OECD Investment Policy Review of Uruguay - Key findings

1. Monika Sztajerowska, OECD Investment Division Virtual Launch 12 July 2021 OECD INVESTMENT POLICY REVIEW OF URUGUAY KEY FINDINGS

2. Context 2 Scope Public governance & SOEs Business establishment and operation Investment protection Investment promotion and facilitation Tax policy Responsible business conduct

3. SNAPSHOT OF RELEVANT TRENDS 3

4. FDI performance has overall been strong 4 Inward FDI flows as a share of GDP in Uruguay and selected LAC countries In % Source: OECD Investment Policy Review of Uruguay Note: Shares shown are an average for five latest available years presented in the report (2012-2018). 0 1 2 3 4 5 6 7 Chile Costa Rica* Uruguay Colombia* Peru* LAC Argentina*

5. 0 50 100 150 200 250 300 350 2020 Q1 2020 Q2 2020 Q3 2020 Q4 World OECD COVID-19 is posing challanges 5 Annual FDI Inflows bln USD Note: *Preliminary estimates. Source: OECD and IMF data, presented in FDI in Figures (April 2021) 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2018 2019 2020* World OECD Quaterly FDI Inflows bln USD

6. FDI can contribute positively to sustainable growth and development 6 OECD FDI Qualities Indicators for Uruguay -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 Productivity Prod growth Prod inno Proc inno R&D Fgn tech Skilled Training Empl growth Wages Per workers Empl length Fem empl Fem mgmt Fem owner Ener eff Source: OECD FDI Qualities Indicators Note: 16 manufacturing sectors are included in the analysis. -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Productivity Prod growth Prod inno Proc inno R&D Fgn tech Skilled Training Empl growth Wages Per workers Empl length Fem empl Fem mgmt Fem owner Ener eff Panel B. Do foreign manufacturers report higher sustainability outcomes? (yes if score > 0; no if score < 0) Panel A. Is FDI concentrated in manufacturing sectors with higher sustainability outcomes?

7. KEY FINDINGS 7

8. 1. Uruguay is a highly open economy overall... 8 OECD average NON-OECD average 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 Philippines Saudi Arabia Indonesia Rus sia Malaysia China Jordan New Zealand India Lao Pdr Mexico Tunisia Iceland Canada Australia Korea Viet Nam Ukraine Israel Myanmar Kazakhstan Austria Egypt United States Brazil Norway Ky rgyz Republic Switz erland Peru Mongolia Poland Morocco Turkey Sweden Chile South Africa Cambodia Japan Italy Slovak Republic Albania Uruguay France Ireland Serbia Belgium United Kingdom Croatia Cos ta Ric a Denmark Greece Argentina Hungary Bosnia and Herzegovina Montenegro Colombia Germany Macedonia, FYR Spain Latv ia Lithuania Finland Es tonia Netherlands Czech Republic Romania Slovenia Portugal Luxembourg Kosovo* OECD FDIRegulatory Restrictiveness Index(open = 0;closed=1) OECD FDI Regulatory Restrictiveness Index (yes if score > 0; no if score < 0) Note: Data reflect regulatory restrictions as of September 2019 for Uruguay, as provided by the authorities, and as of end-year 2018 for all other economies. Source: OECD Investment Policy Review of Uruguay and OECD FDI Regulatory Restrictiveness Index, www.oecd.org/investment/fdiindex.htm.

9. ...and few restrictions remain in specific (albeit important) sectors 9 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 OECD URUGUAY OECD FDI Regulatory Restrictiveness Index (open = 0; closed=1) OECD FDI Regulatory Restrictiveness Index, by sector (yes if score > 0; no if score < 0) Note: Data reflect regulatory restrictions as of September 2019 for Uruguay, as provided by the authorities, and as of end-year 2018 for all other economies. Source: OECD Investment Policy Review of Uruguay (2021) and OECD FDI Regulatory Restrictiveness Index, www.oecd.org/investment/fdiindex.htm.

