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  • 1. April 2011Automotive and Auto Parts Industry Investment opportunities in Uruguay
  • 2. 1. Why invest in the Uruguayan automotive industry?Great experience in assembling vehicles and manufacturing auto partsUruguay has had –for years now− vehicle assembly plants and auto parts manufacturers,both national and foreign. There are more than 40 companies today, several of which areinternationally certified in terms of quality. Exports in the automotive industry have grownmore than twice from 2005 to 2010.Uruguay, a reliable country with a preferential access to the regional marketIn Uruguay, foreign investors receive the same treatment as local investors. They are free totransfer funds and to repatriate profits.Uruguay is part of Mercosur, an enlarged market with more than 240million inhabitants (and sales for more than 4.2 million vehicles in2010), and almost 400 million inhabitants including other SouthAmerican countries with which Mercosur has economiccomplementarity agreements, such as Bolivia, Chile, Colombia,Ecuador, Peru and Venezuela.In this regional environment, Uruguay has unlimited access to theArgentinean and Brazilian markets for products in the automotiveindustry, except for motorbikes and agricultural and road machinery.The country has several origin regimes to export to Argentina and Brazil free of tariffs.Pursuant to one of them, only 30% of minimum regional content is required for new modelsduring the first year. Under this regime, which has quantitative limitations, there is still animportant margin for companies which intend to export both to Argentina and Brazil.Uruguay also has special agreements within the Mercosur. The last one, signed in 2008,states that for Brazilian automotive products to enter our country free of tariffs, Brazil mustimport auto parts and vehicles from Uruguay.Also an agreement with Mexico was signed in 2004, which allows Uruguayan automotiveproducts to enter this country free of tariffs.Uruguay has very attractive investment and exports promotion regimesIn 2007, an investment promotion regime was approved, which allows companies –undercertain conditions– to compute up to 100% of the invested amount as a credit for futureCorporate Income Tax payments.There is also a beneficial regime for all exports, including: VAT refund when purchasing materials A Temporary Admission regime for imports of materials which are incorporated in the exported goods, whereby they do not pay taxes (tariffs and others) An export pre-financing system2
  • 3. Exporters of automotive products receive a 10% rebate of the exports FOB value through credit certificates issued by the governmentImportant tariff discount for imports of kits used in local assembly of vehiclesfor the domestic marketAnother benefit, for assembly companies only, is to be able to import supplies with a 2%tariff as long as full assembly in the country is completed (CKD or Complete Knock Down).Uruguay is attracting important foreign investments in this industryAffinia, ArcelorMittal, Bader, Dana, Faurecia, Fischer, GKN, Takata and Yazaki are somemultinational companies supplying the regional and global market from industrial plantslocated in Uruguay.These foreign investments are made within a context in which the flow of foreign directinvestment to Uruguay has increased more than four times from 2001 to the present,representing 4% of the GDP in 2009 and 2010. Image source: www.autopartes.org.uy3
  • 4. 2. Interesting information for the industry: global sales, productionand exports in the region and in the countryThe Uruguayan automotive industry has experienced a unique growth during the last years,especially during 2010, when foreign investments have increased both in vehicle assemblingand in auto parts manufacturing. The industry projections are of growth in the next yearsdue to the expansion of recent investments and the establishment of new ones.Graphs 2.1 and 2.2 show that both physical production –measured through the PhysicalVolume Index– and employment in the industry have grown. At the end of 2010,approximately 2,000 people were employed, that is, approximately 2% of total employmentin the manufacturing industry.Graph 2.1 Evolution of the Physical Volume Graph 2.2 Evolution of the Employed StaffIndex, 2006=1001 Index, 2006=100 200 140 180 130 120 160 110 140 100 120 90 100 80 80 70 2006 2007 2008 2009 2010 2010/3 2010/4 2006 2007 2008 2009 2010 2010/3 2010/4 Industry Automotive Industry Industry Automotive IndustrySource: INE, Annual Industrial Survey. Branch 3400. Source: INE, Annual Industrial Survey. Branch 3400.2.1 Global production and exports of vehiclesGlobal production of vehicles2 went from 58 million in 2000 to 62 million in 2009. Recently, afast production delocalization process from developed countries to emerging economies hasbeen verified. China’s new position is especially remarkable; it produced 2 million vehicles in2000 and almost 14 million in 2009, being in the first global position that year, ahead ofJapan (7.9 million), United States (5.7 million) and Germany (5.2 million). See Graph 2.3.1 INE information of Branch 3400 does not include leather upholstery for vehicles (registered in Branch 1912) or electricalcables (registered in Branch 3100) or steel tubes (registered in Branch 2811).22Source: International Organization of Motor Vehicle Manufacturers (OICA), www.oica.net. It includes automobiles, light Source: International Organization of Motor Vehicle Manufacturers (OICA), www.oica.net. It includes automobiles, lightcommercial cars, heavy vehicles (trucks) and buses.4
