destination central america

Destination Central America:Latin America’s Newest Emerging Market

International Trade Association of Greater ChicagoMarch 9, 2005

Topics

• Central America at a Glance• Why Export to Central America?• Central America --Then and Now• Central America -- Trade Data• The “CA-5”• Challenges / Opportunities• On the Horizon / CAFTA-DR• Programs / Services in Central America

The Region at a Glance

• 16th Largest Market for U.S. Exports

• U.S. Exports = $11.4 Billion (2004)

• Market Larger than India, Russia and Indonesia - combined

The Region at a GlancePopulation (millions)

0

2

4

6

8

10

12

Costa Rica El Salvador Honduras Nicaragua GuatemalaSource: CIA World Factbook

The Region at a GlanceGross Domestic Product

0 5 10 15 20 25

Billions of U.S. Dollars

Costa Rica

El Salvador

Guatemala

Honduras

Nicaragua

GDP by Country - 2003

Source: Secretaria de Integracion Economica Centroamericana (SIECA)

Why Export to Central America?

• Democratic Governments• On-going Market Liberalization• Growing U.S. Hispanic Population• Proximity to U.S.• 50% of Region’s Imports are from the U.S.• CAFTA-DR and FTAA will Spur

Investment, Economic Growth, and Increased Trade

Then and Now

• Banana Republics

• Civil War

• Political Unrest

• Limited Agricultural Economies

• Economic Instability

Then and Now

• High-Tech Corridors

• Tourism and Services

• Development of Non-Traditional Sectors

• Stable Democracies

• Sustainable Economies

• Niche Markets

Central America:Trade Data

Largest Industry Segments

17%

28%55%

AgricultureIndustryServices

Source: CIA World Factbook


Growth Rates - 2004 PreliminarySource: Secretaria de Integracion Economica Centroamericana (SIECA)

0 1 2 3 4 5

Guatemala El Salvador HondurasNicaragua Costa Rica U.S.


050

100150200250300350400450500

US$Millions

Guatemala Costa Rica El Salvador Nicaragua Honduras

U.S. Stock of Foreign Direct Investment, 2003

Source: Country Commercial Guides from Central America and Economic Office Guatemala


11.4

13.2

10.5 11 11.5 12 12.5 13 13.5

Imports

Exports

(U.S. Dollars - Billions)

2004 Exports to and Imports from the U.S.

Source: U.S. Department of Commerce

Central America:A Real Market

Source: USDOC/ITA – F.A.S./Customs Basis

COUNTRY US$ BILL. (2004)CANADA 190.2MEXICO 110.8BRAZIL 13.9CENTRAL AMERICA ($10.9 bill. - 2003) (not incl DR) 11.4MALAYSIA 10.9ITALY 10.7EASTERN EUROPE (22 COUNTRIES) 9.1SPAIN 6.6CHILE 3.6

TOP PURCHASERS OF U.S. EXPORTS

Illinois’ Exports to CAFTA-DR

• Exports totaled $211 million 2004• 23% increase over 2003• Costa Rica largest market for Illinois in region• 98% of exports manufactured goods

– Communications equip

– Grain & oilseed milling products

– Motor vehicle parts

– Electrical equip

– Plastics

The CA-5: Guatemala

• Largest Economy in Central America

• Economy Nearly Completely Privatized

• Tax Collections are about 10% of GDP

• Tariffs are Relatively Low (1-17%)

for Almost All Products;

VAT is 12%

The CA-5: Honduras

• Competitive Labor Costs

• U.S. Accounts for 50% of All Foreign Trade

• The Maquiladora Industry Accounts for 15% of GDP and 11% of Exports

• Puerto Cortes is the Largest Port in Central America

• U.S. has 40% of FDI in Honduras

• 4 int’l airports

The CA-5: El Salvador

• Smallest Country in Central America. Densely Populated

• Over 1.5 Million Salvadorans Live in the U.S.

• Foreign Trade Grew 400% between 1992-2000

• Aggressive Trade Policy = Rapid Economic Develop.

• Dollarized economy

The CA-5: Nicaragua

• Safest Country in Central America

• Price Controls Phased-out

• Privatization

• Rich in Natural Resources

• Lack of Diversity in Sector

Development

The CA-5: Costa Rica

• Highly-Educated Workforce• Most Politically Stable Country

in Region• Booming Tourism Industry • Privatization Limitations• 95% Literacy Rate• Small Population but High

GDP & FDI• Market Openings Expected

Under CAFTA-DR

Central America is an Open Market

• Tariffs are Relatively Low (1-17%)

• VAT Average - 12%

• Almost No Import Restrictions

• Standards are Similar to the U.S.