10. 2. Uruguay offers high standards of protection to investors 10 0 5 10 15 20 25 30 35 40 0 1 2 3 4 5 New BITs Total BITs Source: OECD Investment Policy Review of Uruguay (2021) based on Barómetro de las Américas (2017) Bilateral Investment Treaties signed by Uruguay over time 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 Chile Colombia Argentina Mexico Brazil Uruguay Confidence in the judicial system in Uruguay and selected LAC countries In %

11. 3. Uruguay has undertaken significant tax reforms in recent years. 11 Source: OECD Investment Policy Review of Uruguay (2021) based on the OECD Global Revenue Statistics Database 0 5 10 15 20 25 30 35 40 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Uruguay LAC average OECD average Total tax revenue as share of GDP in Uruguay compared to OECD and LAC averages In % Note: LAC = Latin America and the Caribbean countries; The LAC average represents the unweighted average of 24 Latin American and Caribbean countries included in the OECD Global Revenue Statistics Database (OECD, 2018). (Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago and Uruguay). It excludes Venezuela due to data availability. The OECD average represents the unweighted average for OECD member countries.

12. 4. The country also offers generous tax incentives for investment... 12 Tax expenditure from CIT tax incentives for investment 0 0.5 1 1.5 2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: OECD Investment Policy Review of Uruguay (2021) based on data from DGI. Panel A. % of GDP Panel B. % CIT tax revenue Note: Tax expenditure data based on annual reports by the General Directorate of Taxation (Dirección General Impositiva, DGI). Type of tax Standard rate Corporate income tax (CIT) 25% Withholding tax 12% Net wealth tax 1.50% Corporate tax system in Uruguay

13. 5. ... that may require further review and rationalisation in the future. 13 Source: OECD Investment Policy Review of Uruguay (2021) based on data from the Ministry of Economy and Finance Evolution of legal regimes for investment incentives in Uruguay over time

14. 6. Further progress in reforming state owned enterprises is needed Overview of state-owned enterprises (SOEs) in Uruguay Source: OECD Investment Policy Review of Uruguay (2021) based on data from OPP (2019), www.transparenciapresupuestaria.opp.gub.uy 0 2 4 6 8 10 12 14 1980-89 1990-99 2000-2009 2010-present Panel A. Number of New SOEs 14 Panel B. Structure of Key SOEs

15. Econometric studies have shown important positive effects of trade and investment promotion activities of Uruguay’s trade and investment promotion agency (Uruguay XXI) on: • Establishment of new MNEs in the local economy (Volpe Martincus et al., 2019) • Export spillovers (Carballo et al., 2019) • Time spent at the border (Volpe Martincus, 2016) • Trade diversification outcomes (Carballo and Volpe Martincus, 2010) 7. Uruguay has a strong track record on trade and investment promotion... 15 78% 25% Source: OECD Investment Policy Review of Uruguay (2021) based on data from Volpe Martincus et al., 2019, Carballo et al., 2019, Volpe Martincus, 2016; Carballo and Volpe Martincus, 2010, and Uruguay XXI. of trade processes in Uruguay can be realised via a Single Window for Trade (Ventanilla Única de Comercio Exterior, VUCE), managed by Uruguay XXI* Note: *Single Window for Trade in Uruguay has been implemented with the technical and financial support of the Inter-American Development Bank (IDB). of all locally established foreign- owned firms are assisted by Uruguay XXI to facilitate their local investments

16. 8. ... that requires continuity and coordination on horizontal projects. 16 Note: The figure is presented for illustrative purposes only; it is not exhaustive and does not imply a hierarchical structure or relationship between the institutions. Source: OECD Investment Policy Review of Uruguay (2021)

