Four Industries to Watch Out For in Central America
Guest Post from Biz Latin Hub
Central America is for the most part showing signs of emergence and improvement in the international market. Despite fears surrounding security, unrest and corruption, the region is making significant ground in cleaning up its reputation and is a progressively more attractive investment prospect for foreign businesses.
Although much of the economy still remains heavily reliant on traditional sectors such as agriculture and textiles, exciting new trends and opportunities are springing up across the subcontinent as mirrored in the rest of Latin America.
Central America Economic Outlook
Over the next few quarters Central America and the Caribbean should continue to benefit from the booming U.S. economy, which is expected to be powered on by fiscal stimulus, at least over the short-term. As the labor market in the United States—by far the region’s largest trading partner—continues to tighten this year, remittance inflows and tourist dollars are expected to buoy household incomes across the economies within Central America and the Caribbean. Moreover, strong U.S. demand should prop up exports, which will help offset the region’s growing imported fuel bill. Regional growth is projected to reach 2.0% in 2018 and is seen accelerating to 3.8% in 2019.
With that said, this article will isolate one industry of interest in Costa Rica, Guatemala, Nicaragua and Panama, respectively, providing an analysis of current numbers and movements in each sector.
Costa Rica: Breaking Records in Green Energy Production
Costa Rica is internationally renowned for its comprehensive and profound policies towards environmental protection and conservation. The country is blessed with some of the richest natural resources on earth, with kilometers of paradisiacal coastline and vast rainforests. In recent years, it has gained global recognition for the astonishing achievement of meeting its electricity demand for over 300 consecutive days using purely green energy. The largest contributor is hydropower, which accounts for roughly 80% of all electricity produced in the country. The newly constructed Reventazón facility, which cost USD 1.4 billion to build and has a total installed capacity of 305.5 MW, is the second-largest hydropower plant in Central America, and there are plans to build a new plant with double the generation capacity.
Superficially, the Costa Rican clean energy sector is very impressive; however, if you scratch a little deeper, there appears to be a significant irony and paradox, which has been highlighted by key members of the community. Dr Monica Araya, a renowned advisor and expert in the energy sector has been an particularly outspoken critic. She has illustrated that, despite 99% of electricity production sourced from clean sources, Costa Rica remains heavily reliant on oil in terms of energy consumption, especially in terms of petrol for vehicles. The country is therefore keen to invest in hybrid and electric vehicles to help rectify this discrepancy, which may provide a fantastic market opportunity for foreign investors.
The Global Climate Partnership Fund is a good example of the national desire to increase the efficiency of green energy production in the country. It has a support program called “Créditos Verdes”, which provides financial lending for companies looking to invest in green projects.
Economic Outlook in Costa Rica
The inauguration of President Carlos Alvarado and the new representatives of the Legislative Assembly in May lifted a cloud of political uncertainty, which should benefit economic activity this year. However, despite ongoing legislative efforts, a high and persistent fiscal deficit will continue to weigh on prospects, as could escalated instability in neighboring Nicaragua. Our analysts expect GDP to grow 3.2% in 2018, which is unchanged from last month’s projection, and 3.3% in 2019.
Guatemala: An Emerging Tech Hub
Boasting the largest population in Central America, Guatemala is a very attractive business jurisdiction that is often overlooked as a result of the poverty and security issues that used to plague the region. Although the country has traditionally been sustained by primary sectors of the economy, with major income sourced from the production of sugar, bananas, coffee and cardamom, the recent development of a steadily growing technology sector has provided the Foreign Direct Investment (FDI) required to advance the quality of life of its citizens and to promote economic growth.
Growth in the technology sector can be largely broken down into two categories; the development of Guatemala's telecommunication sector and the surge in tech-related start-ups. Despite suffering from some infrastructural deficiencies, the country boasts “first world telecommunication infrastructure,” which has attracted nearly USD 80 million in FDI. Furthermore, and perhaps helped by being so close to the United States, the world's largest economy, Guatemala has joined other start-up giants in the region such as Chile and Mexico, and now has a reputation for being a hub for new and promising start-up projects. For example, major telecommunication service provider Telecom has invested heavily in supporting Guatemalan start-ups that operate in the technology sector, launching its business incubator “Open Futures” in the country. One example of a start-up supported by this program is Guatetrending, a social media platform that aims to facilitate networking and communication between Guatemalan entrepreneurs and small businesses.
Economic Outlook in Guatemala
Economic growth is expected to accelerate this year on the back of strong domestic demand. A tight labor market should drive wage growth while strong remittances inflows are likely to provide a further boost to household spending. Meanwhile, government infrastructure spending should be solid. Potential political and economic uncertainty leading up to next year’s presidential elections pose downside risks, however. FocusEconomics Consensus Forecast panelists expect the Guatemalan economy to expand 3.1% this year, unchanged from last month’s estimate, and 3.3% in 2019.
