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Building on Central America’s Strengths

Oscar Calvo-González's picture



Soon will be January 1, 2015. Most of us will make New Year’s resolutions and most of us will fail to keep them. Keeping New Year’s resolutions is hard. But it turns out that we are much more likely to make good on our resolutions if we decide to build upon our strengths rather than focus on fixing what’s wrong. This insight is all the more important if we combine it with the intriguing view that it is the depth of our strengths, not the absence of weaknesses, which makes us successful. People are successful not because they are perfect but because they have deep strengths. What if this was also the case for countries?

With this in mind I turn my attention to some of the strengths of El Salvador, Guatemala, and Honduras, three countries that have recently put together their Plan of the Alliance for Prosperity in the Northern Triangle.” The Plan is in part a response to the well-known security challenges facing those countries and the challenges posed by the surge in unaccompanied migrant children but it is also an opportunity to focus on the strengths of the Northern Triangle of Central America and how to develop them even further. And when one goes beyond the headlines one discovers a variety of success stories.


Some readers may be surprised to learn that digital content development has become a growing export of Central America. The first technology park in the Northern Triangle, Campus TEC Guatemala, now has over one hundred software companies that sell internationally business applications as well as more creative things like animation and mobile software, ranging from mobile banking apps to games. Perhaps even more surprising to some may be to learn that tablets engineered and designed in Guatemala are now on sale all over Latin America.

Other high-value services that Central America exports include the maintenance of planes for many international airlines, thanks to world-class maintenance service at the San Salvador airport. More traditional products have also seen a new life. For example, in the last decade Honduras has more than doubled its coffee production.

Equally remarkable is that Honduras has become a world leader in specialty coffees, commanding top prices for its higher grounds coffees that are in high demand in countries such as Japan or Germany. And there are other Honduran specialty products that have gained success overseas, like melons which now reach far and lucrative markets in Hong Kong, Singapore, or the United Arab Emirates.

What explains these successes? The handful of stories presented above, even if they may seem somewhat disconnected, can help us illustrate some of the themes that are critical to build further successes in Central America.

First, connectivity and geographical location. It may be surprising but proximity to the U.S. is one of the factors that support the development of the software industry in Guatemala. Why? Thanks to the heavy flow of people back and forth from the U.S., developers of digital content are very in touch with North American culture, which gives them a competitive advantage. Needless to say, such an industry depends also on internet connectivity. A different type of connectivity is also at the heart of the success stories of plane maintenance service, which depends on a vibrant air transport hub, and the export of specialty coffee or fruits. For the latter, logistics is critical and further improvements in this area could help unlock even more growth.

Second, technology. All of the examples presented above rely on the application of cutting edge technology, even in the case of very traditional products. The increase in coffee production in Honduras has been due to the adoption of new practices to improve coffee quality and the introduction of new, disease-resistant seeds, which drove significantly higher yields. Similarly, the success of the melon industry owes much to the collaboration between the private sector and the Agricultural School Zamorano on research and development which has led to innovations and to the diffusion of knowledge.

Third, human capital. A qualified workforce, with good English-language skills, is key not only for the digital industry but also for the example of plane maintenance services discussed above. In this regard, the limited supply of qualified workers may prove a limiting factor to growth. Similarly, despite the overall advances in the production of coffee in Honduras the majority of small farmers still have not adopted such improved practices, in part due to capacity constraints. A broad agenda to raise human capital across Central America appears to be a fruitful task.

Of course there are other important issues and opportunities, such as closer regional integration to reduce transactions costs and help firms gain economies of scale. Similarly, further integration with Mexico, especially in the area of energy, could help lower the costs of energy, which is currently three times as high in Central America as in the U.S. Lower energy prices could perhaps spur many more success stories in energy-intensive manufacturing. Regional integration in energy is already a reality thanks to the interconnection between countries, showing the way for integration in other areas.

The above examples are far from being a comprehensive discussion of every development issue currently affecting Central America but help to illustrate that there are many areas of strength. Let’s not wait for our New Year’s resolutions to build upon the strengths and successes of Central America.

Comments

Submitted by Hans Jansen on

Thanks Oscar for this upbeat note which makes for happy reading about a troubled region. As a long time (though currently absentee)resident of Costa Rica (CR) and after having worked in the region for 15 years, I can't help a few additional thoughts: (1) Your story shows that ES, HON and GUAT are increasingly trying to follow in CR's footsteps - all of the success factors that you are mentioning were instrumental in CR; (2) all three countries have tremendous natural assets and beauty and arguably could could match (or even surpass) CR's success in tourism (which has great job generation potential) if it were not for their persistent insecurity - so somehow solving the latter is absolutely crucial for further increases in incomes and employment; (3) your story does not mention Nicaragua (NIC) which faces its own specific challenges and whose biggest potential lies in agriculture / rural development - in a series of studies on "drivers of rural growth" back in 2005 for NIC, GUAT and HOND Jeffrey Alwang, Paul Siegel, Francisco Pichon and I analyzed the public investment priorities needed to unlock that potential.
Best wishes for 2015!

Submitted by ATHUMAN ABDUL KAYUMBA on

The aforesaid statement is absolutely true as I'm among the people who always make new year's resolutions and often fail to keep them. My thinking and suggestion is, could it be possible to advise people of my kind so as unveil the mist facing us.

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