 million20. Gums, resins 47.3% 32.2 million

CHILE’S BILATERAL AND MULTILATERAL ECONOMIC AGREEMENTS

Chile’s open economy, combined with an active policy of bilateral, regional and multilateraltrade agreements, has underpinned a sustained increase in foreign trade in goods andservices and in the country’s international competitiveness, consolidating its position as anactive international partner.

Internationally integrated Free Trade Agreements: Australia, Canada, Central America,China, Colombia, EFTA (Norway, Switzerland, Iceland and Liechtenstein), Malaysia, Mexico,Panama, Peru, South Korea, Turkey and the United States.

Economic Association Agreements: European Union (EU), Japan and P4 (New Zealand,Singapore and Brunei Darussalam as well as Chile).

Economic Complementation Agreements: Bolivia, Ecuador, MERCOSUR (Argentina, Brazil,Paraguay y Uruguay) and Venezuela.

Partial Scope Agreements: India and Cuba.

Agreements negotiated (but not yet in force): Vietnam, Hong Kong and Thailand.



Services Industry

FINANCIAL SERVICES

Chile’s banking sector has a rising likelihood for merger and acquisition activity, whichcould consolidate some of the country’s middle-tier banks, says Fitch Ratings. The maturityand quality of Chile’s banking sector, the opportunity created by the possible sale of smallerbanks, and a shifting landscape in the country’s consumer financing market may bringmore investment from regional and international foreign banks, which Fitch believes couldbe a positive for target banks.

The Chilean market is viewed as attractive due to its history of stability and steady growth,as well as a solid regulatory framework and strong supervision. Chile’s middle tier banksface some competitive disadvantages with larger peers given their weaker funding andincreasing competition from non-bank lenders and large retailers that offer banking services.Chile has the second-highest banking penetration in Latin America, behind Panama;nonetheless, Fitch still sees solid long-term growth prospects for the Chilean market.

HUMAN CAPITAL

Foreign investors often highlight human capital as one of Chile’s main comparativeadvantages, drawing attention to the high standards achieved by the country’s universitiesand, particularly, its business schools.

According to the National Education Council (CNED), Chile’s higher education systemcurrently comprises a total of 163 institutions of which 60 are universities, 44 are professionaltraining institutes and 59 are technical training centres (offering two-year courses). As of2012, a total of 74,888 teachers were working in the higher education system of whom27% held a master’s degree and 13% a PhD.

Chile is also noted for the quality and tradition of its universities. In the Academic Rankingof World Universities (ARWU), published since 2003 by the Centre for World-Class Universities(CWCU) of Shanghai Jiao Tong University, two Chilean universities – the Universidad Católicade Chile (PUC) and the Universidad de Chile – ranked among the best 500 in the world in2012, taking 8th and 10th place, respectively, in Latin America.

In the specific case of MBA programs, Chile has ten business schools with leading positionsin the 2012 MBA Ranking of Latin American Business Schools published by the AméricaEconomía business magazine. Three are, moreover, among the top ten in the region –those of the Universidad Adolfo Ibáñez (1st), the Universidad Católica de Chile (7th) andthe Universidad de Chile (10th).

In line with Chile’s progress as regards educational indicators, the country’s labour forcereached a total of 8.2 million people in the first quarter of 2013 out of whom 93.8% wereemployed, including over 64% in the services sector.

Chile — Services Industry 36


On the quality of its labour force, Chile took 31st place out of 60 economies in the GlobalTalent Index 2011-2015 used by the Economist Intelligence Unit (EIU) and Heidrick &Struggles to measure support for talent and entrepreneurship.

HEALTHCARE

The principal healthcare delivery service is

TOURISM

• 3,554,279 overseas tourists visited Chile in 2012, up by 13.2% on 2011.

• Spending by overseas tourists in Chile rose by 17.1% to US$2,712.6 million.

• In the last ten years, the portfolio of investment projects in the sector reached US$528million (2003-2013 according to FDI Markets).

• Chile ranks 57th internationally (out of 139 countries) on tourism competitiveness (WEF,2013) and second in South America after Brazil.

Opportunities

• Opportunities and tourist attractions across all the country’s regions

• Development of hotel and leisure projects in areas of interest

• Development of sustainable tourism in protected areas under state concessions

• Development of special interest tourism projects.


Chile is a country that, from primary schools through to businesses and public services, isready to adopt new technologies. Numerous studies, in fact, identify Chile as a “wired”country that has already achieved important progress as regards digital connectivity andinformation and communications technologies (ICTs).

Network readiness: In the Networked Readiness Index 2013, published by the WorldEconomic Forum (WEF), Chile took 34th place out of 144 economies and, with a score of4.59 points, ranked ahead of all other Latin American countries. It was, moreover, amongthe top 20 countries globally on indicators that included mobile network coverage, ICT useand government efficiency and e-participation. This Index assesses a country’s degree ofpreparation to benefit from the development of ICTs as reflected in its regulatory andeconomic climate, the level of use of these technologies and their socioeconomic impact.

Chile — Services Industry 37



Strengths

• Mining (leading copper producer), agricultural, fishery and forestry resources

• Climatic diversity and seasonality opposite to that of developed countries

• Numerous free-trade agreements

• Satisfactory budget situation

• Free floating currency

• Favourable business situation and political and institutional stability

• International companies operating in distribution, air transport and paper

• Member of the OECD and the Pacific Alliance

Weaknesses

• Small and open economy, vulnerable to external shocks

• Dependent on copper and the Chinese economic situation

• Structural external deficit

• Vulnerability of road network and electricity grid, and high energy prices

• Exposure to climate and earthquake risk

• Income disparity and poor education system

• Relatively high private debt


Chile’s economic recovery is faltering as business confidence is undermined by PresidentMichelle Bachelet’s reform programme and a political crisis triggered by corruption scandals,one including her son. That only quickened the slide in Ms Bachelet’s popularity, which hasalso been hit by discontent over Chile’s sluggish economy. Her approval ratings reached anew low of 27% in June according to local pollster Adimark, after declining from 54% atthe beginning of her second presidential term over a year ago.

GOVERNANCE

In Transparency International’s 2012 Corruption Perceptions Index, Chile obtained a scoreof 72 points, ranking among the 20 best-placed economies out of the 176 countries includedin the Index. In recent years, Chile has steadily improved its score, leading Latin Americaand enjoying the transparency standards of a developed country.

A key step in that process is improving relations with the business sector, which was avocal critic of a big rise in corporate taxes last year to fund increased spending on education.Businesses have also been deeply unnerved by plans to initiate a constitutional reform

Chile — Investment Risks, Barriers and Challenges 38


process in September, as well as a labour reform bill being discussed by the senate thatwould give greater power to trade unions.

ECONOMIC

With exports representing one third of GDP, of which primary products, either unprocessedor relatively unprocessed account for 70% and a banking system 40% owned by foreign(mainly Spanish) institutions, Chile is very exposed to the global economy.

THE WORLD BANK “DOING BUSINESS RANKING” 2015


Chile 41 out of 189 countriesIndia 142 out of 189 countries

Other Ranks

Index Rank

Corruption Perception Index 21/173

E&Y Globalization Index Score 28/60

Global Competitiveness Report 33/147

Global Enabling Trade Report 8/138

Global Services Location Index 12/51

Index of Economic Freedom 7/178

International Logistics Performance Index (PLI) 42/160

Inward FDI Potential Index 52/139

KOF Index of Globalization 39/186

Networked Readiness Index (NRI) 34/145

Open Budget Index 27/102

Indo-Chilean Economic Relations

Bilateral trade has grown substantially to reach record levels each way. Chilean exports toIndia had grown steadily from 2009 to 2012. Indian exports to Chile have also grown by36.9%, 22.6% and 40.9% respectively over the same period. In 2012, Indo-Chilean bilateraltrade was US$3.29 billion. In 2013, bilateral trade was US$2.88 billion and in 2014 it was3.19 billion. Following table gives the bilateral trade between India and Chile in million USDollars:



Year Exports from India (CIF) Imports from Chile (FOB) Total Bilateral Trade2009 278.07 908.35 1186.422010 380.91 1581.95 1962.862011 467.03 1964.99 2432.022012 658.45 2636.82 3295.272013 693.90 2182.70 2876.602014 619.84 2571.74 2191.59

The above bilateral trade figures do not include India’s exports to the Free Trade Zone ofIquique, which amounted to US$39.2 million in 2010, US$42.9 million in 2011, US$60.8million in 2012, US$45.4 million in 2013 and US$34.18 million in 2014; and India’s serviceexports, which too amount to some US$20 million, Six percent of the companies workingin Zofri Zone in Iquique are of Indian origin.

Top 10 Chile Exports to India Top 10 Chile Imports from India

Chile’s exports to India amounted to India’s exports to Chile amounted to$2.6 billion or 3.5% of its overall exports. $619.9 mn. or 0.9% of its overall imports.

1. Ores, slag, ash $2.3 billion 1. Vehicles $190.6 million2. Copper $91.9 million 2. Pharmaceuticals $47.2 million3. Wood pulp $60.9 million 3. Clothing (not knit or crochet) $36.7 million4. Inorganic chemicals $52.4 million 4. Leather, animal gut articles $34.8 million5. Fruits, nuts $35.7 million 5. Organic chemicals $32.6 million6. Oil $32.5 million 6. Machines, engines, pumps $29.3 million7. Ships, boats $6.5 million 7. Other textiles, worn clothing $27.5 million8. Iron and steel $5.7 million 8. Electronic equipment $22.5 million9. Oil seed $4.8 million 9. Footwear $17 million10. Organic chemicals $2.7 million 10. Iron or steel products $14.4 million

High value-added Indian items such as commercial vehicles (Telco, Mahindra), motor cars(Tata Motors, Suzuki Maruti, Hyundai), two wheelers, and bulk pharmaceuticals have enteredthe Chilean market. Other traditional items being imported by Chile are garments, handicrafts,textiles, carpets, and hand tools. India’s imports from Chile are predominantly copper,iodine, chemical wood pulp, molybdenum concentrates, and fresh apples.

The Godrej Group recently approved the acquisition of the balance 40% stake in CosmeticaNacional, a market-leading hair colour and cosmetics company in Chile. GCPL had acquireda 60% stake in Cosmetica Nacional in January 2012.

Indian Chile Free Trade Agreement is near conclusion and signing. To the Preferential TariffAgreements operational with Chile and the five-nation Mercosur, India´s Ministry ofCommerce is seeking to add Colombia, Peru and perhaps Mexico. These countries areseeking to conclude economic and commercial agreements with India to avail of its stableregime and steady growth for their mineral and agricultural products, as well as theirprocessed goods.


COLOMBIA

Highlights 42

Introduction 42

Columbia — Key Economic Factsheet 2014 43





Infrastructure 52




Indo-Colombian Economic Relations 62


Highlights

• Third largest economy in Latin America• GDP growth 4.8% in 2015• Rose to 34th place from 53 in ‘Doing Business’ ranking• Largest coal reserves in Latin America• Over 200 foreign companies registered in last 5 years• IMF Endorses the Country’s Economic Direction• Per capita GDP tripled in last decade• 4th largest producer of palm oil• Invited to become full member of OECD· To invest $50 billion in infrastructure

Introduction

Colombia is a country in north-western South America that borders the Pacific Ocean andthe Caribbean Sea. Neighbouring countries include Brazil, Ecuador, Panama, Peru, andVenezuela. The geography of Colombia is diverse with flat lowlands and high AndesMountains. The government system is a republic in which the executive branch dominatesgovernment structure. The chief of state and head of government is the President. Colombiahas a pro-market economic system in which the prices of goods and services are determinedin a free price system. Colombia is a member of the Andean Community (CAN) and theLatin American Integration Association (LAIA).

Colombia’s reputation as a gateway to the South and launch pad to the North is becomingcemented in a country that has long lived in the shadow of the drugs lord Pablo Escobar.More than two decades after Escobar was shot dead by police on a Medellín rooftop, thestereotype of a country ridden by drugs, cartels, kidnapping and violence is finally startingto fade.

Colombia’s middle class is on the rise, climbing from 16% of the population in 2002 to27% in 2011. The poverty rate – defined by the World Bank as anyone living on less than$1.25 (81p) a day – has fallen from almost 50% to 34% over the same period. Whilepolicymakers have more to do, Colombians are lifting themselves out of poverty.

In the past too, Colombia had many strengths – a well-educated labour force, a strongbusiness class – but they were not visible, because of the veil of terrorism and violence.

Today, Free trade agreements have been pursued aggressively. The country has secured adozen deals around the world, including with the UK through the EU, America andSwitzerland.

Colombia — Introduction 42


Columbia — Key Economic Factsheet 2014

Key Economic Facts

Income Level (by per capita GNI) Upper Middle IncomeLevel of Development DevelopingGDP, PPP (current international $) 638.36 billion (2014)GDP Growth (Annual %) 4.55% (2014)GDP per capita, PPP (current international $) 13,357.15 (2014)External debt stocks, total (DOD, current US$) 91,978,384,000.00 (2013)Manufacturing, value added (% of GDP) 13.00% (2014)Current account balance (BoP, current US$) -19.78 billion (2014)Inflation, consumer prices (annual %) 2.88% (2014)Labour force, total 23,900,105 (2013)Unemployment, total (% of total labour force) (modelled ILO estimate) 10.50% (2013)Imports of goods and services (current US$) 81.19 billion (2014)Exports of goods and services (current US$) 60.58 billion (2014)


Oil is Columbia’s chief export, and the 14-month crude-price collapse has pushed the pesodown 37% and the COLCAP stock index down 53%. Obscured by these devastated markets,though, there’s evidence to suggest that Colombia, with a population greater than Spain’sand more land than France, is the dark horse among international investors. Colombiaremained the growth leader among the biggest Latin American economies even whileexpansion slowed to 4.6% in 2014 from 4.9% in 2013. Its growth is estimated to decline toa 3.2% rate this year before rebounding in the following two years, according to datacompiled by Bloomberg.

The relative stability of peso-denominated debt, which shares none of the weakness of acurrency that has lost most of its purchasing power since June 2014, shows there is stillconfidence in Colombia’s prospects. The yield on benchmark government 10-year bonds islittle changed from early 2014. That investor confidence suggests that the currency debacleis likely to abate, exports should rebound and the current economic setback will betemporary. The unprecedented infrastructure and housing development policies of PresidentJuan Manuel Santos Calderon, and his commitment to secure peace with FARCrevolutionaries, also augurs well. Colombia’s central bank has kept inflation – which currentlystands at 3.8% – close to its target of 3% for more than half a decade.

Colombia — Economic Highlights and Forecast 43



Growth remains dynamic in 2014, slightly exceeding its potential (4.5%). Householdconsumption (65% of GDP), facilitated by falling unemployment and the rise in credit, hasretained its dynamism, as has investment (23%). Exports of coal and agricultural productsare rising, whereas those of oil are affected by guerrilla attacks on the oil pipelines andconflicts with the indigenous people. At the same time, imports of capital goods requiredfor mining investments are increasing more rapidly, the contribution of trade to growth willremain negative. Construction (9% of GDP) is greatly benefiting from this favourableenvironment due to the development of social housing and the acceleration in infrastructurespending. Manufacturing (13% of GDP), mining activity (9%), and services (39%) are notfar behind. Agriculture (7%) would have benefited more, if its potential had not beenreduced by the presence of armed groups in the countryside, which has dissuaded farmersfrom investing.

A Low Public Deficit and Declining Debt

Despite the increase in infrastructure, education and healthcare spending, the public sectordeficit will remain weak. The central government structural deficit is expected to fall graduallyto 1% by 2022, in order to comply with the 2011 Balanced Budget Act. Accomplishing thisshould be easy and the overall balance is likely to be achieved well before this. Publicsector debt (41% of GDP) is expected to continue to fall.

Close to 20% of this corresponds to public companies’ liabilities whose operating is profitableoverall. Government debt is distributed between the domestic market (60%) and theinternational market. This satisfactory state of public finances has been achieved despitelow revenue (17% of GDP), 20% of which comes from oil. These weak resources and theauthorities’ desire to improve fiscal ratios have resulted in low levels of public investment(3% of GDP) and the need to make use of private sector partnerships to develop theinadequate infrastructures.



A Repetitive Current Account Deficit Funded by Foreign Investments

The current account deficit has stabilised above 3% of GDP, due to a small trade surplus(0.5%) achieved thanks to oil (50% of exports), coal (15%), gold and coffee (each 5%).With sugar, commodities represent 80% of sales, 37% of which were to the United States.China and Venezuela absorb respectively 6% and 4%. Because of their composition, exportsare highly sensitive to the state of the world economy. This sensitivity must, however, beseen in perspective because exports account for only 17% of GDP. Conversely, imports ofcapital goods, intermediate products, foodstuffs and textile articles are buoyed by the vigourof domestic demand. Revenue exchanges are in deficit by 4%, reflecting the extent ofdividend repatriations by foreign companies. The current account deficit is amply fundedby massive foreign direct investments (4% of GDP), incidentally making it possible to beefup the foreign currency reserves covering 8 months of imports. This funding, which doesnot lead to debt, explains why the country’s foreign debt represents only 22% of GDP, 60%of it issued by the public sector. Like tourism income, foreign direct investments are expectedto increase as the security situation improves and as the infrastructure develops. However,though the level of foreign investment is pretty stable, investment flows are likely to slow ifthere is a fall in the price of the raw materials in which they are concentrated.

There’s similar underlying strength in the stock market, where Colombia has been amongthe worst in emerging markets. While compared with 201 companies in Latin America,Colombian companies are expected by analysts to have the greatest return during the next12 months. Investors are also showing renewed interest in the largest U.S.-based exchange-traded funds focusing on Colombia.

Among Colombian companies, banks are the most important in determining the outlookbecause there is no economy that can prosper without a robust financial industry. Whilethe nation’s banks have underperformed their Latin peers the past three years, they benefitfrom the fastest-growing interest income, loan and mortgage growth during the last fourquarters and they have the lowest debt-to-assets ratio among their Latin peers.

There’s similar underlying strength in the stock market, where Colombia has been amongthe worst in emerging markets. While compared with 201 companies in Latin America,Colombian companies are expected by analysts to have the greatest return during the next12 months. Investors are also showing renewed interest in the largest U.S.-based exchange-traded funds focusing on Colombia.

Among Colombian companies, banks are the most important in determining the outlookbecause there is no economy that can prosper without a robust financial industry. Whilethe nation’s banks have underperformed their Latin peers the past three years, they benefitfrom the fastest-growing interest income, loan and mortgage growth during the last fourquarters and they have the lowest debt-to-assets ratio among their Latin peers. Bloomberg,18 Aug 2015

For 2016, the Focus-Economics panel projects economic growth of 3.0%.




Foreign capital investments are allowed in Colombia, including the acquisition of real estate.However, certain specific sectors are forbidden for foreign investments, for example: foreigninvestments in the national security or defence activities or in activities related to theprocessing and disposal of toxic, hazardous or radioactive waste produced abroad.

