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Uruguay: Market Profile

Picture: Uruguay factsheet
Picture: Uruguay factsheet

1. Overview

Uruguay is a high-income economy characterised by a large volume of agricultural exports and free-market policies, accompanied by high levels of social spending by the government. Downturns in Brazil and Argentina, the country’s key trading partners, will likely limit growth in the external sector, while stagnant wages, high unemployment and currency depreciation will drag on domestic demand. On the other hand, the European Union (EU)-MERCOSUR trade deal, if ratified, will boost medium-term prospects, as should UPM’s paper mill project. Since the commodity price shock of 2014-2016, Uruguay's policymakers have seen the need for greater economic diversification to ensure sustainable growth. As the country's economy becomes more integrated with the rest of the world, it will be able to hedge against downturns in regional demand.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

October 2014
General elections were held and no party was able to secure a majority of the seats needed to form a government. A run-off between the Broad Front and the National Party (the two parties with the most votes) was scheduled for November.

November 2014
The run-off between the Broad Front and the National Party resulted in the former receiving 56.6% of the vote, enabling the formation of a government. Tabaré Vázqued was sworn in as president, taking over from former Broad Front leader, José Mujica. The Broad Front also retained its majority in the Chamber of Deputies (the lower house of the Uruguayan General Assembly), but lost its majority in the 30-seat upper house, the Senate.

July 2018
Uruguay became the first country to legally produce and sell marijuana for recreational use. The cultivation of the plant was first legalised in 2013 in efforts to counter the funding of drug cartels operating in the region.

July 2019
On 23 July, Finnish firm UPM announced a USD3 billion investment to build a pulp paper plant in Uruguay by 2022, which would generate an estimated 4,000 jobs.

October 2019
Uruguay is set to hold general elections. Incumbent President Tabaré Vázquez is ineligible to run as he has reached his limit of terms served.

Sources: BBC country profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Uruguay real GDP and inflation
Graph: Uruguay real GDP and inflation
Graph: Uruguay GDP by sector (2018)
Graph: Uruguay GDP by sector (2018)
Graph: Uruguay unemployment rate
Graph: Uruguay unemployment rate
Graph: Uruguay current account balance
Graph: Uruguay current account balance

e = estimate, f = forecast
Sources: IMF, Fitch Solutions, World Bank
Date last reviewed: July 18, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Uruguay merchandise trade
Graph: Uruguay merchandise trade

Source: WTO
Date last reviewed: July 18, 2019

Graph: Uruguay major export commodities (2018)
Graph: Uruguay major export commodities (2018)
Graph: Uruguay major export markets (2018)
Graph: Uruguay major export markets (2018)
Graph: Uruguay major import commodities (2018)
Graph: Uruguay major import commodities (2018)
Graph: Uruguay major import markets (2018)
Graph: Uruguay major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: July 18, 2019

4.2 Trade in Services

Graph: Uruguay trade in services
Graph: Uruguay trade in services

Source: WTO
Date last reviewed: July 18, 2019

5. Trade Policies

  • Uruguay has been a World Trade Organization member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since December, 1953. The country is also a member of MERCOSUR (since 1991).

  • Uruguay imposes an average tariff rate of 4.75%. This is the 12th lowest out of 30 Caribbean and Central and South American states with data readily available.

  • The country currently has only one anti-dumping measure in place, affecting certain types of electric water heaters from Mainland China.

  • Uruguay currently imposes tariffs on 105 products originating from 32 countries, including Mainland China.

  • In addition to tariffs put in place by Uruguay, MERCOSUR members also impose tariffs on 10 products originating from 16 countries – including from Mainland China.

  • Import tariffs are highest on finished goods and many capital goods and intermediate inputs face lower or eliminated rates.

  • Generally, no tariffs are charged on goods traded between MERCOSUR countries. Uruguay has championed the free trade of goods throughout the trade bloc.

  • Inefficient trade bureaucracy remains an issue, but procedures are generally more efficient than in neighbouring Argentina and Brazil, increasing Uruguay's appeal as an entry point to the MERCOSR trade bloc.

