Review recommends efforts to improve governance, public institutions, regulatory framework; also recommends steps to reduce income inequality
Geneva, 3 May 2011 -- Guatemala can aspire to become a hub for foreign direct investment (FDI) but should take steps to strengthen governance and the performance of public institutions to help it reach that potential, according to recommendations put forward in the UNCTAD investment policy review (IPR) of that country.
The Review was unveiled for intergovernmental discussion by UNCTAD Secretary-General Supachai Panitchpakdi this morning. The presentation took place during the weeklong meeting of the Investment, Enterprise and Development Commission of UNCTAD.
Mr. Supachai said Guatemala´s open policies, protracted political and macroeconomic stability, and sizeable domestic market, in addition to its favourable geographic position and the quality of the Guatemalan labour force, point to a significant potential for attracting FDI.
However, Mr. Supachai said that poverty and the unequal distribution of income, low levels of education, and high crime rates continue to hamper economic and social development and to prevent the country from fully tapping its investment potential. Recommendations to the Government of Guatemala aim at strengthening governance and public institutions, improving the regulatory framework for investment and assisting Guatemala in attracting and deriving increased benefits from FDI.
The Review concludes that although modern and open legislation has been introduced in several areas of the regulatory framework for investment - including the labour market, foreign exchange, environmental protection, and intellectual property - critical policies essential to ensuring the proper functioning and regulation of the market have yet to be implemented. The absence of a competition policy and a national competition agency is a case in point, the Review says. Further, important government institutions are often too weak and poorly resourced to effectively fulfil their mandates, to the detriment of the population and of economic development.
Among its key recommendations, UNCTAD proposes elements of a comprehensive fiscal policy reform that would help Guatemala boost public revenue and offer investors a balanced and competitive fiscal regime. Mr. Supachai also outlined the recommendations contained in the Review relating to economic sectors considered strategic by the Government: energy, mining, and road infrastructure. He stressed the importance that a participatory process can have on the success of investment projects in these three critical areas and on the well-being of populations affected by them. Alfredo Pókus Yaquián, Minister of Energy and Mining of Guatemala, and Head of the Guatemalan delegation at the meeting, praised the quality of the IPR and its recommendations. He said it would be a very useful tool for guide Guatemala´s FDI attraction strategies. He stressed that the Government endorsed the IPR recommendations and had already started implementing them, including in the field of competition policy and through steps to simplify administrative procedures.
Abel Cruz Calderon, Guatemala´s Vice-Minister of Economy in charge of investment and competitiveness, highlighted the country´s achievements over the past decade in promoting investment in a number of key sectors, including through an open and protective regime for foreign investors and through the conclusion of free trade agreements with the main economic partners. He emphasized Guatemala´s continued efforts to foster investment and development through its national competitiveness programme, which is being reviewed to build on the recommendations of the IPR. In particular, Mr. Cruz Calderon stressed the need for comprehensive tax policy reform.
Senior business representatives of transnational corporations with investments in Guatemala commented on business opportunities in the country. They concurred with the recommendations of the IPR and encouraged the Government to act upon them, in particular with a view to reducing red tape and strengthening administrative capacity. They also stressed security and personal safety issues, which they said are major constraints and add to the costs of doing business. Some investors also faced challenges in accessing needed managerial skills, although others said they have had positive experiences in training workers.
Concluding a day of exchanges of experiences on how to best use FDI for development, the Government of Guatemala pledged to work to implement the policy recommendations contained in the Review.
UNCTAD undertakes investment policy reviews of developing and transition countries at the request of their governments. The in-depth studies evaluate investment regimes and advise governments on how to maximize the development impact of FDI. To date, UNCTAD has completed IPRs for more than 30 countries.