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Blog

Infrastructure: a Prerequisite for Central American Prosperity

February 3, 2012

by Joshua Ryan Rosales

As the global marketplace becomes increasingly competitive, the pressures of manufacturing costs have risen to the forefront. These challenges drive the locations of manufacturing, where products are transported and where investors look to spend their capital. It seems that the days of faulty, substandard major projects in Central America are over as individual governments take seriously the attractions for businesses to manufacture in other world regions.

From Guatemala to the end of the isthmus at Panama, Central American nations have all realized that the only way their countries can be competitive in the modern global economy is by building a first-class infrastructure. These outputs must offer sufficient capacity to handle the demands of the movement and delivery of goods, people and services in a cost-effective and efficient manner. Every country is pouring significant funds into infrastructure, with Panama, Guatemala and Costa Rica leading the pack. 

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Panama, which is often considered to be the “hub of the Americas” in terms of maritime and aviation, has spent over $3 billion in projects related to the widening of the Panama Canal, and another $3 billion in the construction of a metro-rail transportation system, among other initiatives.  Meanwhile, Costa Rica has posted an impressive growth rate in recent years due primarily to tourism and producing high-value products. However, Costa Rica has been criticized for its lack of infrastructure and for the bureaucratic delays that surround the approval of any major project. With hopes of sustaining its current growth, Costa Rica has responded to this criticism by reforming its concessions law to further attract investment as well as signing a historic free-trade agreement with China, aimed at attracting heavy infrastructure-related foreign direct investment as it recently did.

On the other hand, Guatemala boasts Central America’s largest economy and population—and probably the region’s most developed private sector. Yet, over the years Guatemala has failed to leverage its economic position and geographic location to become a true powerhouse in the region. This comes as a result of over 30 years of limited government investments due to internal conflicts, poor government administration and difficulty in attracting foreign investment. With the recent inauguration of President Otto Pérez Molina, perceptions are possibly beginning to change for the better, translating into what could be the country’s opportunity to develop a strategic national plan that increases its regional and global competitiveness. The $12 billion technological corridor project that constructs new ports, railways and highways, as well as the recent announcement of over $112 million in additional infrastructure investments, are examples that Central American governments across the region have begun to understand that infrastructure is the very lifeline for the future of their nations.

Unfortunately, hard infrastructure alone cannot create economic and social success for nations in this region, as it must go hand in hand with institutional development, citizen and judicial security, education, among many other areas of “soft infrastructure” initiatives. Some countries in Central America have understood this principle for years, while others are beginning to embark on their journey to serious economic development with the hope to capture and harness the attention of investors. The good news is that this trend is expected to continue in the long term—creating a successful roadmap to Central American economic prosperity.

Joshua Ryan Rosales works at a major global law firm in Houston, Texas, having previously worked as one of its lead analysts for the Americas. His writings on inter-American affairs focus primarily on foreign policy, economic development and politics.

 

Tags: Costa Rica, Central America, Panama, Guatemala, Infrastructure

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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