Overseas business risk for Guatemala

Question 1

1. Overview

Accepted Answer

Guatemala is the largest economy in Central America, with a GDP of USD 85.99 billion (2021 World Bank) – a country with the steadiest growth rate in Latin America for 3 decades. Guatemala’s economy experienced one of the smallest GDP contractions in 2020 in the region (-1.5%) following onset of the COVID pandemic. The country is also the most populous in the region – 17.9 million inhabitants with a GDP per capita of USD 5,025.25.

It has a major geographical advantage in its access to Mexico and, via North America Free Trade Agreement (NAFTA), the US and Canada. Longer term, Guatemala has the potential to be a major hub of supply chain companies, particularly in light of the customs union between Guatemala, Honduras and El Salvador.

Guatemala is heavily reliant on traditional exports such as coffee, rendering the economy vulnerable to fluctuations in both international prices and weather conditions (impact of climate change and anomalies like El Niño). Manufacturing is centred on light assembly and food processing. Tourism and the export of textiles and non-traditional agricultural products such as fruit and cut flowers are increasingly important.

British companies are under-represented in Guatemala compared with other European partners. A British Chamber of Commerce established in 2018 is helping to redress that balance.

Question 2

2. Politics

Accepted Answer

Guatemala won its independence from Spain in 1821. During the second half of the 20th century, a protracted civil war pitted the urban elite, supported by the US, against guerrillas in the rural communities, supported by the Soviet Union. The conflict left more than 200,000 dead and ended with a peace agreement in 1996. Since then, Guatemala has pursued macroeconomic stability with reforms that have attracted foreign investment, including successful privatisation plans.

Guatemala gained an international reputation for the fight against corruption with many senior figures, including former presidents facing corruption charges. As public protests against corruption intensified in 2015, a political newcomer, Jimmy Morales (a former TV comedian) was elected President on the ticket of “neither corrupt nor a thief.” He began his four-year term as president in early 2016 with modest achievements and surprisingly expelled the UN backed anti-corruption commission (CICIG). Guatemala held elections in 2019, welcoming a new right-wing government in January 2020. While the economy has performed positively during this administration, corruption and a sizable bureaucracy remain constants. The judicial system remains weak and vulnerable to political interference. The government continues to promote a regressive agenda concerning human rights, which has damaged the work of civil society groups and increased the vulnerability of human rights defenders, journalists, women, children, and LGBT+ people.

Question 3

3. Economics

Accepted Answer

World Bank data shows that the economy grew by , 3.8% in 2019, 1.5% in 2020, 8% in 2021 and 4% in 2022. Despite the growth of the economy, inequality remains a challenge, with 59% (official 2019 figures) of the total population living in poverty. The unemployment rate was 2.9% in 2021. However, informal economic activity accounts for at least 70% of the workforce, with less than 30% of workers fully covered by social security regulations.

Moreover, the minimum wage for those in the formal economy is around USD 430 per month (2023), which is not enough to cover a basket of goods (such as rent, food, clothes, health, communications, transport), which is valued at USD 1,000. Inflationary pressures are likely to have an increasing effect in the coming years as food and oil prices continue to rise. Inflation increased from 4.8% in 2021 to 9.24% in 2022.

Guatemala has shifted from being a raw materials and traditional agriculture commodities exporter, including sugar, coffee, bovine meat, cardamom, bananas, etc. (25%), to become one of the most diversified exporters in Latin America selling value-added non-traditional products (75%), including textile/apparel and light manufacturing, to over 140 countries in the world. Total exports in 2022 were USD 15.6 billion, increasing 15.16% compared to 2021.

The country remains vulnerable to external shocks, largely because of its over-dependence on the US economy. Any economic slowdown in the US, Guatemala’s principal trading partner, will reduce demand for exports, putting further pressure on a government already struggling to finance additional food and fuel imports. The country is also heavily reliant on remittances from Guatemalan citizens living in the US. In 2022, remittances from the US were around USD18 billion, a 17.9% increase from 2021, accounting for 20.9% of GDP.