  • In 2018, chemical, industrial and fuel products overtook agricultural products as Uruguay's main source of export revenue which previously accounted for two-thirds of the country's exports.

  • Uruguay has a few non-tariff barriers. However, these these are mainly used to protect public health, national security, the environment, phytosanitary conditions and consumers.

Sources: WTO – Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. MERCOSUR: A regional customs union with Brazil, Argentina, Paraguay, Uruguay and Venezuela (the latter is currently suspended). The MERCOSUR agreement facilitates trade with these neighbouring countries through the removal of tariff and non-tariff barriers. In particular, Argentina and Uruguay are key trade partners of Brazil. The customs union is still in the process of being fully implemented with some significant exceptions to the common external tariff in individual countries and double-application of import tariffs on goods imported to one member and subsequently moved into another. Bolivia is in the process of becoming a full member. MERCOSUR encompasses approximately 75% of South America's GDP and is one of the world's largest economic blocs.

  2. MERCOSUR associate members: The free trade agreement (FTA) between MERCOSUR and associate members. However, MERCOSUR's associate members – Chile, Colombia, Ecuador, Guyana, Peru and Suriname – do not enjoy full voting rights or complete access to markets.

  3. MERCOSUR-India Preferential Trade Agreement (PTA): The PTA between MERCOSUR and India came into force on June 1, 2009.

  4. MERCOSUR-Israel FTA: The agreement, agreed on Montevideo in 2007, came into effect in 2010. The FTA provides concessions on tariff preferences for approximately 8,000 products (mainly manufactured goods).

  5. MERCOSUR-Egypt FTA: The agreement, signed in August 2010, became operational in 2017 and exempts products from import taxes (with 65% of all traded goods between the two regions becoming exempt in 2017, with the remainder gradually lowering after).

  6. MERCOSUR-SACU PTA: The PTA between MERCOSUR and the Southern African Customs Union (SACU) countries (Botswana, Eswatini, Lesotho, Namibia and South Africa) came into effect in April of 2016. The agreement offers concessions on 1,062 tariff lines for MERCOSUR traders doing business with SACU (and concessions on 1,052 tariff lines for SACU countries doing business with MERCOSUR).

Ratification Pending

EU-MERCOSUR FTA: After 19 and a half years, a deal to establish the FTA was agreed to on June 28, 2019. The signed agreements will be presented to the parliaments of the EU and MERCOSUR members, as well as to the EU Parliament, for ratification before coming into effect.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Uruguay FDI stock
Graph: Uruguay FDI stock
Graph: Uruguay FDI flow
Graph: Uruguay FDI flow

Source: UNCTAD
Date last reviewed: July 18, 2019

7.2 Foreign Direct Investment Policy

  1. 'Uruguay XXI' is the state's investment and business facilitating agency, making up part of the National System of Productive Transformation and Competitiveness (Transforma Uruguay) that works to promote the productive and innovative economic development of the country, with sustainability, social equity and environmental and territorial balance. This body has a centralising role for all administrations and ministries to facilitate all procedures.

  2. The repatriation of funds from Uruguay is not restricted. In order to repatriate funds, however, entities must fulfil the requirements of the Uruguayan Companies Act.

  3. Foreign investors are not required to partner with a local company or resident in order to invest.

  4. Foreign investors are not required to meet any specific standard before being allowed to invest in the country. However, industry regulations concerning mining, telecommunications, banking, insurance and pension fund administration may require capital outlay prior to investment.

  5. Investors are largely treated the same as local investors (except for some restrictions, as mentioned below).

  6. Only Uruguayans are allowed to own companies involved in radio or television broadcasts within the country.

  7. Sectors which carry national security concerns are generally off limits to foreign investors.

  8. The presence of some legal monopolies present significant hurdles to entering the market in competition to these state-run companies.

  9. There has been no expropriations of land or property in Uruguay over the country's recent history. Although this does not exclude the possibility, it would make any such actions highly irregular.

