In 2023, Central America received US$11,691 million in Foreign Direct Investment (FDI), according to the 2024 edition of the Annual Report of the Economic Commission for Latin America and the Caribbean (ECLAC) – Foreign Direct Investment in Latin America and the Caribbean.
The amount recorded in the country is US$1,552 million, a figure below Costa Rica, which recorded US$4,687 million and Panama with US$2,327 million.
But what productive sectors are attracting FDI to Central America and how is Guatemala in these areas?
Of the total mentioned, ECLAC collected information about the destination sectors of US$8,537 million in this region, of which US$4,608 million was allocated to services; US$3,372 million to manufacture; US$275 to natural resources; and US$282 million for others, unspecified.
In the case of Guatemala, US$1,130 million of FDI were destined for the services sector in that year; US$303 million in manufacturing; US$41 million in natural resources and US$78 million in others.
While El Salvador, Honduras and Nicaragua also have this tendency, but in the case of Costa Rica, the highest amount was for manufacturing with US$2,168; and for services it was US$1,656 million.
What attracts in each country
The annual report of ECLAC details the following:
Guatemala
FDI in Guatemala increased by 8% in 2023 compared to 2022, values that are below the historical record reached in 2021 (when Millicon acquired the shares of Tigo Guatemala for more than US$2 billion) but Last year’s revenues exceeded the average of the last ten years.
The increase is mainly due to the reinvestment of profits, which was 25% higher than the previous year and accounted for more than 97% of FDI inflows in Guatemala.
By sector, manufacturing increased 75% in inflows compared to 2022 , although it represents only 21% of the total. While the services sector obtained 77% of the total, with a slight decrease of 1%. For the natural resources sector it was only 3%, with a drop of 55%. Another characteristic is that more than half of the FDI that enters Guatemala has its origin in countries in the region, since 31% came from Panama (a figure that grew 16%) and 15% originated in Mexico (33% more).
Other capital came from the United States (15%, although it dropped to 23%); Peru (6%); El Salvador and Honduras (5% each).
It is added that during 2023, US$480 million were announced in 11 projects in Guatemala, similar to the previous year, among which the renewable energy sector stands out with US$180 million allocated to a project by the European company MPCES, which includes a purchase contract long-term energy supply for a solar photovoltaic project.
This contract was signed together with the company Comercializadora de Energía para el Desarrollo S.A., a subsidiary of Ingenio Magdalena S.A. (IMSA), the main producer and exporter of refined sugar, alcohol and energy in the country, adds the report by Cepal.
Costa Rica
This country experienced a historical record reaching the US$4,687 million mentioned, which implies an increase of 28%.
Within this, the reinvestment of profits increased by 33%; Capital contributions accounted for 17% of total inflows and the lowest growth was for inter-company loans, which increased by 14% and thus maintained a 10% share of total FDI inflows in the Central American country.
By sector, the services sector grew by 60%, but manufacturing remains the most important, with 55% of the total, but only grew by 1%.
In this case, most of the investments came from the United States (56%) which grew by 5%. In addition to Belgium, Switzerland and Panama.
“Costa Rica consolidates itself as the second preferred destination for investment project announcements in Central America in 2023, with an estimated total of US$1,636 million distributed in 117 announcements”, although it is 35% lower than the value announced in 2022, when the country ranked first, it is indicated.
Technology-intensive industries predominated in the announcements with 60% (26 projects and US$ 979 million). Also the construction of a plant for the production of medical devices by the American company Johnson & Johnson MedTech.
Panama
In this case, the FDI The US$1.3 billion in 2023 fell by 22%, but still ranks second in Central America with US$2.327 billion. The biggest drop was in capital contributions, followed by reinvestments of profits and loans between companies, which do reflect growth.
Regarding announcements of projects, in 2022 more than US$4 billion were estimated in 16 projects and in 2023 24 were announced, “which brought it closer to the levels recorded before the pandemic”, although it decreased by 80% and the amount was US$866 million.
One of the most notable projects, estimated at more than US$200 million, involves the company MPC Energy Solutions (MPCES), which also announced investments in Guatemala, and consists of the development of new photovoltaic panel projects connected to the electrical grid, as well as the acquisition of other projects to expand said grid.
Nicaragua
In Nicaragua, FDI decreased by 5%, reaching US$1,230 million, and most of it came through the profit reinvestment component. ECLAC explains that there is no sectoral data available. Regarding project announcements, in 2023 there was one with an estimated value of US$137 million from the logistics and value chain company EFL Global, based in Sri Lanka.
