Competitive Central America By SIECA General Secretariat

Competitive Central America
By SIECA General Secretariat
In the last few years, Central America has
achieved significant progress in the sphere of
economic integration in order to capitalise on its
production and cost benefits and improve regional
competitiveness within the global economic
environment.
In the area of commercial integration, the region
has continued to advance in the improvement
and expansion of the free trade zone with the
recent incorporation of Panama into the Central
American Economic Integration Sub-system, the
establishment of the Central American Customs
Union and the strengthening of commercial
links with its main partners (the U.S and
European Union) through compatible or common
agreements. Additionally, large scale projects
which seek to improve electrical connectivity,
road infrastructure, security and border control in
the region have been executed.
Despite the progress in these areas, the region’s
growth remains below that of its competitors in
Latin America and Asia. Poverty continues to be a
great challenge even as Panama and Costa Rica
show significant development as the leaders in
economic growth and poverty reduction in the
region. If Central America expects significant and
sustained growth, the region must considerably
improve its productivity vis-a-vis other
participating economies in international markets
in order to generate employment and wealth for
its people.
With regard to growth and development, Central
America is a homogenous region on account of its
notable lack of natural resources in comparison
to other countries in the Western Hemisphere.
Conversely, it is heterogeneous with respect to
its living conditions. According to figures from the
World Bank, in 2012 Costa Rica and Panama had
a GDP per capita between $13,320 and $16,946,
while El Salvador, Guatemala, Honduras and
Nicaragua had a GDP per capita of less than
$7,575.
In terms of production and exports, there is a
degree of homogeneity among Central American
countries, resulting in productive development
concentrated in a small number of sectors such
as commodities, food and manufacturing, despite
the fact that Costa Rica has made considerable
progress in the production of high-value goods.
Although to date, these efforts have contributed
to the growth of the regional economy and the
attraction of Foreign Direct Investment (FDI) has
added, to some extent, to diversification, the
statistics show that Central America needs to
make a greater effort to become competitive in the
area of exports. This can be achieved by aiming for
higher productivity and value, diversification of its
products and target markets, as well as actively
participating in a large number of lucrative global
networks.
Countries have tackled this situation by
implementing strategies such as increasing
exports, promoting investments and introducing
national reforms to facilitate trade. However, the
programmes implemented have failed to include
a key element; a shared regional vision regarding
competitiveness on which a consensus-based
strategy based on public and private dialogue
can be devised. This regional focus would provide
the following benefits: i) an improved utilization
of existing trade agreements; ii) greater use of
the region’s leaders with respect to creation
or consolidation of lucrative networks, quality
and use of technology for knowledge sharing
and development of products with greater
sophistication; iii) promotion of the region’s
supply chain with large international networks;
and iv) encouraging regional public policy reforms
in order to facilitate strategic foreign investment
and improve the trade environment.
Within this context, the following questions
arise: Is there room to establish a regional
competitiveness plan? Would this plan
complement regional initiatives so that improved
levels of productivity can be achieved thus
allowing the countries of the region to compete
with other developing economies such as those
in Asia or Latin America? And if this space exists
for a regional competitiveness plan, which areas
should be its focus?
An analysis of the requirements not dealt with
by the different projects and the evidence which
shows the need for coordination of the different
initiatives being executed at the national level, it can
be concluded that the region requires a regional
programme which addresses the aforementioned
shortcomings. In light of this the Central
American Economic Integration Sub-system
(SIECA) together with the IDB and other strategic
partners are currently establishing the Central
American Competitiveness Project which seeks
to encourage collaboration among governments,
the region’s private sector and key players in the
international community such as international
funding organisations and bilateral groups. This
collaboration is aimed at promoting measures to
increase commercial productivity in the region,
encourage growth, improve the business climate
and facilitate trade. The project is also poised
to design regional programmes which take into
account the needs of Central American countries
with a focus on the existing degree of diversity or
heterogeneity and the capacity of some of these
countries to spearhead lucrative networks or
transfer best practices to the other members of
the group.
NOTE: Adapted from the Concept Paper on Central
American Competitiveness
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