“It is like night and day.” That was the succinct response of the president of Uruguay’s central bank, Mario Bergara, when asked to compare the economic and financial status quo with the situation 10 years ago. Then, Uruguay was reeling from the financial meltdown across the River Plate in Argentina; now, the economy is in burgeoning health after years of strong recovery – and better prepared for a possible repeat of events in Argentina. But as the government of President José Mujica seeks to attract more foreign investment and foreign businesses by cutting red tape and reducing bureaucracy, what is it like doing business in Uruguay?
Bergara rattled off a series of statistical comparisons between the Uruguay of 2002 and the Uruguay of 2012. Poverty affected 38% of the population in 2002; extreme poverty, or indigence, stood at 4%; and unemployment had soared to 20%. Poverty is now 13%; indigence just 0.5%; and unemployment is 5.5%, the lowest rate in history. It is worth noting that Chile, which pushes Uruguay into second place in Latin America in almost every annual league table, has a poverty rate of 14.4% and indigence of 2.8%, according to Chile’s just-published triennial socio-economic characterisation report (Casen).
Foreign investment in Uruguay was just 1.2% of GDP in 2002 but this figure has all-but quintupled to 5.7% over the last decade. Uruguay, which regained its investment grade rating earlier this year after being stripped of it in 2002, is also trying to attract Uruguayan expatriates and skilled foreign labourers to come to the country to keep the economy expanding.
The economy grew by 4.2% year-on-year in the first quarter of 2012 after expanding by 5.7% in 2011. A monthly survey of analysts published by the central bank in late July, however, downgraded its growth forecast for the economy in 2012 to 3.57%, which is below the government’s projections. President Mujica warned that the “exceptional times” that Uruguay has enjoyed in recent years could not go on “ad infinitum”, and the economy minister, Fernando Lorenzo, admitted that there were clear signs of a slowdown, due in no small part to trade restrictions by “other countries in the region”.
The opposition Partido Colorado (PC, Colorados) and Partido Nacional (PN, Blancos), whose combined mishandling of the 2002 economic and financial crisis spelt the end for the alliance and brought the left-wing Frente Amplio (FA) to power for the first time in 2005, launch almost daily attacks on the Mujica administration for failing to stand up to Argentina on the issue of trade restrictions. Uruguay has managed to diversify its exports since then (China is now the second largest recipient of Uruguayan exports, leapfrogging Argentina in 2011) and it is less vulnerable to a run on its banks: in 2002, more than 40% of deposits in foreign currency in Uruguay were Argentine.
Bergara also pointed out that the business climate in Uruguay was now “very good” as a result of “political stability, clear rules of the game and respect for legislation”. But is it really that good? President Mujica has made no secret of his determination to roll back bureaucracy in Uruguay. His main target is a bloated and inefficient State, but he is also keen to remove obstacles to investment and a flourishing business environment.
Uruguay finished 90th out of 183 countries worldwide for ease of doing business in the World Bank’s 2012 Doing Business report. This less-than-impressive position is also 17 places better than the 2011 report, due in large part to a huge 107-place surge up the table of the ‘starting a business’ sub-category to 32nd. Uruguay made starting a business easier by establishing a one-stop shop for general commercial companies. It now takes seven days to set up a firm in Uruguay compared with an average of 54 days in Latin America and the Caribbean and 12 days in the Organisation for Economic Co-operation and Development (OECD).
Uruguay also finished 67th for ‘Getting Credit’, after improving its credit information system by introducing a new online platform allowing access to credit reports for financial institutions, public utilities and borrowers. Elsewhere, however, Uruguay did not perform particularly well, finishing in 160th for ‘paying taxes’ and 165th for ‘registering property’. The 2012 Doing Business Investor Protection Index gave Uruguay a middling score of 5 out of 10, ranking 97th out of 183 countries, down four places on 2011. Investor protection in Uruguay was below the average of 6 out of 10 achieved by members of the OECD in 2012, and just down on the 5.1 average for Latin America and the Caribbean. Uruguay fared poorly, scoring just 3 out of 10, on the transparency of related-party transactions (extent of disclosure index).
In a regional table for overall ease of doing business, Uruguay finished only 15th out of 32 with Chile, Peru and Colombia filling the top three places, although it is worth noting that its fellow members in the Southern Common Market (Mercosur), Argentina and Brazil, finished in 22nd and 26th respectively (113th and 126th out of 183 countries worldwide).
Mercosur’s entire dynamic is poised to change shortly with the incorporation of Venezuela (see sidebar), a country which languishes near the foot of every table in the Doing Business report. Venezuela came 177th out of 183 countries worldwide in the 2012 ease of doing business table, three places beneath Haiti (the next worst in the region) and sandwiched between Guinea-Bissau and the Democratic Republic of Congo.
- Venezuela
President Mujica has openly championed Venezuela’s admittance to Mercosur, arguing that Venezuela would “very shortly” become Uruguay’s third largest trade partner. This clearly offset any scruples he might have felt about the manner of Venezuela’s entry as a full member (after Paraguay’s suspension). Mujica said that trade with Venezuela had grown by more than 30% every year since 2001, adding that there could not be a more complementary country for Uruguay; “we sell it more expensive meat than we do Europe” and “products that we cannot sell anyone else, like apples and chicken”.
- Marijuana
In an interview with the weekly current affairs magazine Búsqueda on 26 July President Mujica said he was gaining a lot of enemies in the drug world for his proposal to legalise the production and sale of marijuana. The plan has yet to be presented to the legislative assembly in the form of a draft bill so details are sketchy, although Búsqueda claimed that a proposal to plant marijuana in a military barracks in order to guarantee its security was being considered. Mujica has conditioned his backing for legalising the production and sale of marijuana on the support of 60% of Uruguayans for the initiative. According to official figures there are 150,000 marijuana consumers in Uruguay.
End of preview - This article contains approximately 1127 words.
Subscribers: Log in now to read the full article
Not a Subscriber?
Choose from one of the following options
