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Economy and Business in Guatemala

According to COUNTRYAAH, Guatemala is a middle-income country with deep cultural and economic differences. The economy is the tenth largest in Latin America, but per capita national income is half the average for the continent. Around 60 per cent of the population is considered poor, almost 20 per cent live in deep poverty.

Business of Guatemala

The contrasts between industrial and efficient export agriculture in the lowlands and small self-storage farms in the highlands are large and enduring. The former is largely driven by whites and Hispanics on large, private goods. The latter belongs to a number of small indigenous communities. There are few positive links between the two sectors. The plantations have given work to many hands, but offered few opportunities to develop a professional and differentiated workforce. Public service production (education, health and government administration) is undeveloped.

The peace agreements after the civil war entered into in 1996 opened up for comprehensive reforms aimed at creating a more integrated and dynamic economy. However, poverty has increased and the state's governance has been weakening in recent decades as a whole. The state remains underfunded.

Dual Economy

With its subtropical and predominantly rainy climate, as well as large variations in topography and soil, Guatemala has by nature very good opportunities for agriculture. It is also based on exports of agricultural products such as coffee, sugar and bananas that Guatemala became part of the world economy in the decades between 1880 and 1920.

Today, agriculture accounts for 13.5 per cent of the national product, but at the same time it employs 31 per cent of the labor force. These figures reveal the huge differences between one of the world's most efficient industrial farms and the cultivation of basic commodities in the traditional way. Guatemala has a so-called dual economy with large, commercially oriented properties on the one hand and small farms woven into a regional rural economy on the other.

Plantation farming continued until the mid-19th century, when the country's upper class and European immigrants with capital and know-how expropriated land suitable for coffee cultivation at the expense of Mayan communities in the highlands. The Mayans themselves were exiled to be cheap seasonal labor. Thus, they participated only to a small extent in the development of industry and service production and continued to live in collectively based and often introverted rural communities.

The export of coffee and eventually also sugar, bananas and cotton made Guatemala a rich and modern country in many ways. However, it also created a private sector that has been both bigger and stronger than the state itself. Institutional building that is so typical of the emergence of modern, integrated economies has been seen as an expense item. The state became an attachment to a dynamic private sector. The distinction between the elite and a large indigenous population divided by a number of small groups also goes deep culturally. This has made it even more difficult for the state to develop into an integrative force in society.

Agriculture

Traditionally, coffee was the most important export product, today it is sugar (including sugar cane for the production of biofuels) and bananas. Guatemala is the world's largest exporter of cardamom and sugar peas, the second largest of bananas, the fifth largest of sugar and the seventh largest of coffee. Palm oil (also for biofuels), tropical fruits (mangoes) and vegetables have become important in the last decade.

The plantations and large coffee estates are largely based on the recruitment of cheap labor from Mayan-speaking rural communities. The small patches of Mayan housekeeping provide limited yields beyond corn and beans to the household itself. However, much of the coffee is also produced by Mayans for small, family-run uses, including cardamom as well as vegetables and berries for export.

While exports from the plantation economy make up almost the entire national economy, the profits of indigenous peoples' small farms and workshops are traded in regional markets. Here textiles (ie Mayan clothing) are the most important item next to food and imported consumer goods. Domestic trade is less visible and in recent decades has been increasingly taken over by Mayans at the expense of Spanish-speaking Ladinos.

Industry and services

Next to El Salvador, Guatemala has the largest industrial sector in Central America, accounting for about 23 percent of the country's national product. The industry consists essentially of the composition of consumer goods with imported inputs. However, the country also has a number of large and successful companies that have managed to become international, such as the cafeteria chain Pollo Campero. Few companies have managed to expand by moving up the value chain.

In the Central American common market that was established in the 1960s, Guatemala had economies of scale and the industry gained such solid growth until the 1970s. In connection with the civil wars throughout the region in the 1980s, growth stopped. From around 1990, a number of textile companies were established in tax-free zones (maquilas), most of them with Korean capital. The peace agreements included several measures to stimulate diversification. However, deregulation of, for example, telecommunications, energy production and the financial system has not led to more than moderate growth of around 3.4 per cent annually between 2000 and 2015, ie just under one per cent per head, and the trend is negative.

Guatemala is the least urbanized country in Latin America. Half the people live in small villages with a few thousand people in each. Both industry and services are mainly concentrated to the capital. Here, the per capita income level is 7.2 times higher than in the poorest provinces. However, the influx here has caused a large and growing random problem with gang crime and spontaneous housing construction in vulnerable areas.

Tourism has long been one of the country's most important industries. With its varied and beautiful scenery, complex population and ancient ruins, Guatemala attracts around two million visitors a year. This generates revenues of less than ten percent of total export revenue.

The service sector accounts for 63.2 percent of the economy, the vast majority in informal working conditions. Only 18 percent are in social security jobs. In addition to seasonal agricultural work, the informal economy also includes most of what is happening regionally, in increasingly urbanized Mayan areas. This is the so-called "urban Guatemala" (Guatemala rurbanana). Statistics based on formal registrations only indirectly capture the dynamics of this fast-growing sector. For the national economy, the challenge is that, like in the plantation sector, few people here want to be regulated and taxed. At the forefront, the rich state perceives it as unnecessary, while the poor experience it as foreign. The state lacks not only resources, but also legitimacy.

