Last reviewed 9 November 2021
A small country, but one renowned for stability and affluence, Spanish-speaking Uruguay represents a unique opportunity for UK exporters keen to explore the Latin American market.
The Uruguay advantage
Sandwiched between its bigger neighbours, Brazil and Argentina, Uruguay has long followed its own path — and with great success too. One of South America’s smaller but more affluent nations, it remains a little-known destination for most UK businesses and travellers. Yet it offers significant potential for those exporters and businesses willing to explore the market.
With a population of just 3.5 million, it is only a modest-sized market, but this is a land once hailed as the “Switzerland of South America” for its strong democratic traditions and relative prosperity. Not that Uruguay’s modern history has been all straightforward. A period of economic and political turmoil in the 1970s resulted in the suspension of the constitution and an era of military rule that lasted until 1985.
For the most part, however, the country has steered its own unique path and, while it may not share the same high profile as its larger neighbours, it is a pioneer in a number of key ways. That includes its advanced education, social security systems and liberal social laws in comparison to the wider region — again, similarities perhaps to the Swiss model.
Uruguay was also the first Latin American country to establish a welfare state, though this supports a fraction of the people compared to its much larger neighbours. These improvements have also been maintained through a comparatively high tax system.
Similarly, Uruguay can also trump its soccer-mad neighbours after it became the first ever country to win the soccer World Cup back in 1930, securing a second triumph in 1950 — beating both its rivals in the process (Argentina in 1930 and Brazil in 1950). While Brazil has since gone on to secure a record-busting five tournament wins, Uruguay still shares the same tally of two wins with Argentina. Though this success may now be a distant memory to present-day soccer fans, there are many other reasons to celebrate Uruguay, notably its liberal, progressive and pro-business economy.
A safe, culturally sophisticated destination, the country was beginning to be recognised by more international tourists, at least until Covid-19 interrupted overseas travel. As well as its year-round mild climate, Uruguay boasts everything from stunning beaches, resorts and a cosmopolitan capital, Montevideo, to history and nature galore — from Spanish colonial towns and the Atlantic coast, to the full gaucho experience, the nomadic horseman and cowhands who flourished in the region in centuries past.
A country in recovery mode
Fast forward to 2022, and Uruguay is recovering from the worst impacts of the pandemic, following a sharp 5.9% contraction in real gross domestic product (GDP) in 2020. The International Monetary Fund (IMF) estimates real growth to rebound to 3.1% for 2021, and further gains to be made in the following years.
As a member of the Mercosur regional trade bloc, Uruguay’s recovery will also be linked with that of its near neighbours. At the same time, the Government is looking further afield, pushing ahead with free trade talks with China, where President Luis Lacalle Pou is looking to boost exports of key products such as beef. China is already Uruguay's main trading partner, buying some 30% of its exports, including 56% of its meat, the country’s main export.
Just as Uruguay is looking to position itself to be a “gateway to Mercosur” for China, the same could hold true for the UK. It is another potential partner with great promise, especially in the wake of Brexit, though bilateral trade remains only modest for now.
Total trade in goods and services between the UK and Uruguay was worth £222 million (US$301 million) in the four quarters to the end of Q2 2021, with the balance of trade skewed in the UK’s favour. The numbers represent an annual increase in overall trade of 6.2% over the previous 12-month period. Still, there is clearly scope for more given that trade reached £451 million (US$611 million) in 2012.
Goods exported from the UK to Uruguay include pharmaceuticals and medicines, beverages (mostly Scotch whisky), iron and steel, chemicals and specialised machinery. In the other direction, the main imports from Uruguay include oil seeds and oleaginous fruits, cereals, animal feed, meat, wood and cork manufactures.
Foreign investment from the UK into Uruguay is also at low levels worth £42 million (US$57 million) in 2019, representing less than 0.1% of the total UK outward FDI (foreign direct investment) stock for that year. Famous brands with a presence in the country include the likes of GlaxoSmithKline and Cadbury’s.