  • 5. Germany is still the leader in vehicle exports3, followed by Japan and further behind by USA,Spain and Belgium. China is placed in an even lower position. See Graph 2.4.Graph 2.3 Main vehicle manufacturing Graph 2.4 Main vehicle exporting countries,countries, millions of units US$ billion, 2009 140 16 121 120 14 12 100 80 73 10 8 60 6 45 31 40 4 28 6 20 2 0 0 2000 2005 2009 China USA Japan GermanySource: International Organization of Motor Vehicle Source: Uruguay XXI based on Customs information. ItManufacturers (OICA), www.oica.net. It includes includes the harmonized customs codes 8701 to 8707automobiles, light commercial cars, heavy vehicles (trucks) (passenger and load vehicles).and buses.2.2 Production of vehicles in Mercosur and in UruguayThe annual production of vehicles in Mercosur was 4.5 million units in 2010, includingautomobiles, light commercial cars, trucks and buses. In 2006, the production accounted for3 million and it has not stopped growing since then, in spite of the recent world crisis. SeeChart 2.1 and Graph 2.5.3 Source: Uruguay XXI based on Customs information. It includes the harmonized customs codes 8701 to 8707 (passengerand load vehicles).5
  • 6. Chart 2.1 and Graph 2.5 Production of vehicles in Mercosur, 2006 to 2010, thousands ofunits Year Brazil Argentina Uruguay Total 5000 4,365 2006 2,612 432 0.9 3,045 4000 3,526 3,814 3,699 2007 2,980 545 0.7 3,526 3,045 3000 2008 3,216 597 1.1 3,814 2000 2009 3,183 513 2.5 3,699 2010 3,644 717 4.0 4,365 1000 0Sources: for Brazil: Anfavea; for Argentina: Adefa; forParaguay: CIP; for Uruguay: Ascoma. It includes 2006 2007 2008 2009 2010automobiles, light utility cars, trucks and buses. Paraguay,2010, estimation with data to September. Brazil Argentina MercosurIn Uruguay, the production of vehicles has taken up again a growing path in 2008 and 2009after several years of stagnation. Vehicles are assembled in two previously existing plantsand in a newly built plant, using kits imported from the headquarters and integrating autoparts of the national and regional industry. Nordex plant in Colon, Montevideo, produces short series of trucks for the domestic market and for export for Renault (under an agreement with Renault Trucks of the Swedish group Volvo) and Aelous (under an agreement with the Chinese company Dongfeng Motor) and pick-up trucks to be exported to Brazil, Bongo model (under an agreement with Kia Motors from Korea). Chery Automobile Co. Ltd. from China and Socma S.A. from Argentina produce Chery vehicles in the old Oferol plant. Since 2009, Chery Tiggo vehicles, and more recently Chery Face vehicles, have been manufactured to be exported to Brazil and Argentina. Effa Motors. A new plant has been built on Route 1, Km 38, in the Department of San José, with national capital, which opened in April 2010. Vehicles are assembled there, with Chinese kits for the domestic market (15%) and to be exported to Brazil 85%. They commercialize their own brand (Effa) and another Chinese brand (Lifan). The initial investment in fixed assets was US$ 6.5 million.2.3 Sales of vehicles in Mercosur and in UruguayFigures of vehicle sales in Mercosur are outstanding since they have almost doubled in fouryears, going from 2.4 million units in 2006 to 4.2 million in 2010, with a stable growth evenduring the recent world crisis (2008 and 2009). See Chart 2.2 and Graph 2.6.6
  • 7. Chart 2.2 and Graph 2.6 Sales of brand new vehicles in Mercosur, 2006 to 2010, thousandsof unitsYear Brazil Argentina Paraguay Uruguay Total 5000 4,2172006 1,920 461 9.4 16.3 2,407 3,465 3,717 4000 3,0292007 2,444 565 12.9 20.8 3,043 2,371 30002008 2,824 612 22.3 28.8 3,487 20002009 3,154 487 13.5 28.4 3,683 10002010 3,453 698 20.6 45.7 4,217 0 2006 2007 2008 2009 2010Sources: for Brazil: Anfavea; for Argentina: Adefa; for Brazil Argentina MercosurParaguay: CIP and for Uruguay: Ascoma. It includesautomobiles, light utility cars, trucks and buses. Paraguay,year 2010, estimation with data to September.Sales of vehicles per brand in Mercosur are within the same range that in 2008, led byVolkswagen, Fiat and General Motora (62% of the total). See Graph 2.7.Something similar happens in Uruguay, with the same three brands leading sales –GeneralMotors, Volkswagen and Fiat– even though in a different order and with less presence (49%of the total). Also, the Chery vehicle stands out (recently started being assembled in thecountry) with 5% of the market. See Graph 2.8.Graph 2.7 Vehicle sales per brand in Graph 2.8 Vehicle sales per brand inMercosur, 2010 Uruguay, 2010 Others Others GM Renault 15% Hyundai 23% VW 27% 6% 3% 22% Ford Peugeot 4% 6% Toyota 4% VW Fiat Renault 12% Ford 21% 4% 11% Peugeot Fiat GM 4% Chery Nissan 9% 19% 5% 5%Sources: for Brazil: Anfavea; for Argentina: Adefa; for Source: ASCOMA.Paraguay: CIP and for Uruguay: Ascoma.7
  • 8. 2.4 Auto parts exports in UruguayUruguayan auto parts exports have Graph 2.9 Vehicles and auto parts exports,been increasing from 2005 to 2010, 2005 to 2010, US$ milliongoing from US$ 140 million to US$228 million during this period.Vehicle exports grew in 2010 due to 350 282 331the Chinese cars that are now being 300 246 250 215assembled in the country. 190 228 200 155 209 218Altogether, the automotive and 150 170 140 150auto parts exports totaled US$ 331 100 103 50 64million in 2010, and a greater 0 40 37 45 15growth is expected in the years to 2005 2006 2007 2008 2009 2010come. See Graph 2.7. Vehicles Auto parts Total Source: Uruguay XXI based on data from the National Customs Office.Auto parts exports are Graph 2.10 Auto parts exports per type of product, inmainly concentrated on percentages, 2010five products: 1) driveshafts and axle shafts, 2) Brake parts, Others, 4%leather upholstery, 3) steel 4% Axles and Electricaltubes for bodywork, 4) cables, axle shafts,electrical cables (harnesses) 35% 10%and 5) brake bands, discsand pads. See Graph 2.10. Steel tubes, 18% Leather upholstery, 29% Source: Uruguay XXI based on data from the National Customs Office.8
  • 9. 3. Promotional legal regulations and regional and international tradeagreements favorable to produce and export from UruguayUruguay has Trade Agreements and Investment Protection Agreements with severalcountries and a set of legal regulations promoting investments and exports. All this generallyfavors most of the economic sectors. See Annex.The automotive industry has been subject to a long history of industrial policies in view of itsimportance for the economy, taking into account the large number of parts that form avehicle. Therefore, several companies which provide auto parts may develop around anassembling plant. Regional integration (Mercosur) in the productive environment gains agreat significance in this sector.These industrial policies are applied to the foreign trade environment and to an appropriatecombination with the general promotion regulations (such as Temporary Admission andothers, see Annex), representing a powerful incentive for the establishment of assemblingplants and auto parts companies in Uruguay.Trade agreements in Mercosur for the automotive industry4The extra-zone tariffs for Mercosur are currently 20% for automobiles and light vehicles,trucks and buses, 14% or 18% for auto parts and 14% for agricultural and road machinery ingeneral5.In the Mercosur framework, Uruguay has entered into bilateral economic complementarityagreements with Argentina and Brazil, from which arises the following (see Chart 1):1) Uruguay may export car products to Argentina and Brazil at no cost and under noquantitative restrictions provided it complies with a minimum Regional Content Index 6 of60%7.2) Regarding new models of vehicles or set or sub-sets of auto parts, approved in theProgressive Integration Program (PIP) for each exporter, the same are also exempted fromfees and under no quantitative restrictions and a lower regional content is allowed: 40% at the beginning of the first year 50% at the beginning of the second year, and 60% at the beginning of the third year84 Source: ALADI (www.aladi.org/nsfaladi/textacdos.nsf/vaceweb) AAP.CE No. 2 Protocol 68 (with Brazil) and AAP.CE No. 57and Additional Protocol (with Argentina).5 March 2011.6 ICR = [1 – (auto parts imports from outside the MERCOSUR-CIF/product sale price “exfactory”)] * 100. The minimumUruguayan content will be 20%.7 ACE No. 2, Articles 5 a) and 10.8 ACE No. 2, Articles 5 a) and 14.9
  • 10. 3) Uruguay may export to Argentina and Brazil at no cost with a preferential origin regime:a) Car products (vehicles, sets and sub-sets of auto parts), with a minimum Regional ContentIndex of 50%9.b) For new models of vehicles or sets or sub-sets of auto parts, included in the ProgressiveIntegration Program approved for each exporter, the minimum Regional Content Index is: 30% for the first year of the project 35% for the second year 40% for the third year 45% for the fourth year, and 50% from the fifth year onwards10.In both cases there are quantitative restrictions (quotas): vehicles and commercial light cars: up to 20,000 annual units to each country; trucks and tractor trucks: up to 800 units to Argentina and up to 2,500 to Brazil; armored cars: up to 500 and 1,200 units respectively; auto parts sub-sets: up to US$ 60 million to Argentina and up to US$ 100 million to Brazil.4) For armored vehicles manufactured in Uruguay, the tariff preference of 100% (that is, notariff) is maintained, but there are certain quantitative restrictions. Moreover, the minimumRegional Content Index may be 50%11.Chart 3.1 Uruguay, origin regime of car products for exports to Argentina and Brazil Existing models New models Armored vehicles 1st year: 40%With no quantitative 60% 2nd year: 50% 60%restrictions 3rd year: 60% 1st year: 30% 2nd year: 35%With quantitative 50% 3rd year: 40% 50%restrictions 4th year: 45% >= 5th year: 50%5) In 2008, Uruguay and Brazil agreed to reduce Uruguay’s automotive and auto partscommercial deficit with respect to Brazil through new trade parameters, which are variablein proportion to the Uruguayan exports to Brazil, verified during the previous year (applies9 ACE No. 2, Articles 5 b) and 11.10 ACE No. 2, Articles 5 b) and 15.11 ACE No. 2, Articles 5 c) and 11.10
  • 11. to light passenger vehicles, auto parts sets and sub-sets and utility cars). These newnegotiated mechanisms are expected to enable a productive integration in the industry at abilateral level with Brazil or at a regional level.Trade agreement Mercosur-MexicoIn 2002, a specific agreement was signed with Mexico for the automotive industry, whichallows exporting auto parts and vehicles to this country with no tariffs, under origin regimesthat are quite favorable for Uruguay, especially when it comes to new products (50% ingeneral and 30% for the first year of a new product, Annex II of ACE No. 55)12.Benefit for vehicle assembling companies13Automotive terminals may import vehicle kits with a preferential fee of 2% provided thatthey comply with a complete assembling process in the country (from CKD, a collection ofpieces that are completely disassembled) and they destine their production to the domesticmarket.Export refundThere is a 10% refund over the value of vehicle and auto parts exports, through creditcertificates issued by the Government, which may be used for paying customs taxes as wellas taxes collected by the DGI (Tax Administration Office) or the BPS (Social Security System).These credit certificates may also be assigned to third parties. The refund cannot be appliedtogether with the “Refund of other taxes”, applicable to goods exports14.Prefinancing of exportsA preferential regime has been established for the automotive sector, currently in force untilJune 30, 201115.Excise Tax discount to sales of brand-new electrical vehicles, hybrid vehicles and gasolinevehicles of lower displacement engine in the internal marketDecree 411/010 of December 30, 2010 established the following Excise Tax (IMESI) rates forsales of brand new vehicles in the internal market: Electrical vehicles 5%, hybrid vehicles 3% Gasoline vehicles, 20% for those up to 1,000 cc, 25% for those with more than 1,000 and up to 1,500 cc, 30% for those with more than 1,500 cc and up to 2,000 cc, 35% for those with more than 2,000 cc and up to 3,000 cc, and 40% for those with more than 3,000 cc.12 ACE No. 55 of September 27, 2002, Additional Protocol of July 12, 2004 and a Free Trade Agreement between Mexicoand Uruguay of November 15, 2003.13 Decree 340/996 of August 28, 1996.14 See Annex, Government incentives to exports.15 BCU’s communication 2009/063 of April 24, 2009.11
  • 12. 4. Recent investments in the industryForeign Direct Investment has considerably increased in Uruguay in the last years. See Graph4.1. If classified by destination sector, approximately half of the investments are made incompanies and banks and the other half are made in the real estate sector and in lands16. Inthe 2000’s, the countries that have invested the most were Spain, Argentina, USA, Brazil andEngland17. Graph 4.1 Foreign Direct Investment in Uruguay, US$ million 2.000 1,809 1.800 1,627 1,494 1.600 1,330 1,258 1.400 1.200 847 1.000 800 1,104 600 332 779 798 400 616 200 0 194 2004 2005 2006 2007 2008 2009 2010 Total FDI FDI in companies and banks Source: Central Bank of UruguayBefore the integration of Mercosur, several international first-class companies such asGeneral Motors, Ford, Fiat, etc. had vehicle assembling plants in Uruguay. Currently, Asiancompanies have begun to produce vehicles in the country, thus gaining internationalizationexperience. Around these companies and by seizing the exports opportunities Uruguay hasto offer, a foreign flow of investment is generated to the auto parts sub-sector, which hadbeen exporting products such as leather car seats for world-class vehicles, using excellentnational raw materials and drive shafts and axle shafts, destined to global and regional autoparts terminals.4.1 Assembling plantsAsian vehicles manufacturers are carrying out dynamic investment processes. Some of themuse old national plants, entering into agreements with their owners or acquiring them, whileothers build new assembling plants.16 In 2008, FDI percentages were: 37% in companies, 6% in banks, 32% in the real estate sector and 23% in lands.17 In 2008, FDI percentages per country were: Argentina 30%, Spain 13%, Brazil 10%, USA 8%, England 5% and others 34%.12
