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CONFIDENTIAL FOR INTERNAL USE WITHIN CLIENT COMPANY ONLY OPPORTUNITIES FOR SWEDISH COMPANIES IN CENTRAL AMERICA August 2015 Business Sweden - Mexico CENTRAL AMERICAN ECONOMIES ARE GROWING BUT REMAIN VULNERABLE TO EXTERNAL FACTORS (1:2) The Central American market was valued at 202 B USD in 2012 and has registered a steady growth (average CAGR 9%) between 2006 and 2014, The region holds a market of +44 million inhabitants in their early 20s Central America has low oil reserves, making economies sensitive to international oil prices Main sources of foreign currency are remittances and commodity exports, changes in prices of the later have a direct impact on inflation rates Increase access to healthcare and education services in remote locations; lower debt levels; reduce poverty and inequality are key for long term development of the region Central American economies have strong ties with the USA USA is the main trade partner, with participation between 20% (Panama) and up to 58% (Nicaragua) of international trade Large base of emigrants, for instance 20% of the population in the case of El Salvador, is based in the US making remittances one of the main sources for foreign exchange in the region The USA economy recovery is expected to increase FDI, aid and tourism inflows to the region Central American economies have a positive outlook in the current low oil prices situation, which lowers the costs of imported goods and energy prices, increasing disposable income for domestic consumption SOURCE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 4 SEPTEMBER, 2015 2 INFRASTRUCTURE PROJECTS AND IMPORTS OF CAPITAL GOODS ARE THE LARGEST OPPORTUNITIES (2:2) Services are a major part of the regional economy (60%). Outsourcing of business services to the region is a growing trend Although agriculture is not a large GDP contributor, it is a major employer and source of most of the regional exports in the form of coffee, sugar and bananas Larger opportunities exist in the infrastructure and energy sectors for the improvement of roads, logistics platforms, housing and commercial construction as well as touristic infrastructure, at a larger scale in Costa Rica, Panama and potentially Nicaragua, if the construction of a new transoceanic Canal concretes. Expected investment from multilateral banks is estimated at 55.8 B USD for these projects Creation of Free Trade Zones, in Panama and Costa Rica, and a growing trend for establishing manufacture centres for re-export (maquila) are expected to foster and diversify the regional industrial activity. Today food processing and textiles processing and assembly are the main manufacturing activities In the short term imports of capital goods remain high and an opportunity for Swedish suppliers The relatively recent implementation of the Association Agreement with the EU and the Central America Free Trade Agreement with the USA and the Dominican Republic, will facilitate the elimination of non-tariff barriers and the diversification of regional commercial partners SOURCE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 4 SEPTEMBER, 2015 3 CENTRAL AMERICA OVERVIEW Belize Costa Rica El Salvador Guatemala Honduras Nicaragua Panama GDP (2014) 1.6 B USD 49,6 B USD 24.3 B USD 53,8 B USD 18.6 B USD 11.3 B USD 42.6B USD GDP ppp (2013) 8.2 T USD 14.9 T USD 8 T USD 7.5 T USD 4.7 T USD 4.7 T USD 19.5 T USD 2% 3.4% 1.7% 4% 3% 4% 6.6% 347.4 T 4.81 M 6.14 M 14.91 M 8.76 M 5.9 M 3.65 M GDP growth (2014) Population (2014) - More than 44 million inhabitants in the region with a median age between 22 and 30 years - Costa Rica’s and Panama’s income per capita are close to other emerging economies in the region such as Mexico - The region has shown economical stability and moderate growth since the crisis in 2009 SOURCE: CIA FACTBOOK BUSINESS