Central American integration: Central American integration features important projects spearheaded by government agencies, but it's the private sector that is leading the way.

Author:Clavijo, Daniela
Position:MARKET REPORT: CENTRAL AMERICA
 
FREE EXCERPT

There are 67 positions separating Costa Rica and Nicaragua in the World Bank's 2016 ranking of regulatory quality and efficiency. While the two countries sit side-by-side on the map, the huge gap between them on this list hints at the difficulties that face Central American states as they seek to achieve economic integration--a goal more than 60 years in the making. The regulatory and legal frameworks of the region's six countries--Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama--are similar. But the small differences between them still add up, as the region's private sector has already learned.

The potential advantages of integration are impressive. Inserting this group of countries into the world economy as a single bloc would attract joint investments. As independent nations, Central American nations represent markets whose average size is just 7.8 million people, according to the latest census figures. But an integrated Central America would represent a market potential of 46.8 million people, which in turn would facilitate trade with strategic partners like Mexico, Colombia, Caribbean countries, and the United States.

Governments have laid the legal, political and institutional groundwork for the integration process in several sectors, and they have even signed commitments that would reconfigure border-crossing and customs posts while defining a common tariff policy. However, experts say, the private sector has contributed most to integration so far.

"In net terms, there is a perception that there has been much more of an opening towards economic and trade integration in the private sector than in government," said Aquileo Sanchez, director of corporate affairs and sustainability in Central America for Walmart de Mexico y Centroamerica. "There are interesting initiatives in the whole region. The private sector is trying and wants to break down the borders, but those efforts are often stymied by bureaucracy at the customs level and limits on tariff measures, and (by initiatives aimed at) protecting the local interests of people who don't want competition from outside their market."

SLOW STEPS

The creation of the Central American Integration System, known by the Spanish acronym SICA, and of the Central American Economic Integration Secretariat (SIECA), is evidence of the desire by the region's governments to work as an economic bloc. Today the six Central American countries, plus the Dominican Republic and Belize, have collective representation in key international forums. They can negotiate extra-regional trade agreements together, such as the Agreement of Association between Central America and the European Union and, while they are still being finalized, these countries also have common customs regulations.

At the same time, flagship projects of integration have emerged: the International Network of Mesoamerican Highways (RICAM), which seeks to improve connectivity by modernizing 8,170 miles of highways; and the Interconnection System of the Countries of Central America (SIEPAC), a 1,100-mile electricity transmission line that links all six countries.

Analysts say projects like RICAM and SIEPAC show that integration is moving forward. "It's a fact," said Victor Umana, director of the Latin American Center for Competitiveness and Sustainable Development (CLACDS) at the INCAE business school...

To continue reading

FREE SIGN UP