Because of the economic crisis, Foreign Direct Investment flows have practically vanished, and in order to attract the few investments that are projected for next year, countries are expected to compete by offering incentives and aid programs for businesses.
The covid-19 outbreak dissipated the investment intentions of companies globally. At the beginning of the fourth quarter of the year, there are signs that business confidence has begun to recover; however, pessimism among investors is expected to continue next year.
The health and economic crisis will result in a reordering of foreign investment at the global level, and countries like Central America will have the opportunity to take advantage of their geographical position to attract fresh capital.
The outbreak of covid-19 worldwide will cause a drop in production in 2020, however, by 2021 and 2022 the forecasts of international organizations anticipate that economic activity could rebound, a rise that would be coupled with new investments in various markets and sectors.
Panama and Honduras were the only two Central American countries to report increases in foreign direct investment in 2018 over the previous year, with year-on-year changes of 36% and 3%, respectively.
The growth of investments directed to Panama, which concentrated 51% of the sub-regional total, explained the increase that was reached in 2018 in Central America (9.4%), since except Panama and Honduras, the Central American countries received less Foreign Direct Investment (FDI) than in 2017, explains the report "Foreign Direct Investment in Latin America and the Caribbean 2019", produced by the Economic Commission for Latin America and the Caribbean (ECLAC).
Despite the location and the fiscal benefits that in some cases the countries of the region offer, the lack of education of the population will be the main barrier to continue attracting large investments.
The lack of guarantee of finding the competent and sustainable human capital necessary for the proper operation of companies is an issue that negatively influences the attraction of important investments in Central America.
Partly explained by the regimes created to encourage investment in different sectors, countries in the region went from receiving $11 billion in 2016, to $12.1 billion last year.
According to a study by the Center for Economic Integration Studies, in 2017 inflows of Foreign Direct Investment (FDI) in the region reached a record figure of $12.083 billion, registering an increase of 9.8% compared to 2016.When analyzing the period from 2010 to 2017, it can be seen that the inflow of FDI has increased considerably, showing a growth rate of 7.9%.
In 2016 44% of foreign direct investment in the region was concentrated in Panama, and a fourth consecutive year of increases was recorded, with 16%, while Costa Rica received 27% and increased by only 1.1%.
From chapter I of the report "Flows of FDI in Latin America and the Caribbean", by the ECLAC:
FDI into Central America grew by 3.7% in 2016 and totaled 11,833 million dollars.The increase in investments to the two main recipients of the subregion -Panama, which recieved 44%, and Costa Rica, 27%- compensated for the drop in FDI to the other Central American countries.
The Chinese multinational Midea, already present in South America, plans to invest $30 million in expanding and reaching out to markets in Mexico, Central America and the Andean region.
The company Midea, founded in 1968 in Guangdong, China, believes that there is "... a lot of room for expansion"in this region. This was explained to EFE by the Brazilian Joao Cláudio Guetter, president of the Latin American operation.
With 43% of the total, in 2015 Panama continued to be the largest recipient of FDI in the subregion, followed by Costa Rica (26%), Honduras (10%) and Guatemala (10%).
From the chapter Central America in the report on Foreign Direct Investment in Latin America and the Caribbean:
If Central America does not strengthen the institutions that ensure a stable legal framework and full respect for contracts, foreign investment will not come and national investment will go to other countries, no matter how many incentives and tax exemptions are offered.
EDITORIAL
The frequent displays of discontent for the Salvadoran Executive Branch in respect to rulings issued by the Constitutional Court and the inaction of the Panamanian government over blockades by a group of people are holding not only over the hydroelectric project Barro Blanco, but also the main access roads, are appalling signals sent from the region to the world, casting doubt on those companies who consider the region to be a potential investment destination.
In the view of entrepreneurs, insecurity is still the main factor preventing the arrival of larger flows of foreign direct investment to the region.
Despite the benefits and incentives of all kinds offered by governments to encourage the establishment of foreign companies in Central America, as long as violence and insecurity is not tackled in a more effective manner, investment flows will continue to dwindle.
In 2013 El Salvador attracted $140 million in foreign direct investment, Nicaragua $849 million, Honduras $1.060 billion, Guatemala $1.308 billion, Costa Rica $2.682 billion, and Panama $4 billion.
The Central America countries in total attracted $10.039,4 billion in foreign direct investment (FDI) in 2013, of which 40% went to Panama and only 1.6% went to El Salvador.
In the region the level of sales tax evasion is around 33% on average.
From a statement from the Central Institute for Fiscal Studies (Icefi):
The Central American Institute for Fiscal Studies presents the seventh edition of its analysis of the situation in Costa Rica.
Icefi: It is urgent that the two contending political parties specify a plan that will allow them to balance fiscal accounts and fulfill their campaign promises.