Guatemala will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.
Guatemala’s incoming President Alejandro Giammattei will prioritize a center-right economic agenda, seeking to bolster employment opportunities through foreign investment.
However, Guatemala will continue to face insecurity, corruption, and challenging relations with the US over migrant flows.
In August 2019, Giammattei of the center-right VAMOS party won a second-round run-off election to secure the presidency, receiving 58% of the vote.
Giammattei will take office in January 14, 2020, with outgoing President Jimmy Morales likely to remain in place until then.
The incoming government may face public discontent over Guatemala’s “safe third country” agreement with the US, signed by Morales in July 2019.
The agreement requires asylum seekers passing through Guatemala to seek asylum there first, before entering the US.
The deal is widely opposed by the Guatemalan population given the additional pressures it may place on law enforcement and public services.
Although Giammattei has voiced opposition to the deal, he is likely to enforce it given the Trump administration’s threat of taxing remittance flows.
Over the coming quarters, this issue may cause public protest, with any incidents likely to be concentrated in urban areas.
On September 4, 2019, Morales introduced a 30-day state of siege in 22 communities in Alta Verapaz, Baja Verapaz, El Progreso, Isabel, and Zacapa departments.
The initiative was subsequently approved by Congress, and allows authorities to impose curfews, prohibit organized protests, and suspend the right to carry weapons.
It also extends the military’s powers of arrest and interrogation.
The decision followed reports on September 3, 2019, that drug traffickers had ambushed a group of soldiers, resulting in the deaths of three individuals.
The temporary nature of the state of siege is unlikely to materially improve security for firms operating in these areas, while the creation of checkpoints and roadblocks may result in delayed movement of cargo.
Guatemala is the world’s fourth largest sugar exporter. Sugar production is expected to be robust at 3 million tons in 2019, rising by an average annual rate of 2.7% between now and 2023. Continued production growth reflects the adoption of higher yield sugarcane varieties in recent years, along with improving irrigation systems.
The government aims to increase sugar yields to 12 tons per hectare (ha) by 2020. This follows an increase in yields from 6.6 tons/ha in 1990 to 10.8 tons/ha in 2015.
Economic growth in Guatemala is forecast at 3.3% year-over-year in 2019, rising from 3.1% in 2018.
Private consumption will be the principal growth driver in coming years, given stable inflation rates and strong credit growth. Giammattei is also expected to focus on improving access to credit for small- and medium-size businesses and enhancing Guatemala’s tourism industry.
Moreover, remittance inflows from the US are expected to be strong, with growth of 12.5% forecast in 2019. However, risks to this outlook stem from more challenging relations with the US over migration flows.
Giammattei’s center-right policy agenda is likely to include measures to streamline Guatemala’s regulatory environment and improve labor regulations.
In particular, Giammattei has outlined plans to link job creation to foreign investment, for example, by expanding the number of international call centers in the country.
However, his ability to implement policy is likely to be limited.
Following elections, the number of parties with representation in Congress has increased from 13 to 19, making coalition building more challenging.
Giammattei will also face an opposition-led Congress, where the Unidad Nacional de la Esperanza party holds 52 seats to VAMOS’s 17.
Corruption will remain a significant challenge for foreign firms operating in Guatemala.
In recent years, the outgoing administration implemented measures that weakened anti-corruption efforts.
For example, in 2018 Morales decided not to renew the mandate of the United Nations-backed International Commission against Impunity in Guatemala (CICIG).
CICIG launched a number of high-profile anti-corruption investigations during its 12 years of operation, resulting in the removal of a president and vice president.
Its closure is likely to hamper efforts to reduce corruption levels in the country, with cargo and construction likely to be at particular risk.
5 Key Takeaways
- Guatemala’s incoming President Alejandro Giammattei will prioritize a center-right economic agenda with more focus on attracting foreign investment.
- Economic growth is forecast at 3.3% year-over-year in 2019, rising from 3.1% in 2018.
- Guatemala is the world’s fourth largest sugar exporter, and sugar production is expected to be robust at 3 million tons in 2019.
- Remittance inflows from the US are expected to be strong, with growth of 12.5% forecast in 2019.
- Incoming President Giammattei has outlined plans to attract foreign direct investment to the telecoms sector by increasing the number of international call centers.
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