MAJOR REGULATIONS

• Law 9 of 1991 (Known as ¯ “Framework Law”)• Law 31 of 1991 (Central Bank)• Decree 1735 of 1993 for currency exchange purposes).• International Investment Code – Decree 2080 of 2000 and its modifications.• Exchange Regime Code – External Resolution 8 of 2000 issued by the Central Bank and

its modifications.• Exchange Regime Manual – External Circular DCIN-83 and its modifications (includes,

among others, exchange forms and exchange item numbers to identify transactions).


A boom in foreign direct investment (FDI) between 2010 and 2013 has come to an end asthe government announces an expected drop in foreign investment for both 2014 and2015.

During 2013, while the FDI of Latin America decreased 6%, flows to Colombia increased8% due to cross-border merges and acquisitions in electricity and banking industries,according to the United Nations Conference on Trade and Development.

Between 2010 and 2013, foreign investment grew from $6.8 billion to $16.8 billion. Accordingto economic newspaper Portfolio, experts said that FDI to Colombia could drop to between$10 and $13 billion in 2015, at best 23% less than last year. Experts cited by the newspaperblame the steep drop in oil prices for the drop in investment.

According to the Central Bank, oil investments represent up to 70% of the total FDI.


• A country with investment-grade rating awarded by Standard & Poor’s, Moody’s andFitch on Colombia’s sovereign debt in 2011.

• In July 2014, Moody´s was the last rating agency in improving Colombia´s rating due totwo key drivers: 1. Positive growth forecast thanks to 4G infrastructure. 2. A sound fiscalmanagement that will continue in the future

Colombia — A Magnet for Investment 46


• It has the second lowest perceived risk in the region, measured by the behaviour of 5-year Credit Default Swaps.

• Technology infrastructure supported by five underwater cables and a national fibre-optic ring that connects 300 municipalities in the country.

• Easy access to global markets thanks to its privileged geographical location and developedlogistics infrastructure.

In 2015, Colombia’s economy is expected to triple its size from a decade ago, according tothe International Monetary Fund. Other nations in Latin America have made similar progress,but they don’t have the notorious background Colombia has had to wrangle off its back.Colombia’s murder rate is still high, but it’s at its lowest point in a decade, the governmentreports.

Colombia’s middle class grew by 50% last decade, according to a World Bank report. Thatgrowth is attracting corporate America’s attention.

Starbucks (SBUX) opened up its first cafe in Bogota last July with plans to open 50 more infive years. Car companies like Ford (F) and GM (GM) see sales surging in Colombia. TheFords, the GMs, Mitsubishis see Colombia as a growth market. People have money tospend.

Between 2007 and 2012, Colombia’s tech industry grew 177% to $6.8 billion, according tothe government. Along with big-name arrivals such as Microsoft, Facebook and Google,Colombians are also leading their country’s tech surge.

Many say the country’s diversifying economy and open policy to foreign investment is thesecret sauce to the turnaround. U.S. exports to Colombia have increased nearly 400%since 2003. It’s signed trade agreements with America, Canada and Europe. The country ispart of the Pacific Alliance, a Latin American trade group that promotes ties with Asia.

Like other regional economies Colombia still relies on oil, coffee and sugar exports tosupport its economy. But, experts say, the growth of tech and other service sectors is whyAmerican businesses are going to Colombia.


AGRIBUSINESS

Biofuels: Ethanol and biodiesel production in Colombia has been increasing over the pastyears due to the mandatory blend policy. Ethanol production reached 368 million litres in2012; meanwhile in the same year the output of biodiesel was 489 thousand tons. Thepermanent increase in the production of biofuels will be conducive to a surplus market;

Colombia — Focus Areas for Investment 47


Colombia could meet the needs of those countries which don´t satisfy their domesticdemand.

Horticulture: Colombia is a tropical country with a variety of ecosystems where over 95different types of fruit are grown. This includes native species and other species introducedfrom other continents and other equatorial areas.

Colombian Fruit and Vegetables compared with those from other subtropical countries, inthe northern and southern hemispheres, are naturally better in terms of physical qualityregarding the organoleptic characteristics, principally, colour, flavour, aroma, higher contentsof soluble solids, and Brix grades.

According to the FAO, Colombia is the third country in Latin America with the largest numberof hectares allocated to the production of fruits accounting for 10.5% the equivalent of748,604 hectares while being the fifth largest producer in the region with 7.2% the equivalentof 7.5 million tons.

According to FAO, Colombia is the seventh largest producer of vegetables in Latin America,consisting of 4,2% of the cultivated area, representing 107,694 ha; and 4,2% agriculturalproduction an equivalent of 1,738,662 tons.

Colombia is the third country in Latin America with the largest precipitation rates, (2.612mm per year).

Cocoa: Colombia has a potential for 2 million hectares for growing cocoa crops accordingto a study of various regions (scale: 1:100.000) based on edaphic and climate criteria.(Corpoica, Fedecacao y el Ministerio de Agricultura y Desarrollo Rural, 2011)

Colombia has a strategic geographical position. As an equatorial tropical country, Colombiaenjoys strong sunlight all year round. In addition, Colombia boasts a variety of climates andabundant water resources.

MARS Incorporated has forecasted an international deficit of 1 million tons of cocoa for2020. Investing in Colombian cocoa represents a business opportunity to meet the worlddemand for fine and flavoursome cocoa. (MARS Incorporated, 2012)

Colombian Cocoa is grown in regions with an altitude between 0 and 1,100 meters, attemperatures within 24-28°C, and with annual rains among 1.800-2.600 mm. With anaverage of 2.612 cubic meters of water per capita per year, the country sits above the SouthAmerican average and above other regions such as North America, Europe and Asia. (FAOand Instituto Geográfico Agustín Codazzi (IGAC)

Aquaculture: During the 1980s and 1990s, Colombia’s shrimp harvesting industry reachedpeak levels, pushing the country into the world’s spotlight as a major shrimp producer andexporter. Colombia has increased both in the productivity levels of fish breeding and itsfish culture areas. Fish breeding production focuses mainly on tilapia, trout, and cachama.



• In 2012, shrimp production yields in Colombia reached a total of 8,500 tons, mainly inthe states of Sucre (65%), Bolivar (32%), and Nariño (5%). (Ministry of Agriculture andRural Development)

• Colombia’s fish production has shown a steady growth over the last 10 years, risingfrom 28,956 tons in 2002 to 80,609 tons in 2012, showing a total increase of 278%.(Ministry of Agriculture and Rural Development)

• Geographical Location: The area is free from hurricanes and typhoons and is close tothe main consumption hubs.

• Lack of Seasons: Weather and water temperature are fairly constant, making productionpossible all year round.

• International Recognition: Stemming from the sector’s wide experience in foreignmarkets, its high quality products, qualified expert personnel and the geneticenhancement program it has received widespread international acclaim.

• Available Lands: Aquaculture regions include an estimated area of 370,658 acres availablefor production.

MANUFACTURING

Automotive: Colombia is the ideal destination to develop a platform for manufacturingand for the assembly vehicles, trucks, buses and automotive components destined to supplyboth the domestic and regional markets.

Presently, Colombia has a fleet of around 3.5 million units of vehicles, of which 57% areimported. It is expected that by 2020 this fleet will double (BBVA, 2012).

• Colombia is the fourth largest vehicle producer in Latin America using 2.5 % of thecountry’s workforce in the manufacturing industry.

• Colombia ranks second in the production of motorcycles in the region, behind onlyBrazil, with an annual production of 515,000 units (BBVA, 2012)

• In 2012, vehicle sales for the second year running exceeded 300 thousand units. A totalof 315 968 vehicles were sold in 2012 (ANDI, 2013).

• The automotive industry and related businesses account for a workforce of 22,705graduates ranging from technicians and professionals. There are competitive salariesfor staff positions within the industry.

• The industry enjoys tax benefits and incentives in businesses working with depositsand in assembly and manufacturing.

Cosmetics and Toiletries: Colombia offers excellent conditions for development withinthis sector and transforming it into a world class player. As a result, foreign investors cantake advantage of several opportunities to establish research and development centres,distribution centres and manufacturing plants.



Some of the advantages in investing in this sector include the demand for natural ingredients,the existence of government policies aimed at developing biotechnology, an outstandingmarket dynamic and the possibility of using Colombia as an export platform.

• Colombia has a strategic location which enables access to more than 1.500 millionconsumers across the world.

• Colombia has a vast amount of protected areas and is the second most bio diversecountry in the world.

• Colombia has financial and tax incentives in place that not only promote research anddevelopment projects, but also protect intellectual property.

• Colombia’s Commercial Balance is in surplus within the sector.

• There is a significant growth of the Colombian market and one of the highest femalelabour markets within the Latin American region.

• This is one of the priority sectors for the government and the private sector in Colombia.

Building Material: During the last five years the demand for materials increased by anaverage of 5.8%, driven principally by building construction and accounting for approximately42% of production, with infrastructure requiring about 32% (DANE, 2013).

Exports of construction materials grew 8% in 2012 compared to the previous year reachingvalues of U.S. $ 370 million.

The construction industry in Colombia is the third largest in Latin America and the Caribbean.

Over the last five years the size of the construction sector grew at an average rate of 16.8%per year, well above the average growth in the region, which was 10.2%.

• Construction has increased in the country driven by investment in infrastructure

• The government hopes to double the investment budget for infrastructure projects in2014, reaching a budget of over U.S. $ 6,500 million.

• Housing construction grew 12.7% per year while non-residential building constructionreached annual growth rates of 9.7%.

• The Government is committed to addressing the national housing shortage; in thatsense it has begun the breaking ground of 1 million new homes by 2014.

Fashion Systems: The Colombian Fashion Sector reported dynamic export growth at anannual rate of 8.4% over the past ten years, with the third highest rates of exportations inthe region after Brazil and Peru, and higher than those of countries like Chile and Mexico.TradeMap (2013).

• 13 free trade agreements that provide tariff benefits and stability for long-terminvestments.

• Potential access to over 1,500 million consumers given the easy access to markets dueto the country’s geographical location and the various free trade agreements in forcewith the countries of the Andean Community, NAFTA, Mercosur, the United States, theEuropean Union, the Northern Triangle and Canada.



• 10 Agreements for the promotion and reciprocal protection of Investments. Ministry ofIndustry, Trade and Tourism, (2013).

• Colombia is strategically located on the continent, with easy access to world marketsthrough more than 700 direct international flights per week, and over 4,900 domesticroutes per week.

• Competitive access to the U.S. market with transport costs on average 3 times lowerthan those incurred from China.

OIL AND GAS SUPPORT SERVICES

Colombia ranks alongside the first twenty oil-producing countries in the world producingover a million barrels of oil per day, making it a great place to invest in oil goods andservices firms that cater to the extraction, exploration and production processes in the oilsector.

Oil is the global energy economy’s driving force, boosting economic growth and increasingdemand. Nonetheless, this is a limited resource and is becoming more scarce.

In Colombia, over 30% of explored wells are successful, and more than 50% of the totalterritory is as yet unexplored. Colombia is the only country in South America with access toboth the Atlantic and the Pacific oceans allowing international firms to reach differentcountries worldwide.

• From 2007 to 2012, Colombia increased its daily oil production by 77%. ANH 2013.

• The 2012 Colombia Round (Ronda Colombia 2012), organized by the National Agencyof Fossil Fuels (Agencia Nacional de Hidrocarburos, ANH), yielded positive results after50 concessions were allocated, of which 5 concessions belonged to non-conventionalfossil fuels and 6 belonged to offshore concessions. This will represent 2.600 billionUS$ in investments to conduct explorations in the coming years.

• Colombia became the 4th largest oil producer in Latin America, above Argentina, Ecuador,Peru, and Chile. International Energy Agency, 2013 & BP Statistical Review of WorldEnergy 2013.

• The priority for Colombia is to increase its confirmed oil reserves. In 2012, 133 newexploratory wells were drilled versus 126 in 2011. This surveying activity is a key elementto ensure a long-term supply.

• In 2014, 570 new exploratory wells are expected to be drilled. Ministerio de Minas yEnergía, 2012.



Infrastructure

Colombia President Juan Manuel Santos encouraged investors this year when he startedawarding contracts for the first road projects in the $25 billion highway plan, a buildingprogram Moody’s Investors Service cited when it increased the nation’s credit rating toBaa2, the highest ever. Partnerships between the government and private sector forimprovements to ports, roads and airports may need an additional $25 billion, accordingto Ricardo Jaramillo, head of investment banking at Bancolombia SA, the nation’s biggestbank by assets.

Road Quality

Colombia ranks 130th out of 148 economies judged by the quality of roads, behindVenezuela and Madagascar on the World Economic Forum’s global competitiveness index.Santos’s road program, known as the Fourth Generation, will try to cut travel times betweenmajor population canters by as much as 47% while reducing the cost of transporting rawgoods and finished products between industrial zones in the Andes Mountains and majorports.

Fundraising for Colombian infrastructure got a boost last year with new rules allowing the$75 billion pension industry to invest in debt funds and join banks in syndicated loans tofinance projects. Large infrastructure concessions have the potential to boost gross domesticproduct growth to between 5% and 5.5% during the next five to 10 years, compared withan estimated 4.8% currently, Moody’s said when it raised Colombia’s rating in July.


Extensive range of free trade zones with more than 100 authorized permanent and specialpermanent zones.

Multi-company Free Trade Zones (called “special permanent free trade zones” in theregulation) are areas within the national territory, managed by an operator user, in whichnew companies that establish their projects are benefited with a special tax and customstreatment.

The Single Company Free Trade Zone regime enables the declaration of a FTZ in favour ofa specific new company, in any location within the country, for the development of aninvestment project with high economic and social impact.

Colombia — Infrastructure 52


International Trade

Colombia - Exports and Imports Data


Panellists participating in the Latin Focus Consensus Forecast expect that exports will fall15.5% in 2015 and expand 8.6% in 2016.

Top Colombian Exports to the World(Value in US$, figures in parenthesis % of total imports)

# Commodities Value

1. Oil 35.8 billion (65.5%)

2. Coffee, tea and spices 2.5 billion (4.6%)

3. Gems, precious metals, coins 1.8 billion (3.4%)

4. Plastics 1.6 billion (3%)

5. Live trees and plants 1.4 billion (2.5%)

6. Fruits, nuts 918.8 million (1.7%)

7. Sugar 819.6 million (1.5%)

8. Iron and Steel 772.5 million (1.4%)

9. Vehicles 550.1 million (1%)

10. Pharmaceuticals 524.2 million (1%)

Top Colombian Imports from the World(Value in US$, figures in parenthesis % of total imports)

# Commodities Value

1. Machines, engines, pumps 8.2 billion (12.8%)

2. Oil 7.6 billion (11.8%)

3. Electronic equipment 6.6 billion (10.5%)

4. Vehicles 6.2 billion (9.7%)

5. Plastics 2.7 billion (4.2%)

6. Pharmaceuticals 2.4 billion (3.7%)

7. Organic chemicals 2.4 billion (3.7%)

8. Aircraft, spacecraft 2.4 billion (3.7%)

9. Iron and steel 2 billion (3.1%)

10. Medical, technical equipment 1.9 billion (2.9%)

Colombia — International Trade 53


Fastest Growing Colombian Exports 2014

# Commodity Growth (from 2010) Value in $1. Railway, tram equipment 1038.5% 1.7 million2. Collector items, art, antiques 927.5% 4.1 million3. Tin 800% 540004. Ships, boats 349.2% 19.1 million5. Cereals 346.4% 21.9 million6. Paper yarn, woven fabric 318.3% 4350007. Meat 279.2% 50 million8. Other manufactured products 239.3% 217.6 million9. Tobacco 197.8% 54.2 million10. Other animal-origin products 195.1% 16.7 million11. Furskins and artificial fur 167.2% 5.3 million12. Live animals 162.7% 58.3 million13. Wood pulp 124.2% 1.9 million14. Animal/vegetable fats and oils 121.5% 347.9 million15. Musical instruments 118.9% 11600016. Gums, resins 113.9% 1.9 million17. Fertilizers 103.3% 133.6 million18. Cocoa 102.2% 145.9 million19. Milling products 85.7% 43.4 million20. Raw hides excluding furskins 75.5% 216.1 million

Fastest Growing Colombian Imports 2014

# Commodity Growth (from 2010) Value in $1. Diary, eggs, honey 965.3% 121.1 million2. Meat 387.7% 242.1 million3. Oil 263.3% 7.6 billion4. Cork 237.8% 1.8 million5. Fish 186.9% 262.6 million6. Tobacco 171.2% 68.3 million7. Knitted or crocheted fabric 159.2% 161.1 million8. Clothing (not knit or crochet) 144.8% 404 million9. Coated textile fabric 144.7% 69.9 million10. Lead 132.7% 31.5 million11. Knit or crochet clothing 132.2% 383.7 million12. Headgear 125.6% 48.7 million13. Ships, boats 121.4% 326.8 million14. Collector items, art, antiques 114.7% 1.9 million15. Vegetable/fruit preparations 114.3% 142.7 million16. Salt, sulphur, stone, cement 111.7% 238.2 million17. Gems, precious metals, coins 105.1% 100 million18. Leather, animal gut articles 103.6% 193.1 million19. Paper, yarn, woven fabric 93.5% 11.2 million20. Feathers, artificial flowers, hair 91.1% 12.4 million

Colombia — International Trade 54


Services Industry

FINANCIAL SERVICES

One of the Colombian banking sector’s biggest economic strengths is a near-oligopolisticgrip on the local market. Grupo Sura’s biggest local rival, Bogotá-based Grupo Aval, with$72 billion of assets, has nearly a third of local market share alone, while Bancolombiaholds nearly 25% of Colombia’s market.

The sector’s concentration has prompted the criticism, even from officials at the financeministry, that there is still not enough competition in Colombia. There are a few newforeign entrants such as Canada’s Nova Scotia bank and Chile’s Corpbanca, but they havea smaller market share than the locals.

In a December report on Andean banks, Fitch Ratings says that although Colombian bankshave to “digest their latest acquisitions”, something that could put pressure on capitalratios, they “have sustainable profitability, which, coupled with ample loan loss reservesand adequate capitalisation, constitute a cushion against unexpected losses”.

For some, this international diversification is a sign that Colombian financiers believe theirgolden days at home can only exist for so long before they face greater competition anddeepening domestic capital markets that allow local companies to raise bond financemore easily.

Private Equity

According to the 2013 LAVCA Scorecard on the Private Equity and Venture CapitalEnvironment, Colombia maintained its fourth place among 12 Latin American and Caribbeancountries due to its favourable conditions for development of the PEF industry.

There is government support with the Bancóldex Capital program, created to promote anddevelop the private equity industry in Colombia, and with the Colombian Association ofCapital Funds (COLCAPITAL), created by Bancoldex and the Multilateral Investment Fund ofthe Inter-American Development Bank, to promote and strengthen the private equity industryin Colombia.

Private Equity funds are clearly a very important financing alternative for Colombianentrepreneurs.

• In 2012, Colombia accounted for 1% of all total funds raised in Private Equity andVenture Capital in Latin America, and this in turn accounted for 5% globally.

