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THE RICH REPORT
By Howard Rich

The Rich Report Index: Uruguay

If you took everything you love about Old World, moved it thousands of miles closer to heartland America, cut the prices by about 75 percent – and then threw in a perfect climate and peace on earth – you would likely be in Uruguay.

From the cobblestone, lamp-lit streets of Montevideo (where, according to the New York Times, “the past lives on in style”) to the brilliant beaches and sparkling waters of Punta del Este (the leading resort in South America) and on out to the rich, rolling ranchlands of the Uruguayan “outback,” there is probably not a more perfect spot on the face of the earth for those in search of security, serenity – and first-rate living at Third World prices.

Those are just a few of the reasons I have chosen the “Eurolatin” republic of Uruguay – where a large portion of the populace is of Italian, British, and Germanic descent – for this month’s column, the second in a continuing series of Rich Report Indexes.

The Rich Report Index, you may recall, rates a country’s investment environment on four key criteria:

(1) Economic Freedom,

(2) Democratic Safeguards,

(3) the ROI S-Curve,

(4) Market Movers.

I could go on ad infinitum about the breath-taking allure of Uruguay, but this is an investment column, not a travelogue. So, let me give you a quick “Rich Wrap” overview, and then let’s get to the Index itself: Uruguay is one of the smallest countries in South America, with an area of approximately 68,000 square miles lying on the Atlantic’s pristine coastline between Brazil in the northeast and Argentina in the west. More than a third of Uruguay’s 3.3 million people live in the capital, Montevideo, a cosmopolitan city mixing modern amenities with Old World charm. You can live very comfortably in Uruguay on as little as $1,500 a month.

And why would serious, savvy financial mavens want to invest – and/or live – in Uruguay? Let’s look at the Index.

Economic Freedom: 19 – Uruguay has a thriving free market system only recently tainted by an onerous new income tax system regimen. Still, the country has immutable protections for foreign investors and some of the world’s most stringent banking security laws. The Heritage Foundation’s Index of Economic Freedom for 2008 ranks Uruguay’s economy at 68.1 percent free, making it the world’s 40th freest economy. It is eighth out of 29 in the region.

Significantly, in the area of Fiscal Freedom, Heritage awards Uruguay an impressive 85.9 percent, a substantial 17.6 percent above the United States. But, truth be known, that impressive rating is based upon a false premise – i.e., “Uruguay imposes no income tax.”

The fact is, as of July 1, 2007, income earned inside Uruguay is taxed at progressive rates between 10 and 25 percent. Based upon the ratings given to other Latin American countries, that could considerably reduce the country’s Fiscal Freedom rating. As The Sovereign Society’s offshore assets maven Bob Bauman recently concluded, “We can safely say Uruguay certainly is no longer a tax haven.”

Still, what is most important to Rich Report readers is that as EscapeArtist.com reports, “For citizens and foreign nationals alike, any type of income obtained from a foreign source, or assets abroad, will remain untouched by the Uruguayan tax collector.  A U.S. pension, dividends or capital gains on stock in a Japanese company, interest from a CD in a European bank or real estate in Australia: they all remain untaxed.”

What should also be important to offshore investors concerned about Uruguay’s Economic Freedom is the ranking awarded the country by the respected international credit insurance firm of Ducroire/Del Credere. Rating 240 countries on the systematic analysis of their political and financial situations, Ducroire/Del Credere gives Uruguay an “A.” The U.S, by contrast, gets a “B.”

Add to that, Article 1 of the Uruguayan Act 16.906, passed in 1998 – "The promotion and protection of the investments made by national and foreign investors in the Uruguayan territory is declared of a national interest" – and Uruguay may well be an offshore investor’s paradise found.

Democratic Safeguards: 23 – Uruguay boasts a dynamic, deep-seated democracy. On a scale of 1 to 7 (the former best, the latter worst), Freedom House gives Uruguay a Political Rights score of 1, a Civil Liberties score of 1, and a Status of “Free.”

Here is the essence of the organization’s 2008 report: “Constitutional guarantees regarding free expression are generally respected, and violations of press freedom are rare. The press is privately owned, and broadcasting includes both commercial and public outlets. Numerous daily newspapers publish many of them associated with political parties; there are also a number of weeklies. The government does not place restrictions on Internet usage.

“Freedom of religion is a cherished political tenet of democratic Uruguay and is broadly respected. The government does not restrict academic freedom.”