  • 13. Chery-SocmaChery company, which produced more than800,000 automobiles in China during 2010,together with Socma S.A. from Argentina,which began producing Chery vehicles in theOferol plant in 2009, nowadays directlymanages the assembling plan, exporting theTiggo and Face models to Brazil (52%) andArgentina (47%), data from the year 2010. Itexpects to increase the production to 20,000units a year and later on to 40,00018. Image source: www.ultimasnoticias.com.uyChongqing-Effa MotorsThe Chinese company Chongqing Lifan,which manufactured more than 100,000vehicles in 2009, has entered into a licenseand representation agreement forMercosur with the plant Effa Motors19 forthe production and sale of Lifan 320 and620 models, as from the year 2010. Theinvestment at the opening (April 2010)was of US$ 6.5 million, but it would reachUS$ 15 million, allowing the production of30,000 cars per year, employing 450workers. Image source: www.effamotors.comThe destination of the production will be 15% for the internal market and 85% for export,mainly to Brazil (90% of the exported products in 2010).Kia Motors-NordexThe Korean company Kia Motors enteredinto an agreement with the assemblingplant Nordex, located in Colón,Department of Montevideo, to producelight trucks Kia Bongo 2500 as from 2010.95% of the production will be exported toBrazil and 5% will be used in the internalUruguayan market. The capacity of theplant is of 12,000 vehicles a year and it Image source: www.genteynegocios.elpais.com.uy18 Information provided by Chery-Socma’s management, February 25, 2011.19 2 Effa Motors’ plant is located on Route 1, in the Department of San José with 33,000 m of premises.13
  • 14. demanded an initial investment of US$ 25 million. The first export was carried out inDecember 2010.Dongfeng Motor-NordexDongfeng Motor (DFM), a Chinese manufacturerof over 600,000 vehicles in 2009, began producingmedium-sized Aeolus trucks in 2005 for theinternal market in the Nordex plant and in 2010 itbegan exporting to Argentina. Image source: www.autoanuario.comRenault Trucks-NordexRenault Trucks from Volvo uses the Nordex plant(Santa Rosa Automotores) to produce heavy truckssuch as Premium 440 DXi for the domestic marketand to be exported to the region. Image source: www.autoanuario.com4.2 Auto partsIn the auto parts sector, there are national companies mainly supplying the domesticreplacement market and foreign companies which are focused on export.Some of these have been operating for many years in the country (Bader, Dana, GKN);others have recently made investments both in new industrial plants (Faurecia, Fischer,Takata, Yazaki) and in the acquisition of existing plants (ArcelorMittal, Affinia, Marfrig).BaderBader (Germany) is an industry whichsupplies fine leather upholstery for vehicles.Currently, Bader employs 4,200 workers inseven plants around the world, two of whichare established in America (Mexico andUruguay). Bader’s factory in Uruguay islocated at the Department of San José. Itbegan processing leather for vehicleupholstery in 1999, achieving its expansion Image source: www.bader-leather.dein 2001, 2002 and 2007. As of 2010, its14
  • 15. main exports were bound for Germany (37%), South Africa (29%) and Mexico (28%).Dana-TalesolDana Holding Corporation, a U.S.-based company engaged in the design, engineering andproduction of spare parts and systems with added value for vehicle makers, employs 35,000workers and has operations in 26 countries. Image source: www.dana.comTalesol Ejes Plant located at Montevideo, Uruguay, manufactures full Spicer light drive shaftsfor pickups and 4x4, exporting original equipment for automotive industries in SouthAmerica, USA and Mexico. It began operations in 1996 and has supplied light drive shafts forMercedes Benz, General Motors, Chrysler and it has been manufacturing rear drive shaftsfor Ford Ranger from 2001. It holds quality and environment protection certificates, ISO, QS9000 and Ford Q1. It exports to Argentina (2010).GKN DrivelineGKN has factories in more than 30 countries with more than 38,000 employees. Its mainfactory is located in the United Kingdom and mainly operates in the automotive andaeronautic sectors.In Uruguay, GKN was established in 1981 and has an industrial plant that produces axleshafts for automotive terminals. In 2010, its main exports were bound for Argentina (56%)and Brazil (38%) and, to a lesser extent, to USA (5%). Image source: www.gkndriveline.com15
