A roadmap to accelerating business confidence in Guatemala

Introduction
Guatemala’s business climate in context
A roadmap to improving the business climate in Guatemala
Additional actionable recommendations for combating corruption in Guatemala
Conclusion
Acknowledgements
About the author
Central America Task Force members

Introduction

The still-young presidency of Bernardo Arévalo could be an inflection point in Guatemala’s efforts to combat corruption—a deeply entrenched issue that has long hindered progress in the nation and in Central America in general. With the largest population and economy in the Central American isthmus, Guatemala’s political and economic stability is vital not only for its citizens but also for the United States and the western hemisphere writ large. Arévalo’s administration, now past the six-month mark, represents a unique opportunity for the creation and implementation of significant reforms across government and institutions to dismantle the corruption that has stifled development and eroded public trust in democracy, as well as to move forward with other most needed structural reforms.

The administration’s efforts are critical for creating a more predictable and attractive investment environment, which is essential for promoting faster economic growth, increasing productivity, creating more formal jobs and enhancing people’s living conditions. With a long track record of macroeconomic stability, together with a significant flow of remittances and a diversified economy, the country is on the brink to achieving investment-grade status, according to major credit rating agencies. However, Guatemala’s weak institutional capabilities, which cannot be fixed overnight, have fostered distrust toward political institutions and among certain businesses and unions. This distrust, coupled with increased polarization has undermined democratic norms and hindered economic growth. Highlighting the severity of these issues, the 2023 Corruption Perceptions Index of Transparency International placed Guatemala in the bottom fourteenth percent globally.

Amid this challenging backdrop, the Arévalo administration has made efforts to address corruption. As an example of this, in his first weeks in office, the President appointed a new anti-corruption czar, Santiago Palomo, to lead the efforts of the National Commission against Corruption. However, this commission has limited political power and cannot investigate crimes, as criminal investigation is an exclusive function of the Attorney General’s Office. In July, Palomo stepped down from his position in the commission to become the administration’s chief spokesperson, and Julio Flores was appointed as his successor. The mandate and reach of the commission, as well as additional executive branch efforts that could strengthen the nation’s rule of law, are particularly crucial as Guatemala faces increasing pressures from external factors, ranging from transnational organized crime, climate change, and natural disasters, which further complicate the fight against corruption.

The Atlantic Council’s Adrienne Arsht Latin America Center, in partnership with the DT Institute, has developed this roadmap for Guatemala. This publication, informed by over a year of consultations with the Central America Task Force, emphasizes the urgent need for robust anti-corruption measures to restore confidence among national and international investors, and calls for other relevant structural reforms crucial for improving the business climate. It provides pragmatic, multisectoral, and multistakeholder recommendations to drive impactful reforms that strengthen the rule of law.

By implementing comprehensive reforms, combating corrupt practices in public bids and tenders, accelerating the digitalization agenda, and seizing opportunities generated by nearshoring, Arévalo’s Guatemala could be on the cusp of transformative change. If successful, these efforts, supported by international cooperation, could significantly curb corruption, enhance institutional resilience, reduce migration, and foster economic prosperity in the region.

Guatemala’s business climate in context

When compared to the rest of the Central American countries, Guatemala stands out to investors for the size of its economy, population, and proximity to the United States, as well for its macroeconomic stability and credit rating. The country is an attractive destination for national and international investors, and, like its neighbors, benefits from its proximity to the North American market and favorable trade agreements such as the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR). Additionally, Guatemala’s growing tourism sector and the emerging tech scene in Guatemala City offer promising opportunities for economic diversification.

However, despite these advantages, significant challenges remain. While the country has experienced steady economic growth, as reported by the World Bank and the International Monetary Fund (IMF), this growth has not translated into meaningful reductions in poverty or decreased inequality. The World Bank notes that Guatemala’s gross domestic product (GDP) grew by 4.1 percent in 2022, with an expected growth rate of 3.5 percent by the end of 2024. Despite this growth, the country continues to grapple with high poverty rates, with over half of the population (55 percent) living below the poverty line as of 2023. The situation is further complicated by the prominence of the informal economy, which employs seven out of ten workers.

