MercoPress, en Español

Montevideo, April 27th 2017 - 07:03 UTC

Brazil manufacturers set up “maquila” assembly plants in neighboring Paraguay

Tuesday, February 28th 2017 - 18:18 UTC
Full article 5 comments
Dark-blue electric scooters assembled by 20 workers at the Estrela factory, known as a “maquila”, will be shipped across the Paraguay border to Brazil Dark-blue electric scooters assembled by 20 workers at the Estrela factory, known as a “maquila”, will be shipped across the Paraguay border to Brazil
Carlos Tilkian, CEO of Manufatura de Brinquedos Estrela SA, it was an easy decision to open the assembly plant in the landlocked nation Carlos Tilkian, CEO of Manufatura de Brinquedos Estrela SA, it was an easy decision to open the assembly plant in the landlocked nation
Brazilian companies increasingly have been flocking to Paraguay since the election of former-businessman turned President Horacio Cartes in 2013 Brazilian companies increasingly have been flocking to Paraguay since the election of former-businessman turned President Horacio Cartes in 2013

When toymaker Estrela decided to move manufacturing capacity back to Latin America from China, it sank US$ 2 million into a new factory not in its native Brazil - the region's largest economy - but in its tiny southern neighbor Paraguay. The plant, which opened this month in the border town of Hernandarias, stands near a 4,500-hectare industrial park filled with Brazilian companies making everything from auto parts to clothing.

 The dark-blue electric scooters assembled by 20 workers at the Estrela factory, known as a “maquila”, will be shipped across the border to Paraguay's giant northern neighbor under a Paraguayan system that allows hefty tax breaks for exporters.

For Carlos Tilkian, chief executive of Manufatura de Brinquedos Estrela SA, it was an easy decision to open the assembly plant in the landlocked nation of just 6.8 million people sandwiched between Brazil and Argentina.

Paraguay has important competitive advantages: cheap energy, labor flexibility and low social charges on wages, he said in an interview before the factory's inauguration. “In Brazil, this would be much more expensive.”

Brazilian companies increasingly have been flocking to Paraguay since the election of former-businessman turned President Horacio Cartes in 2013, when he steered his nation to the right after the impeachment of leftist Fernando Lugo.

In a bid to create jobs, Cartes built on a 1997 reform that allowed foreign exporters to pay taxes in the low single figures and excluded them from customs tariffs with additional pro-business measures. Though more than 90% of its manufactured goods go to Brazil, Paraguay's Mercosur trade bloc membership also gives exporters easy access to Argentina and Uruguay.

Since Cartes's election, the number of foreign manufacturers in Paraguay has nearly tripled, according to government figures, also spurred by Brazil's worst recession on record. The economic downturn has forced manufacturers to cut costs to remain afloat amid onerous taxes and bureaucracy.

Of the 126 foreign manufacturers now in Paraguay, four-fifths are Brazilian. The move by Brazilian companies southward is sparking outrage among Brazilian unions.

Anthony Lisboa, secretary for international relations at Brazil's umbrella union federation, denounced the “maquila” system, saying it relied on “slave labor.” He said he was trying to galvanize opposition in Paraguay — which lacks Brazil's tradition of organized labor.

“The U.S. auto industry has the same issue with Mexico: they are simply moving production to a country where laws permit worse working conditions,” Lisboa said.

Brazilian businesses and economists say jobs created in Paraguay are replacing jobs in China, not Brazil, and that Brazil benefits from a more prosperous neighbor.

“As China gets more expensive, it becomes viable for some industries to produce closer to home and Paraguay is close to home,” said Thomaz Zanotto, foreign trade director for Sao Paulo's powerful business chamber FIESP. “This is not going to rob Brazilian industry — Paraguay is not big enough for that — but ... it shows we could be more cost competitive in Brazil if we had better economic policies.”

Top Comments

Disclaimer & comment rules
  • :o))

    IF Paraguay plays its cards right; the country can easily take great advantages of the mess in Brazil: THE MAN WHO COULD IMPLODE BRAZIL’S GOVERNMENT: http://plus55.com/brazil-politics/news/2017/03/marcelo-odebrecht-brazils-government

    Mar 02nd, 2017 - 06:01 pm 0
  • Jack Bauer

    So Paraguay is becoming to Brazil what China and other east-asian countries are to the US....exporting jobs to keep costs down. While this, for a time will benefit Brazilian consumers, it's part of the vicious circle of unemployment ; but on the other hand, when a country - like Brazil - has obsolete labour laws and ridiculously high social and corporate taxes, which kill most honest businesses, it comes down to survival. And of course, you have the one-track minds of the union leaders (Antonio Lisboa), who refuse to see both sides of the equation, and now complaining that Paraguay relies on slave-labour.....didn't hear him complain when companies were shifting to China...as a result of lousy economic policy (by the PT govt), and strikes promoted by radical unions attempting to bring companies to their knees, to obtain unjustified advantages ; and his naive notion that appealing to Paraguayan authorities will change anything, is just a joke - the Paraguayans must be loving the move. Besides the unions being too stubborn (or stupid) to admit that it's China that's losing the jobs, they are the first ones to reject any negotiations with government to try to make the Brazilian economy more competitive, by modernizing labour laws and reducing the heavy-burden on business. Their unilateral rejection of the government's proposal to reform the social security system (to end highly prejudicial practises, which affect both business and workers, and to keep it viable) is a good example of their lack of will to accept necessary / essential change.

    Mar 02nd, 2017 - 06:27 pm 0
  • :o))

    If the trend continues; many Brazilians may even shift to Paraguay.

    The Situation in Brazil is not “so good” already but it may have to get really worse, till the population FINALLY “Wakes-Up” (or IF they wake-up)! After all, the Brazilian Congress as such is pretty “efficient”: https://pbs.twimg.com/media/C54KPW5XQAASCrr.jpg

    Mar 02nd, 2017 - 06:48 pm 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!