  10. Uruguay is party to 30 active bilateral investment treaties, including one with Mainland China. An additional two treaties have been signed, but are not in force (with Australia and the United Arab Emirates).

  11. Uruguay is party to 14 treaties with investment provisions.

Sources: WTO – Trade Policy Review, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Franca Punta Pereira SA, WTC Free Zone SA, Aguada Park (ITSEN SA), Zona Franca Nueva Palmira, Zona Franca Rivera, Zona Franca Florida, Zona Franca Libertad, Lideral SA, UPM Fray Bentos SA, Zona Franca de Colonia, Zona Franca Colonia Suiza and Zona Mercia SAThe main incentives include:

- Exemption from customs duties or import taxes
- Exemption from national taxes including corporate income tax
- Exemption from social security taxes for non-Uruguayan employees who have waived coverage under the Uruguayan social security system

Uruguayans must comprise at least 75% of a company's labour force to qualify for FTZ tenancy.
Research and development (R&D) incentivesCorporate income tax (CIT) exemption for R&D in biotechnology and bioinformatics and software production.
Industrial park incentivesCompanies or entities which either establish an industrial park or operate within one are eligible to benefit from:

- CIT exemption for their industrial equipment
- Excise tax and VAT exemption on the acquisitions of such goods
- Other incentives

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: 22%
  • Corporate Income Tax: 25%

Source: DGI

8.1 Business Taxes

Type of TaxTax Rate and Base
CIT
25%
VAT- 22%: standard rate
- 10%: on basic foodstuffs, pharmaceutical products, hotel services, the first sale of immovable assets
- 0%: (exempt) for milk, books, magazines, agricultural machinery and certain bank services
Withholding TaxDividends:
7% to non-residents

Interest:
- 7% or 12%, dependent on duration of loan and currency used
- 25% if paid to an entity located in a tax haven

Royalties:
- 12% to non-residents
- 25% if paid to an entity located in a tax hav
Stamp duty- Varies between Argentina's 24 taxable jurisdictions; the standard rate, however, is 1%
- Stamp tax on real estate can range between 2.5% and 4%
Transfer Tax
2% on the sale of real estate, to be paid by both buyer and seller
Payroll Tax: social security12.6% by employers

Source: DGI
Date last reviewed: July 18, 2019

9. Foreign Worker Requirements

9.1 Foreign Worker Permits

Foreign workers must obtain work permits and may reside in Uruguay under either a temporary or permanent residency visa. It can take up to two years to obtain permanent residency, but this should not pose additional risks to investors looking to bring in foreign workers, as residency permits are very likely to be issued eventually. Workers may reside in the country under a temporary visa until the permanent visa is issued.

9.2 Local and Foreign Worker Quotas

There are no quotas for employment in Uruguay, except for businesses based in free trade zones, which must employ a workforce which is at least 75% Uruguayan, although this is negotiable.

Sources: Europa.eu, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Baa2 (Stable)06/08/2019
Standard & Poor'sBBB (Stable)05/06/2015
Fitch Ratings
BBB- (Negative)27/06/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
90/19094/19095/190
Ease of Paying Taxes Index
113/190106/190101/190
Logistics Performance Index
N/A85/160N/A
Corruption Perception Index
23/18023/10N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A60/20257/202
Short-Term Economic Risk Score
58.860.4
58.1
Long-Term Economic Risk Score62.562.663.5
Political Risk Index RankN/A42/20242/202
Short-Term Political Risk Score
71.571.566.9
Long-Term Political Risk Score75.375.375.3
Operational Risk Index RankN/A75/20173/201
Operational Risk Score54.354.055.0

Source: Fitch Solutions
Date last reviewed: August 7, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
The importance of exports to the Uruguayan economy, coupled with the country's reliance on Argentina's demand for Uruguayan goods, will lead to slower growth over the short term as Argentina's recession continues. This will be compounded by weakness across the manufacturing and construction sectors. Over the long term, consumption is likely to play a greater role in driving growth, as policymakers act on the need to diversify away from an agricultural exports-driven model of growth.