These persistent issues are closely tied to Guatemala’s historically weak state capacity, which hampers progress in unlocking prosperity. Although the country’s tax revenue remains among the lowest in the region, the tax administration has significantly improved with technical assistance from the US government and multilateral organizations, resulting in increased tax collection and the identification of major tax fraud in recent years. However, important challenges remain with the prioritization and effectiveness of public spending. This inadequacy of public spending has severely impacted the government’s ability to provide essential services such as health and education and to invest in infrastructure. This deficiency contributes to high rates of child malnutrition and limited access to quality education, especially among indigenous and rural populations.

Additionally, another challenge for Guatemala is the inconsistent application of laws and regulations. The legal environment is often unpredictable, with uneven enforcement creating uncertainty for businesses. Furthermore, the slow judicial process, highlighted by the country’s difficulty in electing Supreme Court magistrates from 2014 to 2023 deters long-term investments and undermines the rule of law. However, in November 2023, Congress elected new magistrates to complete the 2019-2024 term, and now, new appointments for both the Supreme Court and the Court of Appeals are expected to take place in October, as that term ends. Despite these recent developments, establishing a stable and predictable legal framework remains crucial. The current administration must prioritize reforms that ensure consistent enforcement and strengthen the rule of law to build investor confidence and promote inclusive economic growth.

Another significant issue for businesses operating in the country, is Guatemala’s infrastructure deficit –particularly in transportation and energy. The country’s road network is underdeveloped, hampering logistics and trade efficiency. According to the World Bank, Guatemala ranks 134 of 141 in road connectivity. Additionally, the energy sector faces rising demand, challenges in expanding new projects, and inadequate coverage in rural areas. For businesses and investors examining the Guatemalan landscape, while the business climate has become more favorable in recent years, several issues remain:

• Regulatory and bureaucratic hurdles: The regulatory environment is characterized by complexity and inefficiency, creating substantial barriers for businesses. According to the Ibero-American Index of Bureaucracy 2023, opening a small business in Guatemala requires an average of 4,870 hours, equivalent to 203 days to complete the necessary procedures with different state agencies. In contrast, in El Salvador, the other Central American country tracked by the index, the process takes significantly less time, with an average of 1,474 hours, or sixty-one days, to open a small business.Additionally, trade regulations and customs procedures are cumbersome, impeding the smooth flow of goods and increasing transaction costs. These regulatory challenges hinder competitiveness, stifle innovation, and deter foreign investment. They also create openings for corruption. Streamlining administrative processes and enhancing transparency in regulatory enforcement are essential for creating a more conducive business climate.
• Infrastructure gaps: Guatemala’s inadequate infrastructure poses significant challenges for business and investors. The country’s road network is underdeveloped, with limited access to isolated regions. In addition, the country’s ports are struggling with operational inefficiency, with severe congestion resulting in vessel wait times of up to thirty days before they can unload at Puerto Quetzal and Puerto Santo Tomas. The energy sector, despite achieving competitive energy prices through a successful public bidding process,is still slow with the generation of new projects due mostly to bureaucratic obstacles and community resistance to hydropower projects due to environmental and resource access concerns. The sector is further challenged by energy theft and targeted attacks on infrastructure, all of which destabilize the nation’s energy supply. Additionally, the lack of digital infrastructure limits access to information and public services, particularly in rural areas, further affecting transparency and accountability. Addressing these deficiencies in transportation, energy, and digital sectors is essential for fostering a more supportive environment for business activities and investment.