• Labeling/Testing not a Problem

• Variety of Qualified Agents and Distributors Available

• Growing English Use in Business

Opportunities: Best Prospect Industries

• Automotive Parts and Service Equipment

• Food Processing/Packaging Eq.; Processed Foods

• Electric Power Generation / Distribution Equipment

• Hotel and Restaurant Equipment

• Franchising

• Security and Safety Equipment and Services

• Telecommunications

•Construction Equipment

Challenges

• Financial Reform• Respect for Contracts• Investment Protection• Judicial Reform• Export Promotion

• Corruption• Education• IPR Protection• Security• Start-ups; SMEs;

Entrepreneurship; Leadership

Central America:On the Horizon

• Maquila Sector will take a hit in 2005. China.

• Central America 100% Dependent on Imported Oil

• Increased Overseas RemittancesEl Salvador - $2.5 bil, Guatemala - $2.5 bil, Honduras - $1.2 bil, Nicaragua - $519 mil

• CAFTA-DR

CAFTA-DR: U.S. Benefits

• Comprehensive reciprocal Trade Agreement; not unilateral like CBI/CBTPA

• More than 80% of U.S. manufactured exports duty free immediately; remaining over 10 years

• Market access to services market such as telecom & insurance

• Better business and investment climate—transparency, procurement, investment protection

CAFTA-DR: Regional Benefits

• Better Access to Central American Market– Improved Movement of Goods within CA-5;

Customs

• Larger Availability and Qualityof Products for Consumers

• Enforcement of Labor Rights• Protection of Environment• Better Investment Climate

CAFTA-DR:What’s Happening?

• U.S. firms have regionalized operations– Proctor & Gamble, Abbott

• CA firms are regionalizing– La Fragua, Roble, Banco Cuscatlan

• Regionalization: Power grid; Customs; Highway integration

• Negotiating as a group

CAFTA-DR:What’s Happening?

• Ratified by El Salvador and Honduras; other CAFTA countries next few months

• Implementing legislation to Congress within a month

• Vote in Congress likely before summer

• Lightening rod for opponents of free trade

CAFTA-DR:Factoids

• CAFTA will open Central America to the U.S. – The U.S. is already open to CAFTA

• Textiles: 2nd largest market for U.S. textile fabrics and yarns.– T-shirt made in CA 60-70% US. Content. China <10%

• Sugar: Increased quotas– Equal slightly more than one day’s U.S. production

• Labor and Environment– CAFTA keeps up the pressure for reform

• CAFTA supports freedom, democracy and economic reform in our neighborhood

A Sampling of our Services in Central America

• In-Depth Counseling of U.S. Firms• Gold Key Service• International Buyer Programs• Platinum Key Service• Customized Market Research• International Sector Analyses / Market Insights• Contact Lists• Advocacy• International Company Profiles• International Partner Searches• Country Commercial Guide

CS San JoseCS Guatemala

CS Honduras

Commerce Nicaragua Commerce El Salvador

CS Central AmericaRegional Industry Sectors

• Apparel, Textiles & Equip

• Automotive Parts and Service Equip

• Computers & Software

• Construction Equip & Services

• Food Processing & Packaging

• Franchising• Hotel & Restaurant

Equip• Medical Equip &

Pharmaceuticals• Telecom Equip &

Services

•International Franchise Expo, Washington DC Apr 2005

•Waste Expo, Las Vegas May 2005

•Nat’l Restaurant Hotel Motel Show, Chicago May 2005

•SUPERCOM, Chicago Jun 2005

•Clinical Laboratory Exposition, Orlando Jul 2005

•MAGIC, Las Vegas Aug 2005

•Pack Expo, Las Vegas Sep 2005

EVENTS

CS Central America:On the Horizon

Other UsefulContact Information

• Office of the United States Trade RepresentativeWebsite: www.ustr.gov

• Business Coalition for U.S.-Central America TradeWebsite: www.uscafta.org

• U.S. Commercial Service in Central AmericaWebsite: www.buyusa.gov/centralamerica/en

• Trade Compliance Center, U.S. Dept. of CommerceWebsite: www.tcc.mac.doc.gov

• USDOC CAFTA WebsiteWebsite: www.ita.doc.gov/cafta

IMPRESSIONS/CONCLUSIONS

• 50% of Region’s Imports Come from the U.S.• Region in General is Peaceful, Democratic• Trying to Find a Foothold in the Global Economy• Markets are Close to the U.S.• Regional Integration and CAFTA-DR will spur

more Investment, Economic Growth, and Trade• Markets are Growing

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