Guatemala has an open investment regime that guarantees national treatment for foreign investment which is governed by the Foreign Investment Act. According to this act, impositions of investment-related measures that might have distorting effects are prohibited, as well as any imposition of any performance requirement as condition for foreign investment. Also, foreign investors are allowed to participate in almost all economic activities, without any quantitative limitations. The only restrictions are the ones established in the country’s Constitution, for example the exploitation of forestry or maritime resources.

Although the government hopes to expand the energy and extractive sectors, these remain relatively under-developed. Much needed foreign investment remains low by regional standards as companies continue to be deterred by endemic corruption and the country’s poor security outlook. According to data from Guatemalan Central Bank (Banguat), the flow of foreign direct investment (FDI) in 2022 was USD 1,352.4 million, a decrease on the USD 3,461.8 million received in 2021.

Despite decades of steady growth between 2-4%, Guatemala faces challenges to boost a robust and inclusive economic growth. In addition to the consequences of the COVID-19 pandemic, Guatemala’s business climate has been negatively affected by the government’s fight against corruption, which is causing a phase of uncertainty for business and investments. However, the government is implementing tools to facilitate doing business in the country. These include reducing time/costs to set up a business, implementing online systems to open a business, facilitating credit, working on regional integration, among others.

In 2019, Guatemala was 96th in the World Bank’s ease of Doing Business Ranking, between Philippines and Togo.

3.1 Trade and investment between the UK and Guatemala

Trade between Guatemala and the UK has been increasing in recent years, especially since 2013 following the European Union and Central America Association Agreement (EUCAAA). From 1 January 2021, trade relations with Guatemala are based on the UK-Central America Association Agreement). Total trade in goods and services (exports plus imports) was £171 million in 2022, an increase of 22.1% or £31 million from 2021.

UK exports to Guatemala amounted to £68 million, while UK imports from Guatemala were £103 million. More details on the bilateral trade with Guatemala and latest trade and investment figures are in the Trade and Investment Factsheets.

3.2 Potentialities of the market

With its geographical location, in the longer run, Guatemala has the potential to be a major hub of supply chain companies, in particular around automotive and advanced manufacturing (sectors of strength in the UK). However, the sectors with most potential for UK companies at the moment are shown below.

Infrastructure

Public investment in infrastructure is one of the priorities of the government and there are opportunities in urban planning, modernisation of ports and airports, creation of smart cities, public transport, construction of highways, others; all areas of British expertise.

Energy

The country is the leading electricity exporter in Central America and has natural resources that can be used for energy generation (one of the largest British investments is in this sector: USD 900 million). Nevertheless, this sector has challenges due to human rights and environmental issues and lack of proper legal framework for the creation of clean energy projects. One of the biggest energy companies in Guatemala is working on a renewable energy project, which may be of interest to UK companies.

Food/beverages

British products are in high demand by local consumers because of their high-quality reputation. Goods in this sector are starting to have more presence in regular supermarkets, in particular alcoholic beverages being the second-most exported goods to Guatemala (whisky, gin).

Apparel

The strongest industrial sector in Guatemala; it represents 8.9% of GDP. Several renowned clothing brands produce their merchandise in the country because of the advantages of the market (such as regional rules of origin through FTAs, geographic location, and fiscal incentives). Guatemalan stakeholders have shown interest in representing UK brands locally.

Technology

The UK’s reputation in technology creates a demand to understand best practices and acquire software and hardware in order to implement it in a range of sectors (from security and justice to agribusiness). As an example, government institutions and local companies look to the UK in this sector.

Public-private partnerships (PPPs)

Despite national and international efforts to push PPPs in Guatemala, these are still in early stages since they have not implemented any such projects yet. Nevertheless, there are seven upcoming projects using PPPs which represent opportunities related to consultancies, advisors, auditors, investors, lenders, developers and others.

The British Government has been actively working with Guatemala to help it develop its PPP model and to share UK expertise.

3.3 Tax and customs

Tax laws in Guatemala are based on the territoriality principle. Only Guatemala-sourced income is subject to tax and therefore Guatemalan law does not provide relief for foreign income taxes paid.

