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Doing Business In Guatemala

Market Overview

Guatemala is the northernmost country in Central America, with Mexico to the north and west, Belize and the Atlantic Ocean to the east, Honduras and El Salvador to the southeast and the Pacific Ocean to the south. Famed for its volcanoes, textiles, Mayan ruins, and temperate climate in the highlands, Guatemala is at the center of a large regional market for U.S. goods and services.

The United States is Guatemala’s main trading partner whereas Guatemala ranks as the 40th largest export market for U.S. exports. Principal U.S. exports to Guatemala in 2012: oil (33%); machinery (9%); cereals (6%); electrical machinery (95%); cereals ( 5%) and plastics (4%).

Guatemalan GDP reached an estimated USD 50.3 billion in 2012 and exports from the United States to Guatemala were estimated at USD 5.9 billion, up about 24 percent from 2011. Export growth is expected to continue in 2013 and beyond. U.S. products and services enjoy strong name recognition in Guatemala, and U.S. firms have a good reputation in the Guatemalan marketplace. It is estimated that approximately 175 U.S. firms have a presence in the market. As a result, more than one third of all Guatemalan imports come from the United States.

Guatemala can also offer opportunities for foreign investment. Despite some persistent challenges foreign investment increased 17.64% in 2012, reaching USD 1.2 billion, while in 2011 foreign investment in Guatemala reached USD 1.0 billion. Guatemala’s world ranking in “Doing Business” was 93 of 185 in 2013 (98 in 2012). (Editor’s note: data on foreign investment cited above is more recent than that cited in Chapter 6, which was finalized earlier in 2013.)

With a population of around 14 million, Guatemala is the largest country in Central America and accounts for more than one third of the region’s GDP. The capital, Guatemala City, has a population of almost 3 million and features first-class hotels and restaurants. La Aurora International Airport, which serves Guatemala City, is located just minutes from the major business and financial areas.

Market Challenges

Otto Perez of the Patriot Party (PP) came into office on January 14, 2012. The President made a commitment to restructure the Government and to continue programs initiated by prior governments to promote foreign investment, enhance competitiveness, and expand investment in the export and tourist sectors.

Perez’s administration has continued to maintain good relations with the United States while diversifying exports to Asia and Europe and the rest of Central America. The United States and Guatemala are both committed to strengthening democratic institutions, promoting trade, and improving the rule of law.

At this time, Perez faces many challenges, among them the need to address the perception that public security has decreased in the last year. Violent crime and a weak judicial system remain serious challenges; corruption in the Government, workers’ rights, intellectual property protection, food security, education, social and political issues that threaten the mining industry, a decline in tax revenue, and the overuse of emergency procurement purchases in all the institutions continue to be other key challenges for the government.

On January 11, 2008, Guatemala and the United Nations established the joint International Commission against Impunity in Guatemala (CICIG). CICIG is charged with helping Guatemala to investigate and prosecute organized crime.

Most hurdles to exporting to, and investing in, Guatemala are bureaucratic in nature. Issues related to the Certificate of Origin continuously represent an obstacle for Guatemalan importers to access preferential tariffs. It is highly encouraged that they complete such documents in a thorough manner. The local currency, the Quetzal, has remained fairly steady at approximately 7.85 - 8.0 Quetzals to the U.S. dollar throughout 2012. U.S. dollars are freely available within the Guatemalan banking system. In October 2010, monetary authorities approved a regulation to establish limits for cash transactions of foreign currency. The regulation, which is aimed at reducing the risks of money laundering and terrorism financing, establishes that monthly deposits over USD 3,000 should be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities. There are no legal constraints on the quantity of remittances or any other capital flows, and there have been no reports of unusual delays in the remittance of investment returns.

Market Opportunities

The signing of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) by the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua on August 5, 2004, represented a giant step toward greater economic integration between the U.S. and these Central American and Caribbean nations.

Under CAFTA-DR, about 92 percent of U.S. industrial and consumer goods enter Guatemala duty-free, with the remaining tariffs scheduled to be phased out by 2015. Nearly all textile and apparel goods that meet the agreement’s rules of origin are now traded duty-free and quota-free. The agreement’s tariff treatment for textile and apparel goods is retroactive to January 1, 2004.

