Uruguay is a country famous for soccer.
As we celebrate Russia’s World Cup this summer, we’ve checked the
hall of fame and there are only 8 countries that have ever won a final.
Uruguay, a really small country
with little more than 3 million inhabitants is one of them.
They even won the cup twice and in both cases
they beat their neighbours: Brazil and Argentina.
So in today’s video, we’re gonna talk about how Uruguay has beaten its neighbours
but not in soccer but
in economics instead.
Yes, my dear viewers, alongside Chile, Uruguay is the wealthiest country in South America
GDP per capita
wise.
It’s also one of the most stable when it comes to politics and has some of the best
public
services.
But there is even more to this.
We can actually say that Uruguay is the model for the entire
South American left wing.
Have you ever heard about their former president, JOSE MUJICA?
Known as the
‘World’s poorest president’, he quickly became the ultimate left wing rockstar.
The only world leader who
refused to live in the presidential palace and kept driving an old Volkswagen instead
of an expensive
official car.
“From a life philosophy perspective, I believe it’s better to live with little luggage.
Just the minimum
necessary.
No material complexity.
If you have too many complexities… you end up spending too much time.
Nonetheless, while Mujica had this simple lifestyle, his country grew economically,
attracted foreign
companies and became a pioneer in social Rights.
With Mujica as president, Uruguay passed a bill for the
legalization of same-sex marriage.
But, undoubtedly, his most famous policy was the legalization of
recreational marijuana sales.
Way before California or any other place, Uruguay was the first country to
legalize weed selling and consumption.
And the country’s progress doesn’t stop there.
If you take a static picture of Uruguay, you will see a
country that, arguably, is the best place to live in all of South America.
Unlike Brazil and Argentina,
Uruguay’s economy hasn’t stopped growing since 2002.
They have a thriving middle class and the highest
wages in the region, along with Chile.
But wait a minute because not everything is a field of roses!
In fact, as such a prosperous country, you
might expect it to have lots of immigrants, right?
The reality is way different.
And this is not because
they have strong immigration laws.
People just don’t pick Uruguay as a country of residence because…
well, things are starting to go sour here.
They have around an 8% unemployment rate and their economy is
reducing their growth speed while other countries like PERU and CHILE, seem to offer opportunities
for
everyone.
So today’s question is…
Why has Uruguay’s economy worked out so well until now?
And what are the current
problems they’re facing?
Today we are going to answer to all of these questions.
But before we do, let’s
take a look back at history.
AMERICAS’ SWITZERLAND
Uruguay was born in 1830 after a war between BRAZIL and ARGENTINA.
The British were to negotiate the
peace agreements and they badly wanted Uruguay to be an independent country.
Why?
Well, Montevideo’s
harbour was a jewel and they didn’t want it to end up in Brazilian or Argentinian hands.
Back then, Uruguay was almost uninhabited.
It was inhabited by a tribe, the so called CHARRUAS *CZECH
PRONOUNCE: ČARUAS* but they were soon exterminated.
This is why, unlike any other South American country,
most of the Uruguayans have a European ethnicity, mainly Spanish and Italian roots.
In those times, if you were an ambitious boy looking for a career and opportunities to
make money,
Uruguay was the place to go.
Better than America or Australia.
It was a modern democracy with rule of law
and a thriving economy.
Until the 60s of the 20th century, this country was among the wealthiest.
Way richer than many European
nations.
So now you might wonder…
What happened?
Because, despite being prosperous among the South American
nations, Uruguay is still way behind any European country, let alone America.
So what happened to make
them stop growing that dramatically?
The answer lies in… the EUROPEAN UNION!
Yes, you heard me right!
Listen, my dear viewers, if you thought
this idea of a trade war was Donald Trump’s invention… you are very mistaken.
In the year 1958, the European Single Market was created.
And one of the first things they did was
protect their agriculture from Uruguayan meat.
This meant that Uruguay lost one of its biggest customers.
And America didn’t want to trade with them either.
In the middle of the cold war, they were too busy
dealing with bigger problems than this little country.
So day by day, Uruguay became stagnant.
And the government in Montevideo, the country’s capital, didn’t
have any other alternative than looking to their neighbours: Argentina.
All of a sudden, Uruguay and
Argentina became something like the ROBERT RODRIGUEZ and QUENTIN TARANTINO of South America.
Did
Argentina have a crisis?
So did Uruguay!
Did Argentina have a military dictatorship?
So did Uruguay!
Did
Argentina have a democracy?
So did Uruguay!
So my dear viewers… what happened in Argentina in the year 2002?
Exactly!
They had the biggest financial
crisis in history!
The infamous ‘CORRALITO’.
And in that very same year, Uruguay’s GDP fell by 7.7%.
A
big time catastrophe.
And this was when Uruguay realized that it had to find new trade Partners.
But how
do you do that?
We’ll see right now!
THE 0 KM OF SOUTH AMERICA
During the 80s, Uruguay returned to democracy.
And the government did something really, really,
interesting: they created the so called ZONAS FRANCAS.
These were special territories inside of the
country where companies were free to not pay taxes: no VAT, no income tax, no corporate
tax.
The only
request was that 75% of the jobs be given to the locals.
Does that remind you of something?
Exactly!
This
is the same as the special economic zones that the Chinese have and that we like so
much here at
VisualPolitik.
Today, Uruguay has 11 tax free zones.
And there are three different kinds.
First, we have those oriented
to logistics and international trade.
After that, we have the zones that are designed for attracting
multinational corporations so they can use them as the headquarters for their South American
operations.
Finally, we have the areas that are meant to have high tech industry.