These are the key taxes in the country:

companies are subject to income tax at a rate of 25% on net taxable income
VAT is payable on both domestic and imported goods and services; a standard rate of 12% applies
a specific calculation of withholding tax, at rates ranging from 5% up to 15%, exists for income from entities not residing in the country and acting with or without a permanent establishment

Guatemala also imposes internal taxes on country-wide distribution of alcoholic and non-alcoholic beverages, cigarettes, cement and petrol-based fuels.

Three incentive programmes operate in Guatemala based on the exemption of import tax, income tax and VAT. These programmes are:

export and drawback activities (Promotion and Development of Exports and Textile/Garments Activity Law – Decree 29-89)
free-trade zones (Free Trade Zones Law – Decree 65-89)
investment in renewable energy sources.

3.4 Customs Union between Guatemala and Honduras

The Customs Union between Guatemala and Honduras entered into force in June 2017; and in August 2018, El Salvador officially joined. This created a single customs territory of 242 square kilometres and 34.8 million inhabitants; figures that represent more than 68% of Central America, including 69.4% of regional trade and 50.2% of regional GDP. This union covers free transit of more than 75% of trade, by accelerating mobilization of more than 95% of goods at the border with the use of a document for electronic transfer and payment of taxes in real time (FYDUCA).

This customs union only covers goods and 38 products are excluded. Among these are alcoholic beverages, vehicles, living animals, chemicals, dairy, tobacco, cement, others. The excluded products would use the regular customs documents and would have to go through the regular line at customs; whilst included products go through a special line and only use FYDUCA.

Discussions are on going regarding the free transit of nationals from the Northern Triangle countries (Guatemala, Honduras and El Salvador) between their respective borders, without the need to clear customs. Implementation of this is yet to be realised.

Since the entry into force of the customs union, authorities of the three countries are present at customs offices at the respective borders in order to facilitate the mobilisation of goods.

3.5 Services: education

Facts and strengths of the market

out of approximately 17 million inhabitants, 62% are under 30 years old
approximately 10.6 million inhabitants constitute the economically active population (15 to 65 years old)
Guatemala is ranked as a country with moderate English proficiency according to the English Proficiency Index . However, English proficiency is high among young and urban generations
approximately 82% of the population aged 15 and over are able to read and write
Guatemala has one public and 14 private universities

UK education offer in the country

There are opportunities to further engage and strengthen the UK’s education offer in the country. So far one school has been accredited as a Cambridge International School and five schools work with Cambridge English to accredit their English programme. The IELTS exam and other Cambridge recognised certificates are locally offered by Oxford Language Center. Pearson Education is also active in the country. The British Council currently does not have an active presence in the country.

BPO sector

The BPO sector (Business Process Outsourcing) employs around 45,000 people in Guatemala. This sector has matured by accumulating over 10 years of experience. BPOs offer a wide range of services such as customer service, telemarketing, collections, data feeding and outsourcing of financial and administrative services. Leading multinational companies such as EGS, [24]/7, Allied Global, Telus International, Capgemini, Genpact and Xerox are situated in the country.

Guatemala has developed several incentives to attract foreign investment to this sector. Some examples are the Promotion and Development of Exports and Textile/Garments Activity Law (Decree 29-89) and Free Trade Zones Law (Decree 65-89). For instance, Decree 65-89 establishes that by locating a service company in an existing free trade zone, it can enjoy exoneration of customs duties on machinery, equipment, tools and others needed to carry out its activities within the free trade zone; value added tax (VAT); and income tax (for 10 years from its authorization).

In 2018, a 12% decrease in the sector was reported. Some of the factors attributing to the decrease include: lack of sufficient English skills in young population and lack of certainty when investing, particularly on the refund of the Value Added Tax (VAT).

Technical education

The Guatemalan labour market is increasingly requiring higher aptitudes and competencies to undertake jobs. Due to socioeconomic factors, limited access to secondary education, rural/ urban divide, and gender barriers, many young Guatemalans are unable to access higher education. Consequently, strengthening technical education and diversifying its offer has become a local priority.

Established in 1972 INTECAP is the governing body of vocational training in Guatemala. USAC , Guatemala’s public university and other private universities also offer technical education degrees.