  • 16. Affinia-Fanacif UruguayAffinia Group Inc. is a USA-based company with a material supply of spare parts for cars andheavy vehicles. It performs manufacturing and distribution operations in 11 countries andsales in more than 70 countries.In Uruguay, Affinia owns Fanacif plant, located in Montevideo. It employs 165 workers andits main activity is the manufacture of brake pads, brake bands, brake discs and brake bells,selling in the domestic market and exporting to Argentina (48%), Brazil (28%), USA (12%) andother countries (2010). Image source: www.affiniagroup.comArcelorMittal MontevideoArcelorMittal is a company that offers a vast range of steel products. It has industrialpresence in more than 20 countries and is listed at the New York, Amsterdam and Paris stockexchanges as well as at other European countries stock exchanges. One of its areas suppliesautomotive terminals.In Uruguay, Arcelor Mittal Montevideo acquired the existing company, Cinter S.A. Itproduces stainless steel, aluminum-coated and carbon cold and hot-rolled steel pipes, withexports to Brazil (70%), Argentina (26%) and other American countries (2010).FischerFischer Group of Germany established in Uruguay its fourth branch in America in 2009, afterCanada, USA and Mexico. The company employs 1,500 workers in 8 countries. Its mainactivity is the manufacturing of steel pipes for exhausting systems in the automotiveindustry. From Uruguay it will supply, through its factory located in Montevideo, Peugeot,Volkswagen, Chevrolet, Fiat, Renault, Honda and Citroën plants within the Mercosur area. Image source: www.fischer-group.com16
  • 17. Marfrig-ZendaMarfrig Group is a Brazilian food company specialized in the meat sector, with presence in22 countries and it employs 90,000 workers. In Uruguay, after acquiring several cold-storageplants, it acquired Zenda in 2009, a Uruguayan leather-processing company for car, airplaneand furniture upholstering.Zenda also has industrial plants in Germany, Argentina, Mexico, South Africa and commercialoffices in Chile, China and USA. Zenda’s upholstery is used as original equipment in luxuryvehicles such as Audi, BMW, Peugeot, Toyota and others. In 2010, it exported to Germany(69%), Argentina (18%), Mexico (10%) and other countries.Ruedas del UruguayThe company Ruedas del Uruguay (with Argentinean capital) is currently fitting out a spaceat the Industrial Park of Juan Lacaze (Colonia) where it is installing its factory oriented to theproduction of truck rims bound for export. Operations are expected to begin in 2011.TakataTakata is a Japanese company that owns 46 plans in 17 countries and employs 31,000workers. Its main activity is the production of airbags, safety belts and child retentionsystems. In 2010, it purchased a plot of land in Road 1, San José, Uruguay, to build a factoryexpected to employ 500 workers in three years and to export its airbag production to Brazil.The investment will amount to US$ 10 million and the opening is expected for November,2011. The purchase was motivated by labor force conditions, availability of water, energyand easy access, among other aspects, as well as by the tax relieves offered.Trailers del UruguayIn this case, the company installed at an Industrial Park (Juan Lacaze) will producetransportation trailers. It is made up of Argentinean capital and production is bound forexport. Production is expected to begin in 2011.YazakiThe Japanese company Yazaki owns 87 industrial plants around the world. Its main activity isthe production of auto parts (harnesses of electrical cables), cables in general and otheritems. In Uruguay, Yazaki was installed in Colonia in 2006 upon the assignment of a statearea near the Port, employing approximately 400 workers.In 2010, Yazaki opened its second factory in Uruguay at “Parque Tecnológico Canario”(Technology Park) in Canelones, with support from the Municipality, the Ministry ofTransport and Public Works (MTOP), the Ministry of Industry, Energy and Mining (MIEM)and the National Corporation for Development (CND). It also produces electrical cablesharnesses and electronic items for the automotive industry. Its production was exported in2010 to Argentina (93%) and Brazil (7%). Nearly 1,000 workers are employed by thisindustrial plant.17
  • 18. Lucca DesignThe company Lucca Design belongs to theUruguayan group Ayax, created 65 years ago.Its main activity is the manufacturing ofleather upholstery for vehicles. It beganoperations in 2004 and in 2005 it startedexporting to Argentina as supplier of ToyotaSUV Fortuner. In 2008 it started supplyinganother Toyota model in Argentina: Hiluxvans. In 2011, Lucca Design incorporatedleather upholstery for SUV Fortuner with SideAir-bag, using leading-edge technology, sinceit must open its seam in case of accident to Image source: Lucca Designenable the airbag inflation.2020 Source: El País newspaper, El Empresario supplement, published on November 19, 2010. Picture provided by thecompany.18
