Paraguay's economy in transition: market access with hurdles

The Biocomplejo Petricor is well prepared for guests from abroad: there are five flagpoles at the entrance. “When a Portuguese comes, Portuguese flags fly, and when an American comes, theirs fly,” says Raúl Gauto, founding partner of the factory.

Located 224 kilometers from the capital Asunción, in the department of Caazapá, it is the first in the country to produce waterproof plywood. With the flags raised, “we welcome our guests,” says Gauto. The production facility is her “pride – a modern, clean factory”.

15 journalists from 12 countries in Latin and Central America are taking part in the “Euromérica” workshop organized by the taz panter foundation. It's about the opportunities and challenges of the EU-Mercosur agreement and Latin American-European relations. A supplement will appear in the taz on December 5th, and there will be a public talk in the taz canteen on December 9th. All texts can be found here.

But in order to welcome potential buyers from abroad, the company had to do more than just produce plywood. 14 shareholders invested almost $10 million in the factory. International certifications have been acquired and labor, environmental and traceability standards have been introduced. “With these standards, we have also received FSC certification, which stands for best practices in forestry and the product chain in the factory,” emphasizes Gauto. However, meeting these requirements also makes it impossible to produce “cheaply”.

Today the plant employs 140 people, 60 percent of whom are women. On its website, Biocomplejo Petricor advertises that its wood comes from certified forests, consistently reforests and produces the “most sustainable plywood” in Paraguay. Protecting the tree population here in the wetter east of the country is all the more important as the dry forest of the Gran Chacos in western Paraguay is disappearing at a rapid pace.

For many other Paraguayan companies, whose production standards and chains are less developed than in Biocomplejo Petrico, access to the European market, for example, remains a distant goal due to high requirements and bureaucratic hurdles, especially since Paraguay - the country of the red earth - is used to selling predominantly unprocessed raw materials and agro-industrial products and the neighboring countries have so far been its main buyers.

“We need a more dynamic and transformative model that incorporates technology, knowledge, more quality jobs and higher value-added exports,” stressed the President of the Paraguayan Industry Confederation, Enrique Duarte, during a meeting organized by the EU Delegation to Paraguay at the end of September. For Duarte, this change can only succeed “if it benefits Paraguayan society” by “market access leading to more factories, local suppliers and high-quality jobs”.

Paraguay currently imports around three times as much as it exports. This is also reflected in trade with the European Union (EU), which has not yet been one of Paraguay's most important sales markets: between January and August of this year, the country exported goods worth around 294 million US dollars to the EU, while importing goods from there worth 947 million US dollars.

To be successful in the European market, Paraguay - a country with only around 6 million inhabitants - must "adapt its mode of production" and focus on certain "niches", says Gustavo Rojas, an expert in international relations and research associate at the Cadep Center for Economic Analysis.

Not only the manufacturing process needs to be modernized, but also, for example, the way in which the flow of goods is documented and the goods are transported. “You have to prove traceability back to the farm, as well as the origin of the resources, compliance with hygiene regulations, deforestation rules and the ecological footprint.” According to Rojas, it is also important that more Paraguayan companies participate in exports as part of the EU-Mercosur agreement.

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From the perspective of the EU ambassador to Paraguay, Katja Afheldt, the agreement is not only about “what Paraguay can export to Europe, but also about what Paraguay can import from Europe in order to produce better and be more competitive”. European machines, says Afheldt, can be used “to process a product in Paraguay and participate in regional or international production chains.”

In order to implement this, however, “a public-private dialogue, government measures to support production change, regulatory adjustments, strengthening regulation and legal certainty are needed,” Afheldt emphasized to entrepreneurs and local authority representatives.

Expert Rojas sees it similarly: "The immediate advantage will not necessarily be that Paraguay exports more. There is also the possibility of attracting European or Mercosur companies that produce in Paraguay for the European market, using renewable energy at competitive costs."

In Caazapá, the flags continue to be changed depending on the visitor. Even before the EU-Mercosur agreement was passed, people were preparing for what was to come. “We have been ready for a long time: we bought the factory, acquired equipment and built the halls so that they are already equipped for the coming requirements,” says Raúl Gauto. Whether this adjustment of the Paraguayan economy as a whole will succeed is still an open question.

Gabriela Martínez Palma is business editor at the Paraguayan daily newspaper Última Hora.

Translated from Spanish by Ole Schulz