What is the private sector’s role in the path to development? The case of Paraguay

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María Cecilia AcevedoEscrito por:

The productive sector of Latin America and Caribbean countries faces constant challenges. In the case of Paraguay, notable challenges include difficulty accessing financing and the lack of infrastructure to boost development. However, during the last decade this country has gradually positioned itself in international trade thanks to the development of its agri-food industry, among other factors. Thus, in research developed by the Inter-American Development Bank Group, we have detected five areas in which the private sector can support the development of Paraguay:

1. Promoting foreign trade and research

The private sector can continue to expand its inclusion in global food markets where it is already an important player at the international level in oilseeds, meat, and grains, gradually adding greater value. In effect, since 2004, Paraguayan exports have nearly quadrupled in real terms, while research and development (R&D) has increased by more than five times. Looking ahead, there are great opportunities for local universities, together with the productive sector, to increase agro-industrial productivity and find sustainable solutions to address the impact that climate change may have on yields from the main crops. Another important opportunity for the private sector revolves around continued development of new export sectors such as the production of industrial segments, including auto parts, clothing, and plastic.

2. Strengthening sustainable production

To address estimated annual losses of 5.4% of agricultural gross domestic product (GDP) due to production risks, the private sector can adopt climate-smart agricultural practices on a wider basis. The climate-smart agriculture approach focuses on managing risks associated with production, including those associated with unexpected changes in temperature, which could be manageable in the principal agroindustrial chains. These measures provide for the use of more efficient irrigation systems, both in the use of water as energy, crop rotation to prevent pests, and precision agriculture measures — weather forecasting systems, fertilizer dosing, resistant seeds — as well as increased use of parametric insurance in the agroindustrial sector.

3. Being a strategic partner

The private sector can partner with government to prioritize, finance, and execute key investments in infrastructure. The current status of Paraguayan infrastructure restricts the productive potential and diversification of the economy; IDB estimates suggest that Paraguay is one of the countries in Latin America and the Caribbean that would increase its inclusion in value chains if improvements were made in logistical infrastructure. On one hand, Paraguay needs to improve the movement of goods and inter-modal connectivity, by consolidating the navigability of the waterway. On the other, the role of the private sector is vital for integrating new technologies and stimulating the use of clean energies in the country’s energy industry. Similarly, the financial management capacities that are needed to operate infrastructure financed through public-private partnerships (PPPs) are higher than in public works projects, in which the Paraguayan construction industry has ample experience. In addition, emphasis should be placed on the role that private sector participation has in the implementation of greater corporate governance, so that partnerships can be established with international partners that have a greater likelihood of success for all parties.

4. Supporting long-term financing and financing for segments with widespread demand for credit

On the one hand, there are significant opportunities for reducing barriers to productive financing that particularly affect micro, small, and medium enterprises (MSMEs), younger undertakings, new technology-intensive companies, and companies in the agricultural sector. On the other, the private financial system can also play a vital role in developing long-term financing mechanisms and deepening the capital market. Projects with long reimbursement periods, including those involving transportation infrastructure, small hydroelectric plants, and expansion of the mortgage portfolio are examples of segments with longer-term financing requirements.

5. Stimulating the use of technologies

Today the use of information and communication technologies (ICTs) is key to the development of all productive sectors. ICTs allow exponential growth in processes like financial inclusion, in that they allow us to modernize, be more efficient, and have a greater impact on development, given that their reach can provide enormous benefits to populations in rural zones. This is particularly relevant in countries like Paraguay, where productive activity in rural areas has increased substantially and ICTs would allow such activity to be more competitive.

The Paraguayan private sector has been a strategic partner of IDB Invest for the last ten years. During this period, IDB Invest has established loan operations and guarantees valued at more than $500 million to support the country’s development. One notable initiative is our partnership with Paraguay’s Social Security Institute (IPS) to increase access to long-term financing and financing in guaranies.

As a solutions bank, we want to continue deepening our partnership with the private sector in order to continue improving lives in Paraguay.

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Last modified: Junio 25, 2018

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