Can Guatemala do better in attracting investment?

There is no doubt that Guatemala can do better. But achieving this goal will require profound change and a recognition that certain sectors must give up their current privileges.

Putting Guatemala on a path of effective, inclusive, equitable and sustainable development is a complex challenge. It requires structural transformation, such as reforming the financial system to allow MSMEs to access credit at lower interest rates and other more favorable terms than currently available from private banks. A more effective and honest government that is able to deliver results, with more resources to make more and better economic and social investments.

It must then attract high-quality investment that creates new, well-paying formal jobs and provides high-quality social security coverage and other characteristics of what we understand as decent employment. For decades, Guatemala’s strategy to achieve its goal of attracting investment and creating jobs has been to offer the privilege of paying less tax as an incentive for investment.

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The data shows that this strategy is not working today, and may never have worked as well as its theorists or speakers suggested. Guatemala, which has had an aggressive tax incentive program, marked by export processing zones and free zones, in place for more than three decades, has attracted only about 11% of foreign direct investment in Central America over the past 25 years. In contrast, Costa Rica and Panama retained two-thirds of investment over the same period, without the aggressive privilege programs that countries such as Guatemala, Honduras and El Salvador have adopted and continue to use as their main strategy to attract investment and jobs. Create.

Moreover, today, for every $10 in remittances sent by our immigrant brothers and sisters, Guatemala receives only 78 cents in foreign direct investment. It earns just $6.57 from exports and $0.57 from tourism. We should be ashamed that the external sector of the economy is supported by those who have had to flee the country due to exclusion and lack of opportunities, rather than by investors, tourists or exporters.

There is no doubt that the amount of tax that one must pay in Guatemala is a factor that investors consider when choosing a country to invest in. However, how important are taxes compared to other factors when deciding where to do so?

Surveys like these World Economic Forum Develop your Global Competitiveness Report It shows that the amount of tax payable in a country is indeed a factor in investment decisions, but it is not even one of the top 10 factors. Apart from taxes, what are the factors that are really relevant and important to investors?

Not surprisingly, according to the 2018 Global Competitiveness Report, crime and theft, corruption, inefficient government, inadequate and poor infrastructure, political and governmental instability, inadequate education levels in the workforce, and inadequate access to credit and labor regulations are all issues. For investors, these factors and characteristics of Guatemala are far more important than the amount of taxes payable. These should be priorities for the government’s economic policy.

Yes, more investment is necessary, both public and private, but without fiscal privilege. We must understand and recognize what investors truly value and where their priorities will conflict with the interests of privileged sectors.

Attracting high-quality investment requires new ideas and profound changes.