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Paraguay - Industry
More about the Economy of Paraguay.
Industry, especially the manufacturing sector, historically was linked to agricultural processing until the 1970s, when the construction of hydroelectric plants and new industrial incentives began to broaden the industrial base. Industry was composed principally of manufacturing and construction. Paraguay had no real mining sector, but the manufacture of construction materials included limited mining activity. Manufacturing and construction in the economy in the late 1980s remained dependent on developments in other sectors, such as agriculture and energy, for their growth. Although industry was becoming more visible in Paraguay in the 1980s, industry's share of GDP actually declined in the 1970s and 1980s because of more rapid growth in agriculture.
Manufacturing accounted for 16.3 percent of GDP in 1986 and employed roughly 13 percent of the labor force, making Paraguay one of the least industrialized nations in Latin America. Manufactured exports, by most definitions, accounted for less than 5 percent of total exports; when semiprocessed agricultural products were included, however, that figure reached 77 percent. The growth of the country's manufacturing industries was hampered by numerous structural obstacles. These included a small internal market, limited physical infrastructure, costly access to seaports, a historical lack of energy production, and the openness of Paraguay's economy to the more industrialized economies of Brazil and Argentina. Another significant factor was the ubiquity and profitability of smuggling operations, which encouraged importing and reexporting rather than production.
Paraguay's earliest manufacturing industries processed hides and leather from its abundant cattle and tannin from quebracho trees. Small-scale manufacturing, especially textiles, flourished under the Francia dictatorship, when the nation's borders were closed. The War of the Triple Alliance, however, devastated what little industry and infrastructure the country had, causing Paraguay to enter the twentieth century as an almost completely agricultural society. Land sales to foreigners stimulated increased agricultural processing in the early twentieth century, including meat packing and the processing of flour, oilseeds, sugar, beer, and pectin extract. After the early 1900s, small-scale manufacturing in all subsectors grew at a slow, but steady pace, with some of the fastest growth occurring because of the shortages during World War II.
The government's role in promoting industry increased in the postwar era, and in 1955 the Stroessner government undertook the country's first industrial census. Over the next twenty years, the government enacted a number of industrial incentive measures, the most important of which was Law 550. Law 550 promoted exportoriented industries or those that would save foreign exchange. It also provided liberal fiscal incentives for companies to develop specific areas of the country, especially the departments of Alto Paraguay, Nueva Asunción, Chaco, and Boquerón. Incentives for business were related mostly to import-duty exemptions, but they included a variety of tax breaks and placed no restrictions on foreign ownership. Approximately one-fourth of all new manufacturing investment from 1975 to 1985 was registered under Law 550. Most foreign investments originated from Brazil, West Germany, the United States, Portugal, and Argentina in that order of importance. The dynamic processes of agricultural colonization and hydroelectric development, combined with such attractive industrial incentives, caused manufacturing to grow at an unprecedented rate in the late 1970s and early 1980s.
Unlike many other Latin American governments, which followed an import-substitution industrial policy, the Paraguayan government had played a minimalist role in the economy through most of the postwar era, curtailing import tariffs and maintaining a realistic exchange rate. In the 1980s, however, Paraguay's exchange rate became overvalued and several state-owned heavy industry plants became operational.
In the late 1980s, the major subsectors of manufacturing were food, beverages, and tobacco; textiles, clothing, leather, and shoes; wood and related products; and chemicals, petroleum, and plastics. Despite some increases in heavy industry in the economy during the 1970s and 1980s, Paraguayan industry was generally small-scale. Manufacturing production remained focused on consumer goods, and capital goods comprised under 5 percent of industrial output. In fact, in the 1980s Paraguay did not contain even one of Latin America's 1,000 largest companies, at least some of which were found in most other countries in the region. Virtually every subsector of Paraguay's manufacturing was characterized by numerous small- to medium-sized firms and a few large firms, which often were foreign owned. Most companies operated well below their capacity.
The food, beverages, and tobacco subsector has been the core manufacturing activity throughout Paraguay's history. In the late 1980s, this subsector continued to dominate, accounting for about 45 percent of industrial activity, depending on agricultural output in a given year. Agro-processing involved a large number of small, inefficient, and often family-run firms as well as a small number of large, efficient, and usually foreign-owned firms. The larger firms produced only the most lucrative items, such as oilseeds, meats, and various beverages, often for export. Some of the most common small-scale producers manufactured milled items, baked goods, sugar and molasses, dairy products, candy, manioc flour, vinegar, coffee, and tobacco. Along with raw agricultural produce, processed and semiprocessed food generated nearly all of the country's exports in the late 1980s. But, as with other manufacturing subsectors, the profitability of the food subsector often was impaired by contraband items from Brazil and Argentina, such as flour, meat, or dairy products. Paraguayan goods crossed borders unofficially, as well, thus lowering official exports.
The second most important manufacturing activity also relied on agricultural inputs for its base. Utilizing Paraguay's rich endowment of hardwood trees, the wood subsector represented about 15 percent of all industrial activity and contributed over 8 percent of exports in the 1980s. The most voluminous wood export was lumber, which was produced by hundreds of small sawmills throughout the central and eastern border regions. In addition to saw wood, mills also produced a variety of milled wood, plywood, chipboard, and parquet flooring. Although the country cut and processed only a fraction of its hundreds of species, Paraguayan wood was known for its quality. The country also contained several small paper companies and one large paper and cardboard factory located at Villeta.
Textiles, clothing, leather, and shoes comprised the third largest manufacturing subsector. These industries were traditional, grounded in the nation's abundance of inputs like cotton fibers, cattle hides, and tannin extract. The subsector accounted for about 10 percent of all manufacturing. The textile industry performed spinning, weaving, and dyeing operations and produced finished fabrics that amounted to over 100 million tons in 1986. Most fabrics were derived from cotton fibers, but a growing number of synthetic and wool fibers also were produced. Textile production provided inputs to approximately sixty clothing firms that operated under capacity and were generally inefficient. As with so many other manufacturers, clothing companies met stiff competition from widespread unregistered imports, which often originated in Asia and typically entered across the Brazilian border. The leather industry was characterized by 200 or so small tanneries dotting the Paraguayan countryside. In addition, many medium and two large tanneries fashioned leather goods. The leather industry operated at only about 40 percent of capacity, however. The shoe industry comprised a few hundred small workshops and a dozen or so mediumsized firms, which produced some 5 million pairs of leather and synthetic shoes a year.
The processing of petroleum, chemicals, and plastics repreated an increasing activity. In the late 1980s, this subsector represented less than 5 percent of industrial activity, but its share of manufacturing output was expanding because of the growth of heavy industry in Paraguay, especially industry related to the energy sector. The country also produced fertilizers, industrial gases, tanning chemicals, varnishes, and detergents. In 1987 a group of Japanese investors was considering the construction of a new fertilizer plant with a 70,000-ton capacity per year. Since the early 1980s, ethanol was being produced in large quantities, and the government was considering producing methanol. Also processed were paints, soaps, candles, perfumes, and pharmaceuticals. One of Paraguay's fastest growing industries was the new, relatively modern plastics subsector, which supplied a wide variety of goods to the local market.
You can read more regarding this subject on the following websites:
Economy of Paraguay - Wikipedia
Paraguay Country Studies index
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