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What Can Investors Expect?
Guatemala wants a growing economy for its people. To accomplish that, the banking and financial sectors maintain economic stability while the country’s regulatory structure makes it easy to do business. The result? Strong growth in a new middle class and an attractive environment for overseas investment.
Arobust national economy—that is the goal of every financial executive in Guatemala. A fundamental step toward that objective is the growing middle class, citizens who are improving their lives and increasing their buying power. A strong central banking system, a pro-business regulatory environment that makes it easy to do business, a stable currency, fair taxes, and a committed workforce support the economic strength of the middle class.
A STIMULATING ENVIRONMENT
In 2015, the taxes on businesses in Guatemala were lowered in a measure to stimulate growth. A business can now elect to be taxed on its corporate income on the basis of profits, at 25 percent, or on revenue, at 5 to 7 percent. These prevailing tax rates compete quite favorably with those of other countries. “Taxes,” observes Olavarria, “are not a problem.”
A dynamic, largely non-unionized workforce also offers investors an advantage. While the availability of skilled workers varies by industry, a company prepared to train its people is rewarded with loyal workers and low turnover. Unlike in other parts of the world, it is not unusual to find Guatemalan workers with 30 years or more of tenure.
LOCAL SERVICE, GLOBAL RESULTS
The banking system remains a national asset—financially viable and responsive to its client base. As early as the 1980s, banks from neighboring Central American countries began to establish branches in Guatemala. Global financial institutions have since acquired many of these regional banks. This makes local business privy to the full range of international banking services.
Yet, many smaller banks remained under local management. This, in turn, allows Guatemalan businesspeople to keep their lending relationships with bankers they have worked with for many years. For both local and foreign businesses, the availability and movement of funds is not an obstacle.
TECHNOCRATS, NOT BUREAUCRATS
All investors seek economic stability, wherever they place their funds. Many outsiders view Central America as a region in frequent flux that may hold a higher risk than other areas. Olavarria tells us why this does not apply to Guatemala. “This country has one of the most stable currencies I’ve ever seen.” The quetzal is not pegged to the dollar, but the currency exchange rate has remained relatively unchanged for a number of years.
This steady economic environment can also be attributed to the fact the minister of finance is traditionally a financial
HUMBERTO OLAVARRIA
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technocrat rather than a politician. The strong Central Bank has remained resilient over the years, even as Guatemala’s democratically elected presidents succeed one another. The bank tends to maintain a hands-off relationship with the private sector, which comprises upwards of 90 percent of the GDP. This helps businesses mature while they remain safe.
UNSOPHISTICATED? THAT’S JUST FINE
The worldwide economic downturn of 2008 and 2009 had minimal effect on the Guatemalan economy. Companies doing business there continued to enjoy strong balance sheets, weathering the financial storm without much problem. Olavarria sees fundamental reasons for that happening. Local business leaders stuck to the basics.
They did not involve themselves in derivatives, swaps, or other highly complicated financial instruments that led to problems internationally. The national stock market does not support those transactions, “so we didn’t suffer.”
Banks in the country concentrated instead on cash management, treasury functions, loans, and credit cards. They wanted to expand their practice of financial inclusion to more businesses and individuals. This focus on microfinance has helped Guatemala survive recent global financial upheavals untouched.
INVESTMENT EQUALS GROWTH
The population of Guatemala is nearly double that of Honduras or El Salvador, providing future foreign investors with a sizable potential workforce. Getting those workers into jobs that produce quality goods and services is a high priority for everyone involved in the economy, which has the overarching goal of sustainable growth. Leaders see that even investments that do not necessarily create many new jobs are still helpful. They provide tax revenues for social programs, infrastructure, and security. “How do I get the workforce to produce?” Olavarria asks. “The best way is economic growth, and the best correlation for economic growth is investment.”
“Politics makes a lot of noise, but the good thing is that the government doesn’t really mess around with the economy.”
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