Central America: A Promising Market for E-Commerce

Online consumption has elevated the importance of establishing businesses’ e-commerce capabilities. Online spending has been growing year after year in many countries worldwide, and the Central American region is no exception.

E-commerce represents a new opportunity to investors doing business in Central America. Therefore, if you’re interested in investing in the region, it is important to keep up with the development of e-commerce.

Find out about recent developments in e-commerce in key Central American markets.

Importance of E-Commerce in the International Market

Thanks to changing preferences and access to online options, consumers are increasingly using e-commerce to shop with greater option choice and convenience. In Latin America, this development is more broadly driven by a growing middle class and increasing household incomes.

Implementing e-commerce functions into your sales model can be a challenge. However, they offer the following key advantages to business:

• Increasing the product/service reach
• Facilitating the purchase of the product/service by enabling an online platform
• Providing marketing tools to promote your product/service
• Overcoming geographical limitations.

E-commerce opportunities are growing in Central America. The countries that had shown the largest increase in online interactions in the region are El Salvador, Guatemala, Costa Rica and Panama. As an entrepreneur, it is important to take advantage of this when developing a market entry strategy or expanding into Central America.

According to a report issued by the Online Data Bank, about 73 percent of the population in Latin America use social networks, and 47 percent have a smartphone. That figure is expected to increase dramatically over the next few years, improving business opportunities for e-commerce in the region.

Costa Rica is a great example of e-commerce potential in Central America, with 40 percent of the population willing to buy products or services online. The numbers for Panama, Guatemala and El Salvador are 29 percent, 19 percent and 15 percent, respectively.

Furthermore, experts estimate that e-commerce sales will grow 22 percent by 2021, as online retail activity is spurred by companies such as Amazon, Alibaba, Linio and MercadoLibre. Current measures taken by governments to counter the spread of Covid-19 also appear to have had some effect on e-commerce activity in multiple countries in the region.

The use of e-commerce allows people, businesses and banking institutions to save money and time, while capitalizing on the convenience offered by the online commercial world.

E-Commerce Growth and Development in Central America

El Salvador

Due to technological developments and increased digital activity, the government of El Salvador was one of the first countries in Central America to issue a law that regulates and supports digital commercial activities.

In October of 2019, El Salvador’s Legislative Assembly issued the Electronic Commerce Law (Ley de Comercio Electronica), recognizing e-commerce as an economic development that will benefit companies and consumers across the country.

The new e-commerce legal framework makes entering El Salvador’s market easier for businesses looking to establish a base for their online commercial activities in the region.

The main purpose of this regulation in El Salvador is to protect consumers and suppliers that buy products through e-commerce platforms.

El Salvador, as one of the first countries in Central America to start regulating this sector, is offering ideal business conditions for online-operating companies looking to expand into the region. Furthermore, the government is continuously showing its interest in developing the industry while protecting the consumer and the companies that undertake e-commerce.

Guatemala

E-commerce in Guatemala is a big trend. Guatemalan companies that dedicate themselves to e-commerce grew 200 percent between 2016 and 2017.

According to the Chamber of Commerce of Guatemala, 67 percent of the total population has access to the internet. That represents a great opportunity for the development of online businesses.

Additionally, the Guatemalan government is interested in supporting the development of e-commerce by educating its population on how to buy or sell products through online websites, while granting security to electronic commercial relationships. To achieve this, the government supports the Forum of Smart Industries (Foro de Industrias Inteligentes) to encourage Guatemalan companies to take advantage of technological advances and e-commerce growth.

One of the subjects discussed during the Forum of Smart Industries was the development of a security system that will prevent online fraud and grant security to both consumers and sellers.

In Guatemala, e-commerce is not specifically regulated. The Chamber of Commerce announced that a law will be necessary to promote safe, fair and easily accessible purchases for consumers. Authorities in Guatemala agreed that the incorporation of this business model will support local economic growth.

Costa Rica

The panorama of e-commerce in Costa Rica is perhaps one of the most promising in Central America. The World Bank says 40 percent of Costa Ricans are willing to buy products or services on the internet, and about 22 percent of businesses in the country use online platforms to attract clients and generate income.

Last year, online sales of small and medium-sized enterprises (SMEs) increased by 25 percent. Moreover, the use of Asian e-commerce platforms like Wish and AliExpress has also increased considerably. This shows that more people in the country are discovering the benefits of buying online, and it reflects a fast-growing demand that only e-commerce services can satisfy.

On the other hand, Costa Ricans have begun to buy all kinds of products through the internet since the lockdown to mitigate the cases of Covid-19 was implemented across Central America in mid-March. This experience has taught people how to use e-commerce platforms and increases the chances of people maintaining this habit after the emergency.

Panama

Thanks to Panama’s economic structure and the constant business operations surrounding the Panama Canal, this country is recognized as one of the logistics hubs in the region. The situation in Panama is brighter if one considers the four free trade zones within the country and the well-maintained connectivity with neighboring countries.

According to the E-commerce in Latin America report prepared by DHL, Panama City is positioned as one of the most important destinations for the e-commerce sector, above other economic centers such as Miami, Mexico City, Sao Paulo, Los Angeles or Santiago de Chile. Furthermore, 58 percent of Panamanian internet users plan to buy online products and services in 2019 and 2020.

E-commerce in Panama has been regulated since 2001, when the of the Ministry of Commerce and Industries (Ministerio de Comercio e Industrias) introduced the General Direction of Electronic Commerce (Dirección General de Comercio Electrónico).

The main functions of this entity are to:

• Ensure proper development of the provision of technological storage of documents and the use of the internet as a means of providing commercial services in the national territory, in accordance with current legislation.
• Promote voluntary and free registration of companies that carry out commercial transactions through the internet, in accordance with current legislation.
• Register the providers of technological document storage services.
• Revoke or suspend the registration of providers of technological document storage services and e-commerce providers.
• Carry out studies and research necessary for the development, measurement and promotion of e-commerce in the Republic of Panama.
• Coordinate with other national entities and private companies the necessary mechanisms that streamline, facilitate, and give quality to electronic commerce from the Republic of Panama.
• Search, elaborate and develop mechanisms to make e-commerce profitable for micro and small companies.

For several years, e-commerce in Panama has been working to protect and promote new business models in the private and public sectors. The Panamanian government has implemented new processes to help online businesses, as people of all ages are gaining confidence in e-commerce.

Consider e-commerce while expanding your business

Technological advances are in continuous development and the incorporation of e-commerce as a strategy will help you promote your company, while expanding your business. We highly recommend that you implement e-commerce capabilities in your business so you can keep up with the evolution of the international market and ensure success when doing business in Central America.