Technical education providers are keen to offer internationally recognised certifications to their students. Demand to develop technical skills is increasing in areas such as: agriculture, hospitality and tourism, cuisine, programming, 3D animation, handling of industrial machinery, electricity, and maintenance.

Opportunities and challenges

There are other opportunities to explore in the education/ English language sector in the country. For instance, English for business, teaching methodologies and development of specific course material. Within the context of the COVID-19 pandemic, there are opportunities for the UK to share expertise in instructional design, teacher training and development of distance learning platforms.

There are also a number of private schools and universities in Guatemala who could establish partnerships with international education providers for their students to improve English language skills and immerse in a foreign culture. UK institutions and their quality of education are highly regarded and recognised.

There are several challenges in the education sector to take into consideration. One of them is the strong competition with other English language providers. Guatemala has closer cultural and commercial affinity with the United States in comparison to the UK. The BPO sector also favours developing in house skills and focusing voice coaching on American clients.

Regarding legal barriers, public entities are unable to contract services over a certain amount without having to open a bidding process. They are unable to contract foreign companies without a legal registration in the country unless they are unique providers of a service. Thus, on most occasions UK education providers must seek and establish local partnerships to take forward such opportunities or opt to undertake a local registration process (see further details in the regulatory environment).

3.6 Private-public partnerships

Guatemala has a Law of Partnerships for Economic Infrastructure Development (Decree No.16-2010) which regulates public-private partnerships projects focused on improving the infrastructure sector in the country in order to boost its economic potential. This law also created the National Agency for Partnerships for Economic Infrastructure Development (ANADIE), a decentralised body responsible for the implementation and delivery of PPP projects in order to improve the country’s competitiveness.

All projects undertaken under this law have to be focused on the creation, construction, development, utilisation, exploitation, maintenance, modernisation and expansion of infrastructure (highways, roads, ports, airports, railways) and projects of generation, transmission and sale of electricity.

In summary, the government identifies a need in the infrastructure sector, ANADIE designs the project and conducts the tender for each stage (for example pre-feasibility studies, pre-qualification of contractors), the Ministry of Finance conducts a study regarding the budgetary and financial impact of the project which has to be approved by the Ministry before the PPP tender is opened. After ANADIE has conducted the tender and an implementer has been granted the PPP contract, the National Congress has to approve such contract.

Nevertheless, since the entry into force of this law (2010), only 1 project has been granted. This is mainly due to political challenges, for example, changes of government officials; lack of skilled labour (PPP is relatively new and government officials are looking to countries like the UK to acquire best practices) and bureaucratic processes.

There is also the stigma in some sectors (such as civil society) that perceive PPPs as an unacceptable way to implement public infrastructure projects because the private sector is involved. This stigma is based on the corruption schemes that have come to light in past years.

In 2020, ANADIE proposed several reforms to the PPP Law as a way of speeding project approval by Congress and to include more sectors in the PPP Law: education and water. The Reform to the Law is still being discussed and is pending approval by Congress. In 2021, the first PPP for a toll highway was approved by Congress; construction phase is estimated for a duration of 38 months.

One of the main requirements of Guatemala is the implementation of basic infrastructure and the use of PPPs seems a good way to do it. That is why other stakeholders, like the Inter-American Development Bank are providing funds for institutional and regulatory framework strengthening; capacity and awareness building; and pipeline development support.

The National Agency (ANADIE) has identified 7 infrastructure projects, ranging from USD 80 million to USD 770 million:

3.7 Global trade and international engagement

Guatemala has an open trade regime and free trade agreements have become an increasingly important part of the country’s trade policy. Guatemala has been a member of the WTO since July 1995 and has signed more than 12 trade and commercial agreements (see table below) providing preferential access to over 40 trade partners, including the UK. Its largest trading partners are the United States; other Central American countries; Mexico and the EU.

Guatemala is very active in the multilateral trade system through the WTO. It is member of 6 groups of negotiations, including the Small and Vulnerable Economies and Cairns Group and has ratified the latest multilateral trade agreement: Trade Facilitation Agreement. Moreover, it has 17 bilateral investment treaties which support the protection and promotion of investment with such commercial partners.

