The Guatemalan economy must integrate into regional value chains

by Steven Colantuoni | Sep 30, 2023 | FDI Latin America

Economic prospects for Guatemala for the remainder of 2023

by Editor Latam | Apr 6, 2023 | FDI Latin America

An agreement on nearshoring and investment between the United States and Guatemala advances

by Editor Latam | Mar 24, 2023 | FDI Latin America

The Guatemalan Minister of Economy, Dr. Janio Rosales, and Foreign Minister Mario Búcaro, Minister of Foreign Affairs, participated in a meeting on Monday, February 14th, with the United States delegation led by Lindsey Zuluaga, Principal Advisor for Economic Affairs of the Office of the Vice President of the United States, Kamala Harris.

Also participating in the meeting were: Ryan Gwinn, Central America Strategist, Office of Central American Affairs and Office of Western Hemisphere Affairs; Jonathan Fantini Porter, Executive Director, Association for Central America; Mark Lopes, President/COO of the Partnership for Central America; Ann Marie Brouillette, Director of Programs, Alliance for Central America; Danielle Orihuela, Program Manager, Alliance for Central America, Whitney Dubinsky from USAID and John Szypula from the US Embassy in Guatemala.

The joint agreement on nearshoring and investment between the United States and Guatemala will trigger increased foreign direct investment

The joint agreement on nearshoring and investment between the United States and Guatemala will strengthen the attraction of foreign direct investment. This result will come to fruition through the new Central America Forward Plan. The plan maps out a course of action that includes a series of investment events and economic tours in the United States and Guatemala. These activities will strengthen economic and trade ties between the two nations.

Likewise, the Government of Guatemala is working together with its country’s private sector within the framework of the plan Guatemala No Se Detiene (Guatemala Does Not Stop). Guatemala No Se Detiene has prioritized attracting foreign investment to generate more opportunities for Guatemalan workers. With this program, economic officials seek to increase the country’s competitiveness.

Guatemala-based companies can reduce supply chain risk

The global economy is highly interconnected, and disruptions in one region can significantly affect businesses and economic conditions in other regions. In particular, opportunities have been identified in the joint agreement on nearshoring and investment between the United States and Guatemala for companies with a nearshoring model in the textile, mining, medical device, and food safety sectors, among others.

During his speech, the Minister of Economy thanked the attendees for their presence and the support received from the United States. Also, he highlighted the work of Ambassador William Pop for his commitment to Guatemala. Ambassador Pop commented, “all these important advances and the achievements that we are having in economic matters are of great value. We need to continue working on actions to strengthen the Guatemalan economy. This will improve the living conditions of Guatemalans and will generate more prosperity, security, and a better future”.

The United States is helping transform Guatemala

The United States government has been a crucial part of this transformation. It has contributed to the economic development of Guatemala by building walls of prosperity by attracting more foreign investment. The companies that aim to supply important markets and implement a nearshoring model are significant ones.

From this account, progress has already been made in the joint agreement on nearshoring and investment between the United States and Guatemala. But, most importantly, it promotes the creation of jobs. In addition, it addresses the fundamental causes of migration within the framework of “good governance and good jobs.” With this in mind, it seeks to increase supply chain resilience through a strategy directed by the Guatemalan Ministry of Economy and the country’s Office of the Executive.

Alliances such as the Centroamérica Adelante (Forward Central America) initiative and Vice President Harris’ Call to Action are essential to future economic growth. They aim to strengthen the commitment of companies that invest in and support the comprehensive development of people and their families in the region.

The goal is to generate stable, long-term supply chains

The nearshoring model and the diversification of sources of raw materials and components is an essential additional step in the growth of companies. Achieving this will contribute to the long-term stability of corporate supply chains by investing in local suppliers and developing local production capacities.

For example, companies such as Walmart, Pricesmart, Nestlé, Millicom, Nextil, Target, and Yazaki have trusted in the productivity of the Guatemalan workforce and have benefited from the country’s strategic location.

As indicated, strategies to attract important companies have also been developed between the Ministry of Economy through PRONACOM and the Project Creating Economic Opportunities of USAID. This alliance has led to the establishment of Guatemalan operations by companies such as Yazaki, which has pioneered the country’s move toward more sophisticated industrial sectors with trained and qualified human resources.

During the meeting on the joint agreement on nearshoring and investment between the United States and Guatemala, various American Guatemala-based companies testified to the excellent business climate they have encountered while doing business in the country.

Nearshoring in Guatemala: A golden opportunity

by Editor Latam | Mar 3, 2023 | FDI Latin America

The Central American nation seeks to position itself as an attractive destination for companies from nearby countries to outsource business processes. Nearshoring in Guatemala is a golden opportunity to attract more foreign direct investment (FDI).

