Now or never

An innovative and reformist Central America could seize supply chain opportunities.

The US-China trade war and the profound economic implications of Covid have underscored the importance of reliable supply chains. Those closer to home are becoming an increasingly attractive option, not least for a Washington searching for dependable hemispheric partners. This has presented opportunities to states in Central America which are keen to more confidently insert themselves into global supply chains. Some, such as Guatemala, Costa Rica and Panama are well placed to do so. Others, held back by poor infrastructure and less skilled workforces, will find it harder.  

The pandemic has affected not just lives, jobs and education but has also exerted unprecedented pressure on global value chains. Of course, not all supply chains are equal – there has been a particularly significant effect on those which rely on the import of raw materials and manufactured goods. These are often refined and modified in multiple jurisdictions before material becomes product and product becomes consumer good. Disruptions to these chains can often spell the end to less well capitalised businesses.  

Given the region’s geographical proximity to the US, Central American states are well positioned to trumpet their supply chain credentials, particularly in sectors in which they have historical and technical expertise. Clothing is one example.   

The Guatemalan government works effectively with local businesses in seeking to attract and consolidate international investment and new partnerships.”

Expert in regional economies, Central America

We spoke to an expert in regional economies and advisor in various business associations in Guatemala and Central America who commented, “If you look at the broad range of clothing groups in Guatemala you see that they reflect a sector which is growing in strength and attractiveness to other actors in the supply chain – this has remained this case in spite of the pandemic. The Guatemalan government works effectively with local businesses in seeking to attract and consolidate international investment and new partnerships. There is an understanding that businesses need to be agile and open to new ventures and opportunities. . Ultimately, if businesses in the country are only making clothes without investing in the people who make them, tomorrow Mexico or Colombia will start to gain the competitive advantage and investment will gradually leave Guatemala to more attractive alternatives.”  

Thus, supply chains will force governments such as those in Guatemala to innovate as the quest for regional supply chain dominance becomes ever more competitive. People remain the key capital in establishing competitive advantage and states in the region who have underinvested in technical education for decades might now see the merits of reorienting fiscal policy to upskill the workforce.   

Supply chain competition should also encourage regional administrations to overhaul and streamline antiquated and uncompetitive regulatory structures. The expert added, “I do not see that they affect actual practice … when there is an agile regulatory framework and when we are immersed in an interdependence with several countries, business will benefit …”

“When there is an agile regulatory framework and when we are immersed in an interdependence with several countries, business will benefit.”

Supply chain expert, Central America

Challenges remain. Whilst US, Spanish and Mexican investments favour Guatemala in multiple manufacturing sectors – they will only do so for so long as production and logistics costs remain low. In addition, more virulent strains of the Covid virus – which Central America is chronically ill-equipped to deal with – will make supply chain relocation to the region a risky bet. The expert commented, “One notable risk is the covid variant. The gradual recovery from the vaccine has helped factory workers to return little by little with the sanitary measures imposed by local authorities to stem any potential spread. That being said, if the Omicron variant reaches the region and infections return with greater force, it will be impossible to work …” 

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