The political situation in Guatemala is marked by continuing allegations of corruption and widespread calls for reforms. Consequently, in Guatemala many commercial successes are hard fought.
The 2021-2022 Anticorruption Evaluation in Latin America published by Forbes indicates that Guatemala is the second most corrupt country in the region – only Venezuela ranked worse. According to Transparency International, Guatemala ranked 150 out of 180 in 2022. According to the same organization, 46% of people thought corruption increased in the previous 12 months and 25% of people using a public service paid a bribe in the same period. Despite the January 2020 inauguration of a president who campaigned on tackling endemic corruption, it is difficult to find evidence to contradict the rationale supporting those rankings.
According to the 2023 Capacity to Fight Corruption Index, which evaluates and ranks Latin American countries based on how effectively they can combat corruption, Guatemala scores 2.86 out of 10 – only Bolivia and Venezuela ranked worse. Guatemala has a new President-elect as of August 2023 who will take office in January 2024, and has made countering corruption one of his top priorities.
Low participation in the formal job sector is an important reason why Guatemala’s tax revenue is the lowest in the region at 10% of gross domestic product - which ranks 209th out of 220 countries in terms of tax collection. A low tax base combined with a reluctance to take on sovereign debt have resulted in government expenditures also being low. Guatemala’s governmental expenditures are equivalent to only 12% of gross domestic product compared to a regional average of 18%.
The U.S. government advocates for U.S. companies, and for the use of open, fair, and transparent tenders in government procurement and in accordance with CAFTA-DR obligations allowing open participation by U.S. companies. However, in recent years many U.S. company representatives have expressed a reluctance to take the time and expense to evaluate and bid on Guatemala government tenders on what they view as an unlevel playing field. Specifically, companies do not bother to bid on Guatemalan public procurement tenders (goods, services, or infrastructure) published on the Guatecompras website, seeing Guatemala’s public procurement system as wholly corrupted and designed to favor local companies with “ties” to national ministries, municipal authorities, or members of congress.
Other concerns such as violent crime and weak judicial institutions remain serious challenges. Issues related to the Certificate of Origin and classification of goods have represented an obstacle to access preferential tariffs, but these issues have diminished as ethe U.S. government has been working closely with the Guatemalan tax authorities to resolve these challenges.
Additionally, widespread procurement corruption, impunity, labor rights abuses, lack of protection of intellectual property, food insecurity, poor education and infrastructure, and deep socio-economic divisions continue to be challenges for the country.
The People’s Republic of China (PRC) has begun to make significant inroads in other parts of Central America with respect to investment – and consequently influence –Guatemala has not yet seen increasing investment and influence from the PRC, since Guatemala still has no official relations with PRC and instead maintains diplomatic relations with the Republic of China (Taiwan). PRC trade with Central America has increased by 70% in the past five years and has emerged as the second largest trading partner for much of Central America. PRC companies are now broadening engagement beyond exports of simple household electronics and motorbikes and are now aggressively pursuing major infrastructure projects in the region such as energy plants, seaports, and telecommunications infrastructure.
Guatemala imports from the PRC have doubled during the last ten years. In 2021, imports totaled US$1.38 billion, according to the Guatemalan Central Bank database. Main Guatemala imports from China in 2021 were electrical and electronic equipment, machinery, boilers, iron and steel, and organic chemicals among others.