Thus, the informal economy works to the benefit of a large, black economy dominated and built around drug trafficking. It is estimated that the crime that has grown after the war loses the economy of about ten percent of national income in the form of protection money and private security services. Moreover, the black economy uses the policy to launder money and buy control of elected bodies. The corruption has further undermined confidence in the state.

The money that 1.4 million Guatemalan migrants send to the United States makes up about ten percent of the country's national income. This figure is lower than in neighboring Honduras and El Salvador, but high on a global scale. In addition to being an important subsidy to households in very many poor households, the effect is likely to be negative for the macro economy as the increased purchasing power goes to imported consumer goods.

Through the peace treaties, Guatemala committed itself to the international community to increase tax revenue to strengthen the state. Between 1996 and about 2010, the country received substantial aid to democracy building, but the tax rate remains one of the world's lowest at less than eleven percent. In a 2015 analysis, the World Bank concluded that the country had lost the necessary momentum to overcome the dual economy. The bank urged the country to put in a "powerful shock" to reverse the negative dynamics, including through efforts on education, health and strengthening of the state's regulatory institutions.

Natural resources and mining

Guatemala is one of the ten countries in the world most exposed to climate change and natural disasters such as earthquakes, volcanic eruptions and hurricanes. This is related to the country's geographical location in the fracture zone between two tectonic plates and between two seas with associated weather systems. Beyond the 2000s, climate change has been instrumental in making the hurricanes more frequent and stronger and the drought times longer and more intense. This has particularly affected agriculture in the highlands as well as in the so-called 'dry corridor' in the border areas towards Honduras and El Salvador. Here, there have been periods of hunger crises and for the country as a whole infant mortality and malnutrition increased after 2010.

The country has large forests and great biological diversity. Cedar and pine in the highlands have always been important in the craftsmanship of furniture making. Petén's tropical forest has supplied mahogany, color wood, balsa and rubber, as well as chicle to the chewing gum industry. With strong population growth, much of the forest has come under strong pressure through unregulated and intensive harvesting, especially in Petén. This, in turn, has led to changed rainfall patterns and increased exposure to erosion. Regular unregulated new construction in the slums around the capital leads to landslides.

Fishing for local consumption is important along the coasts. There is also some commercial farming of shrimp and catches of lobster and squid on the Pacific coast.

Guatemala has large deposits of nickel, gold, zinc, iron and gemstone such as jade. However, the deregulation of the mining operation, with favorable conditions of establishment for foreign mining companies, has led to strong conflicts with indigenous communities due to different perceptions of property rights and environmental damage. Oil has been mined since 1974, but production is limited.

Next to wood, oil and coal power plants have long been the most important source of energy. After significant hydropower development in the 1980s, 31 per cent of the power now comes from this, while oil and coal account for 41 per cent. The country also has a geothermal power plant. Privatization of electricity distribution in the 1990s accelerated development, but has also led to a high level of conflict in the villages as many poor people cannot afford electricity. The most remote parts of the country still have no electricity supply.

Foreign Trade

The country's exports mainly consist of agricultural products from the plantation sector, as well as textiles from the frisons, and then consumer goods for the Central American market. Imports include oil and coal, chemical products, machinery and transport equipment, grain and fertilizers, as well as various consumer goods.

The most important trading partner is the United States. About 34 percent of exports go here, while eleven percent go to El Salvador. Then follow the other countries of Central America and Mexico. Most of the imports also come from the United States with almost 40 percent. Next, China and Mexico follow with about eleven percent each and El Salvador with just over five percent.

Guatemala is a member of the Central American Common Market CAFTA-DR and has signed integrated trade agreements with the US and the EU. In both recent cases, negotiations have been delayed for a long time as Guatemalans have low standards in environmental and labor law.

Transport and Communications

Guatemala has a relatively poor infrastructure. All main roads radiate from the capital. The most important are paved, but are often under-dimensioned. The main one runs northwest from the capital through the western highlands to Mexico as well as southeast to El Salvador. This stretch is part of the Pan-American Highway built in the 1950s. From the capital there are also main roads to the port towns on both coasts, as well as to Cobán in the northern highlands and to Petén. The road network is otherwise quite dense, especially in the western highlands, but the standard is often poor.

A narrow gauge railway network was developed in the years between 1877 and 1908 and connected the capital with both coasts. This network was taken over and operated by banana producer United Fruit Company between 1912 and 1957, when road transport took over. Both the state and a Canadian company have since tried to run the railway as a tourist train, but gave up in 2007.

In connection with the deregulation of the economy in the 1990s, state telecommunications were sold to foreign (Mexican and Spanish) companies. At that time, the landline network was still poorly developed. The new owners invested in mobile telephony. The country now has twice as many mobile phones as its inhabitants. In 2018, 42 percent of the population had access to the Internet. Half of these used cell phones to connect.

The state airline Aviateca (founded 1929) was privatized in 1989 and merged with the Salvadoran company TACA. TACA was in turn acquired by Colombian Avianca in 2009. The country's main airport La Aurora is located in Guatemala City. From here, routes go all over the world as well as domestic routes to Petén.

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