Also under CAFTA-DR, about 89 percent of U.S. agricultural exports now enter Guatemala duty-free. Guatemala will eliminate its remaining tariffs on nearly all agricultural products by 2020 (2023 for rice and chicken leg quarters and 2025 for dairy products). For the most sensitive products, tariff rate quotas will permit some immediate duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in white corn through expansion of a Tariff Rate Quota, rather than by tariff reductions.

CAFTA-DR is the third largest Latin American market for U.S. goods, surpassed only by Mexico and Brazil. Along with reduced trade barriers, CAFTA-DR loosened restrictions that have historically locked U.S. firms into exclusive, often inefficient, distribution arrangements. CAFTA-DR member countries have further promised increased transparency in customs dealings, anti-corruption measures in government contracting and procurement, and strong legal protections for U.S. investors. In August 2009, the Guatemalan Congress approved reforms to the Government Procurement Law, which simplified bidding procedures, eliminated the fee previously charged to receive bidding documents, and provided an additional opportunity for suppliers to raise objections over the bidding process. Despite these reforms, large government procurements are often subject to appeals and injunctions based on claims of faults in the bidding process (e.g., documentation issues and lack of transparency). During 2012, several U.S. companies continued to voice their concern regarding the unfair and non-transparent tendering process by the Guatemalan government as a barrier to trade.

In July 2010, the Guatemalan Congress approved an insurance law that strengthens supervision of the insurance sector and allows foreign insurance companies to open branches in Guatemala. This law requires foreign insurance companies to fully capitalize in Guatemala. This law implements Guatemala’s CAFTA-DR commitment to allow U.S. insurance companies to establish branches by July 2010. Under the CAFTA-DR, U.S. insurance companies may also establish wholly owned subsidiaries and joint ventures.

Regionalization has quickly become a fact of life for doing business in Central America. Factories and distribution facilities have been and continue to be designed to serve a regional market. Furthermore, rarely does a U.S. businessperson visit just one Central American country. New investors weigh the advantages that each country offers as they look to decide where to establish new plants. Regional managers are becoming the norm, with responsibilities for multiple countries within the Central American marketplace. Trade between the countries of Central America has also increased dramatically over recent years, a trend that was accelerated with CAFTA-DR implementation.

The Guatemalan market is competitive. Guatemalan businesspeople are price-sensitive and expect good after-sales service and support. They are accustomed to doing business with U.S. firms and many Guatemalans travel regularly to the United States and speak English.

The Guatemalan economy expanded rapidly over several years, until the global recession in 2009. According to Banguat, in 2012 real GDP grew by 3.1 percent and inflation was estimated at 3.45 percent. Remittances, almost entirely from the U.S., are an important source of foreign income. In 2012, Guatemalans living in the United States sent an estimated USD4.78 billion in remittances, an 9.22 percent increase over the previous year, which accounted for approximately 9.5 percent of GDP in 2012.

During 2012, exports of traditional agricultural products (sugar, bananas, cardamom, and coffee) performed well, in addition to non-traditional agricultural exports, such as prepared food, vegetables, and fruits. The non-traditional sector, in particular, has provided more jobs and increased income for tens of thousands of people over the past ten years.

Guatemala welcomes foreign investment and generally accords foreign investors national treatment. There are few legal or regulatory restrictions placed on foreign investors. However, the country needs to overcome several of the challenges aforementioned in order to make Guatemala a truly business and investment friendly market.

Market Entry Strategy

If the government continues to work toward economic reform, including incorporating more of its citizenry in the economy, maintaining free trade and liberal markets, as well as providing personal and investment security, U.S. companies can expect a growing market in Guatemala. The reality in Central America and in Guatemala today is that there are challenges: corruption, weak judicial institutions, security issues, poverty, and low education levels top the list. However, there is also relative stability, real market opportunities and substantial U.S. exports in a dynamic market that is close to the U.S. and growing. Regional integration and CAFTA-DR will spur investment, growth, trade, and increased market opportunities for U.S. firms.

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