Multinational companies have begun to rethink where to locate their supply chains. This calculation is a result of the process of reconfiguring global value chains, which began a few years ago. This movement has been accentuated by the interruptions caused by the COVID-19 pandemic and geopolitical tensions between major global economic powers, mainly the US and China.

Within this framework and under the “Guatemala does not stop” project, the Guatemalan authorities proposed to take advantage of its proximity to the United States. Guatemalan economic policymakers have decided to exploit this set of opportunities and the competitive benefits offered by the country to provide a rapid response to these needs to turn it into a world-class player that allows export-oriented cross-border operations to expand by nearshoring in Guatemala.

According to Rolando Paiz, general coordinator of the Executive Committee of the National Competitiveness Program (PRONACOM), “This could be a watershed moment to increase national capacity to reinvent various industries in the manufacturing sector. Furthermore, it may be an opportune time to connect with international suppliers and be part of resilient and appropriate global supply chains. On the one hand, political-economic challenges must be overcome. On the other, this is the moment to work against the clock to have all the appropriate responses to investors on time and make the necessary structural changes so that Guatemala can position itself as an attractive destination for the nearshoring process of multinational companies.”

The unmatched benefits of nearshoring in Guatemala

Nearshoring is viewed as a strategy with multiple benefits for the integral economic development of Guatemala. This is mainly due to the potential to create large amounts of formal employment quickly.

For the export sector, the areas with a competitive edge (clothing and textiles, agriculture and manufacturing, among others) could take better advantage of this international context while exploring opportunities in sectors of great interest. These include activities in which Guatemala does not yet have a strong presence internationally, but it has potential, such as pharmaceutical and medical device manufacturing.

“In the pharmaceutical industry, for example, we are talking about a market of more than US$147 billion in annual turnover. In medical devices, the market invoices an average of US$90 billion annually. In addition, we cannot neglect the service sector, which has been gaining competitiveness,” affirms Paola Álvarez, manager of Market Development and Commercial Promotion of the Association of Exporters of Guatemala (AGEXPORT).

Joint strategy for nearshoring in Guatemala

Since mid-2020, the public and private sectors have joined efforts and invested resources to identify the most strategic industries and how to attract them to the country. As a result, go-to-market strategies have been developed, explains Juan Carlos Zapata, executive director of the Foundation for the Development of Guatemala (FUNDESA).

“An investment attraction agency was created, and there is already a person in charge of promoting the benefits of nearshoring in Guatemala. We are clear that these types of initiatives take time to generate results. However, companies related to the maquila and technological sectors, such as call centers, already have a presence in the national territory or are in the process of establishing one,” adds Zapata.

Expectations

To date, the entities involved in the plan have generated three coordination tables with sectors of pharmaceutical products, manufacturing of electronic equipment, and business services. These are areas that are promising for the country. Two companies have already moved their operations to Guatemala City, and one more is evaluating the Guatemalan metropolis and other countries. “From PRONACOM, we have taken the lead, together with other actors, which has allowed us to capture more than US$450 million by last May for this concept of new investments or reinvestments of multinationals. As a result, more than 7,000 new jobs have been generated,” he points out.

Advantages of nearshoring in Guatemala

• Privileged geographical position, close to the United States. Guatemala is the largest economy in the region. Stable and resilient macroeconomics. Business climate favorable to investment.
• Robust infrastructure, with intermodal platforms that present a series of logistical advantages.
• More than 14 commercial agreements. Young human resource pool with skills to enter the labor market.
• Guatemala has the largest installed capacity for energy production in the Isthmus at the most competitive price. Incentives are protected under laws such as the Law on Free Zones,

The Law for the Promotion of Export and Maquila Activity, the Law of the Free Zone of Santo Tomás de Castilla, and the Law of Incentives for Renewable Energy Production Projects.

The significant pending challenges for nearshoring in Guatemala

To achieve the proposed objectives, Guatemala must overcome structural conditions that make it particularly expensive for the performance of certain economic activities, such as:

• Connectivity from production centers to ports.
• The times and processes related to customs operations.
• The low predictability of the level of the minimum wage.
• The costs to provide security “which are not necessarily the lowest in the region.”

Despite these challenges, investors considering nearshoring in Guatemala will find that the country offers a favorable business environment for foreign direct investors, with a strategic location, abundant natural resources, a skilled labor force, investment incentives, and economic stability.

For more information on investing in Guatemala, speak to the professionals at LATAM FDI.