Honduras
In this country, FDI increased by 33% to US$1,085 million, which is the highest value recorded since 2018. The component with the highest share was also the reinvestment of profits.
By sector, FDI income from services decreased by 28%, but the manufacturing sector grew by 386%. About a third of the FDI came from Belgium, followed by Colombia and Panama. Investment project announcements amounted to US$1,729 million, so in 2023 Honduras became the main destination for these announcements in Central America.
“Most of the FDI corresponded to industries intensive in natural resources and labor, with a notable presence of China, such as the project announced by the Guangzhou Sunda International Trading Company, which plans to invest more than US$600 million in the construction of diaper and detergent factories.”
This project would mark the entry of the Chinese company into Central America and would be the second renowned Asian company to announce investments in Honduras since the country established relations with China.
El Salvador
Although it occupies one of the lowest positions in Central America in attracting FDI, in 2023 this sector grew 345% reaching US$760 million. The services sector received 87%, and 13% went to the manufacturing sector.
Investment projects worth US$218 million were announced, but with a drop of 53% compared to 2022. The figure comes especially from the telecommunications sector for US$150 million, which refers to the “project to build a bitcoin mining site announced by the company Tether, which is based in the British Virgin Islands and specializes in this branch and in blockchain technology.”
That company also has plans to participate in the construction of a renewable energy park.
Measures to strengthen income
The aspects that influence the amounts that Guatemala achieves in FDI and the position it occupies in relation to the rest of the countries in the area are commented by Juan Carlos Zapata, executive director of the Development Foundation for Guatemala (Fundesa), referring that according to a study prepared by the firm McKinsey, some of the reasons are the low investment in infrastructure and in human capital, among others.
A recent example of this is the decision of the Ministry of Economy (Mineco) not to use the funds that were assigned to it for English scholarships and which is a setback for the preparation of people, he said.
He explains that a better measurement is also achieved when the amount of FDI is compared in relation to the GDP, with which it is observed that “effectively, Guatemala has to improve its attraction of investment.”
FDI in Guatemala is 1.5% of the GDP. To improve this attraction, various actions are necessary, explains Zapata, mentioning that the International Monetary Fund (IMF), in the Consultation of Article IV of its Constitutive Agreement with Guatemala for this year, also states that it is necessary to increase investment in infrastructure. Currently, this only amounts to 1.5% of the GDP and should rise to at least 4%, commented the director.
According to data cited by Fundesa, total investment (public and private, both national and foreign) in Guatemala is very low because it only represents 16%, while in Latin America this figure reaches 22% and in emerging economies 30%.
There are also laws pending in Congress such as the one on strategic road infrastructure, the reform of the law on public-private alliances and the one on the maritime port system, among others.
In addition, the Executive Branch’s capabilities must be increased to more actively promote the attraction of FDI and continue to digitalize the State, an aspect that is important in terms of legal certainty, in addition to promoting more technical training programs, English and programming, Zapata said.
Mineco has not responded to the query on the subject, but in June of this year it announced that the country has a portfolio of 54 investment projects that would generate an income of about US$2,707 million in four years. This portfolio is the main point of the National Strategy for Attracting Foreign Direct Investment presented on that occasion, both by the economic authorities and by President Bernardo Arévalo.
On that occasion, the Minister of Economy, Gabriela García, presented the “mapping” of 54 investment projects in activities such as manufacturing, agroindustry, commerce, infrastructure and services, for the projected amount mentioned, with a coverage of 29 subsectors.
It was stated that the income of these potential investments is expected for the next four years and some 23 countries with interest in placing their capital in Guatemala were listed as possible markets.
Other data
FDI in Latin America reached US$184,304 million in 2023, 9.9% less than the previous year, due to a drop in investments in the services area, ECLAC reported.
The behavior in Central America was different, since US$11,691 million was reported in 2023, a growth of 10.9%.
In the last 8 years (from 2016 to 2023) Central America received US$80,580 million in FDI.
Of these, US$25,335 million went to Costa Rica, US$23,700 to Panama, and in third place to Guatemala, which reflects less than half of those amounts, reaching US$11,636 million in that period. Between January and March 31, 2024, the latest data updated on the Banguat website, Guatemala is reported to have received US$408.2 million.
This article has been translated after first appearing in Prensa Libre