• Human capital development: Significant challenges in human capital development include limited and unequal access to quality education, skills gaps in the workforce, and high levels of informality. While education has become more accessible for Guatemalans, low literacy, poor retention, and disparities between rural and urban populations remain critical issues. These obstacles prevent the development of a skilled labor force. In addition, Guatemala’s investment in education, particularly in secondary education, remains among the lowest in the region, further exacerbating the gap in learning outcomes and skills development.International Monetary Fund. Western Hemisphere Dept.Additionally, a substantial portion of the workforce operates in the informal sector, characterized by unregulated working conditions and restricted access to social protections, thereby exacerbating inequality and perpetuating poverty. Addressing these challenges requires substantial investment in education and vocational training programs, as well as policies to promote formal employment and skills development.

A roadmap to improving the business climate in Guatemala

The Central America Task Force convened to discuss and define how the United States can work with Guatemala to accelerate business confidence and promote greater economic development and investments while supporting the country’s efforts in combating corruption and strengthening the rule of law. The Task Force’s recommendations are centered around four broad objectives: guaranteeing political stability, addressing regulatory and bureaucratic challenges, enhancing infrastructure and human capital development, and improving public- and private-sector engagement. The group also discussed the promise of nearshoring trends for Guatemala.

Improving political stability

Ensuring additional political stability is crucial for a predictable investment climate in Guatemala. The country’s recent history of political turbulence, particularly during the last presidential election in 2023, has led to uncertainty for businesses. Strengthening electoral integrity and transparency is essential to build citizen trust in the political system and increase foreign investors’ interest in the country.

To transform short-term gains into long-term rule of law improvements, the Guatemalan government should enact civil service reforms that promote transparency, accountability, and merit-based hiring practices. Establishing an independent civil service commission to oversee hiring, promotions, and dismissals can help reduce political interference and improve institutional integrity. Additionally, investing in training and capacity building for civil servants with the help of international partners like the US Agency for International Development (USAID) will ensure they have the necessary skills to perform their duties effectively.

Reducing regulatory and bureaucratic hurdles

To foster increased economic growth and attract investment, the government should undertake a comprehensive review of the regulatory framework to map out, identify, and eliminate redundant, outdated, or overly burdensome regulations. Simplifying regulatory processes and enhancing transparency will help reduce the costs and time associated with starting and operating a business.

Adopting digital technologies and automation to streamline administrative procedures can further reduce bureaucratic red tape. USAID and other development agencies can support Guatemala in developing strategic blueprints for digital governance, electronic services, and cybersecurity. By collaborating with donors like the Inter-American Development Bank (IDB), Guatemala can advance transparency and interoperability among government bodies and facilitate knowledge sharing with countries that have successfully implemented digital transformation strategies.

Enhancing infrastructure and human capital development

Addressing the challenge of increasing energy demand, ensuring the construction and operation of generation projects in the pipeline and the timely construction and maintenance of transmission lines to bring energy to strategic productive places and the rural areas are essential steps toward a more reliable energy supply. Digital infrastructure development is crucial for improving access to information and public services, especially in remote areas. Enhancing digital connectivity and promoting e-governance can improve transparency, accountability, and service delivery. International cooperation and investment in digital infrastructure will help Guatemala integrate more effectively into the global economy.

Concurrently, the nation needs to address human capital challenges as it works to unlock its economic potential. The country faces significant issues related to education, skills gaps, and high levels of informality in the workforce. Investing in education and vocational training programs will equip the workforce with the skills needed for productivity and innovation. Policies promoting formal employment and skills development are essential for reducing inequalities and fostering sustainable economic growth.

Improving public- and private-sector engagement

Promoting consensus building and coordination between the government, private sector, and civil society is essential for creating a stable investment climate. Establishing a continuous public-private dialogue platform to facilitate periodic discussions between public- and private-sector representatives—which can complement the US-led High Level Economic Dialogue (HLED) —can help address economic issues, facilitate information exchange, and develop effective policies. This national dialogue would enhance transparency, build mutual trust, and create a more inclusive policymaking process.

