The candy leaf stevia plant is just one of the abundant, relatively untapped natural resources coming to symbolise the huge potential of Paraguay that is slowly opening up to foreign investors. Writer Silvia Pavoni

Stevia is a perennial shrub from the leaves of which is obtained a very sweet, non-calorific, glycoside-containing substance. It does not cause tooth decay and is suitable for people suffering from diabetes. It is approved in the US as a dietary supplement and it grows in Paraguay.

Interest in this plant is such that the investment promotion agency Rediex, part of Paraguay's Ministry of Industry and Commerce, has identified it as an area with significant growth prospects, as it has done for the agribusiness, meat, energy and infrastructure sectors.

Swedish company Granular produces a stevia-based sweetener and is fully aware of the opportunities the farming of the plant presents Paraguay. "The reason why we decided to invest in Paraguay is because it is the country of origin of stevia," says Carl Horn, managing director of Granular. "The stevia grown in Paraguay still supersedes that grown in any other place in the world, in terms of quality and taste."

Granular has been active in Paraguay since 2004, and in January 2007 it established a Paraguayan subsidiary. "I have an even longer history in the country," says Mr Horn. "I was in close contact with Paraguayan refugees in Sweden during the Stroessner dictatorship and have closely followed the developments of the country since then."

Second nature

Stevia is just one of the abundant, relatively unexploited natural resources emblematic of the unknown potential that exists in Paraguay. Its vast underground fresh water resources are as yet untapped - Paraguay uses less than 1% of the Guarani reservoir, considered the third largest subterranean freshwater aquifer in the world and extending over 1.2 million square kilometres beneath Argentina, Brazil, Paraguay and Uruguay. Similarly, the country's fertile land and large agricultural and meat businesses have been highly productive, even without intensive methods. Soya and meat exports are already feeding the emerging economies of Asia and the developed world.

Paraguay is now the fifth largest global exporter of soya, and exports of its meat products have gone up by more than 100% since 2004, according to official figures. There now are two livestock animals to every person living in the country. Paraguay's meat business provides a prime example of private and public sectors working well together, with clear objectives and shared goals negotiated and communicated to all interested parties - from the co-operatives to the man in the street who knows how valuable this business is to the country.

Beyond these impressive figures, however, lurk some worrying developments. While hygiene in the cattle and meat processing business has been significantly improved - thanks in main to private investors - poor wastewater infrastructure caused a few scares last year over concerns of a possible contamination of the Patiño reservoir that stretches 170 square kilometres below Asunción.

More significantly, international organisations tend to perceive Paraguay as a highly corrupt country. Transparency International's latest survey puts Paraguay 154th out of 180 countries in its corruption index. Venezuela is the only South American country that ranks lower, in 162nd place. Although some claim that such surveys are based on citizens' perceptions of their own country and, therefore, subject to generalisations and derogatory tendencies towards one's motherland, it still indicates the existence of a widespread problem.

Yan Speranza, director of Fundación Moisés Bertoni, a social development and environmental not-for-profit organisation, says Paraguay's institutional structures are not set up for foreign investors, that transaction costs are high and that it is often very difficult to know whom to do business with in the country. However, he insists that the perceived risk is higher than the real one. Mr Speranza's company carried out a study that showed that once investors had identified the right business partners, their investment risk went down significantly.

Worth the wait

For those willing to test the water, and who have the patience to put up with frustrating bureaucracy and a lengthy search for the right local contact, Paraguay can represent an investor's paradise.

The country is in the middle of South America. Its membership of Mercosur, the trade agreement that also includes Brazil, Argentina and Uruguay, means more favourable access to those markets from companies based in Paraguay, which would also enjoy the country's low labour costs - although it might be difficult to find one Paraguayan that would describe the trade terms agreed for the country as 'fair'.

Esteban Morabito, president of Maahsa, a producer of personal hygiene products, believes the Mercosur relationships have deteriorated due to the protectionist attitudes of Argentina and Brazil. Others have a more optimistic view. "There is a perception that Brazil and Argentina are [too influential] in the application of the Mercosur rules but commerce and diversification is growing in Paraguay, so something must be working," says Eduardo Clari Camps, a director at Rediex, the Ministry of Industry and Commerce's investment and export agency.

Despite such different readings of public sector efforts to attract foreign investors, there are a number of government incentives to tempt companies to the region. Tax on imported machinery and capital goods is zero, as is the tax on capital outflows related to investments of more than $5m and for longer than 10 years.

The 'maquila' system works similarly. Maquilas are based on a subcontractor system that assembles or manufactures goods destined for a foreign market, usually importing materials and equipment. The tax treatment of invoiced products is just 1% and there is a 10% limit on the total products that can be sold in Paraguay so as not to create unfair competition.

Mercosur % of exports and imports/GDP by country

Mercosur % of exports and imports/GDP by country

System upgrade

The domestic challenges Paraguay faces are all too evident and the landlocked country is going to need both foreign capital and expertise if it is to grow and thrive.

