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Uruguay - Economy

Uruguay's economy remains dependent on agriculture and services. Agriculture and agri-industry account for 12% of GDP, and for about 70% of total exports. Leading economic sectors include commerce, agriculture and agri-industry (meat processing, wood pulp, rice, soybeans, and wheat), and construction. Though still small, the information technology and software industry is growing rapidly. There are 12 free trade zones, three of which are dedicated to services (for example, financial, software, call centers, and logistics). Uruguay offers US firms significant advantages as a MERCOSUR-region distribution platform.

Uruguay demonstrated resilience in the face of recessions in its large neighbors. The economic slowdown had bottomed out in 2016 and there were signs that the economy was on an incipient recovery path. Real growth was estimated at 1.2 percent in 2016 and projected to reach 1.4 percent in 2017, as the external environment strengthened, together with private consumption.

The peso appreciated against the US dollar between April and October 2016, but depreciation pressures reemerged in November, following the U.S. elections. The current account deficit is expected to remain around 2¼ percent of GDP in 2016, and would edge up to 2½ percent in the medium-term as domestic demand recovered.

Despite the slowdown in activity, inflation remained at levels above the central bank’s target range. Inflation was projected to slow and remain well below 9 percent in 2017, tapering to about 6 percent in the medium-term as the output gap gradually closed. Monetary policy remained relatively tight but its transmission had been constrained by the high dollarization and low level of peso credit in Uruguay.

The challenges for the Uruguayan government were to reduce the budget deficit (an estimated 3.6 per cent of GDP in 2014) and reduce inflation (estimated 8.2 per cent in 2014), while containing public-sector workers' wage demands, maintaining high levels of social spending and increasing investment in infrastructure. As part of its successful effort to regain investment-grade credit ratings, Uruguay has also sought to reduce the public debt ratio from an estimated 52.3 per cent of GDP in 2011 to below 40 per cent. GDP growth will likely be sustained by continued domestic demand, strong trading links with China and Brazil, and plans to boost infrastructure expenditure in railways, ports, telecommunications and energy (to reduce reliance on expensive oil imports) through public-private partnerships.

The Uruguayan economy has grown strongly since the 2001 Uruguayan banking crisis, averaging 5.7 per cent real GDP growth per annum from 2003-2013, largely caused by robust private consumption, high employment rates and strong real wages. The global financial crisis slowed economic growth, but Uruguay managed to avoid a recession and keep a positive growth rate of 2.6% in 2009. GDP growth reached 8.5% in 2010 and 5.7% in 2011.

Recent governments carried out cautious programs of economic liberalization similar to those in many other Latin American countries. They included lowering tariffs, controlling deficit spending, reducing inflation, and cutting the size of government. Although Uruguay's economy is based on free enterprise and private ownership, the country has traditionally favored substantial state involvement in the economy, and privatization is still widely opposed. In spite of some de-monopolization over the past several decades, the state continues to play a major role in the economy, owning either fully or partially companies in insurance, water supply, electricity, telephone service, petroleum refining, airlines, postal service, railways, and banking.

Despite Uruguay's relatively high standard of living, relatively large numbers of Uruguayans live in poverty, a situation exacerbated by the 1999-2002 financial downturn. To tackle this, the FA government implemented an emergency plan to assist families with the lowest incomes. Government statistics, which are generally believed, show the poverty level has decreased from about 46 percent in 2004 to 20 percent in 2008. The Vazquez administration also raised the minimum wage. The unemployment rate dropped to around 8 percent.

Uruguay’s economy is highly dependent on agriculture and the economic cycles of its close trading partners and neighbors, Argentina and Brazil. It was severely affected by the Argentine debt default in 2001 (Uruguay repaid its outstanding debt to the IMF in December 2006). Uruguay's economic ties with Asia, in particular China, have grown substantially. Brazil was Uruguay’s principal export destination in 2013 (taking some 18.9 per cent of Uruguay’s exports), followed by China (14.2 per cent) and Argentina (5.4 per cent). China surpassed Brazil to become Uruguay’s largest import source in 2013, with 16.9 per cent of Uruguay’s imports coming from China, 15.8 per cent coming from Brazil and 14.2 per cent from Argentina.

Uruguay's production is heavily dependent on food production, and this sector accounts for 70% of national exports. Uruguay's total agricultural sector currently produces food for 28 million people, while the country has a population of 3.3 million. Uruguay's food production is expected to continue growing in the future, since the country has particularly fertile soils, global demand is on the increase and the country is to contribute to global food security.