• According to LAVCA, one of Colombia’s strengths is its attractive regulatory frameworkfor the establishment and management of private capital funds.

• There is an excellent opportunity to procure local equity resources from institutionalinvestors such as in pension funds and insurance companies, which have shown greatreturns in the last few years.

Colombia — Services Industry 55


• The Latin American Integrated Market (MILA), formed by the stock exchanges ofColombia, Chile and Peru, has become an excellent exit strategy for private equityfunds, offering a greater diversification to investors and access to the capital market.

HUMAN CAPITAL

One of the countries with the largest annual increase in availability of human resourcesaccording to the 2012 IMD Workforce Growth Rate. More than 200 thousand studentsgraduated every year from higher education, 53% undergraduate and 28% post-graduatesof the country’s universities are amongst the best in the world.

R&D

Colombia is betting on innovation as a cross-cutting component for the transformation ofproducts and services that generate added value and skilled employment. For that reason,the national government has included innovation as one of the driving engines in its 2010-2014 National Development Plan.

HEALTHCARE

In terms of healthcare, Colombia boasts high standards. The 2010 World Health Reportranked its healthcare system 22nd in the world, and it claims 8 of the top 35 most highlyranked medical institutions in Latin America. Medical tourism from the USA to Colombia ison the rise due to the perceived high quality care for a fraction of the domestic price. Nowonder, therefore, that Colombia is increasingly catching the eye of pharmaceuticalcompanies wishing to leverage this dynamic and growing market. For example, the recentlydeparted CEO of Sanofi, Chris Viehbacher, remarked in 2012, “Places like Colombia havebecome extremely interesting in terms of growth”.

The Healthcare Environment

Today, Colombia’s healthcare system broadly follows the Bismarck model, based oninsurance systems funded by employers and employees through salaried contributions.Universal healthcare was written into the constitution in 1993, with the landmark ‘Law100’ which aimed to expand the provision of healthcare to cover all citizens. Just over 20years on, 96% of Colombia’s population are estimated to have some form of coverage.

‘Law 100’ unified private and public systems and aimed to stimulate competition andprevent monopolies by enabling a large number of private and public providers to administerhealthcare. These health promoting entities (‘EPS – Entidades Promotoras de Salud’)compete for the enrolment of the population onto their respective insurance schemes.There are currently 70 active EPS organisations, which contract delivery of healthcare totheir designated health providers (‘IPS – Instituciones Prestadoras de Salud’).

On top of these is privately funded healthcare, which often involves ‘top up’ plans offeredby EPS in addition to the basic schemes, expanding benefit entitlements and enablingaccess to leading private facilities. As Colombia’s middle classes have grown, so too havethe numbers purchasing such plans.



An essential drug list (‘POS – Plan Obligatorio de Salud’) is drawn up to cover the medicinesto which Colombians are entitled under the EPS. However for those subsidized ‘EPS-S’patients, they may only access a restricted subset of this list. Another special governmentscheme, FOSYGA, has been set up to directly reimburse the healthcare providers for certainhigh cost treatments not included on this list.

Colombia is firmly establishing itself on the radar of pharmaceutical companies as a ‘secondtier’ Latin American market, given its growing proportion of middle classes and rapideconomic growth, which in recent years has consistently outperformed the continentalaverage. While poverty and inequality remain key challenges, decline in armed FARC rebelconflict and organized drug crime have facilitated an increasingly favourable environmentin which to do business.

TOURISM

The main benefits for investments in this sector include an income tax exemption for aperiod of 30 years. This exemption applies to new hotel projects and also for those ofremodelled and/or expansion projects which began between 2003 to December 2017.

Colombia’s tourism industry is dynamic and is growing at a fast pace. The arrival of foreigntourists in Colombia rose from 600 thousand in the year 2000 to 1.7 million in 2012,showing an average annual growth of 10%. This figure is three times higher than theworld’s average, and is among the most impressive in the region. (Immigration Departmentof Colombia – Ministry of Trade, Industry and Tourism, 2013).

• The impressive performance of the Colombian economy.• The increase of international tourism arriving to Colombia is above the world’s average.• Appealing incentives for hotel project investments.• Strategic location and accessible air connectivity.• Increasing hotel demand and supply.• Committed workers with outstanding training and education.• Colombia’s tourist destinations are renowned around the world and provide unique

experiences.• More hotel project ventures as a result of the arrival of more multinational companies.


The Government is committed to support and advance the services sector through theProductive Transformation Program. This is a consolidated strategy for growth anddevelopment, which in recent years as a result of the adequate environment it has created,the program has earned a global recognition.

With the online government programs, the strengthening of the IT Industry and Vive Digital-through the Ministry of Information and Technology - the Colombian government is workingto promote the use of these tools and networks. These programs open up a wide range ofopportunities for the Hardware and IT Services in the country thanks to the large use oftechnology, industry and population growth that look for these goods and services.



• Between 2007 and 2012 the revenue of the IT sector in Colombia grew by 177%,reaching U.S. $ 6,803 billion, according to IDC.

• Between 2007 and 2012, the software industry in Colombia grew 3.79 times due to thestrengthening of the sector as a result of the government programs (IDC, 2013).

• Hardware continues to lead the technology market with 58% of the total market share,followed by software with 12% and lastly services with 30% (IDC, 2013).

• Over the last 10 years, 1.9 million professionals have graduated from a higher educationdegree in Colombia. 22.8% have an engineering degree, of which 58% have a universitydegree, 12% a postgraduate degree (specialization, master’s or doctorate) and 30%with technical training (Ministry of Education, 2013).

• The Government has earmarked through its Digital Talent initiative (Iniciativa TalentoDigital) U.S. $19 million so that Colombians can study for free technical, technological,professional and related postgraduate degrees that are related to Information Technology.Up until 2012, close to 1,277 non-repayment loans have been granted and in 2014 atotal of 4,661 loans will be given (MinTic, 2013).

• Colombia has an infrastructure capable of handling world-class operations, with 6submarine cables that allow the use of 4G technology (MinTic, 2013).

Colombia-received-173-BPO-Software-and-IT-Investment-Projects-between-2010-2014

Based on information from the Central Bank of Colombia Balance Of Payments, the sectorgathers 22% of the foreign investment share in Colombia during the last five years with$7.23 billion US$, and is one of the main drivers behind job creation with a total of 368,282jobs created.

According to FDI Markets, Spain is the top foreign investor, with 29.5% of the foreigncompanies operating in the sector, followed by the United States with 21.48%, France with7.38%, and the United Kingdom and Argentina with 6.04% each.

“Foreign investment in BPO, Software and IT grew by 28% in the last five years. Starting in2010, ProColombia’s efforts brought 80 new BPO, Software and IT initiatives with businessoperations worth $949 million US$ that, according to entrepreneurs, are expected to create53,433 new jobs”, stated Maria Claudia Lacouture, President of Pro Colombia.

A survey by MVS-Tholons revealed that 71% of investors chose Colombia encouraged bythe quality and qualifications of its professionals, as well as the incentives and costs availablein the country.

Success stories about new investors in this sector include Holcim, IBM, and AIG, companiesthat installed shared service infrastructures or expanded their Data Centres.

Lacouture said that Colombia, in addition to its call centre capabilities, is creating customproducts thanks to its highly qualified work force. “Human talent in Colombia is preparedto provide E-Commerce services, credit management, risk and collection services, helpdesk,back office, telemedicine as well as engineering and market surveys”.



BPO and Outsourcing

These factors illustrate to foreign investors about the investment opportunities that areavailable in Colombia in regards to the BPO sector, offshore, nearshore, KPO and sharedservices in this growth market that has an abundant competitive workforce and a strategiclocation to provide regional and global services.

By 2012, according to the Colombian Association of Contact Centres and BPO (ACDCB)and ANDI, the operating revenues in the sector were U.S. $ 2,513 billion; this representedan increase of 78% over 2010. BPO exports grew 77% between 2010 and 2012.

In 2012, the main sectors include telecommunications (43.06%), banking and financialservices (15.35%), government (5.12%) and insurance (4.88%), among others, accordingto the Colombian Association of Contact Centre and BPO (ACDCB) and the NationalAssociation of Entrepreneurs in Colombia (ANDI).

• According to official figures from the Ministry of Education, in the last 10 years, over 1.9million professionals have graduated from a higher education degree in Colombia.30.69% have business, economics and / or accounting experience, of which 48% havea university degree, 26% a postgraduate degree (specialization, master’s or doctorate)and 26% have technical training.

• Through the Productive Transformation Program, the Government has designed a planto strengthen the industry by providing an emphasis on high value-added activitiesthrough human capital development, conducting business matchmaking forums andacquiring sectorial studies that can help in the development of strategies.

• The National Learning Service (SENA) is the government institution in charge of technicaltraining to every citizen; it provides free education in technical and skills related to theindustry that is in demand where software and services are relevant areas of the trainingcurriculum.


Strengths

• Facing two oceans• Big population (nearly 50 million)• Abundant natural resources (agricultural and mineral)• Considerable tourism potential• Prudent economic policy• Institutional stability• Sound banking system

Colombia — Investment Risks, Barriers and Challenges 59


Weaknesses

• Sensitivity to raw materials prices and the American economy• Inadequacies of road and port infrastructures• Problematic security situation linked to drug trafficking• Shortcomings in education and health• Large informal sector (60% of jobs)• Lack of skilled labour and low productivity• Slow legislative, judicial and administrative procedures and corruption• Structural unemployment, poverty and inequality


After decades of bloody conflict Colombia’s government may finally be close to brokeringa peace agreement with the leftist FARC guerrilla army. The peace process is significantboth for Colombia’s residents and for companies looking to do business in one of SouthAmerica’s biggest economies. The government has announced that a peace deal would becompleted within six months by March 23, 2016.

GOVERNANCE

Colombian legal and regulatory systems are generally transparent and consistent withinternational norms. The commercial code and other laws cover such broad areas as bankingand credit, bankruptcy/reorganization, business establishment/ conduct, commercialcontracts, credit, corporate organization, fiduciary obligations, insurance, industrial property,and real property law. The civil code contains provisions relating to contracts, mortgages,liens, notary functions, and registries.

Enforcement mechanisms exist, but historically the judicial system has not taken an activerole in adjudicating commercial cases. The 1991 Constitution provided the judiciary withgreater administrative and financial independence from the executive branch. Lack ofcoordination among government entities as well as insufficient resources complicate timelyresolution of cases.

Many multinationals have ceased production in Colombia and moved elsewhere, especiallyto Mexico. It’s precisely with regard to the tax burden that Colombia stumbles. Every companymust pay 75.4% of their annual earnings, while in Latin America the average is 48.3%, and41.3% for OECD countries.

This is not the only obstacle for Colombian wealth creators. The ranking puts Colombia 93out of 189 countries in terms of ease of international trade. As such, another reason ispresented for the exodus: companies are leaving Colombia to avoid exorbitant import andexport costs.

Yet the Colombian government insists on making the same mistakes. To allay consumerfears, President Juan Manuel Santos spreads the partial falsehood that the companies areleaving simply due to cyclical occurrences in the business world. It’s true that these are



everyday decisions for large companies, but it’s false that this is the simple law of themarket in action, independent of any action or omission by the authorities.

ECONOMIC

Colombia’s greatest challenge today is not its internal conflict with the FARC, which iswinding down, but the global macroeconomic situation including a weakening Chineseeconomy, rising US dollar, reduced commodity prices and a political-economic disaster inneighbouring Venezuela that threatens Colombia, one of its key trading partners. Thesemacro issues have placed downward pressure on the value of Colombia’s currency, todayamong the weakest in the world in recent years.

Still, Colombia’s growth levels remain as one of the highest in the region with GDP targetsfor the close of 2015 still pushing 3%, compared with less than 1% for Latin America as awhole. At the UN General Assembly meeting in NYC earlier this month, President Santossaid that conservative estimates calculate a peace deal could boost growth by at least1.5%.

GLOBAL ECONOMIC RANKING



Colombia 34 out of 189 countriesIndia 134 out of 189 countries

Other Rankings

Index RankCorruption Perceptions Index 93/173E&Y Globalization Index Score 40/60Global Competitiveness Report 68/147Global Enabling Trade Report 67/138Global Manufacturing Competitiveness Index (GMCI) 31/38Global Services Location Index 43/51Index of Economic Freedom 28/178International Logistics Performance Index (LPI) 97/160Inward FDI Potential Index 93/139KOF Index Globalization 80/186Networked Readiness Index (NRI) 60/145Open Budget Index 29/102



Indo-Colombian Economic Relations

In the recent years, India has become one of the bigger destinations for Colombia’s exports.Similarly, Indian exports have also increased. India-Colombia business organizations havebeen interacting on regular basis and number of business delegations mainly from Indiafrom export promotions councils such as EEPC, EPCH, TEXPROCIL, SRPTC, CHEMEXIL,PLEXCONCIL, Spice Board of India, Electronic and Software Council, CAPEXIL and AEPCand Chambers of Commerce like CII have visited Colombia in the last 5 years. With thesupport of the Embassy a Colombia-India Chamber of Commerce [CICC] was formed inBogota in September 2008 by Indian and Colombian firms to promote bilateral businessinterest.

India-Colombia Trade: Trade between India and Colombia has increased consistently. India’stotal trade with Colombia which was about US$946.95 mn in 2009 has reached US$4036.33million in 2014. In 2014 Colombian export to India was US$2.738.97 million and importfrom India was 1.297.36 million.

Main Export Items: The main items of export consisted of Motorcycles in CKD form, Vehiclesother than railways, Cotton yarn and woven fabrics of cotton, Organic chemicals and Ironand Steels.

Main Import Items: The main items of import were Mineral fuel, minerals oils, Natural orCultívated Pearls, Natural or Cultivated Pearls, Plastics articles thereof, Wood and Steelarticles of wood.

Top 10 Colombian Exports to India Top 10 Colombian Imports from India

Colombia’s exports to India amounted to India’s exports to Colombia amounted to$2.6 billion or 4.7% of its overall exports $1.4 billion or 2.1% of its overall imports

1. Oil $2.5 billion 1. Vehicles $158.4 million

2. Gems, precious metals, coins $37.6 million 2. Cotton $130.7 million

3. Iron and steel $21.3 million 3. Organic chemicals $114.1 million

4. Plastics $14.8 million 4. Iron and steel $82.6 million

5. Wood $14.4 million 5. Electronic equipment $66.5 million

6. Machines, engines, pumps $2.1 million 6. Pharmaceuticals $65.4 million

7. Aluminium $1.2 million 7. Aluminium $42.9 million

8. Other base metals $1 million 8. Machines, engines, pumps $42 million

9. Sugar $800,000 9. Plastics $41.2 million

10. Raw hides excluding furskins $614,000 10. Manmade staple fibres $36.1 million



Indian Companies in Colombia:

Many Indian Companies have established operations in Colombia. Some of the knowncompanies which are present in Colombia are:

• IT (TCS, Mahindra Conviva and Mann India),• Pharmaceuticals (IPCA and CIPLA, Aurbindo, Dr. Reddy´s)• Agro-Chemicals (United Phosphorus),• Automobiles and tractors (TVS, Bajaj, Hero, Sonalika and Mahindra),• Mining (Renuka energy).

In oil exploration, ONGC Videsh has on-going exploration and production operations inColombia. It´s joint venture with Chinese company SINOPEC called Mansarovar Energyowns a producing asset which produces around 40000 barrels per day.

Praj industries have constructed 6 ethanol plants in Colombia with capacity of 1.05 millionlitres per day. It is constructing now it´s 7th plant. Hero Moto Corp. has laid the foundationstone for the plant to manufacture motor-cycles in Cali on 06 July, 2014. The plant whichwill have investment of US$70 million will be producing 78,000 motorcycles initially andwill lead to direct and indirect employment of 2500 persons.

India and Colombia provide model for increased trade between Asia and Latin America

For three years, India and Colombia have been responsible for an exponential increase intheir bilateral commercial relations. Experts have classified this growing trade as an ‘example’of the increasing economic integration between Latin America and Asia.

During this period, a dozen Indian businesses have moved to Colombia each year, whichhas increased and diversified Colombian exports to the Asian nation.

Currently, a total of 36 Indian companies — from the automobile, information, and energysectors — can be found in Colombia. Before 2010, the country was home to less than halfa dozen Indian companies.

One of the most recent large businesses to establish itself in Colombia is the technologyfirm Genpact, an outsourcing outfit, which opened its offices in Bogotá a year and a halfago.

‘We are in other Latin American nations like Brazil, Mexico, and Guatemala, but due to itsgeographic location and stable political climate we have chosen Colombia for ourheadquarters in the Americas,’ said Genpact founder, Pramob Bashin.

Alongside the increased number of Indian firms, Colombia has doubled its exports to theAsian subcontinent. The total value of exports to India increased from US$632 million in2009 to over $1.3 billion in 2012.

While oil still accounts for the vast majority (90%) of these exported products, Colombiahas begun to introduce other goods to the Indian market, including flowers and coffee.



This increase in exports has allowed Colombia to possess a trade surplus with India, whichsells around US$1.055 million in products to Colombia each year.

According to Ash Naraim Roy, director of the New Delhi Institute of Social Studies, thesetrade relations should serve as ‘a model for other countries’ in Asia and Latin America.

‘The two countries have discovered a network of trade relations that is very fruitful forboth,’ Roy asserted.


PARAGUAY

Highlights 66

Introduction 66

Paraguay — Key Economic Factsheet 2015 67





Infrastructure 72




Indo-Paraguay Economic Relations 78


Highlights

• GDP growth rate over 5-6% since 2002• Highest economic growth in South America.• Least violent country in Latin America-UN• 94% literacy• World’s third biggest electricity exporter• Most stable currency in Latin America• Second highest return-on-investment for the private sector in Latin America.• Lowest tax burden in the region• Upgraded by Moody’s from Ba3 to Ba2• Assessed at first place in the Latin America Economic Climate Index• World’s fourth largest producer of soybeans• World’s seventh largest exporter of meat. Aims to become No.5 by 2018

Introduction

Paraguay is a country in South America. Neighbouring countries include Argentina, Boliviaand Brazil. Paraguay lies on both banks of the Paraguay River, which runs through thecentre of the country. The government system is a constitutional republic. The chief of stateand head of government is the President. Paraguay has a free market system in which theprices are set by the market. Paraguay is a member of the Latin American IntegrationAssociation (LAIA) and Mercosur.

With nearly 7 million inhabitants, Paraguay is a country of vast natural resources. It iscrisscrossed by several rivers that form the River Plate Basin, enabling clean energy to beproduced by the binational hydroelectric plants of Itaipú and Yacyretá, a leading economicactivity in the country. Other key activities include highly automated agriculture and livestockproduction.

The Paraguayan economy is small and open, with an average growth rate of 5% over thepast decade, despite the volatility of that period. This growth has been based mainly on theheavy dependence on agricultural production and foreign trade, particularly soybean andbeef, which comprised 38% of exports in the first eight months of 2015.

