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Paraguay Manufacturing
Manufacturing accounted for 16.3 percent of GDP in 1986 and
employed roughly 13 percent of the labor force, making Paraguay one
of the least industrialized nations in Latin America. Manufactured
exports, by most definitions, accounted for less than 5 percent of
total exports; when semiprocessed agricultural products were
included, however, that figure reached 77 percent. The growth of
the country's manufacturing industries was hampered by numerous
structural obstacles. These included a small internal market,
limited physical infrastructure, costly access to seaports, a
historical lack of energy production, and the openness of
Paraguay's economy to the more industrialized economies of Brazil
and Argentina. Another significant factor was the ubiquity and
profitability of smuggling operations, which encouraged importing
and reexporting rather than production.
Paraguay's earliest manufacturing industries processed hides and
leather from its abundant cattle and tannin from quebracho trees
(see Agriculture
, this ch.). Small-scale manufacturing, especially
textiles, flourished under the Francia dictatorship, when the
nation's borders were closed. The War of the Triple Alliance,
however, devastated what little industry and infrastructure the
country had, causing Paraguay to enter the twentieth century as an
almost completely agricultural society. Land sales to foreigners
stimulated increased agricultural processing in the early twentieth
century, including meat packing and the processing of flour,
oilseeds, sugar, beer, and pectin extract. After the early 1900s,
small-scale manufacturing in all subsectors grew at a slow, but
steady pace, with some of the fastest growth occurring because of
the shortages during World War II.
The government's role in promoting industry increased in the
postwar era, and in 1955 the Stroessner government undertook the
country's first industrial census. Over the next twenty years, the
government enacted a number of industrial incentive measures, the
most important of which was Law 550. Law 550 promoted exportoriented industries or those that would save foreign exchange. It
also provided liberal fiscal incentives for companies to develop
specific areas of the country, especially the departments of Alto
Paraguay, Nueva Asunción, Chaco, and Boquerón. Incentives for
business were related mostly to import-duty exemptions, but they
included a variety of tax breaks and placed no restrictions on
foreign ownership. Approximately one-fourth of all new
manufacturing investment from 1975 to 1985 was registered under Law
550. Most foreign investments originated from Brazil, West Germany,
the United States, Portugal, and Argentina in that order of
importance. The dynamic processes of agricultural colonization and
hydroelectric development, combined with such attractive industrial
incentives, caused manufacturing to grow at an unprecedented rate
in the late 1970s and early 1980s.
Unlike many other Latin American governments, which followed an
import-substitution industrial policy, the Paraguayan government
had played a minimalist role in the economy through most of the
postwar era, curtailing import tariffs and maintaining a realistic
exchange rate. In the 1980s, however, Paraguay's exchange rate
became overvalued and several state-owned heavy industry plants
became operational.
In the late 1980s, the major subsectors of manufacturing were
food, beverages, and tobacco; textiles, clothing, leather, and
shoes; wood and related products; and chemicals, petroleum, and
plastics. Despite some increases in heavy industry in the economy
during the 1970s and 1980s, Paraguayan industry was generally
small-scale. Manufacturing production remained focused on consumer
goods, and capital goods comprised under 5 percent of industrial
output. In fact, in the 1980s Paraguay did not contain even one of
Latin America's 1,000 largest companies, at least some of which
were found in most other countries in the region. Virtually every
subsector of Paraguay's manufacturing was characterized by numerous
small- to medium-sized firms and a few large firms, which often
were foreign owned. Most companies operated well below their
capacity.
The food, beverages, and tobacco subsector has been the core
manufacturing activity throughout Paraguay's history. In the late
1980s, this subsector continued to dominate, accounting for about
45 percent of industrial activity, depending on agricultural output
in a given year. Agro-processing involved a large number of small,
inefficient, and often family-run firms as well as a small number
of large, efficient, and usually foreign-owned firms. The larger
firms produced only the most lucrative items, such as oilseeds,
meats, and various beverages, often for export. Some of the most
common small-scale producers manufactured milled items, baked
goods, sugar and molasses, dairy products, candy, manioc flour,
vinegar, coffee, and tobacco. Along with raw agricultural produce,
processed and semiprocessed food generated nearly all of the
country's exports in the late 1980s. But, as with other
manufacturing subsectors, the profitability of the food subsector
often was impaired by contraband items from Brazil and Argentina,
such as flour, meat, or dairy products. Paraguayan goods crossed
borders unofficially, as well, thus lowering official exports.
The second most important manufacturing activity also relied on
agricultural inputs for its base. Utilizing Paraguay's rich
endowment of hardwood trees, the wood subsector represented about
15 percent of all industrial activity and contributed over 8
percent of exports in the 1980s. The most voluminous wood export
was lumber, which was produced by hundreds of small sawmills
throughout the central and eastern border regions. In addition to
saw wood, mills also produced a variety of milled wood, plywood,
chipboard, and parquet flooring. Although the country cut and
processed only a fraction of its hundreds of species, Paraguayan
wood was known for its quality. The country also contained several
small paper companies and one large paper and cardboard factory
located at Villeta.
Textiles, clothing, leather, and shoes comprised the third
largest manufacturing subsector. These industries were traditional,
grounded in the nation's abundance of inputs like cotton fibers,
cattle hides, and tannin extract. The subsector accounted for about
10 percent of all manufacturing. The textile industry performed
spinning, weaving, and dyeing operations and produced finished
fabrics that amounted to over 100 million tons in 1986. Most
fabrics were derived from cotton fibers, but a growing number of
synthetic and wool fibers also were produced. Textile production
provided inputs to approximately sixty clothing firms that operated
under capacity and were generally inefficient. As with so many
other manufacturers, clothing companies met stiff competition from
widespread unregistered imports, which often originated in Asia and
typically entered across the Brazilian border. The leather industry
was characterized by 200 or so small tanneries dotting the
Paraguayan countryside. In addition, many medium and two large
tanneries fashioned leather goods. The leather industry operated at
only about 40 percent of capacity, however. The shoe industry
comprised a few hundred small workshops and a dozen or so mediumsized firms, which produced some 5 million pairs of leather and
synthetic shoes a year.
The processing of petroleum, chemicals, and plastics repreated
an increasing activity. In the late 1980s, this subsector
represented less than 5 percent of industrial activity, but its
share of manufacturing output was expanding because of the growth
of heavy industry in Paraguay, especially industry related to the
energy sector. The country also produced fertilizers, industrial
gases, tanning chemicals, varnishes, and detergents. In 1987 a
group of Japanese investors was considering the construction of a
new fertilizer plant with a 70,000-ton capacity per year. Since the
early 1980s, ethanol was being produced in large quantities, and
the government was considering producing methanol. Also processed
were paints, soaps, candles, perfumes, and pharmaceuticals. One of
Paraguay's fastest growing industries was the new, relatively
modern plastics subsector, which supplied a wide variety of goods
to the local market.
Data as of December 1988
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