Strategically located in the heart of the Mercosur, Uruguay is the largest common market in Latin America. Increasing flows of Foreign Direct Investment (FDI) have arrived in Uruguay year after year over the course of the last decade. In 2011, this small South American country was once again the second major recipient of FDI in relation to GDP in the region, after Chile.

Within a framework of sustained economic growth, during the last six years the GDP of Uruguay registered the highest rise in its history, with an average annual rate of almost seven percent, becoming one of the main drivers of the Uruguayan economy. The investment flow that arrived in the country in 2011 experienced its historical high, reaching five percent of GDP, supported by sound macro-economic balances, a high degree of opening, and a model oriented to investment promotion at local and
international level.

Steady investment
After some large projects were carried out during the last decade, the flow of productive capitals began to increase, and it has multiplied by six in the last seven years. Even during 2009, in the middle of the deep recession in the global economy, and strong retrenchment of international investment flows, Uruguay continued to receive high levels of investment.

With capitals mainly from Argentina, Brazil, Europe and NAFTA, investment has been oriented to different destinations, including the intensive agricultural production, favoured by high quality soils and a good climate; the manufacturing industry, where agro-industrial enterprises stand out; and the chemical industry. The transport sector has also received a significant amount of investments, fostered by  increasing international trade. The same trend has been seen in the commercial sector, in which Uruguay is one of the Latin American countries with the highest growth potential, as per CEPAL’s 2011 Report on FDI in Latin America.

Entrepreneurship projects for the establishment of pulp mills have been carried out, requiring multi-millionaire investments. The Finnish UPM Pulp Mill, which is already established, was added in 2011 to the project for the wood and pulp mill ‘Montes del Plata’, as a result of the strategic merger between the Chilean company Arauco and the Swedish company Stora Enso, resulting in the biggest investment that year. The sector has also started to make investments in the field of research and development. UPM is analysing a project on wood fibre and its effects on the final commercialisation, also having under consideration the establishment of a second pulp mill in the country.

Tourism takes off
Tourism-based FDI has registered a spectacular growth in the last few years. Due to its dynamism, tourism in Uruguay has turned into a very appealing sector for international investment. As a consequence of a strong development and diversification of the tourist offer, Uruguay has become the country with more tourists per capita. The yield obtained has multiplied year by year, standing at almost five percent of GDP in 2011.

Renewable energies have attracted important flows of productive capitals in the last few years, mainly for the generation of wind power.  Uruguay is one of the countries that have strongly encouraged the development of alternative energies, having a clear objective to achieve a new structure of its energy matrix. For 2015, it is expected that this matrix will include 15 percent of wind power and 13 percent of biomass power generation. Within this framework, the government has made two bids for wind power plants, which have been derived through important investments by transnational companies. The generation of energy from biomass is also likely to receive the necessary financial support.

Project incentives of the energy sector are under the general model of investment promotion, implemented by the national government. Uruguay has stimulated and firmly supported national and foreign productive investment, which constitutes drive for economic growth and development. Based on a reliable legal framework with clear and equitable game rules for each investor, the prevailing Investment Promotion Regime includes a series of tax exemptions and benefits, among which, the exemption of the income tax from 50 percent to 100 percent of the invested capital.

Practising in domestic and foreign currency
At the same time, the free repatriation of capitals and the free access to the exchange market are added to the above benefits, all this facilitated by a banking system which, unlike in other countries, deals in domestic and foreign currencies. The appeal for establishing new enterprises under the Investment Promotion Regime has been supported not only by the excellent economic performance, but also by the social, geographical and political conditions. The warmth and high cultural level of its population, the reliability of its institutions, and the richness of its natural resources have further distinguished Uruguay.

The political and social stability of the country has been recognised by the most prestigious international organisations, which have ranked Uruguay first in South America. Measured by the 2011 Democracy Index by the Economist Intelligence; the 2011 Prosperity Index by the Legatum Institute; the 2011 Political Stability Index by the World Bank; and the 2011 Quality of Living index by Mercer Quality of Living. Uruguay was ranked second in the 2011 Low Corruption Index by Transparency International, and the 2011 Economic Freedom Index by Heritage Foundation.

Due to the existence of a large amount of foreign capital projects scheduled for this year, and the volume of information requests received by the government from international investors throughout 2011, high levels of FDI are expected for 2012.

Financing sustainable growth
The success of the model has been supported by a healthy and sound banking system, within which Banco República’s leadership has played a predominant role. With total assets above $12bn and a market share greater than 40 percent, Banco República partners strong investment in Uruguay.

With a prominent support to a variety of projects of the different sectors of activity, Banco República leads long-term financing in Uruguay, focusing on the social and environmental features of the projects. As a result, the bank engages in investments that care for and respect the environment, particularly those related to the generation of alternative energy and eco-efficient projects.

As the first banking institution of Uruguay adhering to the Equator Principles, this year World Finance has recognised Banco República as Best Banking Group in Uruguay, 2012.
In spite of the uncertainty governing the recovery of the world’s economy, Uruguay relies on solid political and social foundations that enable the maintenance of favourable conditions for receiving FDI. Likewise, the good outlook for economic growth in the next years suggests Uruguay will continue to be highly attractive for FDI, and as one of the leading destinations of productive capital in Latin America.

For more information: bancorepublica.com.uk; email: secretariapresidencia@brou.com.uy; Tel: (5982) 1896 2710