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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. Guatemalan GDP reached an estimated USD 53.7 billion in 2013, a 3.7% growth rate from 2012. The United States and Guatemala enjoy a strong and growing trade relationship, especially under the U.S.- Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). The United States is Guatemala’s largest trading partner accounting for nearly 40 percent of Guatemala’s trade.

U.S. exports to Guatemala were $5.5 billion in 2013, 95 percent higher than the level in 2005, the year before CAFTA-DR entered into force. This was the second largest growth in U.S. exports among all the CAFTA-DR countries. Leading U.S. exports to Guatemala include petroleum products, machinery, cereals (corn, wheat and rice), electrical equipment, plastics, paper/paper board products, motor vehicles, and cotton yarn and fabric.

U.S. imports from Guatemala were $4.2 billion in 2013, an increase of 33 percent from 2005, the year before CAFTA-DR entered into fore. However, excluding apparel products, U.S. imports from Guatemala jumped by 115 percent since 2005. In addition to U.S. imports of apparel products from Guatemala, which still remain very important, other leading U.S. imports include bananas, melons, gold, coffee, petroleum products, vegetables, and sugar.

The United States is also the leading source of foreign investment in Guatemala. Major sectors include manufacturing, call centers, agro-industry, tourism development, and financial services.

Export growth is expected to continue in 2015 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 nearly 200 U.S. firms have a presence in the market. As a result, nearly 40 percent of all Guatemalan imports come from the United States. Guatemala can also be an attractive place for foreign investment, despite some persistent challenges. With a population of around 14 million, it 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 4 million and features first-class hotels and restaurants.

Market Challenges

President Otto Perez, of the Patriot Party (PP), won the November 6, 2011 presidential elections and took office January 14, 2012. Perez’s administration continues to maintain good relations with the United States while diversifying exports to Asia and Europe and the rest of Central America.

Violent crime and weak judicial institutions remain serious challenges. Corruption, impunity, labor rights, protection of intellectual property, food security, education and deep socio-economic divisions continue to be other key challenges for the government.

Most hurdles to exporting to, and investing in, Guatemala are bureaucratic in nature. The government is aware of these problems and works to overcome them. Issues related to the Certificate of Origin continuously represent an obstacle to access preferential tariffs by Guatemalan importers.

The local currency, the quetzal, has remained fairly steady at approximately 8.0 quetzals to the U.S. dollar throughout 2013. U.S. dollars are freely available and easy to obtain 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.

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 2013, several U.S. companies voiced their concern regarding the unfair and nontransparent tendering process by the Guatemalan government as a barrier to trade.

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 President has continued programs initiated by prior administrations to promote foreign investment, enhance competitiveness and expand investment in the export, energy, and tourism sectors. In the World Bank’s 2014 Doing Business Report, Guatemala improved 14 positions from 93 to 79 of 189 ranked economies and was listed as one of the top ten economies improving the most in 2012/2013. The Report also listed Guatemala as one of the top 50 improvers in the world and one of the top five improvers in the Latin American and Caribbean region since 2005.

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 95 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.

Under CAFTA-DR, about 90 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 TRQ, 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.

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.

According to preliminary data from the Guatemalan Central Bank (Banguat), the stock of foreign direct investment totaled USD 10.2 billion in 2013, a 14.9% increase in relation to 2012. Banguat data also show that the flow of foreign direct investment (FDI) in 2013 was USD 1.3 billion, a 5.2% increase compared with 2012. Some of the activities that attracted most of the FDI flows in 2013 were agriculture, mining, commerce, energy, and banking.

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 2013 real GDP grew by 3.7 percent and inflation was estimated at 4.39 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 USD4.8 billion in remittances, which accounts for approximately 10 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.

The government of 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 (it is estimated that 600,000 of Guatemala’s nearly 14 million citizens pay taxes), 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 have spurred investment, growth, trade, and increased market opportunities for U.S. firms.

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