Economy

Agriculture, Trade, and Industry

Agriculture accounts for 13 percent of GDP, with agricultural exports of coffee, sugar, bananas, cardamom, vegetables, flowers and plants, timber, rice, and rubber being the chief products. Guatemala exported $3.8 billion worth of goods in 2008, with 75 percent of these being agricultural products. Light industry contributes to 25 percent of the GDP and manufactures include prepared food, clothing and textiles, construction materials, tires, and pharmaceuticals. The service sector accounts for 61 percent of Guatemala’s GDP. The United States is Guatemala’s biggest trading partner, accounting for more than half of the country’s exports and a third of its imports. Other important trading partners include the neighboring Central American countries, Mexico, South Korea, China, and Japan.

In terms of employment, agriculture is the largest employer, with half of the population employed by this sector. Services, bolstered by tourism, employ 35 percent of the population and industry employs the remaining 15 percent. Unemployment in 2005 was 3 percent.

After the signing of the 1996 peace accords, Guatemala appeared poised for rapid economic growth, but a financial crisis in 1998 disrupted the expected pace. Despite gains in industry, the country’s economy still showed much of its historical susceptibility to world commodity prices, specifically coffee. A collapse in coffee prices severely affected rural incomes and brought the industry into a serious recession, though exports of this commodity have bounced back since then.

Foreign investment has remained weak, with Guatemala unable to capitalize on foreign investment to the same degree as its neighbors. A notable exception is the privatization of utilities. Potential investors cite corruption, crime and security issues, and a climate of confrontation between the government and private sector as the principal barriers to new business.

Guatemala’s economy is dominated by the private sector, which generates about 85 percent of the GDP. The government’s involvement is small, with its business activities limited to public utilities, many of which have been privatized under a neoliberal economic model, and the operation of ports, airports, and several development-oriented financial institutions. The Berger administration passed legislation allowing for more private sector concessions of services in 2006.

The U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) was ratified by Guatemala on March 10, 2005. Priorities within DR-CAFTA include the elimination of customs tariffs on as many categories of goods as possible, opening services sectors, and creating clear and easily enforceable rules in areas such as investment, customs procedures, government procurement, electronic commerce, intellectual property protection, the use of sanitary measures for the protection of public health, and resolution of business disputes. Import tariffs were lowered as part of Guatemala’s membership in the Central American Common Market, with most now below 15 percent.

Other priorities include increasing transparency and accountability in Guatemala’s public finances, broadening the tax base as part of the peace accords, and completing implementation of reforms of the finance sector. The implementation of these changes involved reforming Guatemalan laws and a long, involved process in the national legislature. The process finally ended in June 2006, with DR-CAFTA officially taking effect on July 1, 2006, after the U.S. Department of Commerce officially certified the country in compliance with the trade agreement.

The ratification of DR-CAFTA was met with protests in Guatemala City. Its detractors feared the loss of jobs, increased dependence on food imports, and a broadening of the deep gap between Guatemala’s rich and poor. Peasant organizations and at least one NGO calculated the loss of up to 100,000 jobs in the agricultural sector. The government offered to counteract perceived imbalances through a series of credits supporting small and medium-size businesses, which employ more than 70 percent of the population and are the engine of the rural economy. Nontraditional export sectors were quick to point out the treaty will create an estimated 50,000 new jobs in nontraditional agriculture in the first two years of its implementation. Whatever the result, the implementation of DR-CAFTA will certainly involve major adjustments requiring the strengthening of agroindustry, and small farms in particular, via expansion to new markets and the application of new technologies, among other things.

Another major contributor to Guatemala’s economy is the money sent home by 1.5 million expatriate Guatemalans living and working in the United States. In 2008, this amounted to $4.3 billion, which Guatemalans on the receiving end used to supplement their incomes, start businesses, and put into savings. This phenomenon has helped to widely ameliorate the country’s endemic poverty and accounts for almost 12 percent of the GDP. Although income sent from abroad showed continued growth in 2008, Guatemalans feared that an increase in deportations of Guatemalan nationals from the United States would negatively impact the local economy.

Distribution of Wealth

It remains to be seen whether DR-CAFTA will aggravate or alleviate Guatemala’s skewed wealth- and land-distribution patterns, which are already some of the most unequal in the world. The wealthiest 10 percent of the population receives almost half of all income, and the top 20 percent receives two-thirds. About 80 percent of the population lives in poverty, with two-thirds of that number living in extreme poverty and surviving on less than $2 a day. Belying these patterns of wealth and income distribution are Guatemala’s social- development indicators, such as infant mortality and illiteracy, which are among the worst in the hemisphere. Chronic malnutrition among the rural poor worsened with the onset of the late-1990s coffee crisis and devastation wrought by Hurricane Stan in 2005.

Tourism

On a much more positive note, tourism greatly impacted the economy in recent years, particularly since the end of the civil war in 1996. In 2004, Guatemala received one million visitors for the first time and increased visitor numbers have continued in the years since. In 2007, Guatemala registered 1.6 million foreign arrivals with a tourism expenditure totaling $1.2 billion. According to the World Tourism Organization, between 2003 and 2004 Guatemala had the largest increase of international arrivals of any country in the Americas, with a growth of 34.3 percent. Guatemala’s tourist arrivals doubled between 2003 and 2007. In Central America, only Costa Rica receives more visitors.

About 30 percent of Guatemala’s visitor arrivals come from North America, with another 34 percent coming from Central America, particularly El Salvador. U.S. visitors may be closing the gap, however, as statistics from the peak Easter travel season of 2006 show more Americans arriving in Guatemala than Salvadorans. Approximately 18 percent of Guatemala’s tourists come from Europe and another 18 percent come from various other countries.

Much of the money generated by tourism stays in local hands, as many communities have been able to capitalize on their proximity to area attractions by catering to the demands of an increasing number of visitors. Foreign tourism investment is limited mostly to main tourist areas, and local entrepreneurs have done an excellent job of filling in the void created by the lack of foreign investment.

The government, meanwhile, is actively promoting tourism abroad via ad campaigns sponsored by the state tourism agency, INGUAT (Instituto Guatemalteco de Turismo), and investing in much-needed infrastructural improvements to the country’s airports. The industry also got a boost from the filming of the CBS television series Survivor in the rainforests of Petén, which aired in 2005.

The main obstacle to the continued growth of Guatemala’s tourism industry is security and the Guatemalan government is actively working to make travel safer for visitors to Guatemala. Among the improvements in visitor security is the establishment of tourism police (Politur) in the main tourist destinations. In many places, their presence has resulted in fewer occurrences of robbery and assault.