Paraguay - You've Never Considered the Next Great Emerging Market...

You've Never Considered the Next Great Emerging Market...
By Tom Dyson
May 23, 2008

I asked my taxi driver if he knew where I could buy an AK-47...

The driver studied me for a second. He paused. And then he said, "I know somewhere... Vamanos."

Ciudad Del Este is a smuggling town. It's on the eastern edge of Paraguay, about a five-hour drive from Asuncion. It sits on the border with Brazil and Argentina. It's the "three-frontier town."

Ciudad Del Este

Here's the thing about Ciudad Del Este. There's no tax in Paraguay, so the city has become the largest inland trading post in South America. You can sell anything you want at cost from Asia. Electronics are the big market... laptops, cell phones, and digital cameras. Brazil and Argentina have high import and value-added taxes. So bandits come from Brazil and Argentina, buy cheap merchandise in Ciudad Del Este, and smuggle it back.

Huge quantities of cocaine and marijuana flow through this town into Brazil. The same is true of real Paraguayan passports and guns. (I was asking for an AK-47 not because I needed one, but I was curious to see how easy it would be to buy one here.)

You can buy anything in Ciudad Del Este's huge, open-air market. I spent the afternoon wandering around, browsing fake DVDs, Rolexes, shoes, clothes, computers, perfumes. I could have bought a Sony Vaio laptop for under $1,000... a dozen socks for a dollar... or a 30 milliliter bottle of designer perfume for $23. The market is dirty and loud. It goes on for blocks and blocks. I never found the edge.

Ciudad Del Este has huge populations of Koreans, Taiwanese, Lebanese, Syrians, and Chinese. They run import-export businesses. The Russian, Nigerian, and Chinese mafias all operate here.

It's also a safe house for Arab terrorists. The State Department says Ciudad Del Este is a significant source of funding for both Hezbollah and Hamas. In 2001, CNN said this town is "a terrorist paradise."

I drove back and forth between Brazil and Paraguay five times. I didn't need a passport... a visa... money... identification... nothing. When I checked in at the airport in Asuncion, they had no computers behind the check-in counter. They filled in my boarding pass by hand.

The scene in Ciudad Del Este is pure raucous capitalism... and I couldn't wait to see where the taxi driver took us to buy guns. I was hoping for an illegal warehouse or some cinderblock shack in the shantytown, but he went to a fishing and hunting store. We looked at Glocks, Turkish rifles and other guns, but they were more expensive than the same guns in the U.S.

"We have to bring these in across a lot of borders," explained the woman behind the counter...

Paraguay is a landlocked country with low taxes. So it serves as a "trampoline" for merchandise into other countries. That should make Paraguay a very attractive place for capital. According to one person I met, Ciudad Del Este is the second-largest free-trade area in the world, after only Hong Kong. It generates 60% of Paraguay's GDP.

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But corruption is the problem. Every time large firms try to start a project, the local bureaucrats steal everything... including the machinery. Also, most of the capital leaves Paraguay with the Asian and Lebanese traders... and with the smugglers. It doesn't stay in Paraguay. So 40% of Paraguayans live in terrible poverty.

This year, Paraguay has a new government... for the first time in 61 years. If the new administration can clean up corruption and resist the temptation to raise taxes, Paraguay could be a fantastic place to invest over the next 10 years.

In my next DailyWealth column, I'll show you how...

Good investing,

Tom

Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

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EXPECT THE WORLD'S LARGEST COPPER PRODUCER TO KEEP RISING

"Mining investors take note... If copper, zinc, nickel, and tin prices remain close to current levels, these miners will make a ton of money this year."

That's how we signed off our March 4 column. Back then, big base-metal miners, including Lundin Mining, Southern Copper, and Freeport-McMoRan were in one of their worst slumps in recent memory. Investors couldn't stand the thought of owning their shares. Copper prices are highly dependent on global economic health... and that health was in question.

But as we've covered with Home Depot and the Dow Transports, the market is now answering the global economic question with, "You know... things don't look so bad."

In addition to the strength in the Depot and the Transports, the price of copper refuses to decline from all-time highs near $4 per pound. These are all signs of economic strength. If this strength continues, expect the prediction above to come true... and expect Freeport-McMoRan (the world's largest public copper producer) to keep rising.

Freeport McMoran Copper & Gold

Try hailing a taxi or ordering a meal in a restaurant in Perth these days and you may be in for a long wait. The capital of Western Australia (WA) is suffering a labour shortage, as young people head north to make real money from a mining boom. China's insatiable demand for WA's minerals is driving it, and helping China displace Japan as Australia's biggest trading partner.

The Pilbara, a desert region about 1,300km (800 miles) north of Perth, is the main focus. BHP Billiton and Rio Tinto, two of the world's biggest resource companies, roughly share the Pilbara's iron-ore deposits that feed China's flourishing steel industry. China takes about half their exports. They can barely dig it out fast enough to meet demand.

The "wild west", as WA is sometimes known, has seen other booms end in tears. Alan Birchmore, a veteran of some, and on the board of United Minerals, a company with a Pilbara iron-ore lease, reckons this one is different: it has "depth". "China", he says, "is showing that it takes some stopping once people get a taste for consumption."

Some forecasts back him up. In a report for Rio Tinto and the Australian National University, Ross Garnaut and Ligang Song, two economists, argue that by 2020 China's demand for metals may increase by the equivalent of the industrial world's annual total demand now.

– The Economist

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

– Wall Street Journal

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