With its obsolete systems and public ownership, growth in Paraguay's telecommunications network has remained static for more than 10 years. Industry experts say that there were about 300,000 lines 13 years ago, and this figured has risen to only 360,000 today. But, as always in business, where there is a challenge, there is an opportunity, one which mobile network operators have identified. There are currently four mobile phone operators in the country serving more than 5 million users. For a country with a population of about 6 million, this figure is quite impressive - so impressive, in fact, that the government is buying the smaller of the mobile companies, Vox, which serves mainly large cities. Millicon and Personal are the two largest operators.

Now calls can be made via a mobile phone, and internet access can also be provided via mobile devices in more affluent households. But limited and obsolete networks can be an issue for businesses, says Juan Carlos Pepe, general manager of Personal. He is also confident that as Paraguay's economy grows, the country's network infrastructure will be forced to grow with it.

Although mobile penetration is already high, telecom operators see opportunities in increased usage and in developing additional non-voice services, such as mobile internet access, money transfer services and expansion into cable TV and residential broadband. However, for this to happen, the transport and power infrastructure of the country will have to improve dramatically.

FDI into Paraguay, 2003-present

FDI into Paraguay, 2003-present

Starting a business time and costs, global comparisons

Starting a business time and costs, global comparisons

Step-by-step guide to starting a business in Paraguay

Step-by-step guide to starting a business in Paraguay

Making an impact

Of course, economic growth has social implications and this is something foreign investors cannot afford to ignore.

One of the most crucial challenges facing Paraguay is the quality of its education system and levels of school attendance. While many local businessmen have taken advantage of the country's thirst for education by creating large numbers of universities, this has not addressed the country's more basic educational needs. For every 100 children in primary schools, only about one-third will complete this stage of their education. The quality of public schools is also low; 20% of the education system in Paraguay is made up of private establishments.

While such figures are a cause for concern, they are perhaps unsurprising in a country where 40% of the population lives in poverty, and 20% lives in extreme poverty (ie, with limited access to food).

"The education system was not designed for this kind of [economic] growth," says Victor Gonzales, architect and president of Emprendimiento Hoteleros, an investor in the new Sheraton Hotel in Asunción.

Foreign organisations have looked at this problem. The Massachusetts-based charity One Laptop Per Child has extended its programme to Paraguay and has won large sponsorships from local businesses. There is resistance from some teachers, however, who believe the laptop will replace them in the classroom.

On top of this, it seems that some friction might come from the government, also, which intends to launch a similar initiative, creating uncertainty around how such international programmes can work in the country in future.

Environmental concern

For the foreign investors already present in the country, environmental issues are a concern. Granular's Mr Horn says that his company is supporting the work of a local farmers' association, as well as focusing on safe-guarding the country's environmental wealth.

"Our stevia leaves are obtained directly from local farmers, who are being trained to grow the plant," he says. "Local farmers are given the opportunity to work in associations under long-term supply contracts.

"We are also in the middle of setting up a new factory for the refining process with an estimated investment of $13m, a commitment to green technology and state-of-the-art energy conservation methods."

Paraguay's challenges are large, but its growth opportunities are even larger. Government and businesses will need to work alongside each other to fully exploit them. Unfortunately, some believe that the public sector's efforts are insufficient. "The government is not doing enough to attract foreign direct investment. All of the effort is being put in by the private sector," says Manuel Ferreira, partner of consulting firm HCS.

Mr Gonzales, however, points out that Paraguay's present government represents a remarkable improvement from administrations in the past. "With previous governments you knew that if there was a public tender, there was already a winner. We are now considering bidding for public works. This president has many faults - but he's honest."

cp/96/New Silvia PAraguay pic.jpg

Hidden charms: foreign investors in Paraguay are generally impressed by what the country has to offer

Investor advice for setting up in Paraguay

Granular

"Recruit good local staff. Granular has been very successful in this respect and the CEO of our Paraguayan subsidiary is an extremely competent woman with a perfect background and experience. She was responsible for recruiting all the other staff needed locally, meaning we now have a brilliant team in place with all the necessary skills and good local knowledge.

Moreover, you should team up with local partners. For the factory we are currently building, we have created a joint venture with prominent Paraguayan Dr Nicolás Leoz. This has helped us tremendously in forging links with other Paraguayan stakeholders in the process.

Last but not least, you should invest the necessary time to learn more about the country. Read up, talk to people and prepare yourself."

Accor

"Our advice would be to contact us as there are still many important opportunities to be found in the hotel and real estate sectors in developing countries."

Millicom

"Don't just bring a developed-market business model into an emerging market and expect it to work. However, don't assume either that emerging market customers have less sophisticated needs or tastes just because their incomes are lower."

Regus

"As with any investment, we would recommend you visit Paraguay and get to know through local consultants everything that the country has to offer."

This was a selection of replies from a poll of foreign direct investors in Paraguay.

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