The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Executive Summary
The Government of Uruguay recognizes the important role foreign investment plays in economic development and offers a stable investment climate that does not discriminate against foreign investors. Uruguay’s legal system treats foreign and national investments equally, and most investments are allowed without prior authorization. Investors can freely transfer capital and profits from their investments abroad. International investors can choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign arbitral awards.
U.S. firms have not identified corruption as an obstacle to investment. In 2022, Transparency International ranked Uruguay as the most transparent country in Latin America, and the second most transparent in the Western Hemisphere after Canada. Uruguay is a stable democracy, one of only three full democracies in the Western Hemisphere and ranked 11th in the world in 2022, according to the Economist Intelligence Unit, an increase from 2021. As of March 2023, Standard & Poor’s and Moody’s rated Uruguay one step above the investment grade threshold with a stable outlook. Fitch Ratings rated it at the investment grade threshold with a stable outlook.
Investment rose substantially from 2004-2014 as a result of an historic commodities boom but dropped significantly 2015-2019 as the boom flagged. However, investment picked up again in 2021 and 2022 as a result of: tax incentives for investors; a dynamic tech industry; and a $2 billion foreign investment in a pulp-mill opening in 2023.
About 180 U.S. firms operate locally in a wide array of sectors –including forestry, tourism and hotels, services, and telecommunications– and employ over twenty-five thousand workers. The IT services sector is a significant recent growth area, with several Uruguayan companies listing on U.S. stock markets, or being bought by U.S. companies. Uruguay has bilateral investment treaties with over 30 countries, including the United States. Uruguay and the United States also have agreements on mutual customs recognition, social security totalization, trade facilitation, promotion of small and medium enterprises, and open skies.
Uruguay is a founding member of Mercosur – the Southern Cone Common Market – created in 1991 and headquartered in Montevideo, along with Argentina, Brazil, and Paraguay. (Note: Venezuela joined the bloc in June 2012 but was suspended in December 2016.) Bolivia, Colombia, Ecuador, and Peru are associate members. Uruguay and Mexico have had a comprehensive trade agreement in place since 2004, and in 2018, Uruguay extended its existing free trade agreement with Chile to increase trade in goods and services.
Over the past decade, Uruguay strengthened bilateral trade, investment, and political ties with the People’s Republic of China (PRC), which was its principal trade partner in goods from 2013 until 2022 when it fell to second place behind Brazil. In 2018, Uruguay was the first country in the Southern Cone to join the PRC’s Belt and Road Initiative. Uruguay formally joined the Asian Infrastructure Investment Bank in 2020. In September 2021, the government announced that it would start negotiating a free trade agreement with the PRC, independently from its Mercosur partners. A feasibility study was concluded in July 2022, but negotiations have not advanced as of writing. In 2022, Uruguay’s Mercosur partners made unprecedented joint public statements opposing Uruguay’s efforts to seek a bilateral trade agreement with the PRC as well as Uruguay’s push to adhere to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
A 2018 survey by Uruguay’s Ministry of Economy and Finance showed that about half of foreign investors were satisfied or very satisfied with Uruguay´s investment climate, principally due to its rule of law, low political risk, macroeconomic stability, strategic location, and investment incentives. Almost all investors were satisfied or highly satisfied with Uruguay’s twelve free trade zones (FTZs) and its free ports. However, roughly one-fourth of investors were dissatisfied with at least one aspect of doing business locally, expressing concerns about high labor costs, taxes, union/labor conflicts and high energy costs.
Uruguay’s strategic location (in the center of Mercosur’s wealthiest and most populated area), and its special import regimes (such as free zones and free ports) make it a well-situated distribution center for U.S. goods into the region. Several U.S. firms warehouse their products in Uruguay’s tax-free areas and service their regional clients effectively. With a small market of mostly middle-class consumers, Uruguay can also be a good test market for U.S. products.
There are no significant risks to doing business responsibly in areas such as labor and human rights. Additionally, the government’s long-term climate strategy, announced in December 2021, focuses on mitigation and adaptation to climate change and seeks to reach carbon neutrality, with stable emissions of methane and nitrous oxide in its agricultural sector, by 2050. The government is gradually including environmental variables in designing public economic and capital market policies. In 2022, Uruguay became the first country to issue a sustainability-linked bond (SLB) with a “step-down clause” that provides for lower interest payments for exceeding certain environmental goals.
The Russian invasion of Ukraine has not had significant impacts on the investment climate in Uruguay. Uruguay has faced some inflationary pressure and rising energy prices increased overall production costs but on a global scale Uruguay has been less impacted than other countries. Conversely, increased commodity prices in 2022 was positive for Uruguayan exporters and Uruguay’s agriculture sector has been able to maintain access to fertilizers. However, Uruguay is facing a historic drought during the 2023 growing season which will likely have a major impact on agriculture exports this year.
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.