The Guatemala Moving Forward plan (Guatemala no se Detiene), a national plan dating to 2021, successfully attracted foreign investment through interagency and multisectoral cooperation. The plan includes an investment strategy to allocate $7.78 billion across one hundred infrastructure projects. A renewed public-private dialogue can replicate this model to drive economic development. Establishing a dedicated fund for financing development project feasibility studies and economic landscape mapping exercises, governed by a board of representatives from government, the private sector, and civil society, would ensure transparency and accountability in fund management.

Additional actionable recommendations for combating corruption in Guatemala

Enhancing transparency and legal certainty

To combat corruption effectively, Guatemala must enhance transparency and legal certainty across all sectors. The Law for the Simplification of Requirements and Administrative Procedures (Ley para la Simplificación de Trámites y Requisitos Administrativos), enacted in 2021, is a crucial step in this direction. As an anti-red tape law, it aims to streamline bureaucratic processes and reduce openings for corruption. As of September 1, the Ministry of Economy has transitioned to a fully electronic system for all processes and procedures. As of September 2024, close to 1,100 processes across government agencies are fully digital, and the remaining 103 remaining processes will be digitalized by the end of the year. To complement this transition, the plan should also include training for government employees on new processes and procedures, regular audits to monitor compliance, and a public awareness campaign to inform citizens about the changes and how they can benefit from them.

Additionally, reforming laws governing the selection process for magistrates and judges across the judicial system is crucial. Strengthening this process will ensure that all judicial cases, including those related to corruption, are handled impartially and with greater efficiency, by ensuring that appointments are based on merit rather than political affiliations. Strengthening the legal framework around electoral processes, such as introducing stringent regulations on campaign financing and promoting greater transparency in electoral spending, will help minimize the influence of organized crime money in politics. Addressing political influences in the courts, particularly the Constitutional Court, is critical. Implementing measures such as random assignment of cases and independent oversight can help mitigate these influences.

Both publicizing and extending transparency measures are essential as well. The government should actively communicate the positive steps being taken through regular updates, transparency reports, and public forums. This will build trust and enhance credibility among citizens and foreign investors. Creating an online portal where citizens can access information about government projects, spending, and performance metrics can also contribute to greater transparency.

It is also critical to develop and implement robust governance models that incorporate digital tools to enhance transparency. These models should include mechanisms for regular audits, whistleblower protections, and public reporting. Digital tools, such as blockchain technology, can be used to create tamperproof records of transactions and decisions, making it easier to detect and prevent corruption. Furthermore, strengthening regulatory frameworks and ensuring harmonization and coordination across the Northern Central American countries will create a more unified and effective approach to combating corruption. This can be achieved by establishing a regional anti-corruption task force that shares best practices and coordinates efforts across borders. In this line, the northern Central American governments should re-consider the ratification of the Central American Apprehension Order Agreement, which would allow them to enforce judicial decisions from neighboring countries for specific crimes, streamlining cross-border law enforcement.

Strengthening public-private partnership laws is also essential. Clear guidelines and regulations should be developed to ensure transparency and accountability in collaborations between the public and private sectors. This includes mandatory disclosures of contracts, independent audits of projects, and strict penalties for breaches of conduct. Guatemala can draw from the experience of countries like Singapore or Dominican Republic, which has successfully implemented stringent public-private partnership frameworks that minimize corruption risks.

Digitalization initiatives

Standardizing and digitizing permits and processes will promote transparency and prevent undue interference. Creating a digital tool that standardizes permits and processes can significantly reduce opportunities for corruption. This tool should include features such as automated workflows, electronic signatures, and real-time tracking of applications. Developing a coordinated approach to digitalization across various government departments will ensure consistent application and reduce the potential for corruption. This can be achieved by establishing a central digital transformation office responsible for overseeing and coordinating all digital initiatives within the government.

Infrastructure and nearshoring initiatives

Ensuring that all infrastructure projects, especially large-scale ones like road construction and urban development, are subject to transparent bidding, execution, and monitoring processes is essential. This can be achieved by implementing an open contracting system, where all stages of the procurement process are made public. Independent oversight bodies should be established to monitor the implementation of projects and ensure compliance with transparency standards. Congress should approve important infrastructure initiatives such as a vehicle to undertake priority infrastructure projects and advance key reforms recommended in the IMF’s latest Article IV report. These include revising the public-private partnership law, enacting a new ports authority law, and passing additional legislation vital to enhancing competition and infrastructure development.

