Page 62 - STRATEGY Magazine (G)

According to the World Bank Group, Guatemala was in the top 10 of the world’s most reformed economies in 2012/2013 in terms of ease of doing business. The country was also listed as one of the top five nations in Latin America and the Caribbean over the last decade for doing business, with the most significant areas of improvement including starting a business, access- ing construction permits, and paying taxes. Part of this improvement stems
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from the fact that Guatemala has no restrictions on the arrangement of joint ventures or on the purchasing of local businesses, although the undeveloped capital markets where publicly owned firms are traded make it difficult for investors and joint ventures to acquire equity. Similarly, while there are no laws against monopolies, the govern- ment of Guatemala has agreed to a competition law to adhere to require- ments with the European Union that must be in place by November 2016.
A strong framework for protecting in- vestors and trading across borders has been put into place with the passage of CAFTA-DR. As part of the agreement’s requirements, Guatemala passed a law that was designed to protect all levels of foreign investment, including debts, concessions, and contracts. In nearly
all cases, U.S. investors specifically have the right to establish, acquire, and operate their investments in the same capacity as local investors, and because of the difficulties in public trading due to the undeveloped capital markets, many foreign firms choose to operate through locally incorporated subsidiar- ies in order to bypass some of the more difficult aspects of investment. The law significantly protects intellectual prop- erty rights, including trade, insurance, and telecommunications. In 2008, an e-commerce law was established to rec- ognize communications and contracts that are created and executed electron- ically, and it also allows the acceptance of electronic signatures.
THE RISE OF REMITTANCES
A major source of income in Guatema- la is remittances, or payments from workers who live outside the country. It is estimated that 1.2 million Guate- malans are living abroad, mostly in the United States; their remittances com- prise approximately 10 percent of the
nation’s GDP. In the 12 months leading up to November 2015, remittances totaled US $6.1 billion, an 11.7 percent increase year over year.
Though remittances are flowing
into the country at a rapidly increas- ing rate, it is money that is not only unreliable but is also being squandered due to a lack of financial knowledge by those receiving it. These beneficiaries are often seeing such large sums of money for the first time in their lives, and rather than saving or investing
in their own economy, they frequently spend extravagantly and irresponsibly rather than contributing positively and responsibly to the economy.
They build homes that are far be- yond their general needs, often in an attempt to compete with other families who are also misusing remittances. Domestic disagreements sometimes ensue, leading to further financial exorbitance, and the full benefits of these funds are never realized. Yet the dream of America persists, and workers continue to pursue the theoretical greener grasses from their neighbor
to the north. In fact, in November of 2015, remittances rose 27.7 percent over November of 2014, the fastest ex- pansion since August 2006. There is no question that remittances will remain
a key part of the Guatemalan economy for the foreseeable future.
AMBIVALENT OUTLOOK?
As 2014 reached its end, Guatema- la’s rate of expansion began to taper. Though there was an increase in domestic demand, the external sector experienced a slight downturn. Most notably, this decline was felt in the exports of goods and services, where the growth of 8.3 percent in the fourth quarter was dramatically lower than the 14.8 percent expansion in quarter three. The expansion of imports also
60 STRATEGY SPECIAL REPORT