1.1.- Introduction
Central America is made up of a long, tapering isthmus that forms a bridge between North and South America while the Panama Canal forms the only passage from the Pacific to the Atlantic Ocean. Central America, which is defined by geographers as part of North America, has an area of 521,500 sq km (about 201,300 sq mi) and includes the countries of Guatemala, Belize, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama. The region has a population of approximately 40 million (2006). This report includes all mentioned countries except for Belize.
Figure 1.1 Central America map.
In June 2007, Central American countries (Guatemala, El Salvador, Nicaragua, Honduras and Panama) signed a customs union framework treaty, which was a demand imposed by the EU in order to initiate negotiations on a partnership agreement with the region. Talks between the two blocks, which will include the creation of a Free Trade Agreement and accords on development co-operation, will start in October 2007 and the first round of negotiations will take place in Costa Rica. However, the Costa Rican government did not sign the customs treaty with the other Central American countries as this agreement includes a series of commitments to improve the movement of products within the region and unify trade standards which depend on the ratification of DR-CAFTA.
The first round of negotiations will include discussions on several topics, such as market access, country-of-origin rules, customs procedures, sanitary conditions, intellectual property rights and public sector purchases. As the host country, the Costa Rican government will act as the region’s spokesperson. In total, negotiations are expected to extend through ten rounds, alternating between Brussels and different Central American countries.
This introduction is illustrative for the role the region intends to play in the future. Central America wants to be seen as one market with open borders for foreign supplies and an interesting internal market. The geographic position of Central America, bordering with North America and having Europe within tow weeks by sea freight, can be regarded as an enormous strategic advantage on other agricultural focus regions world wide like Africa and Asia.
Chapter one will describe the six countries of Central America (excluding Belize) using information sources like, amongst others, the Economist Intelligence Unit and the World Bank (see ‘Information sources’ for reference to the information sources used).
1.2.- Countries
1.3.- Central America
Each year the World Bank published the Doing Business report. World economies are being ranked on their ease of doing business, from 1 – 178, with first place being the best. A high ranking on the ease of doing business index means the regulatory environment is conducive to the operation of business. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic.
From the tables below it can be concluded that the ease of doing business in 2008 is most favourable in Panama and El Salvador. Nicaragua has dropped strongly from its ranking it had in 2007 to position number 93. The countries of Central America that are less favourable to do business are Honduras and Guatemala. If a country hasn’t progressed or has dropped in rank, that means that no efforts on reforms have been made in comparison with other countries.
See Appendix D.1 and D.2 for detailed data of the ranks.
It is remarkable that Costa Rica (115, 105 in 2006) and even more Nicaragua (91, 67 in 2006) seem to be loosing their attractiveness for foreign investors rapidly. Nicaragua has lost quite some credibility after het 2006 elections although it is still too early to give a solid opinion on this. It is generally expected that the year 2008 will be decisive for the future direction of Nicaragua as a country.
For Costa Rica, a stable country with democratic politics and a rather well organised social system, the above figures can be regarded as a reason of concern. Costa Rica is facing more competition within the Central American region and will have to start making changes to give future investors a better and more positive view on their country than the one provided by the World Bank in their Doing Business indicator.
Panama (65) has become the best (or easiest) country in Central America for Doing Business, followed by El Salvador (69). This sign is reflected by the massive development taking place in both countries but most of all in Panama, greatly supported by the construction works on the Canal.
Honduras (121) has dropped 10 places which is kind of a surprise as politics seem to be stabilizing and foreign investment is picking up. It can be seen as an indication that more attention has to be given to the improvement of the Business Climate.
Guatemala (114, 118 in 2006) has won 4 points due to its stabilizing politics and its rather stable economy. This year’s elections will determine the future direction of Guatemala.
Both countries find themselves in similar overall situations as Costa Rica.