Positioning Guatemala to take advantage of nearshoring opportunities requires promoting a clear, corruption-free business environment and legal certainty. This can be done by creating special economic zones with streamlined regulations and robust anti-corruption measures, attracting foreign direct investment while ensuring transparency and accountability.

Educational shifts

Implementing training programs for public officials focused on ethics, anti-corruption practices, and transparency is crucial. These programs should be mandatory and include modules on the legal and ethical implications of corruption, as well as practical strategies for identifying and preventing corrupt practices. Educating the public on their rights and how to report corruption will empower citizens and create a culture of accountability. Public awareness campaigns, community workshops, and the integration of anti-corruption education into school curriculums can help achieve this.

Comprehensive civil-sector reform is necessary to support these initiatives. This includes revising civil service laws to promote merit-based hiring and promotions, establishing performance-based evaluations, and providing competitive salaries to reduce the temptation for corruption.

Conclusion

In conclusion, the fight against corruption in Guatemala is key to unlocking inclusive economic growth, enhancing public trust, and creating an attractive investment climate. Achieving this requires progress in implementing a digital agenda, strengthening institutions, increasing public capacities, and fostering public-private partnerships. By addressing these interconnected areas through comprehensive and coordinated efforts, Guatemala can create a more stable, transparent, and attractive environment for investment and development, paving the way for sustained economic growth and improved quality of life for its citizens.

Despite the challenges previously explored, Guatemala continues to offer substantial opportunities for investors. The country benefits from solid macroeconomic stability, making its economy one of the most resilient in the region against internal and external shocks. Its diverse economy, strategic location, and potential for growth in sectors such as agriculture, tourism, and technology provide a strong foundation for future development. With targeted reforms to address corruption, improve infrastructure, streamline regulations, and invest in human capital, Guatemala can enhance its business climate and achieve sustainable economic growth. By fostering a more transparent, efficient, and secure environment, the Arévalo administration can attract significant investment and drive long-term prosperity for the nation.

The private sector in Guatemala has the potential to drive inclusive economic opportunities, especially in sectors like agriculture, tourism, urban development, transportation, and technology. Previous work from the Adrienne Arsht Latin America Center and DT Institute emphasizes the need for public-private partnerships to foster economic growth and improve job opportunities. Strengthening the legal framework and ensuring transparency in public procurement processes are critical steps toward creating a more conducive business environment.

Acknowledgements

This roadmap is the second of two as part of the work of the Adrienne Arsht Latin America Center’s Central America Task Force (members listed below), a high-level group of policymakers, business leaders, and civil society members from northern Central America who seek to create a basis for consensus and galvanize support for strengthening the rule of law and mitigating corruption, increasing productivity and enabling sustainable economic development, and reducing conflict in Guatemala, Honduras, and El Salvador. Thank you to Jason Marczak, vice president and senior director for the Adrienne Arsht Latin America Center (AALAC), for his guidance on this publication, as well as Eva Lardizabal, former assistant director with AALAC, who was instrumental during the Task Force’s meetings. We also thank the Atlantic Council’s editorial team for their support throughout this process. A special mention of Kelsey Page, associate director, communications and editorial at AALAC, and AALAC’s young global professional, Isabella Palacios, for helping bring this publication to the finish line. This publication was produced with the generous financial support of DT Institute. Thank you to DT Institute for its insights and collaboration.

María Fernanda Bozmoski is deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Mexico, USMCA, and Central America. Bozmoski has co-led the Center’s Central America Task Force, managed the Center’s trade portfolio, and programmed events in Asia for US policymakers. Before joining the Atlantic Council, Bozmoski worked at the Cato Institute, the Council of the Americas, and completed an externship at the Inter-American Dialogue. She speaks native Spanish, English, and French, fluent Italian, and near fluent Portuguese.

