Guatemala: Country, Investment climate and Economy

Happy children in Guatemala

Happy children in Guatemala

Guatemala is a Central American republican country bordered by Mexico, Belize, Honduras and El Salvador. Guatemala is the most populous country in Central America with approximately 15.8 million population. Guatemala’s capital and largest city is Nueva Guatemala de la Asuncion that is widely known as just Guatemala City.

Guatemala is a prosperous Central American country with a GDP per capita roughly one-half that of the average for Latin America and the Caribbean. The agricultural sector accounts for 13.7% of GDP and 32% of the labor force. The key agricultural exports include sugar, coffee, bananas, and vegetables.

The 1996 peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and since then Guatemala has pursued important reforms and macroeconomic stabilization. The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) entered into force in July 2006, spurring increased investment and diversification of exports, with the largest increases in ethanol and non-traditional agricultural exports.

While CAFTA-DR has helped to improve the investment climate, concerns over security, lack of skilled workers, and poor infrastructure continue to hamper foreign direct investment. The distribution of income remains highly unequal with the richest 20% of the population accounting for more than 51% of Guatemala’s overall consumption. More than half of the population is below the national poverty line, and 13% of the population lives in extreme poverty. Poverty among indigenous groups, which make up more than 40% of the population, averages 73%, with 22% of the indigenous population living in extreme poverty. Nearly one-half of Guatemala’s children under age five are chronically malnourished, one of the highest malnutrition rates in the world.

Nevertheless, Guatemala is the top remittance recipient in Central America as a result of Guatemala’s large expatriate community in the United States. These inflows are a primary source of foreign income, equivalent to one-half of the country’s exports or one-tenth of its GDP. In November 2014 along with his counterparts from El Salvador and Honduras, President Perez Molina, announced the “Plan of the Alliance for Prosperity in the Northern Triangle.” This plan seeks to address the challenges facing the three Northern Triangle countries, including steps the Governments will take to stimulate economic growth, increase transparency and fiscal responsibility, reduce violence, modernize the justice system, improve infrastructure, and promote educational opportunities over the next several years.

The tax rate in Guatemala is fairly high. The corporate tax rate amounts to 25% and VAT is 12%. Foreigners do not face any restrictions of foreign investments, foreign currency exchange controls or capital imports and exports. However, the infrastructure is not very well developed, which makes it challenging to export and import products.
Guatemala is fairly corrupted and laws are not properly implemented. The security issues are on the rise, as well as money laundering.

For information regarding company formation in Guatemala please read our Healy Consultants Group webpage.


Image credit
Photo by David Amsler, available under a Creative Commons Attribution 2.0 Generic (CC BY 2.0) license.

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