See Guatemala’s trade agreements

Intellectual property

Guatemala is part of the main international agreements of intellectual property, including its membership of the World Intellectual Property Organization (WIPO) since 1983 and has been improving its legislation to strengthen intellectual property rights (IPRs) in the last few years. The last improvement was done through the Industrial Property Law, which introduced special forms of protection for geographical indications and appellations of origin in Guatemala.

However, the protection of IPRs only applies in Guatemala, meaning that the owner of such rights may not prevent the imports of products being lawfully marketed and purchased in another country. Hence, trademarks, copyrights, patents, industrial designs, and others have to be properly registered under Guatemalan regulations. The registration has to be done through the National Intellectual Property Registry; the registration process of trademarks usually takes between 5 to 6 months, while for patents up to 4 to 5 years.

IPR	Registration time
Trademarks	5 to 6 months
Patents	4 to 5 years
Industrial design	4 to 5 years
Copyright	10 days

Even though IPR legislation exists, enforcement has been inconsistent. For example, there have been several cases pursued, specifically for violation of copyrights (music, movies, software) and trademarks (mostly for pharmaceutical and food/beverages). Additionally, the registration process is not particularly efficient due to bureaucracy issues.

Question 4

4. Business and human rights

Accepted Answer

Historically, Guatemala has maintained an open and welcoming posture to international human rights agreements. The country has ratified and supported numerous resolutions. However, in practice it continues to face implementation difficulties, particularly with those related to recognising economic, social and cultural rights (see World Report (2023): Guatemala’s Human Rights. Widespread poverty and a large informal sector exacerbate existing implementation challenges.

Currently there is no National Action Plan (NAP) to implement the UN Guiding Principles on Business and Human Rights. Nevertheless, the Presidential Commission for Human Rights will lead on the development of the Business and Human Rights National Action Plan, however, few details have been shared nor there is a clear timeline.

There was interest from civil society and the private sector to place Voluntary Principles on Security and Human Rights on the national agenda. The Centre for Social Responsibility Action in Guatemala CENTRARSE and the Learning Institute for Sustainable Development (IEPADES) have been leading this effort. However, there has been very little interest from the current government. Several local companies especially in the agro industry sector have adopted the voluntary principles.

4.1 Indigenous groups and investment projects

The most prominent vulnerable groups in Guatemala are indigenous people, women and children. According to the most recent census (2019) Indigenous people represent 41.7% of the population, however the UN estimates the percentage to be higher at 60%. The Peace Accords signed between 1991 and 1996 marked the end of 35 years of civil war. The Identity and Indigenous Rights Accord (1995) in particular recognised the identity of different indigenous groups and expressed the State’s commitment to adopt a series of measures to eradicate oppression and discrimination.

In 1997 Guatemala ratified ILO Convention 169. The Convention recognises that due to different historical factors, indigenous and tribal groups have been unable to exercise their fundamental human rights to the same degree as the rest of the population and that governments should assume responsibility to ensure that indigenous and tribal groups are able to exercise, under equal conditions, the rights and opportunities available to the rest of the population under local laws.

The Convention also establishes that the State should consult indigenous groups on all administrative or legal measures which could directly affect them. This includes but it is not limited to coordinating consultation processes between indigenous groups and companies looking to establish operations in their territories.

In addition to affecting indigenous groups, the consultation process is also a problem which affects non-indigenous communities. Currently, there is no consultation law except for an operation guide which outlines the steps to correctly undertake consultation processes. In late 2022, the Ministry of Energy and Mines presented a government decree proposal to deliver ILO 169. Although the government assured the international community that the decree would be approved by the beginning of 2023, this has not yet reached Congress.

Understanding the complexity of social conflicts in Guatemala is challenging. In some instances, social conflicts have escalated resulting in the suspension or closing of different projects. The cases of San Rafael Las Flores Silver Mine and Oxec Hydroelectric discussed below are two illustrative examples.

