Central America’s above-average recovery in 2021 and the positive outlook for the coming years demonstrate the region’s resilience to shocks and its development potential. In February, business experts and private investors joined the Central American Bank for Economic Integration and OMFIF to discuss the competitive advantages of Central America as a promising destination for foreign investors. They highlighted opportunities for sustainable projects and eco-friendly initiatives, as well as the region’s efforts to improve frameworks and market conditions to allow access for investors.
The meeting marked the launch of the “Resilience, Recovery and Sustainability: Central America 2021″ report, the second edition of an annual publication that tracks the region’s sustainable development and growth.
Louis Taylor, Managing Director of UK Export Finance, has made it clear that the last two years have massively accelerated investors’ attention to sustainability to the point that environmental, social and governance standards have become an essential part of the analysis of the viability of the projects. “Thinking about sustainability is a cultural factor” in Central America, added Victoria Hernandez, Minister of Economy, Industry and Commerce of Costa Rica.
The range of initiatives available demonstrates the region’s potential for sustainable investment. The United Nations Green Climate Fund has helped fund projects ranging from fighting deforestation in Nicaragua to building an electric railroad in Costa Rica.
Dante Mossi, Executive Chairman of CABEI, emphasized that Central America aspires to become a leader in sustainability and to be the first region to have a transportation sector powered by clean energy. With the support of CABEI, Central America is stepping up its efforts to develop and green its transport infrastructure and rail network. Mossi described these efforts as the beginning of “Central America‘s Green Industrial Revolution.” CABEI has raised funds for these and other sustainable projects in the region, having issued five ESG bonds over the past two years for a total of $1.6 billion.
To further enhance financing options, the report outlines how CABEI is supporting efforts to establish a regional public debt market that will provide a centralized trading repository for dollar-denominated sovereign bonds issued by Central American governments. . A more integrated government debt market would provide greater liquidity and depth to the region’s capital markets, increasing its appeal to foreign investors, Mossi said.
Hernandez noted that high levels of public debt after the pandemic had shown the importance of public-private partnerships. With public sector budget constraints, private institutions must join efforts to achieve a sustainable and robust recovery. Biwater, a British company that carries out large-scale projects to improve water supplies and implements wastewater treatment systems around the world, has been investing in Panama for over 40 years. “We built most of their water treatment plants [through] public-private companies,” said Adrian White, President of Biwater, adding that “these [ventures] are long standing and all have a proven track record and a learning curve.
Taylor described how, today, existing arrangements for such partnerships are documented in a way that “gives[s] investor protections that they may not have had in the past. Taylor also stressed that political stability, a strong rule of law and a clear regulatory environment for businesses and foreign participants are key to attracting investment.
To ensure such strong regulation exists, the Central American Economic Integration Secretariat and CABEI develop and define regional regulatory frameworks in areas such as PPPs. These standardization efforts will provide common regulation, which means that foreign operators will not have to deal with differences in the Central American jurisdictions in which they wish to invest.
The efforts come as outsourcing in the region is expected to accelerate due to US-China tensions and supply chain inconveniences from the pandemic. The region’s proximity to the United States makes Central America a strategic destination for supply chains to North America. Mossi said the region is rethinking its strategy to supply neighboring markets and is redoubling its efforts to become more competitive.
The region is improving its port and road infrastructure and strengthening its energy sector to guarantee reliable and affordable electricity. Central American countries have also shifted from primarily manufacturing economies to major producers of auto parts and medical supplies.
Natalia Ospina is Deputy Head of Reports and Investigations, OMFIF.
About the report “Resilience, Recovery and Sustainability: Central America 2021”:
This report covers the eight countries that make up the Central American Integration System. It presents a detailed vision of the region through six pillars: macroeconomic overview; sustainable investment; trade, foreign trade and foreign direct investment; financial integration; Digital Economy; and integration. Each pillar examines the position of Central American countries in the respective areas, highlighting flagship projects and trends that demonstrate potential while identifying areas where improvements are needed.
Download the report here.