Nicaragua: A Growing Textile and Retail Industry
Nicaragua has made a significant effort in recent years to facilitate FDI and has passed two crucial pieces of legislation that have made the country infinitely more attractive to investors. The Tourism Industry Incentives Law provides a 10-year exemption on income and real estate tax. There are also tax-free imports on supplies and equipment for these companies. Additionally, the Foreign Investment Promotion Law was enacted, as well as a host of new Free Trade Agreements with countries such as the United States, Mexico and South Korea. Thanks to these efforts FDI reached USD 1.44 billion in 2016, according to the BCN (The Central Bank of Nicaragua).
Particularly, the textile and retail production sector has emerged as one of the strongest industries in Nicaragua in recent years. The Nicaraguan Association for the Textile and Confection Industry (ANTIC) estimates that between 2016 and 2017, the industry grew by 5% and reached a market value of USD 1.5 billion. According to ProNicaragua, the government agency that promotes investment in the country, an increasingly sophisticated manufacturing sector accounted for 43.6% of the country’s exports. Nicaragua’s manufacturing sector has become particularly well-known for the production of high-quality footwear, especially leather boots and shoes.
Economic Outlook in Nicaragua
Political and social instability will weigh markedly on growth this year, although solid remittance inflows will provide some support. Our panelists expect GDP to expand 0.1% in 2018, down 0.5 percentage points from last month’s forecast, and 3.0% in 2019.
Panama: Building a New Future
Panama has become known around the world primarily, and perhaps unfairly, for providing so-called tax havens. However, there is a little-known side of Panama’s economy that dispels this stereotype: 80% of Panama’s GDP is service-based, among the largest in Latin America, and FDI reached USD 5.29 billion in 2017. Moreover, during the period of 2004-2013, the economy grew at an impressive average rate of 8.3%.
The most eye-catching development in the Panamanian market is the astounding expansion and investment in infrastructure. In 2015, the government announced a four-year investment plan worth USD 20 billion, with 55% being funneled into social infrastructure. Projects include a USD 6.4 billion expansion of the metro line, as well as the building of 5,000 homes, schools and hospitals. Perhaps the most high-profile project was the USD 5.2 billion expansion of the Panama Canal, which will become the largest port in Latin America. This has understandably allowed for huge involvement from foreign construction companies, due to the astounding number of contracts being handed out for the various projects, with companies from Brazil, the UK, the U.S. and Spain all boasting large amounts of business because of the infrastructure investment.
A Changing Landscape
The four markets detailed above are just the tip of the iceberg in terms of business opportunities in Central America. The entire region is experiencing a period of growth and signs point to continuous prosperity in the future.
About the Author
Biz Latin Hub is owned and managed by an experienced team of local and expatriate professionals, dedicated to assisting our clients in navigating their way through the complexities of the Latin American business environment. We are a market leader in helping both local and foreign companies to do business successfully in Latin America, by providing a full suite of multi-lingual commercial representation and back-office services.
*Guest posts do not reflect the views of FocusEconomics
5-year economic forecasts for 127 countries & 30 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: September 27, 2018
TagsEuropean UnionPrecious Metals CommoditiesTradeVenezuelaCommoditiesJapanVietnamSouth AfricaBitcoinEmerging MarketsBanking SectorAsiaAustraliaTPPUnited KingdomCryptocurrencyoil pricesEnergy CommoditiesColombiaBrazilOPECArgentinaEconomic DebtConsensus ForecastTurkeyprecious metalsForexChinaEastern EuropeIranItalyEuro AreaCanadaPortugalFranceInfographicUKSub-Saharan AfricaBrexitGermanyUkraineTunisiaCompany NewsUnemployment rateEconomic Growth (GDP)Housing MarketMajor EconomiesUSAG7EurozoneUnited StatesIMFIndiaInvestmentAfricaRussiaBase Metals CommoditiesSpainAgricultural CommoditiesHealthcareInflationGreeceGoldExchange RateNordic EconomiesMENAOilLatin AmericaMexico
Asia-Pacific economies are expected to maintain a solid pace of growth in 2019. Find out more in our latest economi… https://t.co/H9QUOIwqrD
2 days ago
2 days ago
Sub-Saharan Africa is projected to grow 3.4% in 2019, down 0.1 percentage points from last month's forecast. Find o… https://t.co/HH3x3XTScU
1 week ago
Asia-Pacific 2019: ESA to lose steam & ASEAN to maintain solid pace of growth - https://t.co/ABQAaNP2a3
1 week ago
FocusEconomics analysts expect South African growth of 1.4% in 2019, down 0.2% from last month’s forecast, and 1.8%… https://t.co/87vQ35B8ne
1 week ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Canada in 2019: Interview with a Top Economic Forecaster
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 10 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- How can Latin America’s business environment benefit from technological change?
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Venezuela's Electoral Conundrum
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will emerging market economies perform in 2017?
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- Sub-Saharan Africa's 2016 & 2017 growth rates
- China: Recent postive economic data may be papering over the cracks
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit