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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 = $11.4 Billion (2004)
• Market Larger than India, Russia and Indonesia - combined
The Region at a GlancePopulation (millions)
0
2
4
6
8
10
12
Costa Rica El Salvador Honduras Nicaragua GuatemalaSource: CIA World Factbook
The Region at a GlanceGross Domestic Product
0 5 10 15 20 25
Billions of U.S. Dollars
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
GDP by Country - 2003
Source: Secretaria de Integracion Economica Centroamericana (SIECA)
Why Export to Central America?
• Democratic Governments• On-going Market Liberalization• Growing U.S. Hispanic Population• Proximity to U.S.• 50% of Region’s Imports are from the U.S.• CAFTA-DR and FTAA will Spur
Investment, Economic Growth, and Increased Trade
Then and Now
• Banana Republics
• Civil War
• Political Unrest
• Limited Agricultural Economies
• Economic Instability
Then and Now
• High-Tech Corridors
• Tourism and Services
• Development of Non-Traditional Sectors
• Stable Democracies
• Sustainable Economies
• Niche Markets
Central America:Trade Data
Largest Industry Segments
17%
28%55%
AgricultureIndustryServices
Source: CIA World Factbook
Central America:Trade Data
Growth Rates - 2004 PreliminarySource: Secretaria de Integracion Economica Centroamericana (SIECA)
0 1 2 3 4 5
Guatemala El Salvador HondurasNicaragua Costa Rica U.S.
Central America:Trade Data
050
100150200250300350400450500
US$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
Central America:Trade Data
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