OPERATIONAL RISK
Uruguay benefits from limited risks to businesses. Uruguay offers a better educated and more flexible labour market, a higher quality and less congested transport network, a more open foreign direct investment policy, and a safer environment for foreign workers and businesses than several leading Latin American countries – including neighbouring Argentina and Brazil. Businesses will face some risks in terms of high labour costs and corporate tax burden, but this does not undermine the country's overall regional competitiveness.

Source: Fitch Solutions
Date last reviewed: July 31, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Uruguay short term political risk index
Graph: Uruguay short term political risk index
Graph: Uruguay long term political risk index
Graph: Uruguay long term political risk index
Graph: Uruguay short term economic risk index
Graph: Uruguay short term economic risk index
Graph: Uruguay long term economic risk index
Graph: Uruguay long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: July 18, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Argentina Score55.051.152.155.461.3
Central and South America Average46.249.545.247.043.0
Central and South America Position (out of 20)4
9642
Latin America Average48.450.748.944.849.3
Latin America Position (out of 42)8201756
Global Average49.650.349.8
49.049.2
Global Position (out of 201)73.099.092.070.054.0

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Uruguay vs global and regional averages
Graph: Uruguay vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Chile64.763.868.662.763.8
Costa Rica56.653.660.353.2
59.3
Panama55.447.656.467.250.6
Uruguay55.051.152.155.461.3
Mexico53.060.058.2
57.735.9
Colombia50.9
55.554.750.143.1
Brazil49.346.748.450.751.5
Peru49.257.851.547.140.5
Argentina49.052.842.450.650.4
Ecuador46.5
54.137.652.142.4
El Salvador43.4
44.944.551.1
33.0
Suriname42.950.135.643.3
42.5
Belize42.551.938.142.437.8
Guatemala40.843.844.741.333.5
Paraguay40.2
42.644.036.6
37.6
Nicaragua39.741.639.137.141.1
Honduras39.739.846.939.4
32.7
Guyana37.542.838.334.334.6
Bolivia
37.342.128.737.840.6
Venezuela29.447.713.130.026.8
Regional Averages46.249.545.247.043.0
Emerging Markets Averages46.948.645.447.446.1
Global Markets Averages49.650.349.8
49.049.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: July 18, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Uruguay

Graph: Major export commodities to Uruguay (2018)
Graph: Major export commodities to Uruguay (2018)
Graph: Major import commodities from Uruguay (2018)
Graph: Major import commodities from Uruguay (2018)

Note: Graph shows the main Hong Kong imports from/exports to Uruguay (by consignment)
Date last reviewed: July 18, 2019

Graph: Merchandise exports to Uruguay
Graph: Merchandise exports to Uruguay
Graph: Merchandise imports from Uruguay
Graph: Merchandise imports from Uruguay

Note: Graph shows Hong Kong imports from/exports to Uruguay (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: July 18, 2019


2018
Growth rate (%)
Number of Uruguay residents visiting Hong Kong2,260-9.0

Source: Hong Kong Tourism Board


2018
Growth rate (%)
Number of Latin American residents visiting Hong Kong190,320-2.8

Source: Hong Kong Tourism Board
Date last reviewed: July 18, 2019

11.2 Commercial Presence in Hong Kong


2018
Growth rate (%)
Number of Uruguayan companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Chamber of Commerce (or Related Organisations) in Hong Kong

Honorary Consulate of Uruguay
Address: 16/F, Hong Kong Club Building, 3A Chater Road, Central, Hong Kong
Email: cdhongkong@mrree.gub.uy / afreris@netvigator.com / urulinks@hotmail.com
Tel: (852) 2168 0832
Fax: (852) 8108 0097

Source: Visa on Demand

11.4 Visa Requirements for Hong Kong Residents

Hong Kong residents can travel to Uruguay without a visa for tourism and business purposes and remain in the region for a period of up to 90 days.

Source: Visa on Demand
Date last reviewed: July 18, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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