Montevideo Immediately after arriving in Montevideo, it becomes clear that you are entering a different South America: there are no crowds at the airport. The journey to the city center 20 kilometers away along the Atlantic coast runs without traffic jams. Compared to chaotic, congested São Paulo or Buenos Aires, it feels like a spa town – despite the 1.8 million people who live here.
Unlike in most of South America’s megacities, there are few glittering office or residential towers here. There are no luxury cars on the streets like in South America, where the rich like to flaunt their wealth.
In fact, unlike the rest of the continent, Uruguay does not have just a few super-rich, very many poor and a narrow middle class. Two thirds of the 3.6 million Uruguayans belong to the middle class. There are hardly any people living below the poverty line. The rich-poor gap is the smallest in Latin America. Per capita income is the highest in the region at $17,000 a year.
This social and economic success is amazing for this small country – half the size of Germany, with just under half the population of Switzerland. After all, the country has reached its top position in the immediate vicinity of large countries such as Brazil and Argentina.
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But now Uruguay could expand its special position even further: The global energy transition and the geopolitical shifts favor the country on the Río de la Plata. Uruguay has already transformed its power system into one of the most sustainable in the world with massive investments in wind farms in ten years.
Uruguay produces most of its electricity sustainably
The country now produces 97 percent of its electricity sustainably without releasing carbon dioxide. Uruguay could thus also become a strategically important supplier of green hydrogen, the production of which requires electricity from renewable energy sources.
Uruguay gets much of its energy from renewable sources.
(Photo: Reuters)
The German industrial engineer Aram Sander, who has already set up wind farms in Uruguay and put them into operation, says: “With the Ukraine conflict, completely new arguments are coming up with the question of security of supply.”
Trust is one of them. There is no country in the region that fulfills its contracts as reliably as Uruguay, says Sander, who is pushing hydrogen projects worldwide for the German company Enertrag. In addition, development banks would like to lend to Uruguay because of its good rating. Sander is certain: “Uruguay could quickly deliver a relevant replacement for Russian natural gas.”
Banker Thomas Lagemann from Hamburg observes another indication of the trust that investors have in Uruguay. Family offices, i.e. wealthy asset managers from Germany, Austria and Switzerland, showed growing interest in the country.
In addition, the active start-up scene in the country can draw on a base of well-trained engineers. The country has one of the highest per capita software export rates in the world. Uruguay-based payment platform dLocal is now worth around $10 billion on Wall Street.
The delivery service PedidosYa has now been taken over by Delivery Hero from Germany. Mischa Groh, Managing Director of the German-Uruguayan Chamber of Industry and Commerce, is optimistic: “Uruguay, with its advanced digitalization, could be the Estonia of South America.”
Deutsche Bahn started major project
Uruguay now attracts numerous foreign companies. Deutsche Bahn has just started its largest international project there: together with two partners, the group will operate a 273-kilometer freight route there for over 25 years. In other South American countries, companies like Deutsche Bahn shy away from the risks.
The President emerged victorious from the referendum on 135 articles of the law.
(Photo: imago images/UPI Photo)
South American corporations are also drawn to Uruguay for stability. In recent years, numerous entrepreneurs, especially from Argentina, have emigrated to the north. For example Marcos Galperín, the founder of Mercado Libre, one of the most successful Internet platforms in Latin America, which is worth around 50 billion euros on Wall Street.
Venancio Trigo, a lawyer with the business law firm Gujer & Regules in Montevideo, reports that the large supermarket chains from Chile are now also considering moving their headquarters to Uruguay. In Chile, entrepreneurs are unsettled by the increasing trend towards the left in politics.
>>Read here: Chile: Why a young left-wing politician could be the right president for Latin America’s model economy
In addition to the social balance, the main reason why this uncertainty does not bother entrepreneurs in Uruguay is the political framework. Uruguay is one of the most stable democracies in the world. On the Democracy Index of the Economist Intelligence Unit (EIU), Uruguay is 13th, two places ahead of Germany – and that in South America, a continent where the EIU has long recorded a steady decline in democracy.
The country has been improving its democracy as one of the few countries in the world for more than 15 years, praises the EIU. On the Transparency Corruption Index, Uruguay ranks 18th out of 180 countries, the only one in Latin America, two places ahead of France.
Country with a stable party system
The political scientist Sebastian Grundberger from the Konrad Adenauer Foundation in Uruguay can confirm the results of the indexes. In contrast to the rest of Latin America, he sees a high level of social consensus in Uruguay and the most stable party system in the region with stronger democratic defenses than in neighboring countries. “Populists have no chance here,” says Grundberger.
A referendum at the end of March showed just how smoothly politics works in Uruguay. The Uruguayans voted on whether 135 of a total of 476 articles of the law should become invalid. These were part of a package of laws that the center-right government of President Luis Lacalle Pou passed in Congress shortly after taking office in 2020.
The core of the package were the issues of security and education, where the central government wants to take more action. In addition, the power of the trade unions is to be limited and the dominance of the state monopolies, for example in the case of Telekom, is to be reduced.
The influential Uruguayan trade union confederation had mobilized against this. But unlike in neighboring countries, there were no angry protests or even violent clashes in the run-up to the referendum.
The fact that the government was nevertheless able to assert itself and the laws remain valid can be explained primarily by the popularity of the president. The 48-year-old lawyer Lacalle Pou comes from a political family that has shaped Uruguay’s politics since the beginning of the last century. His father was president from 1990 to 1995.
The son, on the other hand, only entered politics at the age of around 30. For a long time he had the reputation of a surfing sunny boy, who only managed to be elected with a narrow majority at the second attempt in 2019.
Above all, his level-headed pandemic management has made the President popular. There was never a lockdown. At times, the authorities prescribed homeschooling. The country already had good broadband coverage and an established digital education infrastructure. Uruguay also quickly became the country with the most vaccinated people in Latin America after Chile. The fact that the economy is growing again after several years of stagnation also helps Pou.
>> Read here: A year ago Corona hell, now vaccination world champion: How South America managed the turnaround
After winning the referendum, the economist Augustin Iturralde calls on the president to seize the opportunity for reforms. The director of the Centro de Estudios para el Desarrollo, a pro-government, liberal economic institute, is more critical than most of the interviewees when it comes to the issue of competitiveness.
Institutionally, Uruguay is a highly developed democracy, Iturralde said. In business, on the other hand, mediocrity rules. When it comes to entrepreneurial friendliness, the country is lagging behind, state monopolies at Telekom are tolerated. The South American country is therefore an expensive location. Productivity must increase, otherwise Uruguay will lose its attractiveness. “We are a small country,” says Iturralde. “We have to offer more than that.”
A courageous reform course would be important for South America. It is quite possible that Pou will be the only conservative president in South America at the end of the year, alongside President Guillermo Lasso in Ecuador. Political scientist Grundberger from the Konrad Adenauer Foundation sees this with concern: “In a South America that is drifting politically to the left, Pou and Uruguay are developing into reference points for bourgeois forces.”
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