Transparency International, a Berlin-based organization that ranks and scores countries by their levels of perceived corruption (which it defines as “the abuse of public office for private gain”), gives Uruguay a score of 6.9 on a 0 to 10 continuum. It is ranked 23rd out of 180 countries worldwide, tying it with Chile for the least corrupt country in Latin America. By contrast, Brazil ranked 80th with a score of 3.5, Argentina ranked 109th with a score of 2.9, and the U.S. ranked 18th with a score of 7.3.

Bottom line: if you’re looking for the “land of the free and the home of the brave” down under, check out latitude 22 00 S longitude 56 00 W.

The ROI S-Curve: 15 – First a reminder, in Rich Report nomenclature, the offshore investment ROI S-Curve passes through the three stages of Discovery, Growth, and Maturity. Generally speaking, the earlier you enter the S-Curve, the lower the prices, the greater the likely risks – and the higher the potential rewards. Largely because of its distance from the U.S. and Canada, Uruguay is still in the Discovery stage of the ROI S-Curve. But, please don’t take that to mean that there is anything remotely primitive or even underdeveloped about this thoroughly contemporary country.

With barely more than 3 million citizens, Uruguay has 100 private daily and weekly newspapers, more than 100 radio stations, some 20 television channels, widespread cable TV, and, of course, complete satellite coverage. It has the most advanced paved road system (5500 miles), the highest telephone density, and the highest number of web hosts in all of Latin America. In short, Uruguay has all the modern amenities of most European countries.

And yet, the country still doesn’t have its own English-language guidebook. Most people couldn’t find it on the map even if the directions were provided. And that, of course, is great news for offshore investors looking to get in early on bargain-priced properties.

According to the highly respected travel writer Lee Harrison, on Uruguay’s “Gold Coast,” you can still find a duplex – on the water – for under $35,000, and a super-quality waterfront condo for under $45,000. In the plains country, you can own a sprawling ranch for less than $375 an acre. And even in cosmopolitan Montevideo, just $70,000 can buy a 3,000 square foot home with multiple bedrooms and a courtyard.

So, why does Uruguay score so low on the ROI S-Curve? Simply put, because it is an intermediate to long-term investment. It is not quite land banking, but it could take a good decade for serious offshore investors to see a sizeable return. Real estate is location, location, location. Uruguay is more than 5,000 miles from North America’s southernmost border. And that’s why it is still at the Discovery stage.

Market Movers: 10 – Market Movers are key developments of such august proportions that they can change a country’s economic outlook, usually, though not invariably, in short order. Both in nature and in weight, they comprise a judgment call. So, consider them in that light.

The fact is, at this point in time, Uruguay has no major development underway that could qualify as a short-term Market Mover. Still, according to the U.S. Department of State, the country has made a “spectacular recovery” from its economic crisis of 2002. And that recovery invites investment.

In 2003, Uruguay’s economy experienced a modest 2.5 percent rise in GDP. It surged in 2004 and 2005 with growth rates of 12.3 percent and 6.6 percent respectively. Growth equaled 7.0 percent in 2006 and reached 7.4 percent in 2007. The projection for 2008 is for the GDP to continue growing in the 7 percent to 8 percent range. And because of its relative isolation and independence, Uruguay is not expected to be heavily impacted by the worldwide recession.

A single line in the State Department’s Uruguay Profile may indicate the closest the country comes to a market-moving capability. According to the Profile, “Though still small, the information software industry is growing rapidly.” In fact, Uruguay is already the leading supplier of software and IT services to Latin American nations. And it has set a target for its software and associated services exports of $500 million by 2010. Is this alone substantial enough to qualify as a short-term Market Mover? Hardly, but, along with Uruguay’s burgeoning GDP, it is, perhaps, a sure harbinger of future expansion and attendant opportunity.

So, to sum it up: Uruguay scores a laudable 67 out of 100 possible points on the Rich Report Index. Its strongest showing is in Democratic Safeguards; it’s weakest is in Market Movers. But, keep in mind that the Rich Report Index rates investment opportunities, not livability. On the livability score, this tiny “Eurolatin” nation, with its near-perfect climate and friendly faces, could well be one of the most welcome spots on the fact of the earth.

In the next Rich Report, we may expand our horizons and take a surprising look at one of the most unsung opportunities in the Eastern Caribbean. Until then, live well and prosper.

Here’s wishing you all a Happy Holidays and see you next month.