This is why Uruguay is a regional
leader in things like Pharma research and software.
But this is not the end of the story!
These tax free zones have a unique advantage.
Something that makes
Uruguay a model for other countries.
Yes, dear viewers, we are talking about POLITICAL stability.
Do you
think I’m kidding?
No way!
In the year 2005, Uruguay changed its government leadership and they had, at last, a left wing
president.
That would be, of course, TABARE VAZQUEZ, from the OPEN FRONT party.
You see, in most South American
countries, having such an ideological shift in the government means that most of the work
made by the
previous administrations goes into the trash.
So you might think that, under a brand new left government,
those tax free zones would no longer exist.
Right?
Well, the reality couldn’t be more different.
And this
is the great thing about this country: the bipartisan consensus.
This is why, between 2005 and 2014, the
accumulated investment in these tax free zones rose to almost 6000 million dollars.
And all of this
happened while, first, TABARE VAZQUEZ and then JOSE MUJICA, managed the country.
“People are not only looking for profit.
They also want safety.
And this is what Uruguay has to offer.
It
is not a matter of this or the other Government.
This is a genuine Uruguayan attitude.
And now you might wonder…
What does Uruguay get from these tax free zones?
Well, my dear viewers… there
is a double benefit for them.
On one hand, they are able to appeal to industries that otherwise would set
up in other countries with bigger markets.
And these foreign companies need providers.
This is why,
sooner than expected, many small enterprises are created around the country.
And, of course, they require
highly skilled labour and good salaries.
This is why Uruguayans don’t need to emigrate in order to find a
good job.
But wait a moment here!
Because we said that Uruguay needed to change their trade partners, right?
DO you
remember how we said that they could no longer depend on Argentina or Brazil for their exports.
So you
might wonder… what do the tax free zones have to do with all of this?
Well… think about it.
Thanks to
these innovative industries that set up in the country, Uruguay could stop relying on
the commodity
sector.
Prior to this, their economy was based mainly on Soy and Meat.
Now, they can create more added
value products.
Want an example?
All of the syrup needed in PEPSI drinks sold all across South America is created in
Uruguay.
In fact, there is a popular drink in Japan called PEPSI AZUKI.
This variety is made with a plant
called SWEET BEAN.
And, again, the syrup for this beverage is produced 200km away from Montevideo.
In
total, Pepsi represents 7% of everything the country exports.
And this is not the only example.
For example, one of the biggest paper making companies on the planet, a
Finnish company called UPM, has one of their main factories in Uruguay.
And, they have already announced
the construction of a brand new facility that might represent a whole 2.5% extra GDP for
the country.
And if that isn’t enough, Uruguay is also a software leader.
Eight Uruguay software developers, among the best in all of Latin America
In summary, 30% of Uruguay’s exports are produced from these tax free zones.
And guess who is the main
buyer!
Let me give you a clue!
It starts with CHI and ends with NA.
Nowadays, Brazil and Argentina
receive just 20% of this country’s exports.
Another good friend of Uruguay is the Netherlands.
The Rotterdam harbour is the gateway to Europe.
And
many of the Uruguayan exports go that way.
TO make a comparison, Chile’s economy, despite being the
wealthiest in the region, is heavily reliant on their copper mining.
Half of their exports are just this
commodity.
Uruguay, instead, has a very diversified economy: we talked about software, paper, drinks and,
of course, soy and meat.
But if you thought everything is all sunshine and flowers… then wait a minute!
Because things are not as perfect as you might think.
PARTY vs GOVERNMENT
As we said before, since the year 2005, Uruguay has a Left wing government.
More specifically, this
country has been managed by the OPEN FRONT Party.
And… one thing is true, they are worthy of that name,
because it is really an open party, with lots of different ideologies inside.
This is why, despite what
it looks like, arguments are a common thing in the party.
So, on one hand, despite the different presidents, Uruguay has had the same finance minister
for the last
13 years.
His name is DANILO ASTORI, and you can say he is one of the architects of this Uruguayan
stability.
But on the other hand, the OPEN FRONT is an open battlefront between the radical wing
and the moderate
wing championed by TABARE VAZQUEZ.
JOSE MUJICA, the left wing rockstar, is somewhere in the middle.
And this is why, anytime Uruguay´s government wants to sign a free trade deal with any other
country,
they must face their own party opposition.
It happened during the first Vazquez administration, when they
tried to sign a trade deal with the United States.
It happened when they tried to sign a trade deal with
Chile.
And it might happen now when they wanna sign a trade deal with China.
“This year, 2018, will mark 30 years of diplomatic relations with China and this is
why we have put this
date as a deadline to sign a free trade deal”
In this case, Uruguayan companies would save more than 100 million dollars in Needless
tariffs.
But this
radical wing of the OPEN FRONT seems to be allergic to the word “free trade”.
And if this was not enough,
some critics claim that DANILO ASTORI, the finance minister, spends too little.
But this is precisely one of the biggest problems in Uruguay.
After Venezuela and Argentina, Uruguay has
the biggest share of civil servants in the region.
1 out of 5 workers is employed by the government.
Add
to this the enormous presence of the illegal economy and you will understand why just a
third of all
Uruguayan adults work for private companies.
In most developed nations, this number is more than half.
Of course, compared with ARGENTINA or BRAZIL, Uruguay is a paradise on Earth.
But the truth is, if they
want to keep growing, they must solve these problems ASAP.
So now the final question is…
Do you think Uruguay should sign those free trade deals?
Do you think it is
still worth investing in this country?
Please, leave your answer in the comment section below.
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