San Rafael Las Flores Silver Mine now Mina El Escobal

Since the beginning of this project in the municipality of San Rafael Las Flores, Santa Rosa, some local communities have fiercely resisted Tahoe Resources’ mining activities based on environmental arguments and lack of consultation with indigenous populations, particularly the Xinca. However, there have also been local communities who throughout the years have been vocal supporters of the mine. The company has also undertaken corporate social responsibility activities to include programmes to address malnutrition, education, vocational training and environmental concerns.

Prior to granting the extraction licence to Tahoe Resources, the Ministry of Energy and Mines (MEM) did not undertake any community consultations. This was due to national registries not indicating the existence of any indigenous community in the area. The mine complied with all legal requirements and began its operations in 2014 followed by rising tensions.

In 2017 the Supreme Court of Justice suspended the company’s mining licence but later overturned the measure requiring it to undertake a consultation as established in the ILO Convention 169. Although the company tried to resume operations, constant blockades and demonstrations prevented them from operating.

A campaign group presented an appeal to the Constitutional Court (CC), suspending again mining activities. In October 2017, the CC made a public visit to the mine and by law it was mandated to pronounce a definitive resolution to the case within the following five days.

However, over 100 days have passed since the visit and the CC has still not provided a definitive resolution. Due to sustained suspension of activities and high levels of uncertainty 250 workers were laid off in January 2018. It has been estimated that the mine’s suspension of activities has had an impact of 0.1% on Guatemala’s GDP.

In 2019, Pan American Silver Mining bought Tahoe Resources. Since then the new administration has worked on improving the relationship of the mine with the local authorities and Xinca communities, including adopting the Voluntary Principles on Security and Human Rights. In January 2021, the ministry announced plans to begin pre-consultation. The pre-consultation began in May 2021 and was delayed on numerous occasions due to C19 restrictions. The pre-consultation finished in July 2021.

OXEC I and II hydroelectric project

This has been a contentious project, with the Supreme Court recently suspending the project for failure to consult the local indigenous population. The Constitutional Court (CC) then overruled the judgement, allowing operations to continue, but requiring the company to undertake a retroactive consultation with the support of The Ministry of Energy and Mine (MEM). Based on the sentence of the CC, the MEM consulted indigenous people situated in 11 surrounding communities.

Although agreements were reached and signed, environmental activists raised concerns that other communities impacted by the hydroelectric project along the Cahabon River were not consulted. Most recently, Bernardo Caal, a community leader opposing the project was imprisoned. He recently denounced that OXEC II was being built on state property and shared a report provided by Guatemala’s Land Fund. The company asserted that locals had claimed property over those lands and that it had had to pay twice to obtain the property.

In July 2020, Amnesty International declared Bernardo Caal (prisoner of conscience) who was wrongfully imprisoned for more than two years, and expressed concern over the irregularities and negligence in the criminal proceedings. Caal’s lawyers have been appealing his sentence since late November 2018.

4.2 Advancements and challenges ahead

Further to consultations with indigenous communities, to date the Guatemalan government has been unable to establish clear regulations. There have been several registered cases of social unrest, attacks against human right defenders, and the suspension or closure of extractive projects. In 2012, the Unit for the Protection of Human Right Defenders in Guatemala (UDEFEGUA) reported that three human rights defenders were murdered, a decrease from 11 murders in 2021. However, the number of aggressions increased totalling 3,574 making it the most violent year recorded to date.

Regarding extractive industries, Guatemala was found to be EITI compliant on March 2014. Guatemala regularly discloses the government’s revenues from natural resources. Most recently in 2017 Guatemala published its 2014 to 2015 EITI reports. It also published its Beneficial Ownership Roadmap.

The Guatemalan government recently published an ‘operational guide’ which provides basic guidelines for implementing consultations based on ILO Convention 169. The guide has received criticism from many sectors based on the fact that it is not regulated and is not included in any international treaty or agreement. Thus, it is not binding. In May 2017 the Constitutional Court ordered the Guatemalan Congress to develop and approve a law to regulate the rights of consultations with indigenous communities.

