Caribbean & Central America - July 2024

Poor infrastructure is affecting the movement of goods and having a knock-on effect on economic activity, and President Bernardo Arévalo has launched a national foreign investment strategy to address longstanding issues.

While Guatemala’s infrastructure deficit is a long-term concern, the situation has come to a head recently. There are problems affecting the state-run Puerto Quetzal port, in Escuintla department on the Pacific coast, the privately-operated APM container terminal at the port; and a key highway linking Guatemala City to the Pacific, which has been closed due to a massive sinkhole. “These three situations need immediate action to avoid national and international trade from shutting down,” Guatemala’s exporters’ association (Agexport) said in a statement published 15 June. It lamented this triple crisis, which it said “could have very negative consequences for growth.” 

According to Agexport, there was a queue of 25 ships waiting to unload at Puerto Quetzal, which can take up to 12 days, while operations at the APM terminal are threatened by a legal dispute surrounding its contract. If container operations cease, containers would not be able to leave Guatemala for the west coast of the US, South America, or Asia, according to Agexport. 

The association also highlighted the fact that the sinkhole on the Palín-Escuintla highway has affected the movement of goods from the Pacific ports to the rest of the country, as well as terrestrial borders with Mexico, El Salvador, and Honduras. According to Agexport, 22,000 heavy goods vehicles use the route every day. The highway was a toll road operated and maintained by Mexican firm Grupo Marhnos from 1998-2023, when its contract ran out and was not renewed. This meant that maintenance was the responsibility of the Guatemalan state, a move which sparked concern among trade organisations at the time due to worries over a lack of funding and technical capacity.

And on 25 June authorities shut the Libramiento de Chimaltenango bypass in the centre of the country after heavy rains caused landslides. The project, which was opened in 2019 to great fanfare, has suffered a series of closures due to poor construction quality linked to corruption. Its four lanes cover just 14.5km but cost Q528.6m (US$68.1m), becoming an emblem of the endemic corruption that President Arévalo has promised to root out.

Fixing such a multifaceted problem will not be easy, particularly after years of graft and neglect have led to serious shortfalls, but Arévalo has said that infrastructure will be a priority for his government. In February, the president took part in a logistics forum organised by the private sector lobby Cámara de Industria de Guatemala (CIG), where he highlighted how better infrastructure is critical to his manifesto promises to create the conditions for economic and social development in the country. He has also spoken of the importance of connecting areas outside urban centres, for example by improving rural secondary roads, in order to benefit the whole country.

In the short-term, Arévalo has to deal with the legal case over the APM container terminal. The case dates back to 2017 and focuses on whether an operating concession covering 60% of container traffic currently held by APM Terminals, a Netherlands-based subsidiary of Danish shipping company Maersk, was improperly awarded. A court has ordered that the concession be revoked. The government will have to decide whether to renegotiate terms with APM or to stage a new licensing round. 

In a sign of the seriousness of the issue, Arévalo cancelled a planned trip to Europe to deal with the crisis at the port. And on 18 June he said that the problems at the port were linked with corruption, and that the facility had become “a site of conflict between political actors who are looking for easy money”. 

In the long-term, Arévalo has recognised the need to attract foreign direct investment (FDI) to deal with the infrastructure deficit, and his government launched a new FDI strategy on 13 June. It aims to attract US$2.7bn in investment for a portfolio of 54 proposed projects in sectors such as infrastructure, manufacturing, and agribusiness. 

The aim is to attract high-impact investments that improve competitiveness and generate well-paid jobs, thanks to improved coordination between public and private sectors, according to the strategy document. 

FDI inflows have been increasing since 2020, when Guatemala received US$934.9m in FDI, with US$1.65bn expected this year and US$1.85bn forecast in 2025. However, this is far lower than regional peers such as Costa Rica, and much more is needed in order to boost development.

The aim is to “integrate Guatemala into global supply chains, taking advantage of nearshoring and global commitments to environmental sustainability,” reads the plan. Benefits of more investment include more formal jobs, better pay, increased tax collection, and reduced push factors for migration, said Arévalo in a statement announcing the new strategy. 

President Arévalo also linked his anti-corruption drive to investment, acknowledging that greater transparency and a better business environment are more likely to attract investors. The president made the same connection between corruption and investment at an event in March, where he invited a group of assembled US investors to work with him in putting Guatemala on a path to growth.

However, President Arévalo’s ability to enact the change that he promised has been hamstrung due to the continued presence of Attorney General María Consuelo Porras, who he has been attempting to remove from her post due to her links with the so-called ‘pacto de corruptos’ network of institutional corruption. Arévalo has said that Porras has delayed investigations into different corruption cases, but he has been unable to remove her due to legal obstacles. And with Porras still in post, Arévalo’s ability to act is limited and his credibility as an anti-corruption crusader is undermined.

Arévalo has also seemingly prioritised social spending over infrastructure and is currently facing a battle to secure congressional approval for a bill to increase the 2024 public sector budget by Q14.45bn (US$1.85bn) which is required to fund his electoral promises to help the poor and strengthen social programmes. 

His strategy appears to be to use public-private partnerships (PPPs) to improve infrastructure without significantly ramping up public spending. This model is not new in Guatemala. For example, a PPP for the Escuintla-Puerto Quetzal highway was approved three years ago and on 21 June the infrastructure ministry gave the green light for construction to begin. This should go some way to improving connectivity on the key route once it is complete.

Arévalo has also said that a planned Guatemala City metro line and operations at the capital’s La Aurora International Airport will also both be run by PPPs.

Cooperation with Mexico

President Arévalo has also stepped up cooperation with the Mexican government with the aim of attracting investment to benefit from the nearshoring trend through new rail links between the two nations. While these new connections will be expensive and take a long time to build, even if technical and financial challenges can be overcome, this increased engagement is another signal that Arévalo is keen to align Guatemala with Mexico and the US, rather than betting on investment from China, as many Central American neighbours have done in recent years.