A new report by the United Nations Economic Commission for Latin America and the Caribbean (Eclac) shows that the value of goods exports declined year-on-year in the period January-May 2020 for every country in Latin America apart from four Central American nations - Costa Rica, Guatemala, Honduras, and Nicaragua.
According to the Eclac report, which was released on 6 August, Costa Rica’s goods exports rose in value by 2.2% in the first five months of 2020 compared with the same period in 2019, while Guatemala, Honduras, and Nicaragua also recorded increases for the period - of 3.2%, 2.3%, and 14.1% respectively. Of the remaining Central American nations both El Salvador and Panama registered significant declines in the value of goods exports (-23.6%) and (-11.5%) respectively. This results in 0.4% overall growth for the Central American Common Market (CACM) and compares with a 16.6% decline for Latin America and the Caribbean (LAC) as a whole.
Latin America and the Caribbean: year-on-year change in the value of goods exports, January–May 2018–2020, and April and May (%)
|
Sub-region/country
|
January-May 2018
|
January- May 2019
|
January- May 2020
|
April 2020
|
May 2020
|
|
Costa Rica
|
7
|
1.3
|
2.2
|
-11.6
|
-3.6
|
|
El Salvador
|
5.2
|
-1
|
-23.6
|
-51
|
-31.3
|
|
Guatemala
|
-1.3
|
-1.9
|
3.2
|
-8.1
|
-1.6
|
|
Honduras
|
-1.2
|
-8.5
|
2.3
|
-3.5
|
-5.7
|
|
Nicaragua
|
0
|
-4.1
|
14.1
|
14.7
|
14.6
|
|
Panama
|
11.7
|
0.7
|
-11.5
|
-30.8
|
-52.3
|
|
Central American Common Market (MCCA)
|
2.5
|
-1.8
|
0.4
|
-13.9
|
-8
|
|
Southern Common Market (Mercosur)
|
5.8
|
-4.1
|
-12.4
|
-11.7
|
-16.2
|
|
Andean Community
|
16.6
|
-2.8
|
-23.1
|
-52.8
|
-41.4
|
|
Pacific Alliance (Mexico, Peru, Colombia, Chile)
|
13.9
|
1.7
|
-19.8
|
-37.6
|
-49.4
|
|
Caribbean Community (Caricom)
|
17.5
|
4
|
-9.7
|
-34.2
|
-35.2
|
|
Latin America and the Caribbean
|
10.7
|
-0.3
|
-16.6
|
-29.5
|
-37.1
|
SOURCE: ECLAC
Costa Rica received a boost in the value of exports due to increased demand for medical devices produced in the country, according to Eclac; while Guatemala and Honduras both saw increased exports of personal protection equipment (PPE), particularly face masks, and agricultural products. Nicaragua performed well due to an increase in the price of gold, as well as increased volume of exports of agricultural and livestock products such as coffee, beans, sugar cane, and tobacco.
Another factor in this resilience is the importance of intraregional trade in Central America, which helped to mitigate the impact of reduced demand from trade partners outside the sub-region. Intraregional trade decreased between January and May in all of the main LAC trade blocs, such as the Southern Common Market (Mercosur) and the Pacific Alliance, all of which recorded year-on-year declines of 20%-31% in the value of trade. However, the CACM was more resilient, recording a contraction in intraregional trade of just 5.6% for the period, according to Eclac, although the huge decline in tourism did drag down the value of exports of services.
When it comes to the value of goods imports for the period January-May the CACM also recorded a smaller decline (-14%) than LAC as a whole (-17.1%), the Pacific Alliance (-19.3%) or the Andean Community (-20.5). Of the major regional groupings only Mercosur (-8.9%) saw a smaller decline. Guatemala (-7.5%) and Costa Rica (-9.1%) saw the smallest decline of the CACM nations, while Nicaragua (-28.2%) and Panama (-25.7%) saw the value of goods imports plummet. As the value of goods imports fell more sharply than exports, LAC as a whole is expected to record a trade surplus in 2020, according to Eclac. For the CACM nations, Eclac forecasts that the US$32bn trade deficit recorded in 2019 will fall to US$19bn this year.
The report also cites the CACM as an example of integration smoothing logistical challenges after member states successfully agreed on a biosafety protocol for truckers in order to keep trade flowing. Member nations acted quickly after Costa Rica shut its border with Nicaragua as part of measures to stop the spread of coronavirus (Covid-19), and the agreement saw cross-border shipments start up again. While Central American nations have proven more resilient in terms of the value of exports than other LAC countries so far during the pandemic, there are tough times ahead for the region as a whole. Eclac forecasts that LAC’s foreign trade will drop by 23% this year, a sharper decrease than the 21% recorded in the aftermath of the 2008-2009 financial crisis. Perhaps inspired by the recent performance of the CACM, Eclac recommends more integration for LAC as a whole in response to the crisis.
Since the signing of the agreement to establish the CACM in December 1960, the sub-region has had some successes, signing free trade agreement (FTAs) with both the US and the European Union (EU). The Dominican Republic-Central America-US Free Trade Agreement (Cafta-DR) -which does not include Panama- was signed in 2004 and took effect in El Salvador, Guatemala, Honduras, and Nicaragua in 2006; the Dominican Republic in 2007; and Costa Rica in 2009. Meanwhile the deal with the EU was signed in June 2012 and came into force in 2013. This makes it easier to attract foreign direct investment (FDI), and intraregional trade has seen significant and sustained growth from US$2.95bn in 2000 to US$8.20bn in 2011 and US$9.73bn in 2018, according to statistics from the secretariat for Central American economic integration (Sieca).
Intraregional trade contains higher value agroindustrial and manufactured products than extra-regional trade, and Central American companies are starting to think more regionally. For example, firms are making investments in neighbouring Central American nations (see sidebar). This real integration is developing alongside official integration agreed by governments. Infrastructure has also been developing, thanks in part to the sub-region’s involvement in Project Mesoamerica, which launched in 2008 with the aim of boosting connectivity between Mexico, Central America, and Colombia. It continues to work on transport, energy, telecommunications and competitiveness, as well as social issues such as health, environmental issues, and food security. Improving connectivity with South America, through Colombia, and North America, via Mexico, is key to helping Central America take advantage of its geographical position.
However, there are limits to its success as growth in intraregional trade has slowed in recent years, and national governments have blown hot and cold on regional integration. Intraregional trade may be stronger than in other LAC trade blocs, but extra-regional trade still dominates. On 1 September Sieca hosted a conference discussing regional integration post-Covid-19, emphasising the importance of intraregional trade in driving economic recovery. As things stand 31% of the sub-region’s exports are made to other Central American countries, and 14% of imports also come from the sub-region, according to a statement from Sieca. There is plenty more work for the CACM nations to do, but it will require deep political commitment at a time when there are many other issues to deal with as the pandemic rumbles on.
The Eclac report did not provide absolute figures but in 2019, Costa Rica’s exports totalled US$11.86bn; Guatemala, US$11.18bn, Honduras (goods only), US$4.5bn and Nicaragua, US$5.27bn. Meanwhile for El Salvador and Panama (goods only), these figures were: US$5.94bn and US$713m respectively.
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Firms expanding throughout the sub-region
This includes Curacao, a chain of home appliances stores owned by Salvadoran retail group Unicomer, which announced its continued expansion throughout the sub-region in September 2019, with the opening of 40 additional stores planned to take the total to 359. Guatemalan hardware chain, Novex, also announced a regional expansion in August 2020, with a new store opening in Costa Rica.