Market observers recognize increasing foreign direct investment (FDI) in Guatemala as the Central American country emerges as a top contender for international business.
The Guatemalan government has made great efforts to improve its business environment, encouraging greater investor confidence and spurring FDI inflows. In particular, the government offers foreign investors technically equal treatment to national investors. According to the 2019 UNCTAD World Investment Report, Guatemala received US$1,06 billion for FDI inflows in 2018. This is a 4.23% increase from the previous year.
We outline the most important foreign direct investment trends in Guatemala and why this country should be regarded as a growing hotspot for commercial activity.
FDI Fueled by History
Foreign currency inflows from foreign direct investment (FDI) reached US$671.4 million during the third quarter of 2019 (July, August, and September), a 6% increase compared to the same period in 2018. This was reported by the Banco de Guatemala (Banguat).
Despite neighboring economies such as Panama stealing the spotlight in terms of attractive business destinations in Central America, Guatemala has the highest GDP out of the region’s seven countries. In 2018, the country sported a GDP of US$78.46 billion, compared to Panama’s US$65.055 billion, and has consistently shown higher GDP growth than Panama for decades.
Peace accords forged between 1994-96 ended the Guatemalan Civil War, an internal conflict lasting 36 years. This was a significant development in stabilizing the country’s economy, boosting security levels, and investor confidence. It is perhaps because of this conflict that Guatemala continues to be somewhat overlooked as a business destination in Central America. Since then, the government has actively pursued further reforms to support new development.
Though it has a long road ahead to achieve further development, Guatemala projects macroeconomic stability and is active in securing trade agreements.
The key sectors receiving a focussed amount of FDI in Guatemala include:
|Sector||FDI received (US$)|
|Vehicle trade and repair||166 million|
|Electricity, water, and sanitation||123 million|
|Finance and insurance||103 million|
|Information and communications||81.5 million|
Guatemala’s industrial, manufacturing, agricultural, and services sectors are among the economy’s most robust and most productive.
Foreign Direct Investment by Country
The amount of FDI originating from Colombia is US$137.4 million, the most considerable proportion of which is concentrated in financial activity and insurance. Mexican investors contributed US$135 million, predominantly in commerce, telecommunications, and industry. From the United States, FDI flow reached US$122 million.
Guatemala also receives investment from further abroad: The Netherlands invested US$61.6 million, Luxembourg US$54.3 million, and South Korea, US$20.6 million.
This activity demonstrates that Guatemala has local, regional, and international appeal from key players. As technology and innovation move through Latin American nations and revolutionizes critical sectors such as finance, insurance, agriculture, and industry, we may see related sectors attract further FDI in Guatemala.
Agricultural Technology and Other FDI Sector in Guatemala
As with many developing countries in Latin America and the Caribbean, Guatemala’s modest agricultural industry is experimenting with Agritech, having representatives participate in events and conferences such as the 2018 Agritech conference in Israel.
The innovation of Guatemala’s agricultural scene helps to improve yields, productivity, and automation. Investment into agricultural technology – even to introduce successful models employed elsewhere in the world – will serve to achieve more for agricultural producers. Guatemala’s main exports include coffee, bananas, and raw sugar. Investing in the modernization of these and other valuable industries may also help Guatemala achieve greater food security. Investors may, therefore, be able to leverage additional government support to get ahead in this sector.
There’s potential for success in investing in other technological and digital development in Guatemala. With a strong and highly valued services sector (especially B2B), consider investing in innovative models for services such as finance, insurance, education, regulation, and other popular tech trends worldwide.
As Guatemala aims to improve digital inclusion and access, investment into modernizing traditional institutions is relatively under-explored in this country.
There are government plans that encourage foreign investment in reconstruction and infrastructure improvement projects, considering Guatemala has considerable improvements to make in this area. However, there are not enough trained professionals to carry out these projects, which is why international consultants are used, opening the way to alliances with infrastructure companies.
As infrastructure is key to increased development and enticing further business activity, investors could take advantage of the opportunities available in this market.
Thanks to the efforts and large investments of governments to increase the percentage of coverage in the distribution of energy, demand for electrical appliances from consumers and other businesses in Guatemala is on the rise.
Investing in wholesale of light bulbs, switches, cables, and outlets offers potential for long-term success in the country. Industrial production of transformers, light poles, light cabinets and boxes, fuses, and supports and hardware for energy distribution are other potentially prosperous opportunities for investors.
As demands for infrastructure increase, as will the need for relevant construction materials. Products such as taps, ceramics, and finishes and accessories, in general, are sought after.
The intermediary margins range between approximately 25% and 30% for wholesalers, and 30% or 40% for retailers.
A Note on Tourism
Tourism worldwide has been brought to a standstill while governments grapple with widespread challenges to managing and reducing the spread of COVID-19 in their countries.
When considering the potential for growth in tourism in Guatemala, previous economic forecasts certainly did peg the sector to become a key contributor to the country’s GDP. The future remains uncertain, and transition plans for governments to rewind their counter-COVID-19 measures may not be conducive to travel. Similarly, consumers and investors may halt their spending on such luxury activity.
There may still be potential for Guatemalan tourism to grow from regionally-based holidaymakers. In the longer term, this is certainly a sector to be mindful of when considering investment opportunities in Guatemala.
Foreign direct investment is expressly desired in Guatemala. As the largest economy in Central America, but yet a still-developing one, there is potential for success in Guatemala’s untapped markets. FDI trends in Guatemala indicate local and global interest in this economy, and popular sectors that have yet to receive the same level of modernization as other more developed countries are seen as prime opportunities for investment.