Paraguay — Introduction 66


Paraguay — Key Economic Factsheet 2015

Population 6,552,518 (2014)Population Growth Rate 1.334 annual % (2014)Age Dependency Ratio 57.304 % of working-age population (2014)Urban Population 59.416 % of total (2014)Infant Mortality Rate 17.5 per 1,000 live births (2015)Life Expectancy at Birth 72.273 years (2013)

Key Economic Facts

Income Level (by per capita GNI) Upper Middle IncomeLevel of Development DevelopingGDP, PPP (current international $) 58.28 billion (2014)GDP Growth (Annual %) 5.35% (2014)GDP per capita, PPP (current international $) 8,894.34 (2014)External debt stocks, total (DOD, current US$) 13613,429,752.00 (2013)Manufacturing, value added (% of GDP) 11.91% (2014)Current account balance (BoP, current US$) 0.62 billion (2013)Inflation, consumer prices (annual %) 5.03% (2014)Labour force, total 3,131,976 (2013)Unemployment, total (% of total labour force) modelled ILO estimate) 5.20% (2013)Imports of goods and services (current US$) 12.95 billion (2014)Exports of goods and services (current US$) 14.00 billion (2014)


In June 2015, the Central Bank of Paraguay adjusted economic growth forecasts downwardfor 2015, to approximately 4.0% annually rather than the 4.5% originally estimated. Thisreduction mainly reflects the decline in international commodity prices, which directly affectsthe value of Paraguayan exports. Another contributing factor is the lower volume of beefand electric power production due to adverse weather conditions, in addition to the fall inre-exports to Brazil given that country’s currency devaluation and increased border controls.Moreover, China and Latin America are experiencing an economic slowdown and growthforecasts for many countries in the region are now lower than they were six months ago.

Although economic growth is expected to approach its potential (between 4% and 5%),the deceleration of emerging economies and the less dynamic regional performance posemajor challenges for the Paraguayan economy in the coming years. The weight of Brazil

Paraguay — Economic Highlights and Forecast 67


and Argentina in Paraguayan exports (totalling 39% in August 2015) and foreign directinvestment in the country could have a significant impact on growth.

Over the past decade, the country has made significant progress on the macroeconomicfront to address these challenges with the implementation of major social reforms. Forexample, international reserves continue at historically high levels, totalling more thanUS$6.8 billion in late August 2015. Noteworthy social reforms include free access to primaryhealth care and basic education and the expansion of conditional cash transfer programsto benefit vulnerable populations. World Bank, Sep 2015


Panellists participating in the Latin Focus Consensus Forecast see the economy growing3.7% in 2015, which is down 0.2 percentage points from last month’s estimate. For 2016,the economy is expected to grow 4.1%.


The Government of Paraguay (GOP) encourages foreign investment and most sectors areopen for private investment. Paraguay guarantees equal treatment of foreign investorsunder law 117/91 and permits full repatriation of capital and profits under law 60/90.Paraguay has historically maintained the lowest tax burden in the region, with a 10%corporate tax rate and a 10% Value-added Tax (VAT) on most goods and services.

60/90 Investment Law

• Nil Import tariff of Capital Goods (machinery, equipment) raw materials and other inputs)• Nil Value Added Taxes (VAT) On import and (local) acquisition of Capital Goods• Nil Taxes on remittances and payments made abroad in terms of capital, interests and

commissions.(applied for investments of more than US$5 million)

Paraguay — Laws and Policies Relating to Foreign Investment 68


• Nil Taxes on dividends and delivery of profits abroad (applied for investments of morethan US$5 million for 10 years)

There are no restrictions on the conversion or transfer of foreign currency. Law 60/90permits the repatriation of capital and profits. There are no controls on foreign exchangetransactions, apart from bank reporting requirements for transactions in excess of US$10,000.


FDI flows to Paraguay remain weak compared to flows towards its neighbours, but haveincreased substantially. After dropping in 2013 due to an institutional crisis, which rockedthe country, FDI inflows rebounded in 2014, increasing by 230% compared to 2013. Theyreached US$236 million, which remains far below their 2012 level (US$738 million).

Most sectors are open to foreign investment; however, several remain under publicmonopoly. Paraguay offers a total repatriation of capital. Moreover, real estate and energyprices are relatively low. Despite reforms to the public sector and strengthened legalprotections, the business climate remains difficult due to high corruption and insecuritylinked to drug trafficking. The political climate, the poor condition of infrastructure and thelack of transparency in regulations are major obstacles for investors. Paraguay ranks 92ndin the 2015 Doing Business report published by the World Bank, up 17 places since lastyear.

The 2013 election of President Horacio Cartes, a renowned entrepreneur, was seen as apositive sign for foreign investors. New investments have been in the automobile, logisticsand manufactured goods sectors. Brazil is the primary market for these investments. Inaddition, Paraguay is able to offer low cost electricity and seeks to become, in the long-term, a centre of integration between the Pacific and the Atlantic. The reforms, recentlyimplemented by the government, such as the law regulated public-private partnerships(PPP), should lead to greater investments. The majority of foreign investments go the foodindustry. Paraguay’s main investment partners are the United States, Brazil and theNetherlands.

Foreign Direct Investment 2012 2013 2014

FDI Inward Flow (million US$) 738 72 236

FDI Stock (million US$) 5,287.8 5,075.8 5,380.9

Number of Greenfield Investments 8.0 8.0 10.0

FDI Inwards (in % of GFCF) 19.5 1.7 5.3

FDI Stock (in % of GDP) 21.2 17.9 18.1

Paraguay — Laws and Policies Relating to Foreign Investment 69



Ironically, for a country that has not engaged in any significant infrastructure projects overthe past 30 years, it is home to the largest dam in the world in terms of electricity production,surpassing the Three-Gorges dam in China. Sitting on the border, and shared 50/50 withBrazil, the Itaipu Dam generated more than 98Twh of electricity in 2013 (83Twh for theThree-Gorges). However, considering its size and needs, Paraguay only uses some 10% ofits 50% share in that production and exports the rest to its partner.

The same goes for the Yacyreta Dam, sitting on the border of Argentina and Paraguay.Today the country is one of the world’s largest exporters of electricity (see Fig. 2). Consideringthat another five areas have been identified as viable dam projects within the country itself,clean energy production is not going to be an issue for the foreseeable future. Equallyimportant for the coming years, Paraguay sits on the second largest reservoir of fresh waterin the world, the Guarani aquifer, providing a reliable source of fresh water for responsiblefarming.

Paraguay’s agriculture has the capacity to triple its food production output, having morethan eight million hectares still available for mechanised agriculture. However, more effortsneed to be put in land rehabilitation and implementation of the current environmentallaws to prevent more deforestation. Paraguayan agricultural successes can easily bemeasured. In just under 10 years, it managed to become the first exporter of organic sugar,the second largest exporter of stevia, the fourth largest exporter of soy, the fourth largestexporter of starch, the fifth largest exporter of chia, the sixth largest exporter of corn, theeighth largest beef exporter and the 10th largest exporter of wheat.

In addition to its agriculture potential, the country has not tapped its underground wealththat, if we consider its geographical location between Bolivia, Brazil and Argentina, is likelyto be composed of significant mineral and energy resources. As a production centre, Paraguayis getting more and more attractive to countries facing growing production costs and highertaxes. A number of companies are expressing interests in relocating part of their operationsin Paraguay under some of the very attractive tax regimes offered to foreign investors.Electrical parts manufacturing companies for the auto industry, for example, have alreadyinstalled production facilities in the country to serve the Brazilian market. Other industriesshould follow.

The geographical location of the country, which can be a challenge for the movement ofgoods in and out of the country, is also a blessing. In the heart of South America, it is anatural hub between all its neighbours and beyond. It doesn’t suffer from natural disasterssuch as tornadoes, hurricanes or earthquakes, and its topography makes it a country withmassive swath of land ready to use for production.

New investments have been in the automobile, logistics and manufactured goods sectors.Brazil is the primary market for these investments. In addition, Paraguay is able to offer low

Paraguay — A Magnet for Investment 70


cost electricity and seeks to become, in the long-term, a centre of integration between thePacific and the Atlantic. The reforms, recently implemented by the government, such as thelaw regulated public-private partnerships (PPP), should lead to greater investments. Themajority of foreign investments go the food industry. Paraguay’s main investment partnersare the United States, Brazil and the Netherlands.


FOOD PROCESSING

Meat Export

The country of Paraguay offers optimal conditions for efficient, cost effective, and securefood production. There are abundant investment opportunities in beef production andprocessing facilities in the country, but due to the region’s difficult history these availableopportunities have not gotten the attention they deserve, remaining mostly unrealized andtherefore completely undervalued. Meat is one of the most competitive sectors in Paraguay,reaching to diverse international markets.

Poultry

The potential of investment in this sector is very important due to its low cost in productionand the expansion of local consumption.

Leather

Leather is the 7th main export item in Paraguay

Strengths

• Paraguay has abundant livestock resources - a) suitable areas for grazing and b) goodorganization both in private and government sectors, contributing to the developmentof the industry.

• Various Usage - leather is a product that is used in various sectors (e.g., production ofclothing, footwear, furniture, etc.).

• Also, during the process food animals; chemicals for cosmetics and photographic; andfertilizers are obtained.

AGRICULTURE SECTOR

Meanwhile, agriculture has proven to be the most important sector in Paraguay, stimulating50% growth for the country last year. The Minister of Agriculture, Jorge Gattini, confirmsthat “we have two economies in agriculture. One is highly competitive, driven by primematerials, grains and cereals, and the other is on a smaller scale, which, under suitable

Paraguay — Focus Areas for Investment 71


conditions, can also be very competitive. We are heavily backing our small-scale agriculturethrough investment in production infrastructure in irrigation, with the funding of between5,000 and 8,000 greenhouse constructions,” he says. “Irrigation is fundamental in increasingproductivity and minimizing fluctuation in supply caused by drought, flooding or torrentialrain. Currently we have a comparative advantage from the production of the prime sectorof grains, cereals and prime materials, which in turn makes the country more competitivein the production of quality animal protein.”

Fruits and Vegetables: Fruit and vegetable sector is one of the largest generators ofemployment, mainly at the level of small producers in Paraguay. Main products are nbananas, pineapples and watermelons.

Forest Products: Paraguay has a comparative advantage in forest production. This sectorhas been one of the most important sectors in development of the country . Paraguay hasmany incentives as follows.

Know-how of the business: Paraguay’s know-how of the forest industry (especially inwood flooring.)

Short payback period: Paraguay’s payback period in this wood industry is only 12 years(In general, it takes over 40 years in other countries.)

Unique species of wood materials: Paraguay has unique wood material (e.g.: tajy - TabebuiaHepthapylla, yvyraro - Pterogyne nitens, ybyrapyta - Peltophorum dubium, kurupay -Piptadenia macrocarda, etc.)

Natural Conditions: Ideal temperatures and high precipitation regime makes Paraguay anexcellent location for agriculture and forestry.

• Average yearly temperature is 24 degrees Celsius.• Average yearly rainfall is 1,200 mm.• Lower Risk of Natural Disasters (i.e., volcano eruption risk, earthquake risk, Tsunami

risk, etc.)

Infrastructure

Paraguay depends heavily on land and water transport, but both modes of transportationrequire urgent investment in improvements, expansion and modernisation. Only 6.8% ofthe country’s inter-urban network is paved, and waterways, especially the widely usedParana– Paraguay waterway, require urgent dredging and continued maintenance. Thegovernment has decided to structure a PPP model under a new law that will serve as the

Paraguay — Infrastructure 72


legal basis for future infrastructure projects. Little is known about the upcoming projectpipeline, but it is clear that Paraguay will rapidly become one of the markets to watch. ThePublic and Private Alliance law (APP), designed to tackle infrastructural issues, is beingseen as a primary solution to funding of infrastructure projects. The country is proposing$800 million worth of projects, more than four times anything that has been on the tablebefore. From 2015, the government intend to propose a budget of more than $1 billion ayear, which is expected to meets the requirements for the development of its infrastructure.Hydropower - The largest exporter of clean, renewable energy, setting energy prices at halfthe price of its neighbours for industrial clients. As Paraguay only uses about 10% of whatit produces, its capacity to provide competitively priced electricity in the future remains verystrong. Its ability to increase the volume and the quality of agro-industrial production withthe nascent, but fast growing, industrialisation of the country, provides Paraguay with astrong growth outlook over the next few decades.


Paraguay is a landlocked country with no sea ports. However, it has been granted freetrade ports and warehouses in neighbouring countries’ sea ports for the reception, storage,handling, transshipment, etc. of merchandise transported to and from Paraguay. TheParaguayan Port Authority manages its existing free trade ports and warehouses, butParaguay has expressed interest in private sector concessions to develop and manage newfree trade ports. Paraguayan free trade ports are located in Argentina (Buenos Aires andRosario)~ Brazil (Paranagua, Santos, and Rio Grande do Sul)~ Chile (Antofagasta)~ andUruguay (Montevideo and Nueva Palmira). To date, only the Brazilian free trade ports andone in Nueva Palmira, Uruguay, are operating normally. In early 1995, the governmentapproved a law permitting free trade zones in Paraguay, but its application depends onongoing discussions within Mercosur.

International Trade

Paraguay - Exports and Imports Data


Trade Statistics

Exporter Rank 75/124Importer Rank 74/124Trade Balance Rank 86/124

Paraguay — International Trade 73



# Commodity Export Value ($) # Commodity Import Value ($)12 Oil Seeds 2,445,829,152 27 Oil & Mineral Fuels 1,875,494,01427 Oil & Mineral Fuels 2,222,077,172 85 Electrical Machinery 1,624,919,55902 Meat 1,369,840,153 84 Industrial Machinery 1,549,494,91923 Animal Feeds 1,139,941,275 87 Motor Vehicles & Parts 1,213,493,64410 Cereals 614,696,893 31 Fertilizers 560,987,13215 Fats & Oils 534,797,800 39 Plastics 393,366,36041 Hides & Leather 195,891,132 38 Chemical Products 383,443,98485 Electrical Machinery 111,365,931 95 Toys & Sport Equipment 340,231,12639 Plastics 110,465,180 72 Iron & Steel 339,433,06617 Sugar & Confectionery 80,222,804 40 Rubber 245,629,882


Country Export Value ($) Country Import Value ($)Brazil 2,851,557,879 China 3,183,812,982Russia 703,992,676 Brazil 2,714,512,050Argentina 604,294,712 Argentina 1,895,705,946Germany 430,450,106I United States 933,111,077taly 234,601,092 Japan 311,216,416Chile 187,187,997 Korea, South 276,497,276Spain 179,599,479 Germany 207,048,210Peru 161,267,623 Mexico 169,624,199United States 154,739,246 Uruguay 168,296,552Israel 142,130,249 Russia 165,370,310

Services Industry

FINANCIAL SERVICES

The country’s growth to-date has not been sourced through the government’s funding orsubsidies, but mainly through the development of the private financial sector. Bank assetsgrew six-fold in the past 12 years, thanks to the solidity of the Central Bank of Paraguay andits Superintendence for Banks. Strong regulation has allowed the sector to attract interestfrom multilateral institutions as well as various development banks from the US and Europethat have helped by providing long-term funding to the local financial institutions at a timewhen domestic deposits would not average more than 12 months. Change in the fundingprofile of the financial sector has been promised through pension fund reform.

Paraguay — Services Industry 74


Key aspects of the banking regulation have been centred on provisions and minimumcapital requirements. Paraguay is ahead of Europe in its implementation of Basel III rules,especially in terms of solvency ratios. Local regulation has already established a minimumof 12% for total solvency and 8% for Core Tier I capital.

HUMAN CAPITAL

The potential of the higher education business has led to the sprouting of universities inParaguay’s capital, although not all of the institutions offering masters and doctoral degreesare accredited by the government. In the first four years after enactment of “very permissive”legislation in 2006, more than 30 new universities appeared without being required tosubmit their curricula and abide by the rules in effect under the previous legislation. Foreignstudents from Portuguese speaking countries such as Angola are flocking to Paraguay.

TOURISM

Tourism is gaining greater prominence in the Paraguayan economy and general conditionsin the country are paving the way for a successful tourism sector. Infrastructure projectsbeing executed by the public sector, hotel investments, improved connectivity, and newlinks being forged between tourism and culture, sports, and international events conductedby scientific or professional associations are all factors elevating the level of tenders andsubsequent response from potential visitors.

From present half million visitors, the country is expecting one million visitors in 2018. Totalrevenue is expected to rise from $240 million to $500 million. Increasing demand of notmassive tourisms linked to nature, ethnography and new experiences. Universal awarenessmovement on environmental issues as favouring destinations with higher state naturalresources conservation.


The local CC and BPO industry now employs close to 5,000 people. The number of localexecutives is also expected to grow by around 15% during 2015. Still, most of the outsourcingservices (at least 80% overall) are being demanded by local clients, while there is a portionthat are being exported (primarily to Argentina).

Growing its offshore participation seems to be the greatest opportunity for Paraguay in theshort and medium term. By leveraging its very-cost-competitive offerings in Spanish, thecountry will be in position to start seriously competing for basic voice-services outsourcingin this language. As a matter of fact, some Argentineans’ calls are already being routed toParaguay, especially within the telecom segment.

While Paraguay’s major advantage seems to be its competitive and qualified workforce, thenation’s technology infrastructure remains its biggest weakness. Government fiscal policiesand double taxation also remain an impediment for those exporting services, as many ofthe existent players argued (including Avanza, CIDESA, Skytel, and Voicenter).

Paraguay — Services Industry 75



Strengths

• Agricultural sector (soya and beef)• Abundant hydroelectric resources• Prospecting for exploitation of world’s largest titanium deposits associated with iron

ore• Discovery of oil• Prudent economic policies

Weaknesses

• One of the poorest countries in the region (50% of the population is poor)• Landlocked situation• Inadequate infrastructures (waterways, roads, electricity lines)• Dependence on agricultural sector and neighbouring markets (60% of exports)• Weak governance (corruption and cronyism) and insecurity linked to drug trafficking• Smuggling with Argentina and Brazil• Scale of the informal economy (40%)


After two years of an interim government following the controversial deposition of PresidentLugo, Horacio Cartes, a businessman, took over the functions of president in August 2013.His party, the conservative Partido Colorado (PC), will have only briefly (2008 -2012) beenremoved from the power that it had held since 1946. However, the PC holds only a relativemajority in the Senate while, in the Chamber of Deputies, the president needs the supportof the centrists of the Partido Liberal Radical Auténtico and of Avanza Pais on the centre-left. The presidential programme is very ambitious commensurate with the shortcomings itis intended to tackle: reduction of widespread rural poverty by improving health andeducation infrastructures, enabling farmers to increase productivity by providing them withfertilizer, assistance with irrigation, marketing and transport of their crops. It plans to restoreefficiency to the public sector by combatting cronyism (patronage appointments, fancifulsalaries) and by making use of the private sector. The publication of the salaries of publicsector employees has begun. The building of social housing has commenced. To increasepublic revenues, which represent only 18.5% of GDP (4.5% of it from dues paid by thedam operators), to increase the capacity for public action without degrading ratios, a 10%tax on the profits of the big farmers and agricultural businesses has just been introduced,as well as a 5% tax on their exports. Up to now, the sector’s contribution to the budget hasrepresented only 1% of GDP. However, fallow or under-exploited landholdings are exemptat a time when access to land remains a major bone of contention in the countryside, tothe point of provoking at times lethal clashes with the security forces. Finally, opposition tothe reforms is appearing within the PC, reluctant to agree to privatisation, partnerships

Paraguay — Investment Risks, Barriers and Challenges 76


with the private sector and the transparency of public bodies, which could force the presidentto negotiate or find short-lived majorities. However, even though the bills have been passed,full implementation is far from assured, given the levels of corruption.

