CAFTA RELATED INVESTMENT INTEREST IN GUATEMALA

UNCLAS GUATEMALA 000502

SIPDIS

SIPDIS

DEPT FOR EB/IFD/OIA
DEPT PASS USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB ECON EIND GT
SUBJECT: CAFTA RELATED INVESTMENT INTEREST IN GUATEMALA



1. Since CAFTA's ratification in March 2005, foreign firms
have shown an increased interest in investing in Guatemala.
While some companies have finalized their investments, others
are still evaluating the country's investment climate.
Potential investors cite the government's need to tackle the
following problems to make the country more attractive: high
electricity costs, insufficient infrastructure, weak contract
law, security, and lack of incentives when compared to other
Latin American countries.


2. Rodolfo Batres, Manager of the government office Invest in
Guatemala, told us that one of the main benefits of CAFTA will
be greater legal certainty, which is essential to attract
foreign investors. According to Batres, Guatemala has a
competitive advantage in the areas of call centers, light
manufacturing, agro industry, and tourism. Invest in
Guatemala data show that new investment in the above-mentioned
areas amounted to US$66.4 million in 2005, and created 3,560
new jobs. Anecdotal evidence suggests that total FDI is
greater, but not as high on a per capita basis as in most of
Guatemala's neighbors.


3. The press has reported on many CAFTA-related investments
in the last few months. While most are only in the
exploratory phase, WalMart and General Electric head the list
of investors who have finalized their projects. Other
potential new investors include companies in automobile and
electronics assembly, and textiles.

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WalMart buys Carhco Stocks
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4. The Vice-President of Carhco announced on September 21,
2005 that WalMart Stores Inc. had acquired 33.33% of the
company's stocks from the Dutch retailer Royal Ahold. Carhco,
the largest Central American retailer, has 120 stores in
Guatemala, 57 in El Salvador, 32 in Honduras, 30 in Nicaragua
and 124 in Costa Rica. It has 23,000 employees and its sales
amounted to US$2 billion in 2004. According to the Agreement
signed with WalMart, Carhco could expand into the Caribbean,
Colombia, Peru and Ecuador. The agreement includes an option
for WalMart to increase its share in Carhco in the near
future, which analysts expect it to exercise.

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GE Acquires Shares of Grupo BAC-CREDOMATIC
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5. The financial division of General Electric, GE Consumer
Finance, has invested over US$500 million to acquire 49.99% of
the shares of Grupo BAC/Credomatic, a large consumer-oriented
financial group with operations in all Central American
countries. General Electric is separately exploring the
possibility of establishing a regional call center in
Guatemala, which would employ around 2,000 people.

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Bayer Doubles Capacity
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6. Bayer Guatemala invested Q2.5 million (US$300,000) to
double its capacity and improve its quality control. In the
short-run, the company also plans to invest US$1.3 million to
construct a new plant. Bayer Guatemala produces around 1
billion self-medication tablets, which are exported throughout
Central America, the Dominican Republic, Haiti and the other
Caribbean countries.

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Isuzu Motors Plans to Expand Assembly Plant
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7. The General Manager of Auto Com, the official
representative of Isuzu Trucks in Guatemala, announced in
August 2005 that Isuzu Motors will invest US$3 million to
expand its truck assembly plant, where it currently assemblies
around 800 trucks per year for the local market. With the new
investment, the company will be able to produce up to 2,000
units annually, which it will export to Central America and
the Caribbean. Currently, Izuzu employs 200 people, with the
new investment creating an additional 300 jobs. According to
the press, Hyundai and Kia are also interested in Guatemala.

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Santista Explores Investment in Textile Plant
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8. Santista Textil, one of the largest denim producers in the
world, wants to invest US$100 million in a textile plant in
Central America which would create about 750 new jobs. It has
not yet decided which country to choose, and is comparing
incentives and other factors. In the case of Guatemala, which
it has visited four times, Santista mentioned that insecurity,
pending amendments to the Free Trade Zone Law, the high cost
of electricity, insufficient infrastructure, the delay in
CAFTA implementation, and a lack of incentives are obstacles.

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LG Electronics Could Establish Assembly Plant
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9. The Guatemalan president of LG electronics announced that
his company is interested in installing an assembly plant in
Guatemala, but said that this could require changes in
legislation, customs procedures, tax incentives, lower energy
costs, and better security. LG would assemble audio and video
equipment for the Central American market. Samsung
electronics has also shown an interest in Guatemala.

DERHAM