When deciding on the right location for your business expansion, it often makes sense to look at the bigger picture and explore the opportunities a particular territory can offer you. If you want to gain access to Asia, for example, then Australia could be a fantastic hub, as it offers unparalleled trade agreements and a straightforward incorporation process. If you’re looking to expand into Latin America, then a country such as Uruguay may not necessarily be the first place you think of.
However, if you’re looking to sell your products and services to countries such as Paraguay, Argentina, and Brazil, then you may want to form a company in Uruguay. Below, we offer an introduction and explanation as to why this makes sound business sense and give you some tips on how to maximize investment in the country and capitalize on the MERCOSUR bloc.
Company Formation Uruguay – Economic Overview
Uruguay may not be at the top of the list when you consider expanding into Latin America, but doing so is a sensible choice. The country has a GDP of US$56.16 billion, which has grown significantly and largely consistently from US$13 billion back in 2003. In 2019, the country’s GDP per capita of US$16,245.60, supported by a growing middle class. Uruguay is small, forging an economy highly dependent on trade with other countries, particularly with its neighbors Argentina and Brazil.
One of the most interesting things about Uruguay is that it consistently outperforms its neighboring countries in terms of economic growth, despite its size. In 2017, the country’s central bank reported growth of 2.7% which brought the country’s growth streak to a 15-year record. Growth is set to continue into 2019 and beyond, as the country continues to welcome foreign direct investment (FDI) and takes advantage of falling commodity prices.
With the help of The World Bank Group, Uruguay has seen significant improvements across its transport and infrastructure, as well as education and health. Since 2010, the country has seen more than US$1 billion in approved loans designed to strengthen the country’s economy. These loans aim to ensure its most vulnerable sectors continue to grow, despite the economic challenges that recessions and poor-performing economies have brought. This development demonstrates the country’s resilience and ability to deliver strong returns to its investors and citizens alike.
Uruguay and the MERCOSUR region
The Southern Common Market (MERCOSUR) is one of the largest trade blocs in the world, with inter-group trade reaching US$37.016 billion in 2016. The group’s main objective is to promote trade and investment across national economies. The bloc has five member states (though Venezuela is currently suspended), seven associate states, and two observer states.
This bloc not only benefits members Argentina, Brazil, Paraguay, and Uruguay, but others but also provides significant trade advantages for associate countries Peru, Colombia, Chile, Bolivia, Ecuador, Guyana and Suriname. Bolivia and Ecuador are currently seeking full membership to MERCOSUR. It is the fifth largest economy in the world, and offers significant opportunities to businesses of all shapes and sizes, whether they’re planning to establish a business to sell goods in Uruguay, or use Uruguay as a base to export goods and services to other members.
One of the reasons why Uruguay performs so well economically is because of trade with its neighboring economies. On its own, the country has limited markets and low innovation levels, and as such it has worked to formalize trade agreements with other LATAM nations. When the MERCOSUR free-trade area launched in 1991, Uruguay, Argentina, Brazil, and Paraguay were officially linked, enabling free trade between them.
The trade Agreement is so attractive to investors as it lowers tariffs between the countries involved and increases trade. As a result, Uruguay is now dependent on this regional trade. More than half of its imports and exports now come from its MERCOSUR trade partners. The country’s economy is therefore more vulnerable to shock and damages should there be economic challenges in other countries. Uruguay is prone to feeling the pinch when demand falls for goods and services from overseas trade.
However, there is no getting away from the fact that MERCOSUR is a truly lucrative trading arrangement that offers significant benefits for Uruguay. The country exported more than US$7.8 billion worth of goods in 2016, with exports such as chemical wood pulp, bovine meat, rice, and milk topping the lists. Exports to Argentina topped US$441M during the period. As an entrepreneur, there are many ways to take advantage of the trade between Uruguay and other members.
Utilizing MERCOSUR in Uruguay
Whether you’re considering incorporating a business in Uruguay to distribute your products across Latin America, or you’ve spotted a gap in the market and want to import goods into Uruguay to add value and resell, it’s important to act fast and grab opportunities, as foreign businesses scramble to make their mark on the economy.
Start by obtaining residency in Uruguay so that you can operate in the country, and incorporate a business as soon as possible. Import and export businesses perform well in the country, but they must follow local laws and be prepared to get to grips with import regulations in other MERCOSUR states. Regulations across member and associate states are different, and misinterpreting them will slow your ability to grow and expand your business. As always, working with a company that specializes in market entry and expansion across Latin America is highly recommended.
There are many misconceptions about doing business in Uruguay. Some may not realize opportunities available to international investors, as economies like Brazil, Chile and Colombia absorb most of the attention on the world stage. However, the right strategy and a passion for trade will make an impact in Uruguay. This can be achieved by both importing and exporting across Latin America, and taking advantage of the MERCOSUR trade bloc benefits offered to member states. Do your research, get to grips with the local and international competition, and you’ll soon be making money in the country and expand into new markets.
Work with Biz Latin Hub
If you’re looking for assistance with your market entry, the law, or recruitment, don’t hesitate to contact the Uruguayan business experts here at Biz Latin Hub. We’re on hand to assist in everything from commercial representation to due diligence when establishing a new firm in the country. Our tailored business solutions are designed to ensure your every success as you establish your business in Latin America. Get in touch with us today for expert advice.