Uruguay has long been known as a regional leader in software development, and by 2010 employed around 6,000 people in the computer industry. President Vazquez successfully built on this IT-friendly foundation by ensuring that Uruguay was the first Latin American country to embrace the Massachusetts Institute of Technology's "One Laptop per Child" computer literacy program, and the first country in the world to complete the program by giving every school-aged child a computer. Known locally as "Plan Ceibal," the distribution of inexpensive laptop computers and their use in schools has been extremely popular. Uruguay will now try to spread that success regionally by sharing its relevant expertise via the Pathways to Prosperity initiative. With support from the World Bank, EU, and IDB, Vazquez further bolstered his country's reputation for scientific advancement by creating the National Agency for Investigation and Innovation (ANII), a national agency for scientific research, with has the goal of spurring Uruguay's scientific innovation.

Uruguay has largely diversified its trade in recent years and reduced its longstanding dependency on Argentina and Brazil. It is a founding member of MERCOSUR, the Southern Cone trading bloc also composed of Argentina, Brazil, and Paraguay. The MERCOSUR Secretariat is located in Montevideo.

Total bilateral trade in 2011 was over $1.5 billion, with a total of nearly $1.3 billion in U.S. exports to Uruguay ($966 million trade surplus.) Key U.S. exports are machinery, electrical machinery, perfumery and cosmetics, toys and sports equipment, and mineral fuel (oil). Sales to the United States are concentrated in beef, prepared meat; dairy, eggs, and honey; and hides and skins. Other major markets for Uruguay are Brazil, Argentina, China, Russia, Spain, and Venezuela. Major non-U.S. suppliers include Brazil, Argentina, China, Canada, Russia, and Venezuela. Uruguayan exports are concentrated in a few products, with meat, rice, soy, leather, dairy products, and wood accounting for over half of total annual export sales. Uruguay’s top imports are oil and capital goods. There are approximately 100 U.S. companies operating in Uruguay.

Uruguay enjoys a positive investment climate, with a strong legal system and open financial markets. It grants equal treatment to national and foreign investors and, aside from very few sectors, there is neither de jure nor de facto discrimination toward investment by source or origin. Investments are allowed without prior authorization, and there is fully free remittance of capital and profits. A decree passed in 2007 provides significant incentives to local and foreign investors. Domestic investment and foreign direct investment (FDI), which have been traditionally low, increased significantly in recent years.

In 2014, the total value of Uruguay’s exports was about $9.2 billion compared with $9.1 billion in 2013. The country’s major export partners in 2014 were, in decreasing order of value, Brazil (which received 18% of Uruguay’s exports), China (17%), and the United States (5%). Gold (unwrought or in semimanufactured forms) accounted for about $69.7 million of these exports and petroleum oils about $34.5 million in 2014. The total value of Uruguay’s imports (excluding petroleum oils and [or] derivatives) was about $9.6 billion in 2014 compared with $9.5 billion in 2013. Uruguay’s major import partners in 2014 were, in decreasing order of value, China (which supplied 22% of Uruguay’s imports), Brazil (17%), Argentina (15%), and the United States (9%). Petroleum gas and other gaseous hydrocarbons accounted for about $57.7 million of these imports; anhydrite, gypsum, and plasters, $3.8 million; and kaolin and other kaolinic clays, $960,600.

Uruguay’s mineral industry was dominated by the production of cement, crude steel, gold, industrial minerals, and petroleum refinery products. Industrial minerals produced in the country included clays, crushed stone, dolomite, granite, and limestone. The country also produced natural gemstones, such as agate and amethyst. In 2014, the country’s GDP increased by about 3.5% compared with a revised 5.1% in 2013. Petroleum refinery products accounted for 1.2% of the total GDP and mining and quarrying accounted for about 0.3%. Uruguay relied completely on imports of crude oil and natural gas, and in 2014, imports of crude oil were about 13.7 million barrels and natural gas was about 54 million cubic meters. Argentina supplied all the country’s natural gas imports through the Gasoducto del Litoral (CR. Federico Slinger) and the Gasoducto Cruz del Sur pipelines. In 2014, renewable energy sources accounted for about 93% of the country’s electric power and fossil fuels accounted for about 7%.

The Government-owned companies — Administracion Nacional de Usinas y Transmisiones Electricas and ANCAP, through its subsidiary Gas Sayago S.A.—planned the development of Proyecto GNL del Plata. The project included an offshore terminal, which would be located about 2.5 km from the shoreline at Punta Sayago, a floating storage and regasification unit, and a jetty, protected by a 1.5-km breakwater. The terminal would have a storage capacity of about 263,000 cubic meters and regasification capacity of about 10 million cubic meters per day of natural gas.

Uruguay is not an oil producing country and has no proven hydrocarbon reserves. ANCAP had the monopoly on production, export, and import of oil and byproducts. The company was also responsible for carrying out all activities, business, and operations of the hydrocarbon industry. In onshore exploration, ANCAP could partner with a contractor for up to 50% in the exploration stage, and in offshore exploration, the degree of partnership with ANCAP could be between 20% and 40%. As of 2014, nine offshore and three onshore exploration and production contracts were in place.