  • 19. 5. Main sector-related institutions and eventsInstitutionsMinistry of Industry, Energy and Mining (MIEM)Tel.: +598 2902 0231www.miem.gub.uyNational Industry Administration (DNI)Tel.: +598 2916 2411www.dni.gub.uyUruguayan Chamber of Industry (CIU)Tel.: +598 2604 0464www.ciu.com.uyChamber of Auto Parts (within CIU)Tel.: +598 2604 0464 ext. 210www.autopartes.org.uycompaut@ciu.com.uyChamber of Uruguayan Automotive Industries (CIAU) (within CIU)Tel.: +598 2903 0008Association of Car Brand Concessionaires (ASCOMA)Tel.: +598 2408 1545www.ascoma.com.uyEventsEvents in the country in which the automotive sector takes partExpoactiva Nacional, agro-industrial annual fair (March 2011), organized by the RuralAssociation of Soriano. www.expoactiva.com.uy19
  • 20. ANNEXESNational and foreign investment promotion regulationsForeign investors enjoy the same benefits as national investorsand do not require prior authorization to get installed in thecountry.Law 16,906 of January 7, 1998 declares the promotion andprotection of national and foreign investments of nationalinterest. Decree 455/007 updated the regulations of this law. Byvirtue of this decree and for any investment projects submittedand promoted by the Executive Branch, 51% and 100% of the invested amount may becomputed as part of the Corporate Income Tax (IRAE), depending on the type of project.IRAE regular rate is 25%.Personal property included in fixed assets and civil works are exempt from Wealth Tax. VATincluded in the purchase of materials and services for civil works can be recovered.Moreover, the import of personal property included in fixed assets which is not competitivein the national industry is exempt from import taxes or duties, as declared by said law.Trade agreementsUruguay has been part of the World Trade Organization (WTO) since its creation in 1995 andis part of the Latin American Integration Association (ALADI, 1980) along with ten SouthAmerican countries, Cuba and Mexico.In the framework of ALADI, it has been part of the SouthernCommon Market –MERCOSUR– with Argentina, Brazil and Paraguay.MERCOSUR became a customs union in 1995 with the freemovement of goods, removal of tariffs and non-customs restrictionsbetween the parties and a Common External Tariff to othercountries. Venezuela is currently in the process of enteringMercosur.Moreover, in the framework of ALADI, Mercosur has executed free-trade agreements with other South American countries: Chile (1996),Bolivia (1996), Colombia, Ecuador and Venezuela (2004) and Peru(2005) and, separately, an agreement with Israel (2007), all of whichare oriented to create Free Trade Zones with duty-relief schemeswhich will be completed no later than 2014/2018, depending on the country.Uruguay has also executed with Mexico a bilateral free-trade agreement (2003) whichenables the free movement of goods and services between both countries (no tariff), withcertain exceptions, to be completed in 2014.20
  • 21. Investment protection agreementsUruguay has executed investment performance, protection and promotion agreements with26 countries, including but not limited to Spain, United States of America, Finland, Franceand United Kingdom.Government’s incentives to exports1. VAT refund when purchasing materials21VAT paid in purchases is generally recovered by discounting VAT invoiced in sales, paying theState just the difference thereof. Since in exports said tax is not invoiced, the reimbursementof VAT included in the purchase of materials is authorized directly upon the company’srequest. The Tax Administration Office (DGI) issues credit certificates which may be used inthe payment of other taxes.2. Refund of other taxes22The State reimburses other internal taxes which make up the cost of an exported productthrough an alleged percentage of the FOB value determined by the Executive Branch(currently 4%).3. Temporary Admission23The import of materials and spare parts, packages and matrixes which will be included intothe production of exported goods is exempt from customs duties and Value Added Tax. Theonly requirement is to make the export within a term of 18 months.4. Financing of exports24The Central Bank of Uruguay (BCU) has a pre-financing of exports system. In case exportsreceive pre or post bank financing, 30% (or 10% in some cases) thereof may be depositedwith BCU, which will accrue interests on the overall financing instead of accruing interests onthe amount thus deposited.5. Free Trade Zones25Uruguay has ten Duty-Free Zones or areas which operate underspecial customs regime which perform manufacturing activitiesand provide services to other countries where no customs dutiesare applied to incoming/outgoing goods and services. There is21 Refer to Consolidated Text (Texto Ordenado) 1996, Title 10 (VAT), Article 9.22 Decree 230/007 of June 29, 2007 with new taxes according to Decree 389/2009 of August 20, 2009, as amended.23 Law 18,184 of October 27, 2007 as regulated by Decree 505/2009 of November 3, 2009.24 See http://www.bcu.gub.uy/Politica-Economica-y-Mercados/Paginas/Lista-de-Informes.aspx?SID=34&SSID=21 Libro III,Financiamiento de exportaciones25 Law No. 15,921 of December 17, 1987. Law No. 15,921 (Article 2), Decree No. 71/001 (Article 3) and Decree No. 84/006(Article 1).21