GOVERNANCE

Judicial insecurity hinders Paraguay’s investment climate. Many investors find it difficult toadequately enforce contracts and are frustrated by lengthy bureaucratic procedures andlimited transparency and accountability. Regulatory agencies supervisory functions overtelecommunications, energy, potable water, and the environment are inefficient and opaque.Politically motivated changes in the leadership of regulating agencies negatively impactfirms and investors. Corruption is common in these institutions as time consuming processesprovide opportunities for front-line civil servants to seek bribes to accelerate the paperwork.

ECONOMIC

Growth is highly dependent on agricultural production, which contributes 20% of GDP and70% of exports, which themselves represent 60% of GDP. The economy is therefore verysensitive to climatic conditions and to movements in world prices, as demonstrated in2012 when production fell due to drought. The non-agricultural sector, services and industry(respectively 46% and 11% of GDP) will be less dynamic, due to a less buoyant fiscal policyin support of households, whose consumption accounts for nearly 70% of GDP. The sluggishstate of the economy in Brazil and Argentina, added to the depreciation of these countries’currencies against the guaraní, does not favour the traditional clandestine exports to thesecountries.

PARAGUAY’S STATUS IN GLOBAL ECONOMIC RANKINGS


Compares Business Regulations for Domestic Firms in 189 Economies

Paraguay 8 out of 189 countriesIndia 92 out of 189 countries

Other Rankings

Index RankCorruption Perceptions Index 149/173Global Competitiveness Report 118/147Global Enabling Trade Report 105/138Index of Economic Freedom 83/178International Logistics Performance Index (LPI) 78/160Inward FDI Potential Index 106/139KOF Index Globalization 78/186Networked Readiness Index (NRI) 99/145

Paraguay — Investment Risks, Barriers and Challenges 77


Indo-Paraguay Economic Relations

BILATERAL TRADE

Paraguay Exports to India -2014 Paraguay Imports from India -2014

Value in US$ ‘000Code Product Label Value Code Product Label ValueTotal All products 210,979 Total All products 11581115 Animal, vegetable fats and 206,762 87 Vehicles other than railway, 33421

oils, cleavage products, etc. tramway33 Essential oils, perfumes, 2,167 24 Tobacco and manufactured 15854

cosmetics, toiletries tobacco substitutes72 Iron and steel 1,094 29 Organic chemicals 943441 Raw hides and skins (other 385 72 Iron and steel 8850

than furskins) and leather 30 Pharmaceutical products 822905 Products of animal origin, nes 298 85 Electrical, electronic equipment 777273 Articles of iron or steel 145 39 Plastics and articles thereof 598576 Aluminium and articles thereof 93 38 Miscellaneous chemical products 525679 Zinc and articles thereof 34 27 Mineral fuels, oils, distillation 3839

products, etc.

Crompton Greaves (CG), a Avantha Group Company, has signed a contract withAdministracion Nacional de Electricidad (ANDE), the national power utility of Paraguay, forthe design, manufacturing, testing and supply of 245 kV, 72.5 kV and 23 kV switchgearequipment. Crompton Greaves has won orders from ANDE to the tune of over $ 25 millionsince 2014, cumulatively. These include the supply of high voltage Power products andAutomation solutions, customised to enhance the reliability of ANDE’s transmission network.

The contract was won through a competitive international public bidding process. CromptonGreaves was selected for this prestigious order due to its successful track record in Paraguay,backed by global recognition of its technical expertise in manufacturing and supplyingdiversified switchgear products under one roof.

Tata vehicles (light trucks, pick-ups, Tata Sierra vans) have been introduced in the Paraguayanmarket by a local company.

Mahindra and the Indian two-wheeler company, Hero Motors have appointed distributorsin Paraguay.

A consortium of Indian edible oil companies is exploring the possibility of acquisition offarm land in Paraguay to grow oilseeds and food crops.

An Indian IT Company, Flatworld Solutions, in collaboration with a local company, runs acall centre employing around 1300 Paraguayans.

Indo-Paraguay Economic Relations 78

PERU

Highlights 80

Introduction 80

Peru — Key Economic Factsheet 2014 81





Infrastructure 89




Indo-Peruvian Economic Relations 99


Highlights

• Fastest growing economy in South America, averaging 6.4% GDP growth over thelast ten years.

• GDP growth 76% since 2010.• GDP per capita highest in Latin America.• Third-largest producer of copper and the sixth-largest producer of gold in the world.• World’s top producer of fishmeal, fresh asparagus, paprika and organic bananas• World’s second largest producer of grapes• Poverty rate dropped by 23% since 2002.• Second best country for doing business in Latin America (Forbes).• Second best country in credit ratings in Latin America (Forbes).• Ranked 42/189 countries in Ease of Doing Business (World Bank)• GDP acceleration in 2016, 6%• Peru will be the 26th largest economy in the world in 2050, Grant Thornton.

Introduction

Peru is a country in South America. It has a coastline on the Pacific Ocean and is borderedby Bolivia, Brazil, Chile, Colombia, and Ecuador. The Andes Mountains run parallel to thePacific Ocean and many Peruvian rivers originate in the peaks and eastern lowlands containtropical forests part of the Amazon basin. The government system is a constitutional republic.The chief of state and the head of government is the President. Peru has a mixed economicsystem in which the economy includes a variety of private freedom, combined withcentralized economic planning and government regulation. Peru is a member of the AsianPacific Economic Cooperation (APEC), Latin American Integration Association (LAIA), andthe Andean Community (CAN).

From the beginning of the new millennium through 2013, Peru has achieved an impressivecumulative growth of 113% of its Gross Domestic Product (GDP) accompanied by acumulative inflation during the same period of just 48%, the best rates of their kind in all ofLatin America. In monetary terms, poverty has been reduced by half in recent years, withmore Peruvians living in better conditions, with a brighter future. Nowadays, Peru is a trueeconomic miracle nearly 20 years after the end of its history of hyperinflation and terrorism,which have given way to the best possible conditions of stability, respect, and promotionof investment in the Region.

Peru’s economy reflects its varied geography. The abundance of resources is found mainlyin mineral deposits in the mountainous regions, while its extensive maritime territory has

Peru — Introduction 80


always traditionally yielded excellent fishing resources. Despite the fluctuations of the worldeconomy, the administration has resisted pressures for fiscal spending and has used thesavings generated by the high prices of commodities between 2006 and 2008, investing in2011 and 2012 in infrastructure, paying off part of the public debt, and increasing assets.

Peru has achieved significant progress in its macroeconomic performance in recent years,with very dynamic GDP growth rates, stable currency exchange rates, and low inflation. Infact, over the past decade, the Peruvian economy has had the lowest annual averageinflation rate in Latin America, at 2.9%.

Peru — Key Economic Factsheet 2014

Key Economic Facts

Income Level (by per capita GNI) Upper Middle IncomeLevel of Development DevelopingGDP, PPP (current international $) 371.35 billion (2014)GDP Growth (Annual %) 2.35% (2014)GDP per capita, PPP (current international $) 11,989.33 (2014)External debt stocks, total (DOD, current US$) 56,661,391,000.00 (2013)Manufacturing, value added (% of GDP) 14.85% (2012)Current account balance (BoP, current US$) -9.13 billion (2013)Inflation, consumer prices (annual %) 3.23% (2014)Labour force, total 16,665,986 (2013)Unemployment, total (% of total labour force) modelled ILO estimate) 3.9% (2013)Imports of goods and services (current US$) 48.46 billion (2014)Exports of goods and services (current US$) 45.17 billion (2014)


After a considerable slowdown in 2014, a recovery in economic growth is projected for2015 and 2016. This recovery will be driven by the reversal of the adverse supply shocksthat affected the economy in 2014 – climate factors caused temporary disruptions in mining,fishing and agriculture – and by a fiscal stimulus. Meanwhile, it is expected that new minesbecome operational as well as new important infrastructure projects which will boostgrowth by the end of this year and the next one.

Peru — Economic Highlights and Forecast 81


Inflation is currently at the upper bound of the target band (2% +/- 1%). However, theabsence of demand pressures, a negative output gap and lower dynamism in the labourmarket will contribute to a gradually decline towards the midpoint target. The exchangerate pressures limit the scope for new reductions in the interest rate by the monetaryauthority. Contrary, fiscal policy is projected to be expansionary in 2015 supporting therecovery in activity.

The end of the commodities super-cycle poses the necessity to implement structural policiesto diversify the economy, boost productivity, sustain potential growth and continue movingforward in social inclusion.


Economic activity has shown a poor performance mainly as a result of three factors. First,private consumption slowed down due to lower dynamism in the labour market whichreduced job creation and increased the unemployment rate. Furthermore, food prices haverisen and some surveys have revealed that more households face difficulties to pay theirdebts. Second, growth was adversely hit by the contraction in public investment, especiallyby the drop of approximately 50% of sub-national government investments, whichimplement more than half of all public investment. Finally, private investment also fell dueto the worsening of business expectations. This suggests that investment will continuebeing sluggish in 2015.

The Central Bank decided to keep the reference rate at 3.50% at its 12 November monetarypolicy session, meeting market expectations. The Bank hiked the rate from 3.25% to itscurrent level in a surprise move at its meeting in September, but refrained from making amove in October and now in November amid expectations that inflation will moderategoing forward and an upcoming interest rate hike by the U.S. Federal Reserve.

The official currency of Peru is the Nuevo Sol (S/.). The country has a free-floating exchangerate regime, with the government occasionally intervening for purposes of stabilization. As

Peru — Economic Highlights and Forecast 82


of December 31, 2013, banks were buying U.S. Dollars at S/.2.798 and selling them atS/.2.800. The grey market has very similar exchange rates. According to estimates as of theend of 2013, the Nuevo Sol is one of the least volatile currencies in the world, exhibitingfirmness in the face of international market and currency fluctuations. The Central ReserveBank of Peru (BCRP) implements fiscal stimulus and liquidity control measures. There areno restrictions or limitations on the number of bank accounts in foreign currency or theremittance of funds abroad that an individual or legal entity may make.

According to the Central Bank, inflation pressures have fallen somewhat and the impact ofhigher prices for food and currency depreciation is diminishing. Inflation moderated from3.9% in September to 3.7% in October, although this still exceeds the upper limit of thebank’s target range of 1.0%–3.0%. However, the Bank stated that inflation expectationsconverge toward the target and monetary authorities are confident that the current interestrate will help reduce inflation further.

The longer-term outlook is more favourable, with investment and exports expected torebound in 2016. Focus-Economics Panellists see the economy growing 3.5% next year.OECD & Focus-Economics, 2015


Peru seeks to attract both domestic and foreign investment in all sectors of the economy.To achieve this, it has taken the necessary steps to establish a consistent investment policythat eliminates any barriers that foreign investors may face. As a result, Peru is considereda country with one of the most open investment systems in the world. Peru has adopted alegal framework for investments that requires no previous authorization for foreigninvestment. Additionally, it establishes the necessary regulations to protect the economicstability of investors from arbitrary changes in legal terms or conditions applicable to theirprojects and reduces government interference in economic activities. The Peruviangovernment guarantees legal stability to foreign investors with regard to the legislationgoverning income tax and distribution of dividends. Foreign investors with the right toobtain legal and tax stability are those willing to invest in Peru for a period of no less thantwo (2) years and for a minimum amount of US$10 million in the Mining and/orHydrocarbons sectors, or US$5 million in any other economic activity, or those who acquiremore than 50% of the shares in a company in the process of privatization. Peru’s laws,regulations, and practices do not discriminate between domestic and foreign companies.Foreign investors receive equal treatment. There are no restrictions on repatriation of profits,international transfers of capital, or foreign exchange practices. The remittance of interestand royalties is also not restricted in any way. Foreign currency may be used to acquiregoods or cover financial obligations, provided the operator complies with Peruvian tax laws.

Peru — Laws and Policies Relating to Foreign Investment 83


Special Regimes: Legal Stability Agreements Regime whereby the Peruvian Governmentguarantees:

Stability of regulations regarding non-discriminatory treatment.

• Stability of income tax regime applicable to dividends.• Stability to use freely the most favourable exchange rate available in the market.• Stability of the free availability and remittance of foreign currency, dividends• and royalties regime.• Peru offers a favourable legal framework for foreign investment• Non-discriminatory treatment: Foreign investors receive the same treatment as local

investors.• Unrestrictive access to most economic sectors (Investments that require authorization:

Located within 50 km in the frontier line and those destined to arms, ammunitions andexplosive. Likewise, a principal local partner for investments in maritime sabotage aswell as in air transport is required.)

• Free transfer of capital.• Free competition.• Guarantee for Private Property.• Freedom to purchase stocks from locals.• Freedom to access internal and external credit.• Freedom to collect royalties.• Network of investments agreements and member of ICSID and MIGA.• Peru participates in the Investment Committee of the Organization for Economic

Cooperation and Development (OECD) – It promotes the implementation of theGuidelines for Multinational Enterprises.

• Granting the return of the Value Added Tax during the pre-productive stage of theproject (minimum 2-year term).

• Applicable to all economic sectors• For agricultural activity it is not necessary to meet a minimum investment amount. For

other activities the minimum investment amount is US$5 million.• The project can be divided into stages, phases or similar.


Historical high growth has attracted large amounts of foreign direct investment in thecountry, totalling $22.6 billion in 2013. This has been led by Spanish investment, totalling$4.5 billion, followed by British ($4.3 billion) and American ($3.9 billion).

The extractive industries account for 12% of the country’s GDP and are the principlebeneficiary of foreign investment; receiving $5.4 billion in 2013. Unsurprisingly China leadsthe foreign investment in this industry; Chinese interests own 33% of the copper industryin Peru. Chinese impact on this sector is illustrated by the acquisition of Las Bambas coppermine in the Apurímac region by a Chinese consortium led by MMG Limited, partially backedby Beijing, for $5.85 billion

Peru — Laws and Policies Relating to Foreign Investment 84



The Peru Investment Agency Proinversión’s project portfolio can be viewed at: www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30


MINING

Foreign Investment Fuels Peru’s Mining Industry

Peru is currently the third-largest producer of copper and the sixth-largest producer of goldin the world. Peru’s mining industry is booming and government officials expect copperproduction to double by 2015. Forecasts indicate that by 2015, investment in the miningsector will make up close to 50% of total investments in Peru.

Currently, China consumes the majority of Peruvian mineral exports, which raises someconcerns as China faces a potential economic slowdown. Executives, however, havedismissed these concerns because they are confident in Peru’s diversification of its mineralexport destinations. Despite emerging market capital outflows in the region, specifically inVenezuela and Argentina, Peru continues to grow economically at a steady rate. Interestrates are likely to remain stable in 2014 and the mining and hydrocarbons sector is expectedto experience the highest percentage growth of all of Peru’s sectors over the next twoyears.

AGRO-BUSINESS

Peru’s large biodiversity makes possible the development of various native crops that areof interest to the international market. Many of these crops have found a position in themarket and they constitute niches for potential investments.

• Peru, especially in the Andes, produces various types of cereals, such as kiwicha, quinoa,tarwi or cañihua, among others, which have high levels of proteins and nutritionalvalues.

• There is also a potential market for vegetables, such as broad beans and corns, as wellas for potatoes, with a diversity in the country of over two thousand varieties, most ofwhich are not known outside Peru.

• Another segment with great potential is aromatic herbs and native plants of medicinaluse and high nutritional value. Most of these come from the Andes and the Amazonrainforest.

Peru — Focus Areas for Investment 85


• The rainforest also offers exotic fruits such as cocona, soursop, aguaje and camucamu,that are becoming quite popular in Asian countries.

Back to Nature: Organic Food

• The growing demand for organic products in the international market has generated anincrease in the number of hectares destined for these types of crops in Peru. The demandof certificates for these products is also increasing.

• Two of the most outstanding crops are coffee and organic banana. Both have becomestar products, making Peru the top exporter worldwide.

• There are also other products, such as cacao, cotton, quinoa and mango. These productsare mainly delivered to the European Union and the US.

• The optimum natural conditions and an expanding market generate interesting businessand investment opportunities in this sector.

• Peru is the top exporter of asparagus, coffee, cacao and organic banana worldwide.

• Peru’s strategic location in the southern hemisphere allows it to supply off-seasonproducts to European and North American markets before the competition.

• Peru’s excellent profitability per hectare is possible thanks to its pleasant tropical climateand the Andes mountain range, which produces a natural greenhouse effect throughoutthe coast.

• Fruit and vegetable crops can be scheduled to profit from seasons when internationalprices are higher.

• Peru trades over US$4.000 billion in fresh and processed products to over 148 countries(with many of which Peru has signed free trade agreements.), thanks to the local know-how on crops and logistic networks.

Appetite for New Investments

• Peru is the third largest country in South America, and has 7.6 million hectares withagricultural potential. According to FAO, 4 million of these hectares are not developed.

• Peru has 84 of the 117 life zones recognized in the world and 11 natural eco-regions,which makes possible to produce a diversified food portfolio, with the possibility of all-year-round production.

• Water prices for agriculture are competitive, even in the new irrigation projects.

Diversified Exports

• In Europe and North America, Peruvian products are beginning to appear in supermarkets,specially mangos and asparagus “from Peru”.

• Peru has become world leader in the export of organic coffee, obtaining good recognitiondue to the quality and variety of this product.

• Likewise, Peru’s diversity of climates and soils makes possible to grow foreign crops:asparagus, mangos, grapes, artichokes, avocado and paprika. These products reachhigh yields and have made Peru a renowned food exporter worldwide.



• Exports from agriculture exceeded US$4.000 billion, consolidating Peru as a reliablesupplier of vegetables and fruits to Europe and the US. The projection shows a largepresence in South America and Asia.

• The objective is to continue doubling the exports level every five years (which hashappened up to date).

• In order to achieve this objective, the rol that the big irrigation projects fulfil is importantlike Majes (in the South Coast), Olmos and Chavimochic (in the North Coast),whichwill give new hectares to the Agro-export sector.

MANUFACTURING

Manufacturing is the sector with highest weight (15.98%) in the formation of PeruvianGDP. According to recent declarations of the president of the National Society of Industries(Sociedad Nacional de Industrias) Luis Salazar, manufacturing generates 11% of employmentand is more than 70% of non-traditional exports with higher added value.

During 2013, period of January-November, it was this sector that registered the lowestgrowth rate in the national production (1.4%) mainly affected by the International situationthat drastically reduced imports of textile products and clothing, parts and pieces forautomotive industry and several products of the metal mechanic industry, among others.

