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South America / Uruguay

The state of play: FDI in Uruguay

Uruguay has long been open to FDI and enjoyed a strong 2019. However, as with all countries, it now faces a battle to maintain this momentum amid the Covid-19 pandemic.

Uruguay-FDI-tourism
Resorts such as Punta del Este have made Uruguay a leading tourism destination in South America. However, along with several other key sectors, it is struggling amid the Covid-19 pandemic. (Photo by Miguel Rojo/AFP via Getty Images)

At the beginning of 2020, Uruguay held a foreign direct investment (FDI) transaction deficit of $48m, according to statistics from the Banco Central del Uruguay (BCU), the country’s central bank.

BCU’s FDI data for the first quarter of 2020 is preliminary. The preliminary data for year 2019 will be reviewed at the end of September, while preliminary data for 2020 will be reviewed in 2021, when more comprehensive data and definitive information is available.

The country’s FDI transactions are made up of a total of $251m in net foreign acquisitions of assets and a total of $300m of FDI liabilities.

Overall, Uruguay remains open to FDI and is in a more stable economic position than many of its Latin American neighbours, although the impact of Covid-19 is expected to be harsh and is unlikely to leave Uruguay unscathed.

A stellar 2019 for FDI

For the first time in three years, Uruguay saw FDI inflows returning to the country in 2019 with a total of $189m, a strong recovery after recording a year-on-year loss of $487m in 2018, according to the UN Conference on Trade and Development’s (UNCTAD’s) ‘World Investment Report 2020‘.

The government of Uruguay has worked to maintain a favourable investment climate and to increase FDI inflows into the country.

It has passed an investment promotion law that guarantees equal treatment for local and foreign investors. Individuals and corporations can set up businesses without having to obtain authorisation or special permits. As there is no distinction between national and foreign capital, investment promotion incentives are available to both national and foreign investors.

Uruguay ranked first among Latin America and the Caribbean countries in the Transparency International ranking 2019, and 21st at a global level. Political risk is also low, as the country is widely considered to be a stable democracy.

Despite an overall positive investment environment, FDI levels into Uruguay have been low since 2015, after record $3.4bn of inflows in 2013, according to UNCTAD’s data. However, high levels of debt and inflation as well as a vulnerability to the economic performance of its neighbours have made some investors wary.

China is Uruguay’s main trading partner, and in August 2018 Uruguay was the first country in South America’s ‘southern cone’ to join the Chinese Belt and Road Initiative.