  • 22. large exemption from national taxes such as Corporate Income Tax (IRAE) and others –withthe sole exception of social security contributions for national personnel.The sole requirement which must be met is contracting at least 75% of Uruguayan citizenswithin the overall payroll, although this percentage may be reduced prior authorization ofthe Executive Branch.6. Free port, free airport and port warehouses26 Montevideo and other national ports, as well as the International Airport, operate under a free movement of goods policy. Therefore, goods are exempt from duties and surcharges applicable to imports for handling, fractioning and repackaging activities, among others (not involving manufacturing activities).26 Ports Law No. 16,246 of April 8, 1992 and regulatory Decree No. 412/992 and Law No. 17,555 of September 18, 2002 onAirports.22
  • 23. Uruguay in short (2010)27 Official name Oriental Republic of Uruguay Geographical location South America, bordered by Argentina and Brazil Capital city Montevideo 2 176,215 km . 95% of its territory is productive land fit for farming Area exploitation Population (2010) 3.3 million Population growth (2010) 0,35% (annual) GDP per capita (2010) US$ 11,996 Currency Uruguayan peso ($) Literacy index 98% Life expectancy 77 years Form of state governance Democratic republic with presidential system Political division 19 departments Time zone GMT - 03:00 Official language SpanishMain economic indicators 2005-2010Indicators 2005 2006 2007 2008 2009 2010GDP (growth % per year) 7.5% 4.3% 7.5% 8.6% 2.6% 8.5%GDP (US$ million) 17,398 19,844 23,928 31,177 31,320 40,265Population (million) 3.31 3.31 3.32 3.33 3.34 3.36GDP per capita (US$) 5,263 5,987 7,199 9,351 9,363 11,996Unemployment rate (annual average, % EAP) 12.20% 11.41% 9.64% 7.89% 7.66% 7.13%Exchange Rate (UYU/US$, annual average) 24.4 24.0 23.4 20.9 22.6 20.06Exchange Rate (annual average variation) -1.66% -2.51% -10.6% 7.74% -11.1%Consumer Prices (% annual variation) 4.90% 6.38% 8.50% 9.19% 5.90% 6.93%Exports (US$ million), goods and services 5,085 5,787 6,933 9,372 8,510 10,555Imports (US$ million), goods and services 4,693 5,877 6,775 10,265 7,794 9,743Commercial Surplus/Deficit (US$ million) 393 -90 158 -892 716 811Commercial Surplus/Deficit (% of GDP) 2.3% -0.5% 0.7% -2.9% 2.3% 2.0%Global Tax Result (% of GDP) -0.4% -0.5% 0.0% -1.5% -1.7% -1.1%Capital gross formation (% of GDP) 16.5% 18.6% 19.0% 20.4% 18.8% 18.8%Gross Debt (% of GDP) 80.2% 69.1% 68.2% 53.0% 69.9% 56.6%Direct Foreign Investment (US$ million) 847.4 1,494 1,330 1,809 1,258 1,627Direct Foreign Investment (% of GDP) 4.9% 7.5% 5.5% 5.8% 4.0% 4.0%27 Source: Data regarding GDP were taken from the IMF; data regarding foreign trade, foreign direct investment (FDI),exchange rates, International Reserves and External Debt were provided by BCU; population growth, literacy,unemployment and inflation indexes were provided by the National Statistics Institute.23
  • 24. Investor ServicesAbout usUruguay XXI is the Uruguayan investment and export promotion agency. Uruguay XXIprovides free support to foreign investors, both to those who are in the process of assessingwhere to make their investments and those who have been operating in Uruguay for a longtime.Our Investor ServicesUruguay XXI is the first point of contact for foreign investors. Our services include, but arenot limited to, the following: Macro and sectorial information. Uruguay XXI regularly prepares researches on Uruguay and several sectors of economy. Tailor-made information. We prepare personalized information to answer your specific questions, such as macroeconomic data, labor market, taxes and legal aspects, investment-promotion programs, localization and costs. Contact with main players. We generate contacts with governmental entities, industrial players, financial institutions, research and development centers and potential partners, amongst others. Promotion. We provide investment opportunities in strategic events, missions and business networking meetings. Arrangement of visits to the country by foreign investors, including the setting of meeting agendas with, for instance, public authorities, suppliers, potential partners and chambers of commerce. Publication of investment opportunities. We periodically publish in our page information on investment projects provided by state institutions and companies. invest@uruguayxxi.gub.uy www.uruguayxxi.gub.uy24

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