One of the emblematic sub sectors of our national production is textile and clothing whichhas a long tradition of professionalism of workforce which has allowed the developmentof an efficient comprehensive productive process, which includes activities of cotton cropor vicuña and alpaca breeding and shearing, and spinning, dyeing, weaving, sewing andfinishing of garments.

Before countries which are focused in competing by volume, Peru differs for aiming tocompete in the segment of design garments, prepared in short periods of time and withreplacement capacity within a single season.

Greater Investments to Support Growth

Two important elements to foresee a recovery of the manufacturing production levels in2014 and following years are: the recovery of the economies of the main countries ofdestination of our exports and the greater demand of the internal market of intermediategoods that shall supply requirements for the execution of great projects of infrastructure tobe developed.

The Central Reserve Bank (Banco Central de Reserva) in its publication Inflation Report –December 2013 registers announcements of major investments in the industrial sector forthe period 2014-2015:

• Repsol YPF: Extension of the La Pampilla Plant.• Vale do Rio Doce: Bayovar II.• Hochschild Mining, Mitsubishi and Cementos Pacasmayo: Phosphates Project.• Hochschild Group: New cement plant in Piura.



• Siderperú: Modernization of Rolling Mill Plant and Nuevo Horno.• PilkingtonLimited Group: Plant for float glass manufacturing.

PETROCHEMICALS

• Resource availability allows the development of petrochemical activities in Peru, animportant industry due to the diversity of products that may be obtained from methaneand ethane and which are the base of several production chains.

• Peru has abundant hydrocarbon wealth (oil and gas) in diverse areas of its territory,mainly the continental shelf and the rainforest.

• For petroleum, as of December 31, 2013, there were 74 valid contracts in an area of30.38 million ha, with investment commitments that reach US$1.250.53 billion.

• Peru has over 15.4 quintillion cubic feet of gas in the basins within its territory. Camiseais the main natural gas deposit, currently under exploration and exploitation.

• Natural gas production has increased at a sustained pace during the last 10 years,reaching in total 430,559 billion cubic feet as of 2013. The factors that drove this growthare the increase of the demand of the power generation plants and an increasedconsumption of domestic and commercial vehicular natural gas (GNV).

• In order to address the high cost of transporting and transforming natural gas indeveloped countries, petrochemical production has been moved to countries with theirown natural gas sources.

• Peru has a large natural gas reserve that surpasses 15.4 quintillion cubic feet provenreserves, 10.6 QCF of those have been develop. Additionally, there are 7.7 QCF provenreserves, 5.1 QCF possible reserves and 79.8 QCF resources.

• The Peruvian State promotes the development of the three Petrochemical Poles (inMarcona, Ilo and Pisco). This will make Peru the only source of ethane in the SouthAmerican Pacific coast with enough capacity to supply petrochemical projects at aninternational competitive scale.

• Its geographical location gives it advantage for supplying countries of the Pacific coast,particularly the United States, Mexico and Central America, as well as Asia-Pacificcountries.

• Similarly, diverse transport routes have been developed (such as the Southern Inter-Oceanic Highway) to facilitate trade of inputs and products with Brazil and other countriesof the Atlantic basin.

• The internal demand for petrochemical products (fertilizers and plastics) is met withimported products, mostly urea—over 365,000 up to December 2013—and ammoniumnitrates, with approximately 44,000 up to August 2013. The imports for those productsexceed the US$155 billons CIF in 2013.

• The basic and intermediate petrochemical industry established in the PetrochemicalPoles has a legal framework for promotion that includes tax incentives and benefits forplant installation, operation and maintenance.



ENERGY

Great energy potential: The wide availability of water resources and natural gas has enabledto meet the growing electricity demand in the country.

• In 2014, 92% of the population had access to electricity.• The 2013 energy matrix comes principally from hydro generation (52%) and natural

gas (46%). The remaining 2% comes from other renewable sources.• Resources to be discovered and exploited: There are other renewable energy sources

to be explored such as solar, wind, biomass and geothermal sources.• Energy production has grown at an average rate of 6.7% in the past 10 years, led by

thermal generation, which grew by an average annual rate of 14.6%, while hydro Energygrew 2.7%.

• The main economic groups of power generation are: Endesa, GDF Suez, Globeleq,Statkraft and Duke Energy

Infrastructure

It is estimated that Peru currently has a $90 billion infrastructure gap, which is the differencebetween infrastructure needs and the resources that the government has historically investedin meeting those needs. An infrastructure deficit of this magnitude can lead to lowerproductivity and reduced competitiveness – two characteristics that repel investors.

TRANSPORT TO THE FUTURE

Peru has prioritized the development of an ideal infrastructure to increase competitivenessand to form a geographic space that can be integrated to the world, specially the Asia-Pacific economic region.

The Free trade Agreement (FTA), subscribed by Peru, has consolidated its opening andeconomic integration toward new markets. During this process and simultaneously,important investment to the development and modernization of the transport, railway,port and airport infrastructure had been made.

Nowadays in the Transport Infrastructure given in concession, there are 31 projects with acurrent investment commitments for US$13,755 billion dollars, (up November 2014).Additionally it is planned to continue with the expansion of the sector, up until 2016;implementing an investment program with new projects, for US$19,290 billion dollars(between public works and PPP); producing attractive opportunities of investment for thenew contractors and operators.

In this new scene, Peru thanks to its modern transport infrastructure, will invigorate theconnectivity between the markets and will facilitate the movement of the transport of

Peru — Infrastructure 89


goods; acting as a productive commercial bridge between South America, Asia and theUnited States; joining to the free trade zone that will soon form in the frame of the Trans-Pacific Partnership (TPP).

In this framework, Peru’s strategic location as regional hub for trade has to be highlighted,thanks to the development of new alternatives to bioceanic routes that link the SouthAmerican Atlantic coast to the Asia-Pacific region.

Integration Axes: See You in Brazil

• Northern IIRSA Highway (955 km, investments for US$510 million): connects the Peruvianports of Paita and Bayovar to the Brazilian ports of Manaus, Santarem, Macapa andBelem.

• Southern IIRSA Highway (2,594 km – investments for US$2.261 billion): connects thePeruvian ports of San Juan de Marcona, Matarani and Ilo to the Brazilian ports of Santosand Paranagua.

• Central IIRSA Highway (section 2,377 km, investments for US$100 million): it will connectthe Callao port to Brazil through Cruzeiro do Sul.

Structuring Axes and Logistic Corridors: Development Routes

• Two structuring axes and 22 logistic corridors with multi-modal interconnection havebeen identified. They will permit increasing logistic competitiveness, favouring a greaterexchange of goods to be delivered to national and international consumption centres.

• The multi-modal connectivity infrastructure links logistic corridors to duty-free areas(CETICOS and ZOFRATACNA) located in Paita, Matarani, Ilo and Tacna. CETICOS,demarcated geographic spaces, are currently a competitive platform to boost businessand generate new investments in Peru. The companies operating there enjoy preferentialregimes that grant tax and customs exemptions, entering at the same time, to a largemarket of 4 billion people, thank to the FTA, in force with countries whose joint GDPrepresents more than US$56 trillion.

Peru as a Hub: The World within Reach

• The infrastructure developed up until now, will be completed on 2016, with a newinvestment program,(Public Works, public private partnerships, PPP); with an amountthat exceeds US$19,200 billion dollars; according to the Ministry of Transport andTelecommunications. Its execution will count with the participation of the public andprivate sector; producing important investment opportunities for contractors andoperators of infrastructure.

• Peru is thus positioned as a logistic hub in the South American Pacific coast, facilitatingtransportation of cargo containers towards Asia and America’s west coast.

Peru — Infrastructure 90


International Trade

In the 12 months up to August, the trade balance posted a record deficit of US$2.9 billion.The trade balance peaked at a record-high surplus of US$9.9 billion in February 2012. It hasnarrowed almost uninterruptedly since then and shifted to deficit in April 2014. This trendhas been driven by falling global demand and decreasing prices for traditional Peruvianexports, such as copper and gold.

Panellists participating in the Latin Focus Consensus Forecast see exports contracting 6.7%this year. For 2016, the panel sees overseas sales expanding 8.0%.

Peru - Exports and Imports Data


Trade Statistics

Exporter Rank 50/124Importer Rank 51/124Trade Balance Rank 28/124

Top 20 Exports in 2014

Code Product label Value (US$ thousand)Total All products 38459251‘26 Ores, slag and ash 10558451‘71 Pearls, precious stones, metals, coins, etc. 6078895‘27 Mineral fuels, oils, distillation products, etc. 4753053‘74 Copper and articles thereof 2417073‘08 Edible fruit, nuts, peel of citrus fruit, melons 1536396‘23 Residues, wastes of food industry, animal fodder 1517472‘61 Articles of apparel, accessories, knit or crochet 1093034‘09 Coffee, tea, mate and spices 854173‘03 Fish, crustaceans, molluscs, aquatic invertebrates nes 805835‘79 Zinc and articles thereof 633387‘07 Edible vegetables and certain roots and tubers 595741‘20 Vegetable, fruit, nut, etc. food preparations 576944‘39 Plastics and articles thereof 566686‘80 Tin and articles thereof 547351‘15 Animal, vegetable fats and oils, cleavage products, etc. 489826

Peru — International Trade 91


Code Product label Value (US$ thousand)‘25 Salt, sulphur, earth, stone, plaster, lime and cement 422857‘16 Meat, fish and seafood food preparations nes 327319‘84 Machinery, nuclear reactors, boilers, etc. 284107‘28 Inorganic chemicals, precious metal compound, isotopes 270272‘18 Cocoa and cocoa preparations 234171‘10 Cereals 220820

Top 20 Imports in 2014

Code Product label Value (US$ thousand)Total All products 42193570‘84 Machinery, nuclear reactors, boilers, etc 6318773‘27 Mineral fuels, oils, distillation products, etc 5983804‘85 Electrical, electronic equipment 4590101‘87 Vehicles other than railway, tramway 3983421‘39 Plastics and articles thereof 2219734‘72 Iron and steel 1494869‘10 Cereals 1365477‘73 Articles of iron or steel 1187854‘38 Miscellaneous chemical products 812786‘40 Rubber and articles thereof 765579‘30 Pharmaceutical products 713915‘90 Optical, photo, technical, medical, etc apparatus 706079‘23 Residues, wastes of food industry, animal fodder 703425‘48 Paper and paperboard, articles of pulp, paper and board 698232‘29 Organic chemicals 570247‘31 Fertilizers 550045‘15 Animal,vegetable fats and oils, cleavage products, etc 456227‘33 Essential oils, perfumes, cosmetics, toileteries 451488‘64 Footwear, gaiters and the like, parts thereof 378370‘52 Cotton 372193‘94 Furniture, lighting, signs, prefabricated buildings 363931‘62 Articles of apparel, accessories, not knit or crochet 363898


County Export Value ($) Country Import Value ($)China 7,848,973,378 United States 8,020,504,095United States 6,516,617,362 China 7,807,487,496Switzerland 5,074,455,343 Brazil 2,581,026,748Canada 3,445,338,660 Ecuador 2,012,396,315Japan 2,575,332,389 Argentina 1,951,278,811Chile 2,028,313,129 Mexico 1,675,051,248

Peru — International Trade 92


County Export Value ($) Country Import Value ($)Germany 1,866,208,049 Korea, South 1,648,402,153Spain 1,842,755,105 Colombia 1,567,001,549Korea, South 1,545,351,975 Japan 1,503,229,965Brazil 1,402,931,398 Germany 1,367,902,164

BILATERAL AND MULTILATERAL ECONOMIC AGREEMENTS

17 Free Trade Agreements and 29 Bilateral Investment Treaties. Most important one FTAwith European Union started in 2012.

Services Industry

FINANCIAL SERVICES

The high level of concentration in Peru’s banking sector is hindering market growth, accordingto BNamericas’ latest financial services Intelligence Series report.

In Peru’s banking sector, four entities - Banco de Crédito del Perú, Banco Continental,Scotiabank Perú and Interbank - account for over 80% of loans and deposits, while in theinsurance sector just two companies account for around 60% of premiums.

This high level of concentration is a legacy of Peru’s 1998 economic crisis, which saw thenumber of banks in the country fall from 27 in 1997 to just 15 in 2006.

Nevertheless, growth in the sector has been robust over the last decade, keeping pacewith economic growth that has helped the middle class rise from 26% of the population in2005 to 50% today.

Despite a slowdown in the economy last year, total direct loans expanded 14.8%, deposits18.4% and equity 11.2%.

The high growth potential of the local market has spurred a number of foreign banks -including Santander, Banco Falabella, Banco Azteca, Deutsche Bank, GNB Sudameris, BancoRipley, Banco Cencosud and the Industrial and Commercial Bank of China (ICBC) - to enteror reposition themselves’ in the Peruvian market.

But the high level of concentration has inhibited direct competition with Peru’s majorexisting banks.

“No player has decided to compete in all business segments with the biggest banks,” LeylaKrmelj, head of financial analysis at rating agency Equilibrium in Lima, told BNamericas.

Peru — Services Industry 93


“That’s hard to do because these big banks already have a strong presence throughout thecountry, and a new player that comes in and wants to start offering credit from scratch, andnot through the purchase of assets of an existing entity, would face a very difficult task thatwould take time.”

That was the lesson learned by HSBC, which entered Peru in 2006, only to sell its local unitto Colombian group GNB last October, with a 1.56% share of loans and 1.75% of deposits.

Another problem is that there is a lack of M&A regulation, allowing the big banks to acquiremore assets.

While concentration levels may decrease in future years because the two leading companiesplan to exit some unprofitable business lines, analysts agree that if this does happen it willbe a very gradual process.

HUMAN CAPITAL

Peru is a fast developing, tropical, Andean, and Pacific Rim country whose education sectoris going through a tectonic shift. Those changes, some of which raise constitutional questions,have unsettled segments of Peruvian society, yet may signal opportunity for internationaleducators and agents to serve students’ needs.

At the secondary level, the country fell in the OECD’s 2012 PISA tests two places from 63 to65, when measured against 2009 results. Peru also ranks poorly across all sectors in Englishlanguage proficiency (though higher than its Andean neighbours Chile, Ecuador, Venezuela,and Colombia).

Peru does have several quality universities, including the privately-funded PontificiaUniversidad Católica del Perú, which QS University Rankings rates 30th in South America,and the public Universidad Nacional Mayor de San Marcos, rated 57th.

For yet more encouraging news, one need look no farther than Peru’s economy. Economicgrowth often means more money for the middle class to spend on education, as well asmore demand for quality education both at home and abroad. Peruvian growth rates oncetopped 6%, and though the economy has cooled due to falling mineral exports, currentforecasts still predict 4% growth in 2014, not bad compared to many countries in theregion.

There are good opportunities in English language and vocational courses for boostingemployment opportunities.

HEALTHCARE

The government is encouraging private investment in healthcare facilities on PPP model.Till today, over $3 billion has been invested in national, regional hospitals (36) and healthcentres (170). The Government has opened the sector to foreign investment to Design,build and equipping new Hospitals and Infrastructure and equipment Management. A listof healthcare projects can be accessed at: www.geominsa.minsa.gob.pe/geominsa/



TOURISM

Thanks to its amazing archaeological monuments, its large biodiversity and internationallyrenowned gastronomy, Peru has become a world-class tourism destination, attractinggrowing numbers of investors. Eleven Peruvian attractions are classified by UNESCO asworld cultural and natural heritage. The citadel of Machu Picchu was chosen as one of the“New Seven Wonders of the World”, an online contest organized by the New Open WorldCorporation.

Country Brand Index listed Peru as the third world destination of inbound tourism, andSpain’s INMARK consultancy firm highlights Peru as the most authentic destination in LatinAmerica due to its cultural wealth and history, as well as the warmth of its people.

The Latin American Travel Association (LATA) recognized PROMPERU as the Best TouristBoard of Latin America, Reserva Amazónica Inkaterra (Cuzco) as the Best Jungle Lodge,Aqua Expeditions (Amazon River – Loreto) as the Best Luxury Cruise, and Cadena OrientExpress (with hotels in Lima, Cuzco and Arequipa) as the Best Chain Hotel.

There are numerous investment opportunities in the development of new local attractions,such as Choquequirao archaeological site, or the inclusion of new services in existingdestinations.

The greatest connectivity of the Peruvian aviation market with the rise of new weeklyfrequencies in international flights allows more connections to the various tourist destinationswith more and better travel options.

An interesting option is the increase of the experience’s quality of the tourist: possibility toinclude travel by helicopter, customized luxury services or participation in ancestral or mysticalactivities.

The quality on the accommodation services for the commodity and satisfaction of thetourist that visits Peru has been characterized during the last years by the arrival of majorhotel chains of international level, between them we have: Accor, Decamerón, Hilton, OrientExpress, QP Hotels & Resorts Westin, among others.

The number of tourist that visit Peru has doubled during the last decade, according toestimated figures by MINCETUR, from 1,5 billion people in 2005 it reached 3.08 billion to2013. This generated 3,641 billion dollars for receptive tourism in the last year. Thisdemonstrated that the country is growing as a touristic destination in the internationalmarket, which opens opportunities for the promotion of tourist attractions.


The local market’s growth and dynamism, the availability of top-class labour, and a strategiclocation to provide services to Latin America and Western Europe are some factors that



make Peru an excellent alternative for developing investments in the shared services, BPOand KPO sectors.

The local capital and investment market has strengthened and become more sophisticatedthanks to investment growth, which exceeds US$40 billion annually.

Local and transnational companies located in the country increasingly demand morespecialized services. This encourages the creation of shared services centres and attractsoutsourcing service providers both for global and local clients.

Operating cost competitiveness, neutral accent (Spanish with no accent), quality, proactivity,kindness of Peruvian personnel and technological infrastructure availability are some ofthe features that favour investment in contact centres and BPO in Peru.

Over 50 contact centres from Spain, Argentina, USA, India and France, among others, havealready been installed. Consequently, over 36,500 jobs have been created.

During 2011 the exports made by call centres increased in 35% according to the previousyear.

Peru shows an average low cost labour for operator in comparison with other offices inLatin America (380 dollars). This is a determining factor in the transaction of the call centres,because it involves an area where 60% of the costs are spend in human resources.

Broad infrastructure and technological services availability, and low real estate costs.Exports of contact centre services, data processing, IT applications, and similar activities areexempted from VAT payment.

Peru’s location in the GMT -05 Time Zone allows communication with New York or Miamiusing the same time. There is a 6-hour difference with Madrid, facilitating business withEurope.

The implementation of the Data Protection Law (approved in 2011) will strengthen thecompanies’ position and drive greater business relations.

There is a considerable human resources inventory for the sector’s development. 42% ofpost-graduate students are related to business and engineering.

Inbound and outbound services supply, both local and international, is specialized incustomer service and multi-channel sales.




