Foreign direct investment (FDI) in Uruguay

FDI in Figures

According to UNCTAD's 2021 World Investment Report, inflows of FDI to Uruguay increased by 43% to USD 2.6 billion in 2020, the highest level since 2012, compared to USD 1.8 billion in 2019, despite the global economic crisis triggered by the Covid-19 pandemic. Indeed, Uruguay has recorded the lowest levels of COVID-19 infection in the region and has created a USD 625 million Coronavirus Fund. The country also has a dynamic technology industry which, together with the increase in various tax breaks granted to eligible projects under the investment promotion scheme, has led to incredible inflows. The total stock of FDI was estimated at USD 33.5 billion in 2020. The Uruguayan government extended its economic plan by pursuing a cautious budget and monetary policy, accompanied by a structural reform programme aiming to attract foreign investment, which eventually reassured businesses. Foreign investors enjoy the same rights and fiscal incentives as local investors. FDI are free from any restrictions and are not subject to any declaration. Moreover, there is no limit regarding the transfer of profits or the repatriation of capital. Uruguay is a member of MIGA, the Multilateral Investment Guarantee Agency of the World Bank.

 FDI influx comes mainly from Argentina, Brazil, Spain, the Netherlands, and the United States, and investment is directed towards manufacturing, construction, agriculture and the tertiary sector. Looking ahead, the doubling of the number of greenfield projects in information and communication in 2020 to over 37% of all announced projects indicates a thriving industry.

Uruguay ranked 101st out of 190 countries in the World Bank's last Doing Business Report, which was published in 2020, indicating a six-spot drop from the previous year. Despite a relatively low ranking, Uruguay achieved important progress concerning tax payment in recent years. The country is keen on attracting FDI and has an investment promotion agency, Uruguay XXI. There is also an investment promotion law in the country that guarantees equal treatment for local and foreign investors. Individuals and corporations can set up businesses without having to comply with prerequisites, obtain special permits from the state, or have a local counterpart. Additionally, there is no distinction between national and foreign capital, and investment promotion incentives are available to both. Foreign investors are attracted to the country's political stability, business climate, and skilled workforce. Uruguay is a regional hub with a strategic location to access the rest of the region. Also, as a member of Mercosur, and having free trade agreements with other Latin American countries, Uruguay provides access to a market of more than 400 million people and represents a flow of foreign trade of almost 74% of Latin America's total. Other strengths of Uruguay include the highest literacy rate in Latin America (98% of the population), and modern infrastructure. However, there are also some challenges, such as limited flexibility in setting wages, strict hiring and firing practises, a small population, and vulnerability to the economic situation of its neighbours - mainly Brazil and Argentina. Some of the most important foreign investment projects and M&A transactions that took place in the last few years in Uruguay involved banks, such as the acquisition of the Crédit Uruguay Banco by BBVA, the acquisition of the ABN AMRO Bank by Santander, and the buyout of Uruguayan Pension Fund Afinidad AFAP by Grupo Sura. According to an Uruguay XXI report, financial and insurance is the sector that most attracts investment (35% of flows), followed by manufacturing (27%), and commerce (18%). Other significant investments made in the country recently include the construction of a pulp mill by the Finnish group UPM - which is the largest private investment ever made in the country, worth nearly USD 3 billion - and the acquisition of Petrobras Uruguay (a subsidiary of the Brazilian National Oil Company) by the Spanish Disa Corporación Petrolífera, for USD 68.17 million.

What to consider if you invest in Uruguay

Strong Points

The main assets of Uruguay are:

• A democratic and stable political system.
• Effective education and health systems.
• Abundant agricultural resources.
• A highly skilled workforce.
• Economic stability. Uruguay was among the first nations in Latin America to achieve a certain level of stability and economic well-being, maintained through relatively high taxes on the industrial sector.
• In recent years, the Uruguayan economy has benefited from a favourable international scenario for the exports of its agricultural production.
• The country has comfortable foreign exchange reserves.
• Favourable growth prospects. Uruguay benefits from increases in domestic consumption, the development of its exports, the high level and the diversification of its investments.
• Privileged trade relations with members of Mercosur, the EU and the United States generate a level of FDI.
• Wide range of tax exemptions for investments, free zones, attractive ports and airports.

Weak Points

The main weak points of the country are:

• A high level of external debt that is subject to trade fluctuations and external shocks
• A high level of inflation that is difficult to curb (8.3% in 2021 - IMF)
• Public debt above the regional average (68% of GDP in 2021 - IMF)
• Vulnerability to the economic situation of its neighbours and fellow Mercosur members, Argentina and Brazil, in particular, vis-à-vis its exports and links between their financial sectors.
• Commodity price sensitive economy.

Government Measures to Motivate or Restrict FDI

In Uruguay, foreign investors can develop any type of business and are treated the same as local investors. The government is encouraging foreign investment by offering tax exemptions for investment and the country has also established an investment promotion agency, Uruguay XXI.

Also, at the end of 2017, President Vazquez announced significant investments (of €12 billion) in infrastructure (transportation, renewable energy, housing and telecommunications) to boost economic growth and job creation.

Eleven free zones are located throughout Uruguay. Companies can import goods, services, products and raw materials of foreign or Uruguayan origin. Companies operating in free zones are exempt from national taxes.