Solid economic fundamentals
The low volume of trade and investment belies the strength of Uruguay’s fundamentals, however. This is a country with investment grade status, and despite the contraction in the wake of Covid, for much of the past couple of decades it has enjoyed strong average growth rates.
According to ratings agency Moody’s Investor Services, Uruguay’s credit profile is supported by the country’s overall economic strength and relatively high income per capita, among other attributes. It expects that the economy will recover gradually through to 2023, with average growth of about 3%, in line with IMF estimates. Crucially, the Government managed to contain spending without exacerbating debt levels during the Covid crisis.
Even during the pandemic, it also made progress in passing legislation and advancing other measures in support of its structural reform agenda that should further bolster fiscal and monetary policy effectiveness and credibility. Moody's highlights additional measures undertaken by the Government to incentivise more private investment and employment to further support a broader recovery.
Here, there are examples of European companies making a play, notably the construction of Uruguay’s third largest pulp mill plant by Finnish company UPM-Kymmene. UK Export Finance (UKEF) has a package of support available for trade with Uruguay worth up to £4 billion (US$5.4 billion), geared to UK exporters and for Uruguayan buyers of UK goods and services. The support, also available in Uruguayan pesos, can be used to support projects across numerous sectors, including infrastructure.
Uruguay XXI, the country’s investment promotion agency, is seeking to nurture opportunities and collaboration in sectors as diverse as video gaming and media, through to more traditional areas like farming and agriculture. Major current global investors include Pepsico, which committed a further US$64 million in 2021 to expand its production capacity in the Colonia free trade zone, which exports to the whole of Latin America and beyond.
Uruguayan officials cite the country’s tax incentives, skilled workforce and the most advanced IT infrastructure in the region, as well as its general political and institutional stability as key reasons to invest. There are currently 11 free trade zones which have attracted investors across all sorts of industries from agrifood, pharmaceuticals and life sciences to IT and the creative industries, among others.
Infrastructure and investment potential
Despite moves into more advanced areas, Uruguay’s economy still boasts a strong, broad agricultural base and remains a major producer of a range of crops, including soybeans. According to the agricultural ministry, meat and sheep farming still occupies 60% of the nation’s land area.
Uruguay is also a pioneer in the energy sector with nearly all of its electricity coming from renewable energy, mostly hydroelectric power and wind farms. Indeed, the British Embassy in Montevideo itself has been something of a pioneer in this field, embracing the UN's Climate Neutral Now initiative to become the first embassy in the world to obtain international carbon neutral certification.
Further investment in the local power sector is ongoing, in part, to assist neighbouring states to better manage their own energy needs. CAF, the Latin American development bank, recently approved a US$300 million loan to help bolster Uruguay’s power grid to help reduce outages and increase electrical export capacity with other countries.
The development bank has been a keen supporter of other infrastructure projects in Uruguay, as well as sustainability-orientated initiatives, logistics, education reforms and supporting SME growth. With Uruguay’s unique position in South America, there is plenty of room for more.
While business links with the UK remain small, there are historical and cultural ties that bind the two countries, from sport — soccer, rugby and even croquet — to music. Famous Uruguayans to make their mark in the UK include soccer stars, Edinson Cavani, now at Manchester United, and Luis Suarez, a former Liverpool FC striker.
In the other direction, British rock star Damon Albarn visited Uruguay in 2021 to focus one of his new songs on the Palacio Salvo, an iconic 1920s structure in Montevideo, and a place that the singer himself called “familiar and utterly otherworldly” in a statement.
Tourism is an obvious area with tremendous potential given Uruguay’s natural attractions, even though it is a distant 15-hour flight time away from London. While a destination in its own right, the country is also a stepping stone for regional travel to Brazil, Argentina and other markets.
Argentine budget carrier Flybondi, which scheduled services to Uruguay from December 2021, is an example of a growing intra-regional travel industry. British exporters and intrepid travellers would be wise to take a look too.