Strengths

• Strong growth potential• Member of the Pacific Alliance• Mineral, energy, agricultural and halieutic resources• Low level of public debt and balanced budget• Independent central bank and healthy banking sector• Tourist appeal

Weaknesses

• Dependence on raw materials and Chinese demand• Vulnerability to climate and seismic events• Regional disparities (poverty in the Andean and Amazonian regions)• Shortcomings in infrastructure, company credit, healthcare and education• Scale of coca growing and cocaine production• Huge grey sector (60% of employment), not favourable to training


Ollanta Humala, President and from a centre-left party, is facing criticism as the reformsimplemented have failed to satisfy popular expectations. In addition, Gana Perú, thepresidential coalition, does not have a majority in Congress although it does have moreseats than the leading opposition party Fuerza Populat. This lack of a majority could proveto be a hindrance in particular in gaining approval for the government s proposed cut incorporation tax. The guerrillas continue to make use of coca production to retain control inthe mountainous regions in the East of the country. The effectiveness of the civil service,the police and the courts leave something to be desired despite a reduction in corruption.The business climate has been improving with an easing in bureaucratic procedures andthe privatization being undertaken by the government is promising for attracting foreigninvestors.

GOVERNANCE

Peru has been given good forecasts by the best-known risk rating agencies, which have notonly ratified the country’s investment grade but have also raised the Peruvian sovereigncredit rating. The factors that back this rating are the solid economic prospects reflected ina minimum growth estimate of 5.0% of the GDP for 2013, and an estimated 6.0% for2014. These economic forecasts are backed by the rapid growth in investment and thesignificant drop in fiscal and external vulnerabilities, all within the context of several sourcesof growth, with low inflation and strong macroeconomic fundamentals.

Peru — Investment Risks, Barriers and Challenges 97


Obtaining the investment grade has permitted Peru to attract a great deal of internationalattention. Recently, an increasing number of multinational corporations have been lookingat Peru with greater interest. The subsequent increase in jobs and decrease in poverty willpredictably help improve social wellbeing.

Peru has recently achieved the position of the third most globalized country in Latin America,according to the Globalization Index established by EY. Five elements are considered withinthis index: openness to foreign trade, capital flows, exchange of technology and ideas,international movement of workers, and cultural integration. Additionally, in early February2012 Bloomberg Markets positioned Peru as the third emerging market with the greatestinternational projection in 2012, based on the country’s advantages, such as low shareprices and their possible increase in the future.

ECONOMIC

The mining sector accounts for 56% of exports. The falling prices of copper and gold resultedin a worsening in the balance of trade and the current account balance in 2014. There is adeficit in the trade in services (despite satisfactory earnings from tourism) because of therepatriation of profits by foreign companies. In 2015, there should be a reduction in thecurrent account deficit as copper production and exports increase following the opening ofnew mines. This deficit is fully financed by foreign investments. Whilst the central bank isable to make use of very considerable currency reserves (16 months of imports), it willcontinue to monitor the normalization of rates in the United States, expected in 2015, inorder to prevent excessive exchange rate volatility. The risk for Peru of a major capitaloutflow is not high as the capital financing is stable and long term.

Growth in 2014 slowed, mainly because of the knock-on of reduced Chinese demand onthe mining sector and the stagnation of private sector wages. The Peruvian economy shouldget back to its growth rates of recent years in 2015, boosted by household consumption(63% of GDP) and the mining sector. The start of production from new copper mines, thecountry being one of the world leaders in copper (as well as silver, zinc, tin and lead),should further support growth.

PERU’S STATUS IN GLOBAL ECONOMIC RANKINGS

The World Bank “Doing Business Ranking” 2015. Compares Business Regulations forDomestic Firms in 189 Economies

Peru 45 out of 189 countriesIndia 142 out of 189 countries

Other Rankings

Index RankCorruption Perceptions Index 84/173E&Y Globalization Index Score 38/60Global Competitiveness Report 68/140

Peru — Investment Risks, Barriers and Challenges 98


Index RankGlobal Enabling Trade Report 45/138Index of Economic Freedom 47/178International Logistics Performance Index (LPI)71/160Inward FDI Potential Index 86/139KOF Index Globalization 59/186Networked Readiness Index (NRI) 87/142Open Budget Index 8/102

Indo-Peruvian Economic Relations

Trade between India and Peru is growing, with trade crossing the US$1 billion mark for lastfour years. During 2013-14, the total trade was US$1.145 billion.

Indo-Peruvian Trade (US$ million)

2012-13 2013-14 Growth 2014-15 Growth 2015-16 Apr 2015India’s exports 637.927 620.569 -2.72% 819.818 32.11% 58.795India’s imports 561.320 524.213 -6.61% 590.395 12.63% 32.601Total trade 1199.247 1144.782 -4.54% 1410.213 23.19% 91.396

Source: DGCI&S, Department of Commerce, Government of India

India’s main exports to Peru are automobiles, motorcycles and three-wheelers, iron andsteel products, polyester and cotton yarns, pharmaceuticals, pipes, etc. Main Indian importsfrom Peru are copper minerals, gold, phosphates of calcium, zinc and lead minerals, fishflour, synthetic cables, fresh grapes etc.

Top 10 Peruvian Imports from India Top 10 Peruvian Exports to India

India’s exports to Peru amounted to Peru’s exports to India amounted to$836.8 million or 2% of its overall imports. $320.8 million or 0.8% of its overall exports

# Commodity Export Value ($) # Commodity Import Value ($)1. Vehicles 180.9 million 1. Ores, slag, ash 130.1 million2. Cotton 138.3 million 2. Gems, precious metals, coins 92.9 million3. Iron and steel 68.3 million 3. Salt, sulphur, stone, cement 78.2 million4. Plastics 54 million 4. Zinc 4.6 million5. Pharmaceuticals 43.7 million 5. Inorganic chemicals 2.6 million6. Manmade filaments 36.2 million 6. Fruits, nuts 1.9 million7. Electronic equipment 36.1 million 7. Raw hides excluding furskins 1.5 million8. Machines, engines, pumps 32 million 8. Cocoa 1.3 million9. Manmade staple fibres 28.3 million 9. Manmade staple fibres 1.1 million10. Rubber 25.8 million 10. Machines, engines, pumps 1.1 million



Investments

Five Indian companies have currently invested in the mining sector in Peru. It is estimatedthat their present investment is to the tune of US$30 million. This will continue to growevery year as the mines reach more advanced stages. Many more mining companies are inthe process of scouting/finalizing the acquisition of mining assets. In addition, IFFCO has amajor stake in a large phosphate mining operation in northern Peru. Similarly, Zuari Agro,partnering with Mitsubishi, has a 30% stake in a large rock phosphate reserve in the samearea. Zuari’s investment share in the development of this project will be about US$36million. Tata Consultancy Services, Aegis, Wipro have opened their offices in Peru. Reliancetoo has a representation. All the major Indian pharmaceutical companies have theirrepresentative offices or local subsidiaries here.

AJE Peru has opened a subsidiary in Maharashtra, AJE India Pvt. Ltd. manufacturing softbeverages. The operations started in December 2010. They have invested US$15 million sofar and plan to increase this in the future. A major Peruvian company, Resemen S.A.C.,which specializes in mining machinery, has opened a subsidiary in New Delhi by the nameof Reliant Drilling Ltd., following a major contract it has won from Hindustan Zinc Ltd.


URUGUAY

Highlights 102

Introduction 102

Uruguay — Key Economic Factsheet 2014 103





Infrastructure 110




Indo-Uruguay Economic Relations 117


Highlights

• The only country in the Americas that managed to avoid a recession during theglobal financial crisis of 2008-2009.

• Economy grew 3.5% in 2014, completing 12 years of uninterrupted expansion.

• Geographical centre of South America.

• Highest income per capita of the continent.

• Highest percentage of renewable energy in its energy grid in Latin America. 2015:+ 90% renewable energy

• One of the few countries in the world where tourists outnumber locals

• All children in public education centers are receiving a laptop with a wireless internetconnection

Introduction

Uruguay is a country located in South America bordering the Southern Atlantic Ocean.Neighbouring countries include Argentina and Brazil. The geography of Uruguay includesmostly rolling grassland and a dense network of rivers. The government system is aconstitutional republic. The chief of state and head of government is the President. Uruguayhas a mixed economic system in which there is a variety of private freedom, combinedwith centralized economic planning and government regulation. Uruguay is a member ofthe Latin American Integration Association (LAIA) and Mercosur.

Uruguay is a market-oriented economy in which the State still plays a significant role.Following a deep crisis in 1999-2002, Uruguay’s economy grew robustly from 2003-2013led by private consumption – fuelled by full employment, rising wages and a weak dollar–and exports related to record-high commodity prices. Growth decelerated from an annualaverage of 6.0% in 2004-2008 to 5.2% in 2009-2013, and is expected to be about 3.0% in2014. Growth performance, foreign trade and investment, and the banking system werelargely unaffected by the 2009 global financial crisis. In mid-2012 Uruguay regainedinvestment grade status by major risk rating agencies.

Uruguay — Introduction 102


Uruguay — Key Economic Factsheet 2014

Key Economic Facts

Income Level (by per capita GNI) High IncomeLevel of Development DevelopingGDP, PPP (current international $) $71.41 billion (2014)GDP Growth (Annual %) 3.50% (2014)GDP per capita, PPP (current international $) $20,884.26 (2014)External debt stocks, total (DOD, current US$) $14,349,584,000.00 (2011)Manufacturing, value added (% of GDP) 14.09% (2014)Current account balance (BoP, current US$) -$2.51 billion (2014)Inflation, consumer prices (annual %) 8.88% (2014)Labour force, total 1,750,387 (2013)Unemployment, total (% of total labour force) modelled ILO estimate) 6.60% (2013)Imports of goods and services (current US$) $14.68 billion (2014)Exports of goods and services (current US$) $13.43 billion (2014)


Uruguay’s GDP expanded a strong 3.5% during 2014 over the previous year, with positiveactivity in most sectors of the Mercosur member economy, according to the latest reportfrom the Central bank. The result was in line with government officials expectations of 3%growth last year.

Private analysts had also anticipated a healthy performance despite the significant slowdownin mid-year when the economy was steaming ahead at 5.1%. The complicated situation inneighbouring countries and Mercosur associates Argentina and Brazil, plus a fall in demandand prices for commodities impacted in foreign trade dependent Uruguay.

The Central bank report indicates that most sectors had a positive performance during thetwelve months with the exception of “retail, repairs, restaurants and hotels mostly becauseof a slowdown in commercial services activities, and construction, since the housing marketseems to have reached a plateau”.

The most active and contributing sectors to the global outcome, according to the reportinclude manufacturing, exports, transport, storage and inventories and communicationsbecause of the surge in telecommunications and other sub-sectors.

Uruguay — Economic Highlights and Forecast 103


“All sectors have seen an increase in activity and positive growth rates, with the exceptionof construction. The most dynamic sectors were transport, storage and communications andmanufacturing industries” underlines the central bank release with graphics to support it.

With this latest report Uruguay has experienced one of its longest and solid growth periodsin recent history, beginning in late 2003, following on the banking crisis of 2002 as aconsequence of the melting of the Argentine economy. Since then the Uruguayan economyhas not ceased to expand speared by the commodities boom and a massive influx offoreign capital looking for higher dollar yields as a result of the US Federal Reserve quantitativeeasing policies.


Low prices and volumes for imports will help keep Uruguay’s import bill in check, andoffset some of the deterioration in exports, however growth will still be impacted by theslowdown in Brazil and Argentina. Panellists surveyed for this month’s Latin Focus reportrevised down Uruguay’s 2015 growth forecast by 0.3 percentage points amid on-goingexternal challenges. They expect GDP growth of 2.1% in both 2015 and 2016.

Panellists participating in the Latin Focus Consensus Forecast expect inflation to close 2015at 9.1%, which is up 0.1 percentage points from last month’s projection. For 2016, panellistssee inflation easing to 8.6%, which is up 0.2 percentage points from last month’s forecast.



Uruguay received FDI inflows of US$2,731 million in 2014. This was the second highestvalue in the country’s history, despite being lower than 2013. Consequently, the country

Uruguay — Laws and Policies Relating to Foreign Investment 104


remains the second largest recipient in the region, just behind Chile, with incoming FDIflows of around 5% of GDP well above the average of both the region (2.9%) and theMercosur (2.2% of GDP).

In terms of economic sectors, manufacturing is the primary recipient of FDI in Uruguay,which is mainly explained by two mega investments, UPM and Montes del Plata’s pulpmills. The latter, is the largest investment in the country’s history, with an estimated valuethat exceeds US$2.1 billion. Construction is the second destination of FDI, followed by theTrade and Services sector. Besides, there was a recovery in FDI inflows to the agriculturalsector. This industry has been particularly dynamic in the last decade.


Uruguay, one of the smallest countries in South America, with a population of around3,400,000, 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 outprojects and businesses.

Located between two South American colossi – Brazil and Argentina – and a member ofMercosur (South America’s trade agreement – the biggest regional market in the world,with 270 million potential consumers) Uruguay has, besides its strategic geographicallocation, political, economic and social conditions that have aroused interest all over theworld.

In 2012, the Uruguayan economy grew by 3.9% after 10 years of continuous growth. Between2003 and 2012, Uruguayan GDP increased by 5.2%, the highest growth rate in its history,above the average level in Latin America. Uruguay’s national forecasts agree with theinternational ones: that the economy will continue to grow during 2013 by around 4%.

The reliability and responsibility of the country’s macroeconomic management made iteasier for Uruguay to overcome the strong shock waves coming from external upheavalsand volatility, which reflects a decrease in vulnerability to external events. As a consequenceof this stability and economic dynamism and the trust that it inspires, in April 2012 therating agency Standard and Poor’s assigned Uruguay the Investment Grade, which wasalso later assigned by Moody’s and Fitch.

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 ofeconomic slowdown and uncertainty, Uruguay remained among the top countries in theregion in terms of FDI and GDP, after Chile and Peru. In particular, the flow of foreign directinvestment reached $2.8 billion, i.e. 5.4% of GDP.

Uruguay — A Magnet for Investment 105


The reliability and responsibility of the country’s macroeconomic management made iteasier for Uruguay to overcome the strong shock waves coming from external upheavals

In 2012, fixed investment grew by 19.4% in Uruguay, above official forecasts, and estimatesindicate that it will continue to grow strongly. The global investment rate has also registereda growing trend in recent years. On average, the investment rate grew from 14.7% (1983-2004) to 20% (2005-2012). In this regard, and in view of the investments made in theshort term, a new increase of the investment rate to 21% has been forecast for the nextfive-year period.

These investments involve major development projects in different economic sectors, suchas agro-industry, infrastructure, mining and tourism. Some of the main projects includeinnovative ventures in the dairy industry; new forestry projects, such as the setting up of anew pulp mill; new grain terminals; regeneration of railways; power generation fromrenewable energy sources; iron extraction; construction of hotels and tourist centres, amongothers.

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 inrecent years. Uruguay is one of the countries that have most strongly fostered thedevelopment of alternative energy sources, driven by an intention to change the structureof its energy matrix.

Since 2009, the renewable energy sector has enjoyed a series of specific tax incentives thathave proven to be extremely successful in attracting foreign investments. Within thisframework, the government has called for bids for the establishment of wind parks, whichhas resulted in substantial investments by transnational companies. In 2012, almost 80%of the projects promoted by the Investments Law Application Committee were in relationto 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 resultin investments of over $7 billion, accounting for 13% of GDP.

For 2015, the energy matrix is expected to be 15% wind power generation and 13% biomassgeneration. Likewise, for 2016, Uruguay is expected to become the country with the largestshare 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 aswell as foreign – an essential driver for economic growth and development.

Based on a reliable regulatory framework with clear rules, the current Investment PromotionRegime provides for an equal treatment of both foreign and local investors. Incentivesinclude a series of tax exemptions and benefits, such as the business income tax exemptionon a percentage of the capital invested ranging from 20% to 100%.



Other benefits are the free repatriation of capital and the free access to the exchangemarket, facilitated by a sound and reliable banking system that operates in national as wellas foreign currency. Uruguay also offers free zones, temporary admission and free portsand airports. Furthermore, it is worth pointing out that investment promotion and protectionagreements 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% wind power generation and 13% biomassgeneration

Finally, with the approval in 2011 of the legal framework for the regulation of public-privatepartnership agreements, a new impulse has been given to the promotion of investmentprojects 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 airportworks; energy infrastructure works; waste treatment and disposal works; social infrastructureworks, including prisons, health centres, educational centres, social interest housing, sportscentres, and urban improvement in facilities and development.

Economic dynamism and specific investment incentives are not the only elements thatexplain the investment phenomenon in Uruguay. In order to understand the reasonssupporting this phenomenon, a series of factors related to social and political circumstancesshould be considered – for example, the soundness of the institutions, public and legalsecurity, and the level of education of the local population.

Uruguay’s social and political stability has been acknowledged by the most prestigiousinternational organisations and was placed at the top of South America’s Democracy Index2012 according to The Economist’s Intelligence Unit, the Prosperity Index (Legatum Institute2012), Political Stability Index (World Bank 2012), Quality of Living (Mercer Quality of LivingCity 2012), and Low Corruption (Transparency International 2012).

Furthermore, it holds second place in Economic Freedom (Heritage Foundation 2012) andthe third-place in Latin America in the World Bank’s Doing Business’ ranking 2013, whichmeasures the ease of doing business.

Uruguay’s investment climate is generally positive. A decree passed in 2007 and modifiedin 2012 provides significant incentives, mainly corporate income tax cuts, to local andforeign investors. Foreign and national investors are treated alike; there is free remittanceof capital and profits, and investments are commonly allowed without prior authorization.Overall, U.S. firms have not identified corruption as an obstacle to investment.




ENERGY

Uruguay features a favourable business climate, great social stability, legal security, taxincentives for investors and strong corporate accountability.

Both the State and private stakeholders have made large investments in the industry inexcess of US$7 billion on aggregate. This means the country has invested more than 3% ofthe annual GDP in energy infrastructure.

Uruguay has a long-term energy policy unanimously approved by a multi-party committee.This shows the significance of the issue and supports the State policy status of energypolicy.

Energy policy features a strong hope for renewable energy, with important introductiongoals in the short term and material tax benefits for this type of undertakings.

Energy policy further includes a commitment to diversification and non-reliance on externalsources, which has resulted in investments in onshore and offshore hydrocarbon explorationactivities.

Wind Energy

Seven wind farms with a total installed capacity of 340 megawatts to come online betweenApril and June of 2015 adding that by 2015, it expects wind sources to generate 30% of thecountry’s energy. The development of wind energy is part of Uruguay’s strategy to completelydecarbonize its electricity sector, and with strong winds and a favourable policy framework,the up to 900 megawatts of wind energy currently envisaged will supply Uruguay withreliable, very affordable and ‘inflation proof’ electricity.

LOGISTICS

Uruguay has become a regional hub in the Southern Cone due to the large advantages itoffers for the development of logistic activities.

Uruguay is the regional hub par excellence for the Southern Cone: it offers importantadvantages for the location of Regional Distribution Centres (RDCs).

Uruguay has a brand new airport which became operative in 2009, deep water ports - withtop level infrastructure - and the busiest highway network of Latin America.

