Caribbean & Central America - March 2021

On 16 February, the Guatemalan government announced a deal with private sector representatives which aims to increase the value of exports and attract new foreign direct investment (FDI). The agreement, known as ‘Guatemala doesn’t stop’, comes at a time when FDI inflows are predicted to plummet as a result of the global economic recession caused by the coronavirus (Covid-19) pandemic.

Signed by representatives from the ministries of finance, economy, and foreign relations in partnership with private sector lobby Asociación Guatemalteca de Exportadores (Agexport) and think-tank Fundación para el Desarrollo de Guatemala (Fundesa), the agreement aims to boost exports from sectors such as textiles, agriculture, food, drink, and chemical products by US$5bn according to a statement from the economy ministry (Mineco).

The second pillar of the initiative aims to attract new investments in pharmaceuticals, medical devices, electrical device manufacturing, and Business Processing Outsourcing (BPOs), such as customer service call centres. Mineco estimates US$300m in potential investment in these sectors, citing Guatemala’s strategic location for US firms interested in nearshoring. In the statement Mineco head, Antonio Malouf, underlined the importance of developing human capital, particularly English language skills, as well as improving the business environment through digitalisation and the speeding up of bureaucratic processes.

Earlier Malouf had underlined that attracting new investment is a “priority” and the government aims to attract US$1.2bn in FDI in 2021. This would represent a significant increase on 2020, according to forecasts from the United Nations Economic Commission for Latin America and the Caribbean (Eclac), which in December 2020 estimated Guatemala would receive US$898m in FDI that year. This figure represents a 10% decrease compared to 2019, when Guatemala received US$998m in FDI, which is roughly similar to inflows in 2018. On 1 February, the national competitivity programme (Pronacom), a national government office, announced nine new investment and reinvestment projects worth US$141m, creating an estimated 1,100 direct jobs. The five new projects involve logistics, textiles, light manufacturing, and call centres. While these early developments may be encouraging, the overall panorama remains challenging.

In May 2020 Juan Pablo Carrasco, the president of the association of binational chambers of commerce (Ascabi), told local media Prensa Libre that he predicted low FDI inflows in 2021, blaming the pandemic and fierce competition to attract investment among Central American nations. Carrasco emphasised that Guatemala needs to work on becoming more attractive to investors. “For that reason it’s important to cut bureaucracy, provide greater fiscal incentives to investors and legal certainty for investments”, he said. Moving government processes online would also help to improve speed and efficiency, added Carrasco, who wants to see long-term tax breaks offered to businesses in a wide range of sectors. The process of attracting FDI normally takes five years, according to Carrasco, so any new investments in 2021 will be the result of efforts in previous years.

Exports increased 3.5% in 2020 compared to the previous year, according to a statement from Mineco published 18 February, while imports fell 8.4% year-on-year. Boosting exports will involve better integrating small and medium-sized enterprises (SMEs) in regional and international trade, according to the national export council (Conapex), which also aims to increase digital commerce.

• Exports

The US, Central America, and Europe are Guatemala’s biggest commercial partners, receiving 30.51%, 29.81%, and 9.55% of exports respectively, according to Guatemala’s economy ministry. On 14 February. Paola Álvarez, director of Agexport, said that Guatemala is aiming to boost exports by US$1bn in 2021 by diversifying both products and markets. In 2020 exports were worth US$12bn, according to Álvarez, who identified exports to neighbouring Central American countries as a priority. She highlighted the food sector, particularly avocados given strong global demand for the fruit, as well as the need to embrace technological change and the digital economy.