Uruguay is a small country in South America, between Argentina and Brazil.
The Uruguay size is like Tunisia or Cambodia (to give you 2 examples outside South America).
The population is about 3,3 million people and are concentrated in the area of Montevideo, the capital city.
Uruguay was a Spanish colony and the official language is Spanish.
BUSINESS OPPORTUNITIES
First opportunity: stability
Uruguay changed many governments from left to right, however, they are following a homogeneous path for the business development of the Country.
There are different examples of this topic.
One is the free economic zones: politicians decided to create these special business areas (we write about it later), and didn’t happen new governments delete everything made by the previous one.
Another good reason to explain the stability of Uruguay is corruption. The corruption in Uruguay is the lowest of all South America. It is one of the lowest in the world according to transparency international.
Second opportunity: high GDP per capita
Uruguay is the second wealthiest country in South America (after Chile).
The GDP per capita is not comparable with the USA or with Western European countries, however, Uruguay is a country with a middle class, and that is particularly interesting for companies that offer B2C products.
Third opportunity: free trade zones
Uruguay has 11 free trade zones.
What they are?
They are some geographic areas in which economic activities are encouraged by zero tax, for example, the Uruguay corporate tax rate is 25%, but in free trade zones is 0%.
They were created to attract foreign companies to invest in Uruguay.
The companies that want to operate within these zones, should ask permission to public authorities.
To obtain it, companies have to respect some conditions. The most important one is that 75% of the payroll salaries have to be paid to Uruguayan citizens (in shot terms, locals must be hired).
Another important advantage of operating in free trade zones is that inflow and outflow payments in foreign currency are free.
The choice of creating these areas was very successful: around 6 billion $ of foreign investments were made. Uruguay has been chosen by various multinationals like the headquarter for South America operations. That was possible because Uruguay is part of Mercosur, the most important trade organization of South America (more than 250 millions of people).
We could say that Uruguay is chosen by many multinationals as a hub for doing business in South America.
Fourth opportunity: stable currency (in the South America panorama)
The Uruguayan Peso is depreciating since 2013.
The economy of Uruguay is strongly correlated with Argentina’s and Brazil’s ones, the two largest neighboring economies. It suffered the slowing down of South America’s growth.
However, since Uruguay has a trade surplus made with non-cyclical products (mainly food), it is expected that the Uruguayan Peso will be more stable in the future. At least more stable than other currencies in the South American region.
Uruguay inflation is still high compared to most western economies, however, it is more stable than in the past years.
Fifth opportunity: economic growth
Uruguay suffered heavily in the crisis of Argentina in 2002. Since there its economy started to grow fast (5% in the average of the last 15 years).
Uruguay is a small economy and consequently follows the GDP trend of Argentina and Brazil, however, in the last decades, Uruguay expanded the net of foreign commercial partners. In particular, China is now the first partner of Uruguay.
The economy is now more diversified than 20 years ago and should suffer a bit less than in the past shocks in Brazil and Argentina.
BUSINESS RISKS
First risk: a small economy
Uruguay has only 3.3 million inhabitants and the population is not growing. The market size will be stable in the next years.
That is particularly important fo the companies that are planning to start to sell in Uruguay. It is not reasonable to project strong internal market growth in the future years.
Uruguay is a small market and will be in the future.
Second risk: dependence on Argentina and Brazil
We wrote about it previously.
The economy of Uruguay performed better than Brazil and Argentina ones. But, despite Uruguay has new trade partners (China), its economy follows the South America trend.
Before investing in Uruguay, it is important to do considerations on the economic trend of South America.
Data Source: World bank
Third risk: reliance of agriculture products
Uruguay is a big exporter of food. It is quite surprising considering the small size of the country.
The graph below illustrates Uruguay major exports of food commodities.
Premise: being an exporter of food is not a bad thing. It is a risk.
Agriculture products are commodities. It means the demand for such products is usually stable. However, the price is only partially controlled by the seller. And in case of a decline in prices, the producers of agriculture products tend to suffer passively the crisis, because they are not able to influence the market.
On the other hand, if the price of agriculture products increase, the producers increase revenues.
Again, it is not a bad thing in a general way, it is a risk. At the risk is higher when a country has a less diversified economy.
Fourth risk: public spending
20% of the Uruguayan population is employed by the state. This level is not sky-high in the world panorama, however, it is quite high in absolute terms.
From one point of view, it is partially the price of social security and stability, since Uruguay is one of the most stable and safe countries in South America.
It must be specified that public debt is below 70% and has been under control in the last years.
Fifth risk: bureaucracy
Uruguay is a business-friendly country, however, the bureaucracy is still too slow and too pervasive.
The country should improve on this topic because bureaucracy limits foreign investment to come in Uruguay.
CONCLUSIONS
Uruguay is famous for its primary sector if you need a supplier of agriculture products, you should look for it in Uruguay.
If you are an exporter that wants to find a place where to sell your B2C products Uruguay is a very interesting country because the middle class is large, and it is a business-friendly place. However, keep in mind that the internal market is limited and it is not expected to increase strongly in the future.
The main advantage of Uruguay from a business perspective is that it is a hub to reach the other Countries in South America in particular Brazil and Argentina. It can be considered a gate to reach the Mercosur area that accounts for more than 250 million people.
By the way, the Uruguayan free trade zones help in doing it.
Other info about Uruguay in Country Data page: Uruguay Business Report
We wrote a post with all the useful links for doing business in Uruguay (chambers of commerce, government agencies, etc).
Globartis Research
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