Uruguay is geographically located at a privileged area featuring two ports in the maingateway to the Southern Atlantic coast with access to Parana-Paraguay-Uruguay waterway.The richest cities of the continent can be reached in 12 to 96 hours by land and 1 to 3hours by air.

Uruguay — Focus Areas for Investment 108


The Uruguayan legal framework provides major advantages to logistics operations, withhighly strong incentives to the setup of RDCs and the handling of goods in transit. Thisincludes Duty-Free Zone, Free Port and Airport, bonded warehouses and temporaryadmission regimes.

Logistics in Uruguay has its own institutional framework. In 2010, the National Institute forLogistics (INALOG) was created by Law as a means for public/private participation andcoordination of logistics development.

VEHICLE AND AUTO PARTS

Over the last years, foreign investments have been made in the Uruguayan automotiveindustry, both in the assembly of vehicles and in the manufacturing of auto parts. Theindustry exports reached US$483 million in 2014.

According to the Investment Promotion Act, companies may be eligible for 100% deductionof the invested amount from the Corporate Income Tax, along with other tax benefits.

The industry exports receive a benefit of 10% reimbursement on the FOB value by meansof credit certificates issued by the State’s Tax Authority.

Uruguay has a Temporary Admission regime in place for machinery and input included inthe exported goods, so import taxes are not applicable to these products (customs dutiesand others).

The import of parts (CKD kits) for vehicle assembling intended for the domestic market isapplied reduced tariffs (2%).

Uruguay has free access to the Argentinean, Brazilian and Mexican market for automotiveproducts, with more favourable terms for new models. Uruguay also boasts preferenceswhen entering other regional markets, such as: Bolivia, Chile, Colombia, Ecuador, Peru andVenezuela.

PHARMACEUTICALS

Pharmaceutical sales in Uruguay have increased significantly in recent years, amid anexpanding economy and rising salaries. The country’s pharmaceutical market saw acompound annual growth rate of 12% between 2003 and 2013, reaching $510 million.Concurrently, exports rose to $130 million. The most important export markets are in LatinAmerica, but the level of concentration is quite low—none of the most important marketsrepresents even 20% of total exports—and France and South Africa are included amongthe top-ten buyers.

Uruguay — Focus Areas for Investment 109


Infrastructure

Much of the country’s historic development can be attributed to port activity. Today, owingto Uruguay’s geographically strategic position and easy access to the Atlantic Ocean, foreigntrade is higher than ever, resulting in unprecedented development of the country’s maritimeinfrastructure.

The Port of Montevideo has been the driving force behind the history and development ofthe country thanks to its rapid growth that has remained consistent at an average annualrate of 14%. This success is in part down to its geographical position and its access to theAtlantic Ocean and also down to an increase in foreign trade in the area.

Alberto Díaz Acosta, President of Uruguay’s National Port Authority, says the port plays animportant role in the country’s economy: “The port stands out because of the support ofinstitutions working in the country. There is a common strategy between the Ministry ofEconomy, the Ministry of Livestock, Transport, and the ANP and Customs.

“The infrastructure that we have is not bad. The returns that are in operation in some casesare even the best in the South Atlantic. There are operations that are done very quickly,very efficiently and there is adequate infrastructure for that dynamic.”

Movements of goods have been growing dramatically since 2004, with 50% of the activitiesbeing exports to Argentina and Paraguay, as well as Argentinean, Brazilian, and Paraguayanimports.

Through direct government investment and private investment, the upgrading of the Portof Montevideo has continued. The government is now promoting two other projects thatare vital for the growth of the area. “One is the Fishing Terminal in Capurro area,” Mr. Jacobexplains. “The purpose of this project is to better logistics capacities to all fishing operationsof the South Atlantic.

“The other project is the Punta Sayago where the Ministry of Transport and Public Workshas assigned 96 hectares for the development of other projects. Simultaneously there isthe regasification plant, Gas Sayago, which is under construction.”

These projects will in turn boost Montevideo port by increasing operations at the port andcreate jobs in several areas that are connected with these projects. Work has also begun onutilizing Puerto de la Paloma to the east of Montevideo. “The port was underutilized,” saysMr. Jacob, “and from the investment effort we have made with state support, we havemanaged to recover berthing docks so that vessels could operate.”

The Public-Private Partnership Act offers incentives and sets a framework for investment ininfrastructure works through joint ventures. By virtue of this law, road, rail, port, airport,

Uruguay — Infrastructure 110


energy infrastructure, waste disposal and treatment and social infrastructure works can beundertaken.

Law 18,795 promotes investment in the development of housing aimed at low and lowermiddle income sectors, through strong tax exemptions. Several projects have beenintroduced under this Law, allowing for the construction of more than 4,000 dwellings.

In the next few years, significant construction developments are in the pipeline, most notablyroad and energy projects, port development, among others.

A list of infrastructure projects can be viewed at: www.uruguayxxi.gub.uy/invest/wp-content/uploads/sites/4/2015/08/Base oportunidades-inversion-web-Ingl%C3%A9s-24-8-15.pdf

FREE TRADE ZONES

Uruguay has open and solid financial and banking systems and offers a business-friendlyenvironment. No wonder why the country and its more than 10 free zones are attractive formany multinationals and investors.

In order to boost investment and international commercialisation, Uruguay has many freezones located at strategic points. These zones count on vast and modern resources andhigh technology, and are aimed at high-value sectors. Private zones are managed byindividuals authorised by the administration. Through the General Trade Bureau – FreeTrade Zone Area, the Uruguayan administration manages the state free zone and monitorsand controls all the systems.

Uruguay has a beneficial and modern Investment Promotion and Free Trade Zone Actapplicable for both national and foreign investors. Because of this and many other benefits,important multinational companies of different sectors such as tourism, automotive,pharmaceutical, alternative energy, alimentary and real estate have settled in the countryduring the last couple of years.

International Trade

Uruguay: Trade Statistics

Exporter Rank 72/124

Importer Rank 73/124

Trade Balance Rank 72/124

Uruguay — International Trade 111



Code Product Export Value ($) Code Product Import Value ($)12 Oil Seeds 1,878,004,130 27 Oil and Mineral Fuels 2,147,950,45202 Meat 1,496,296,173 87 Motor vehicles and parts 1,279,801,82304 Dairy Products 913,019,120 84 Industrial machinery 1,274,130,19710 Cereals 893,019,120 85 Electrical machinery 944,405,73044 Wood 527,160,130 39 Plastics 599,164,29539 Plastics 296,231,609 38 Chemical products 346,356,48041 Hides and Leather 289,793,637 31 Fertilizers 329,858,65187 Motor vehicles and parts 283,675,036 29 Organic chemicals 269,584,05651 Wool 260,710,396 30 Pharmaceuticals 245,306,52811 Milling products 228,469,829 40 Rubber 236,534,378


County Export Value ($) Country Import Value ($)Brazil 1,688,294,254 Brazil 2,096,831,517China 796,244,254 Argentina 1,741,407,069Argentina 504,313,168 China 1,662,458,370Venezuela 415,365.034 United States 1,046,785,117Russia 393,508,731 Venezuela 826,841,071United States 331,427,046 Russia 589,164,498Germany 256,466,890 Nigeria 342,548,116Chile 208,233,766 Mexico 292,768,565Israel 176,632,975 Germany 247,653,838Mexico 147,385,575 France 189,138,848

Services Industry

FINANCIAL SERVICES

Moody’s Investors Service is maintaining its stable outlook for the Uruguayan bankingsystem, according to “Banking System Outlook: Uruguay,” published on 2 Jun 2015.

“While we expect Uruguay’s economy to slow slightly to 2.6%, domestic demand, a stronglabour market and investments in export-oriented projects in the pulp, dairy and agriculturesectors will support stable loan growth at a similar pace in 2014,” said Valeria Azconegui, aMoody’s assistant vice president. “These dynamics will be complemented by legislationpassed in 2014 that will result in a gradual increase in local-currency deposit taking andlending.”

Uruguay — Services Industry 112


Uruguay’s banking sector benefits from a stable operating environment, and its asset qualityand capitalization are stable. Household debt remains moderate, employment is favourableand households’ purchasing power continues to grow.

In addition, system liquidity is high, because of loan growth that still lags deposit growthand depositors’ preference for US$-denominated demand deposits, which provides thebanks with ample low-cost funding. Furthermore, credit risks are offset by the banks’ healthycapitalization and the high reserves mandated by Uruguay’s strict provisioning, whichdiscourage the banks from expanding rapidly.

However, the banking system remains highly dollarized, and further devaluation of theUruguayan peso in 2015 will limit any sudden shift towards local-currency deposits in thenear term. Foreign currency lending is largely concentrated in corporate loans to exporters,which help somewhat mitigate banks’ foreign currency risk.

The government-owned banks have a dominant position, resulting in a highly concentratedbanking system that somewhat limits business opportunities for the privately owned banks.Furthermore, growing competition, rigid personnel expenses, inflation adjustments, andequity taxes will continue to limit earnings in 2015, despite the banks’ conservative growthstrategies to contain risks.

HUMAN CAPITAL

Uruguay was the last country in Latin America to authorize private higher educationinstitutions. Current regulatory and financing arrangements contribute to a still rather limitedprivate-public competition but that may be changing, and the graduate level is a key locusof such new competition. A New Private Sector Private higher education was not allowedin Uruguay until 1985, when the government authorized the founding of the CatholicUniversity. Ten years later, a new regulation was passed, opening the way for ample privategrowth. Since 1995, 17 private higher education institutions have been recognized by thestate. In the past 10 years, the sector has expanded and now offers 98 academic programsat the undergraduate and graduate levels. Uruguay’s private sector now holds 12% of totalnational enrolments, although this percentage remains far below the private sector’s sharein Chile, Brazil, and other countries in the region, some of which have more than half theenrolments in the private sector. The venerable University of the Republic (Universidad dela República) is the country’s only public university. It has a rather open admissions policy,and it does not charge tuition. As a consequence, the private sector is constrained in itsability to attract students, especially from low- and middle-income families. This dual natureof the system, in terms of finance, is the main reason why private-public competition at theundergraduate level remains limited.

HEALTHCARE

According to BMI Research, Growth potential within Uruguay’s healthcare market remainshighly positive as the country becomes increasingly proactive toward public-privatepartnerships within the sector, as well as the result of improving medical services and



accessibility nationwide. Efforts to develop Uruguay’s healthcare system will continue overthe long-term, driven by the country’s tremendous burden of non-communicable conditions.These are namely neuropsychiatric conditions, diabetes, and cardiovascular diseases, whichwill dominate the country’s long-term epidemiological profile, ensuring revenue generationthrough hiking medicine demand. This, combined with Uruguay’s status as 65 out of 190countries ranked according to health sector appeal by the World Health Organization,solidifies the country’s attractiveness for multinational health companies and drug-makers.

Uruguay’s healthcare market will more than double over the next decade, growing fromUYU112 billion (US$5 billion) in 2014 to UYU296 billion (US$9 billion) in 2024, equatingto a compound annual growth rate (CAGR) of 10.2% and 6.2% in local currency and USdollar terms, respectively. Over our 10-year forecast period, per capita medical spendingwill rise from US$1,411 to US$2,490, while health expenditure as a proportion of GDP willfall from 8.4% to 7.0%. Public healthcare will retain its dominance over the next decade asits percentage of total health spending grows from 68% to 74%, leaving private servicesthe minority health provider. Between 2014 and 2024, pharmaceutical sales as a proportionof total health spending will grow from 6.7% to 7.0%.

TOURISM

Uruguay boasts a dynamic services sector with tourism as its largest source of revenue.With a population of slightly under 3.4 million, Uruguay welcomes about 2.5 million touristsa year, mainly from within the region, though increasingly from Mexico, the U.S. and Europe.

A favourable business climate, with tax incentives for investors, cause tourism to accountfor 7% of the Uruguayan GDP and to generate more than 90,000 direct jobs.

The country offers very attractive natural conditions for different types of tourism, all locateda very few kilometres away from each other. In addition to the traditional sun-and-beachand urban tourism, the country also offers tourism involving rural spaces and nature, hot-springs and leisure, nautical, congress and events destination, and social tourism, amongothers.

The significant progress as regards infrastructure, connectivity and related services over thelast years create favourable conditions for tourism and multiply opportunities.

The sector is granted important tax benefits, including Income Tax exemptions from theregulation of tourism promotion as well as a specific investment promotion system forCondo-Hotels.


The Chamber of Uruguayan IT companies, CUTI, notes that 700 IT organisations currentlyoperate in Uruguay. It states this is partly because the sector is constantly promoted anddeveloped by the government and the software produced for export isn’t subject to profittax or VAT. And adds that a Harvard University study identifies it as one of the most advancedsoftware development centres in Latin America.



This means many ambitious tech entrepreneurs are flocking to the tech hub in Uruguayancapital, Montevideo, in the southern tip of the country. And some people are specificallycoming to Uruguay to start tech-related businesses.

Some reasons for optimism for further development of IT sector are:

Excellent availability of skilled workers. Its professionals are internationally acknowledgedin several areas of knowledge.

High penetration of Internet, PC and cell phone, reliable power supply, much of whichcomes from renewable energies.

Cultural affinity, time zone between USA and Europe, which is also an excellent supplementto global services rendered from other more distant locations.

Important tax incentives for activities related to Shared Service Centres, Call Centres, Softwareand Biotechnology, among others.

The Uruguayan Government is developing the “Support Program for Global Services Export”for the purposes of contributing to the development of the global export service market inUruguay and, in particular, increasing investment, exports and employment in the sector.


Strengths

• Plentiful agricultural and forestry resources

• Social homogeneity and political stability

• Active reforming policy (business climate, public finances, social protection)

• Comfortable currency reserves and sizeable foreign direct investment

• Member of Mercosur, favoured trading relations with the EU and the United States

Weaknesses

• Economy vulnerable to external shocks

• Inadequate transport infrastructures

• Dependence on Argentine and Brazilian economies, as well as on agricultural markets

• High level of public debt, but being reduced

• Competitiveness being reduced by high inflation

• Vulnerable banking system

Uruguay — Investment Risks, Barriers and Challenges 115


POLITICAL

Tabaré Vázquez, previously President between 2005 and 2010, was elected (with 52.8% ofthe votes) in the presidential elections in November 2014. His party, Frente Amplio (FA),won a majority in both houses of Congress. The continuation of the left in power is due tothe significant social advances made (universal sickness insurance, welfare payments forthe poor) and the improvement in the country’s economic indicators. The newly electedPresident, with a term of office starting in March 2015, is committed in particular to theissues of education, infrastructures and security. The continuation of an expansionist policy,in particular for social spending, would seem problematic because of the slowing of theUruguayan economy. The country does however continue to enjoy proven institutionaland political stability.

GOVERNANCE

Uruguay has little corruption; it is one of the 20 top countries that were ranked as havingthe lowest perceived levels of corruption in 2013. Government procurement and biddingprocesses are generally transparent, but slow. The bureaucracy for obtaining officialinvestment information and procedures can be sluggish at times.

ECONOMIC

Uruguayan economic growth in 2014 suffered as a result of the slowing in the Brazilianeconomy and the Argentinian recession, its two leading trading partners. The outlook foran upturn in activity in 2015 is not much better because of the slow pace of economicgrowth for the region as a whole. Whilst remaining moderate, the economic expansion isan encouraging sign that the country is less exposed to the problems being faced by Argentinaduring the 2001 crisis. In terms of internal demand, this is likely to be held back by theslowdown in investment, The absence of major construction projects (completion of theMontes del Plata pulp mill), the decline in house building linked with weaker demand,together with the easing back in foreign direct investment (Argentinian and Brazilian inparticular) will slow the country’s economic growth. Its tourist sector will also strugglebecause of smaller numbers of visitors from its neighbours, which will also hit the retailsector. Household consumption however should remain relatively dynamic thanks to animproving jobs market and the indexing of wages against food prices. The contributionfrom exports is likely to be smaller, with the decline in sales of manufactured products(clothing and textiles, building materials) being partly offset by higher sales of wood andpulp. On the supply side, industrial performances will remain mediocre, despite the increasein production with the new paper mill on the Uruguay River. The depreciation of its currency,the indexing of wages as well as the lack of credibility of its Central Bank, (inflation runningabove the 3-7% target for more than three years) will add to the inflationary pressures.

Uruguay — Investment Risks, Barriers and Challenges 116


URUGUAY’S STATUS IN GLOBAL ECONOMIC RANKINGS


Compares Business Regulations for Domestic Firms in 189 Economies

Uruguay 88 out of 189 countriesIndia 142 out of 189 countries

Other Rankings

Index RankCorruption Perceptions Index 216/173Global Competitiveness Report 73/140Global Enabling Trade Report 56/138Global Services Location Index 42/51Index of Economic Freedom 43/178International Logistics Performance Index (LPI) 91/160Inward FDI Potential Index 87/139KOF Index Globalization 55/186Networked Readiness Index (NRI) 40/142

Indo-Uruguay Economic Relations

Trade turnover was US$119 million for 2013 and during the first ten months of 2014 (January-October) stands at US$129 million. Indian exports to Uruguay account for US$114 whileIndian imports account for US$15 million.

India´s exports to Uruguay

Chemicals, garments, vehicles, sound and image devices, pharmaceuticals, iron and steel,synthetic yarn, equipments and machinery

India´s imports from Uruguay

Wool, Leather and Timber.

INDIAN INVESTMENTS

TCS has established a Global Delivery Centre in Montevideo employing 800 local staffbesides about 60 Indians. This was the first IT Centre opened by TCS in Latin America in2002. Indian IT company Geodesic Ltd acquired a Uruguayan software company inMontevideo in May 2009. The Uruguayan company has a staff of 40 persons and specializesin Instant Messaging solutions and applications for mobile phones and companies. ZaminResources, an NRI company promoted by Mr. Pramod Agarwal has entered into an iron ore



mining project. The total cost of the project is over a billion dollars. The company hasalready spent several million dollars in the preparatory stage and has an office in Montevideo.Arcelor Mittal has acquired (Dec 2007) a Uruguayan stainless steel tube producer CINTERS.A., with sales of US$47 million employing about 200 people. A consortium of Indianvegetable oil companies is exploring opportunities for investment in agribusiness in Uruguay.Olam, a NRI company based out of Singapore has acquired a Dairy farm in Uruguay forover 150 million dollars. Olam has also started rice farming in Uruguay. Other Indiancompanies have shown interest in investment in pharma and agri-business sectors. A numberof Indian companies, including Reliance and Sakti pumps, use the bonded warehousefacilities of ‘GrupoRas’, which is keen to provide the facility to other Indian companies aswell as marketing support. Carlos Ott, the famous architect of Uruguay was the architect forthe 250 million dollar IT park of TCS in Chennai, the largest software development centre inthe world, employing 24000 professionals. This was inaugurated by the Uruguayan VicePresident in February 2011.


Date post:	07-Oct-2020
Category:	Documents
Upload:	others
View:	4 times
Download:	0 times

Argentina, Chile, Colombia, Peru, Paraguay and Uruguay ...€¦ · Argentina, Chile, Colombia,...

Documents