17. 9. Investment facilitation and improved regulatory quality can reduce admin. burdens 17 0 50 100 150 200 250 300 Starting business Dealing with construction permits Registering property Uruguay Latin America & Caribbean OECD high income Source: OECD Investment Policy Review of Uruguay (2021) based on data from World Bank Doing Business Indicators (2020) and World Bank’s World Governance Indicators database (2019) Total number of days required to complete a given administrative procedure in Uruguay, LAC and OECD countries 0 0.5 1 1.5 Voice and Accountability Political Stability and No Violence Government Effectiveness Regulatory Quality Rule of Law Control of corruption World Governance Indicators for Uruguay Note: Estimates of governance according to the World Governance Indicators range from approximately -2.5 (weak) to 2.5 (strong) governance performance.

18. • The legal framework to support RBC is well-developed • There is a high interest in RBC from the private sector, the public sector and the civil society • Greater engagement in this area can help faciltate constructive dialogue and mitigate conflicts • Uruguay’s Adherence to the OECD Guidelines for Multinational Enterprises and the creation of the OECD National Contact Point (NCP) can assist in the process 10. Uruguay has a strong framework for responsible business conduct (RBC) 18

19. Investment protection and regulation  Engage in international efforts to balance treaty-based investor protection and the right to regulate in the public interest.  Consider reducing restrictions on FDI in transport, fisheries and media. Investment attraction and facilitation  Strengthen action to support firms’ internationalisation, including through long-term strategic planning and execution of horizontal projects and further bolstering of the national investment and trade promotion agency.  Focus government efforts to reduce the administrative burden, including by effectively streamlining administrative procedures and addressing specific regulatory bottlenecks.  Consider a wider reform to improve the overall regulatory quality, including by better oversight of implementing agencies and the introduction of ex ante and ex post regulatory impact assessment (RIA). State-owned enterprises  Strengthen the corporate governance framework for state-owned enterprises to improve their integrity, transparency and professionalism, and broaden the use of performance indicators. Fill future managerial and board vacancies through merit-based open competitions. Highlights of key recommendations 19

20. Tax policy  Enhance the transparency and coherence of the tax incentives’ framework, including through further streamlining and phasing out of some schemes.  Improve the system of incentives’ allocation, including through rationalising the scoring under the COMAP regime, introducing clear criteria for receiving a Free Zone tax holiday, reducing the use of decrees and ex post monitoring.  Monitor the operations and the outcome of the tax incentive framework to verify the integrity of the tax system and review and adjust policy or practice.  Continue efforts to protect the domestic tax base from cross-border tax minimisation strategies and monitor the effectiveness of recent measures Responsible Business Conduct (RBC)  Establish an NCP in accordance with the Decision of the Council on the OECD Guidelines for Multinational Enterprises, and ensure that it is fully functional as soon as possible after the issuance of the Executive Decree  Promote the use of the OECD Due Diligence Guidances by enterprises operating in or from Uruguay, actively support the use of due diligence by these enterprises, and ensure the widest possible dissemination of the various sector guidance and their use by various stakeholders. Highlights of key recommendations 20

21. • Uruguay has an overall conducive business climate • The Review has highlighted key achievements and remaining policy priorities, in particular in regards to further progress on investment facilitation, tax and RBC • Uruguay has become 50th Adherent to the OECD Declaration on International Investment and Multinational Enterprises and has acquired the associated right and benefits • The OECD stands ready to support Uruguay is its future reform agenda Conclusions 21

22. THANK YOU Contacts: Ana Novik, Head of OECD Investment Division, ana.novik@oecd.org Stephen Thomsen, Head of Investment and Sustainable Development Unit, stephen.thomsen@oecd.org Monika Sztajerowska, Lead for IPR of Uruguay, monika.sztajerowska@oecd.org Andea Marin Odio, Coordinator of LAC Investment Initiative, andrea.marinodio@oecd.org

OECD Investment Policy Review of Uruguay - Key findings

OECD Investment Policy Review of Uruguay - Key findings

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OECD Investment Policy Review of Uruguay - Key findings

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