SWEDEN 4 SEPTEMBER 2015 4 THE REGION HAS HAD A MODERATE GROWTH AND IS EXPECTED TO CONTINUE THIS TREND FORECASTED GDP GROWTH, B USD 2006-2018 Moderate short term regional growth (4% in average by 2018) 90 80 US economy recovery will favor higher FDI, remittances and tourism flows 70 Nicaragua and Panama fastest growing economies (13% 2006-2014 CAGR ) 60 50 Belize and El Salvador, have lowest growth expectations due to high levels of debt, unemployment and informal economy base 40 30 Steady population growth will result in a larger economically active population until 2045 20 Infrastructure plans, in Panama (Canal expansion), Costa Rica (Touristic infrastructure) and potentially Nicaragua (Canal to rival Panama’s) attract FDI 10 0 BLZ 2006 CRI 2010 SLV GTM 2014 HND NIC 2018 PAN INCREASED PRIVATE CONSUMPTION AND LARGE INFRASTRUCTURE PLANS ARE MAJOR GROWTH DRIVERS SOURCE: WORLD BANK; EUROMONITOR; IHS; IDB; BUS ANALYSIS BUSINESS SWEDEN 4 SEPTEMBER 2015 5 REGIONAL ECONOMY IS LARGELY BASED ON SERVICES, PARTICULARLY IN PANAMA ECONOMIC ACTIVITIES, % OF GDP 2013 More than 60% of the economy is service based 100% 90% 75% of GDP in Panama 80% Financial services are a key contributor Agriculture has low contribution to the economy (average 13%), but employs 25% population and is a major contributor to exports 70% 60% 50% Main products are coffee, bananas and sugar 40% Manufacturing for re-export is a growing economic activity in Panama, Costa Rica and El Salvador 30% Mainly for the textile industry to supply North America 20% 10% 0% BLZ CRI Services SLV GTM Industry HND NIC PAN Agriculture MANUFACTURES ARE MOSTLY FOR LOCAL CONSUMPTION SOURCE: WORLD BANK; EUROMONITOR; IHS; IDB; BUS ANALYSIS BUSINESS SWEDEN 4 SEPTEMBER 2015 6 DOING BUSINESS IN CENTRAL AMERICA IS RELATIVELY COMPLEX EASE OF DOING BUSINESS, RANKING 2015 USA Panama is the most business friendly country and the only economy in the higher 30% of the index 7 SWE MEX All countries outperform Brazil, Argentina and Venezuela, well known to be complex countries do to business with 11 39 PAN GTM CRI HND SLV Results vary a lot in between cities. Overall, larger cities perform better compared to second largest cities. El Salvador and Nicaragua had the most homogenous performance 52 73 83 Doing business ranking does not consider issues which may be a concern in the region such as: 104 109 security, BLZ 118 corruption, NIC 119 macroeconomic stability, BRA 120 level of training and skills of labor force SOURCE: DOING BUSINESS INDEX, WB BUSINESS SWEDEN AREAS INCLUDED IN THE INDEX: STARTING A BUSINESS, DEALING WITH CONSTRUCTION PERMITS, GETTING ELECTRICITY, REGISTERING PROPERTY, GETTING CREDIT, PROTECTING MINORITY INVESTORS, PAYING TAXES, TRADING ACROSS BORDERS, ENFORCING CONTRACTS AND RESOLVING INSOLVENCY 4 SEPTEMBER 2015 7 MAIN CONCERNS IN THE REGION ARE POVERTY, NATURAL DISASTERS AND SECURITY NATURAL DISASTERS - The region is vulnerable to natural disasters including earthquakes, hurricanes, active volcanos and floods - Natural disasters may cause major damages to infrastructure which could unbalance public expenditure - Cost of disasters damage in the past decade is valued at 34.4 B USD* SECURITY - Insecurity has grown in the region due to organized criminal organizations (human and narcotics trafficking) as well as for civil conflicts - Disputes over territories remain among several countries - Some CA cities are considered among the most dangerous in the world OTHER - Poverty and high inequality is widespread in the region (30 - 50% of population depending on the country), except for Costa Rica (20%), specially in rural areas - Among the lowest education rates in the region - Rural areas have low access to electricity and healthcare services POVERTY, LOW EDUCATION RATES, INCOME DISPARITY AND GOVERNMENT DEFICITS CONTRIBUTE TO INCREASE THESE RISKS SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN * INCLUDING MEXICO 4 SEPTEMBER 2015 8 THE ASSOCIATION AGREEMENT WITH THE EU WILL STRENGTHEN LINKS WITH THE REGION Includes Panama, Costa Rica, Guatemala, El Salvador, Honduras and Nicaragua (Initiated in 2013 and includes: elimination of most import tariffs; improved access to public procurement, services and investment markets; better conditions for market access, competition and property rights; better dispute settlement mechanism) Relies on three pillars: political dialogue, cooperation and trade (Tools that will support economic growth, democracy and political stability in the region) EU share in Central American trade reached 11.3% in 2012 (EU imports from CA are office, machinery and transport equipment mainly – 59.6%, followed by Agricultural products – 30.1%) (Exports from EU to CA are machinery and transport equipment – 47.2% and chemicals – 21.5%) SOURCE:EU COMMISSION BUSINESS SWEDEN 4 SEPTEMBER 2015 9 SWEDEN STILL HAS A SMALL SHARE OF CENTRAL AMERICAN FOREIGN TRADE WITH 0,2% SHARE OF 93.04 M USD EXPORTS TO SWEDEN, 2014 SHARE OF 158 M USD IMPORTS FROM SWEDEN, 2014 4% 0% 0% 10% 22% 23% 41% 23% 6% 23% 10% 4% 22% BLZ CRI GTM 12% HND NIC PAN SLV BLZ CRI GTM HND NIC PAN SLV IMPORTS FROM SWEDEN GREW FROM 81,7 TO 158.2 MUSD IN 14 YEARS, COSTA RICA AND PANAMA ARE MAIN TRADE PARTNERS SOURCE: STATISTIKSERVICE BUSINESS SWEDEN 4 SEPTEMBER 2015 10 CENTRAL AMERICAN EXPORTS ARE MOSTLY COMMODITIES AND IMPORTS MAINLY CAPITAL GOODS Guatemala Belize Main exports coffee, sugar, petroleum, apparel, fruits & vegetables Main exports sugar, fruits, clothing, sea products, wood, crude oil Main imports fuels, machinery and transport equipment Main imports fuels, machinery and transport equipment, manufactured goods El Salvador Honduras Main exports offshore assembly exports, coffee, sugar, textiles, gold Main exports apparel, coffee, shrimp, wire harnessing, cigars Main imports raw materials, consumer goods, capital goods, fuels Main imports machinery and transport equipment, raw materials Costa Rica Nicaragua Main exports coffee, beef, shrimp, lobster, tobacco, sugar Main exports bananas, pineapples, coffee, melons, sugar Main imports consumer goods, machinery and equipment Main imports raw materials, consumer goods, capital equipment Panama Main exports bananas, shrimp, sugar, coffee, clothing Main imports capital goods, foodstuffs, consumer goods, chemicals SOURCE: UN TRADE BUSINESS SWEDEN 4 SEPTEMBER 2015 11 HEALTH CARE, INFRASTRUCTURE AND ENERGY ARE MAIN PRIORITIES FOR CENTRAL AMERICAN COUNTRIES NATIONAL PRIORITIES Health care Infrastructure OPPORTUNITIES Increased access to healthcare services in remote locations for infants and women Mobile diagnosis equipment High maternal and infant mortality and malnutrition rates Medical devices and biotech Solutions for remote medical attention Panama Canal expansion and potential creation of Nicaragua Canal Consulting services for logistics platforms development Growing touristic sector in Belize, Costa Rica, El Salvador Increased demand for construction inputs and machinery Underdeveloped roads networks in almost every country Environment friendly solutions for sustainable development Disaster relief and preparedness Geothermal and Hydroelectric potential Energy All countries are part of the Puebla Panama Plan to unify Central American electricity grids Solutions for reducing costs and the frequency of power disruptions Private investment for the development of new power plants INTERNATIONAL DONORS AND MULTILATERAL BANKS WILL ALLOCATE 55.8 B USD BETWEEN 2010-2017 TO THESE PROJECTS SOURCE: IDB, BUS ANALYSIS BUSINESS SWEDEN 4 SEPTEMBER, 2015 12 CONTACT US BUSINESS SWEDEN IN MEXICO Business Sweden Miguel de Cervantes Saavedra 193 – 802. Mexico D.F. 11520 T +52 55 9126 3430, F +52 55 9126 3440 [email protected] www.business-sweden.se/mexiko