On 23 January 2020, the EITI Board agreed that Guatemala had made inadequate progress overall in implementing the 2016 EITI Standard. On 24 December 2020, the EITI Board agreed a revised Validation schedule; based on this decision, Guatemala’s second Validation was due to commence on 1 April 2022. However, it remains unallocated due to political suspension or expected limited review.

Question 5

5. Rule of law and transparency (corruption and bribery)

Accepted Answer

Guatemala continues to struggle to develop an effective rule of law but some improvements have been made on transparency issues. The judiciary is hobbled by corruption, inefficiency, capacity shortages and intimidation of judges and prosecutors. There have been some improvements in transparency, especially in the customs and tax agencies. But challenges remain. Organised private sector in Guatemala remains committed to transparency but other traditional companies want to keep the status quo.

In the 2022 Transparency International Index, Guatemala obtained a score of 25/100 and has a ranking of 150 out of 180 countries. The index highlights that corruption is undermining human rights.

Guatemala has not renewed its Supreme Court of Justice nor Appellate courts in three years due to legal technicalities caused by mafias that operate at all levels, which has stalled the process with no solution in sight. Twenty six new permanent and deputy magistrates of the Supreme Court and 225 of the Appellate court should have been elected in 2019.

5.1 Study Case: International Commission Against Impunity (CICIG)

In 2006 the United Nations and the Guatemalan Government signed the Agreement to Establish CICIG. As a result, CICIG began its operations in 2007 as an independent, international body designed to support the Public Prosecutors Office (MP), the National Civil Police (PNC) and other State institutions in the investigation of crimes committed by members of illegal security forces and clandestine security structures.

According to CICIG, these groups commit illegal acts which affect citizens’ enjoyment and exercise of their fundamental human rights, and have direct or indirect links to state agents or the ability to block judicial actions related to their illegal activities. Thus, CICIG assists with investigations and criminal prosecutions in a small number of complex cases, as well as implements steps aimed at strengthening the institutions of the justice system and their capacity to tackle such groups in the future.

Since its creation, CICIG’s mandate had been extended every 2 years. Throughout 2019, there were rising tensions between the Government and CICIG. President Jimmy Morales’ political party FCN Nación was accused of receiving illicit campaign funding. Several businessmen have stepped forward admitting to these claims.

However, Morales denied any wrongdoing. Under the leadership of its former Commissioner, Ivan Velázquez, CICIG asked twice for the President’s immunity to be withdrawn. In addition, CICIG and MP also undertook investigations against the President’s son and brother. The rising tensions between both parties were visible and on several occasions the Government pushed to expel and replace Velasquez. CICIG brought to light several high profile cases (see examples below).

In September 2019, the UN backed anti-corruption commission (CICIG) closed its doors after the government unilaterally terminated its agreement.

‘The Line’ and ‘Co-opting of the state’

Two of the most prominent investigations supported by CICIG are ‘The Line’ and ‘Co-opting of the State’. The first case revealed a widespread criminal structure operating within the Customs Administration. While advancing on investigations in the first case, MP and CICIG identified an extensive financial scheme connected to the official political party (Patriotic Party). In 2015 massive public demonstrations lead to the resignation of then President Otto Pérez Molina and Vice-President Roxanna Baldetti. They were linked to both cases and arrested. Their trials along with others public officials involved are still in progress.

Odebrecht

The Odebrecht bribery scandal was also prominent in Guatemala. Prosecutors launched formal charges against an array of former politicians and their associates who, they allege, received USD 19 million between 2013 and 2015. This period corresponds to the government of former President Otto Pérez Molina, who has been on remand since September 2015 facing several corruption charges.

In 2012 the Guatemalan Congress voted in favour of giving the country’s road-building concession to Odebrecht in a USD 280 million deal, following a negotiation which began back in 2008. The Prosecutor’s Office has suggested further charges may yet be forthcoming against members of Congress.

The main charges to date relate to Alejandro Sinibaldi, who was Minister of Infrastructure during Perez Molina’s presidency and the Patriotic Party’s presidential candidate in 2015. Currently on the run from an international arrest warrant, Sinibaldi allegedly received USD 11 million in bribes. Also charged is former presidential candidate Manuel Baldizón, for having received USD 1.3 million in bribes, along with several business associates and the ex- private secretary of now imprisoned former Vice President Roxana Baldetti.