El Salvador 
Co-chair: Johanna Hill* (Co-chair for El Salvador until her appointment to the WTO)
Maria Eugenia Brizuela de Avila, former minister of foreign affairs (1999–2004); nonresident senior fellow, Adrienne Arsht Latin America Center, Atlantic Council
Ricardo Castaneda Ancheta, senior economist and country coordinator for El Salvador and Honduras, Instituto Centroamericano de Estudios Fiscales (ICEFI)
Juan José Daboub, former minister of finance and chief of staff to the President, Republic of El Salvador; president, HUGE Business and Investment Council
Leonor Selva, executive director, Asociación Nacional de la Empresa Privada (ANEP)
Claudia Umaña, former president, Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES)

Guatemala
Co-chair: Maria Antonieta del Cid, representative for Central America (1999–2000; 2017–2019), International Monetary Fund; former president of the Bank of Guatemala (2006-2010); former minister of finance (2004-2006), Republic of Guatemala
Roberto Gutierrez, president, Fundación para el Desarrollo Integral de Programas Socioeconómicos (FUNDAP); president, Red Nacional de Grupos Gestores
Guillermo Montano, founder, Transactel, Telus International, Dollar City, and Panamerican Food Company; president, Asociación Guatemalteca de Exportadores (Agexport)
Maria Pacheco, president and founder, WAKAMI
Leticia Teleguario, former minister of Labor and Social Welfare (2016-2018), Republic of Guatemala; Special Advisor on Corporate and Inter-Agency Relationships, UN Women Guatemala
Juan Carlos Zapata, executive director, Fundación para el Desarrollo de Guatemala (FUNDESA)

Honduras
Co-chair: Jorge Ramón Hernández, former judge, Inter-American Commission on Human Rights (IACHR); former ambassador of Honduras to the United States; Former Vice President of the Central Bank of Honduras, Republic of Honduras
Gabriela Castellanos, president, Consejo Nacional Anticorrupción (CNA)
Jaime Díaz Palacios, executive vice president, Central American Bank for Economic Integration (CABEI)
Eduardo Facussé, president, Cortes Chamber of Commerce and Industries (CCIC)
Jacqueline Foglia, executive director, Consejo Nacional de Inversiones (CNI)
Mey Hung, corporate affairs manager for Guatemala and Honduras, Walmart

United States and International Community
Co-chair: Anne W. Patterson, former Assistant Secretary of State for International Narcotics and Law Enforcement; former US ambassador to El Salvador, US Department of State
Abby Daniell, director, Latin America, Canada and Caribbean Public Sector, Amazon Web Services (AWS)
Karim Lesina, executive vice president; chief external affairs officer, Millicom
Jason Marczak, vice president and senior director, Adrienne Arsht Latin America Center, Atlantic Council
Maria Liliana Mor, director of strategic partnerships and development, ProMujer
Salvador Stadthagen, former ambassador of Nicaragua to the United States, Republic of Nicaragua

Issue Brief
Sep 1, 2021

Addressing instability in Central America: Restrictions on civil liberties, violence, and climate change

By
María Fernanda Bozmoski, María Eugenia Brizuela de Avila, Domingo Sadurní

Citizens across Latin America and the Caribbean are rising up in protest. Political frustration and economic stagnation are fueling social discontent exacerbated by the continued COVID-19 pandemic and the slow health response. In Central America, restrictions on civil liberties, high rates of gender-based violence and extortion, and worsening climate change are compounding the lack of economic opportunities and pervasive corruption seen in El Salvador, Guatemala, and Honduras.

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Related Experts:
María Fernanda Bozmoski

Image: Guatemala’s road network is underdeveloped, hampering logistics and trade efficiency. Investing in infrastructure is key to improving connectivity, lowering costs, and boosting trade efficiency. Unsplash/Giovanni DS