Transurbano

This is one of the most recent corruption cases brought to light by CICIG and MP. Transurbano is a public bus transportation system in Guatemala City. It was established during the Presidency of Álvaro Colom Caballeros (2008 to 2012). In 2015 a series of anomalies were detected by the General Comptroller’s Office. In February 2018 former President Álvaro Colom Caballeros and numerous ministers from his cabinet were detained. They were charged with embezzlement and fraud for having consented to a government agreement granting USD 35 million to The Association of Urban Bus Companies to finance the prepaid system.

According to Guatemalan law it is illegal to transfer public funds to a for profit entity, such as the Association without following the proper procedure. Moreover, the Transurbano project was publicized as being the best in Latin America, with a fleet of 3,150 buses which would resolve the public transportation crisis. However, only approximately 200 buses are in circulation, many of them in poor condition.

Question 6

6. Security: impact on business (organised crime)

Accepted Answer

Due to widespread extortion, crime, and presence of gang members in some areas of the country, most businesses invest in private security. Experts estimated in 2012 that 150,000 private security agents were working in Guatemala, exceeding the number of national police forces, which at the time stood at 25,000. Public forces are unable to meet the growing security demand. Consequently, investors must take into consideration security costs when establishing operations in the country.

According to PNUD the economic costs of violence represent approximately 7.7% of the GDP. Guatemala’s insecurity has limited the operations of certain companies and MSMEs. Water providers, gas providers and transportation providers have been commonly targeted by extortionists. In many cases companies have been required to pay fees to extortionists in order to deliver their products or operate in certain zones.

According to the Ministry of Interior, the three most affected municipalities by extortions are Mixco, Villa Nueva, and Guatemala City.

Question 7

7. Terrorism and protective security advice

Accepted Answer

See the FCDO travel advice for Guatemala for the latest information.

Question 8

8. The regulatory environment

Accepted Answer

Guatemalan laws on tax, labour, environment, health and safety, do not forbid foreign investment or foreign companies to operate in the country. However, bureaucratic processes to obtain licences and permits do represent a challenge for foreign companies/investors that do not know how the system operates (in comparison to domestic companies that are more familiar with such processes).

Regarding labour, the Guatemalan Labour Code regulates employer-employee relations and sets the benefits and obligations that have to be complied with. These include social security, bonuses, minimum wage, overtime, vacations, and safety standards. All these costs can add up to 50% of the salary of an employee.

For social security, only workers in the formal sector have access to the national system; the informal sector workers can opt for private insurance if they can afford it. This limitation means that more than half of the population of Guatemala are not registered in the social security system, mainly because of the prevalence of the informal economy and agricultural workers.

Additionally, workers in the formal sector have to receive two complete extra salaries per year (as long as they have worked for 1 year in the company, if not the amount is calculated for the time worked). There is also a requirement to hire Guatemalan workers: at least 90% of the total workers have to be Guatemalan and at least 85% of the payroll has to be done in Guatemala. This requirement does not apply for high level positions.

Despite labour regulations being supervised by the Ministry of Labour, enforcement of labour laws to protect workers’ rights is not effective (especially in some sectors like agriculture and textile manufacturing), resulting in some labour abuses and many cases that are reported are not resolved appropriately.

There are no price controls or regulation of exchange rates in Guatemala.

For a more comprehensive list of regulations and procedures, Guatemala has created the website www.asisehace.gt and also the website www.minegocio.gt to facilitate business registration online, both with the support of the international network of transparent investment procedures of UNCTAD.

Question 9

9. Useful links

Accepted Answer

9.1 Commercial

9.2 Business and human rights

9.3 Education

Oxford Language Center
Pearson Education
INTECAP
UNICEF Guatemala
English Proficiency Index

9.4 Rule of law and transparency

9.5 Security

Foreign travel advice for Guatemala

9.6 Thinktanks

Question 10

10. Contact

Accepted Answer

Contact the DBT team in Guatemala for further information.

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