IMPACT OF CAFTA ON IMPACT OF CAFTA ON INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

Marvin Taylor, Ph.DMarvin Taylor, Ph.D

Chief Economist, CABEIChief Economist, CABEI

mtaylor@bcie.orgmtaylor@bcie.org

October, 2003October, 2003

Content of the Content of the presentationpresentation

1.1. CABEI: Mission and Background.CABEI: Mission and Background.

2.2. Our Vision of CAFTA.Our Vision of CAFTA.

3.3. CAFTA: Impact and Investment CAFTA: Impact and Investment Opportunities.Opportunities.

4.4. CABEI´s Role in CAFTA.CABEI´s Role in CAFTA.

CABEI: Mission and CABEI: Mission and BackgroundBackground

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Founded in 1960 in order to promote Founded in 1960 in order to promote development and integration in Central development and integration in Central AmericaAmerica

5 founding member countries: 5 founding member countries: • Costa RicaCosta Rica• El SalvadorEl Salvador• GuatemalaGuatemala• HondurasHonduras• Nicaragua Nicaragua

4 extraregional member countries: 4 extraregional member countries: • ArgentinaArgentina• MexicoMexico• China (Taiwan)China (Taiwan)• ColombiaColombia

Initiatives under way to involve:Initiatives under way to involve:• New extraregional countriesNew extraregional countries• Non-founding beneficiary member Non-founding beneficiary member

countriescountries• With disbursements of US$1.1 billion in With disbursements of US$1.1 billion in

2002, which equaled to 93% of FDI 2002, which equaled to 93% of FDI directed to the region that year.directed to the region that year.

Founded in 1960 in order to promote Founded in 1960 in order to promote development and integration in Central development and integration in Central AmericaAmerica

5 founding member countries: 5 founding member countries: • Costa RicaCosta Rica• El SalvadorEl Salvador• GuatemalaGuatemala• HondurasHonduras• Nicaragua Nicaragua

4 extraregional member countries: 4 extraregional member countries: • ArgentinaArgentina• MexicoMexico• China (Taiwan)China (Taiwan)• ColombiaColombia

Initiatives under way to involve:Initiatives under way to involve:• New extraregional countriesNew extraregional countries• Non-founding beneficiary member Non-founding beneficiary member

countriescountries• With disbursements of US$1.1 billion in With disbursements of US$1.1 billion in

2002, which equaled to 93% of FDI 2002, which equaled to 93% of FDI directed to the region that year.directed to the region that year.

NicaraguaNicaragua

Costa RicaCosta Rica

HondurasHondurasBelizeBelize

PanamaPanama

El SalvadorEl Salvador

GuatemalaGuatemala

The Central American market has The Central American market has the following characteristics:the following characteristics:

•Population Population 35 million35 million

•GDPGDP US$68 billionUS$68 billion

•Imports Imports US$21 billionUS$21 billion

Our Vision of CAFTAOur Vision of CAFTA

STAGES

EFFECTS

A. Negotiation and RatificationA. Negotiation and Ratification

B. Preparation and ImplementationB. Preparation and Implementation

C. Maturity and SustainabilityC. Maturity and Sustainability

Destruction of Destruction of Employment SourcesEmployment Sources

Creation of Creation of Employment Employment SourcesSources

GeographicGeographic

SectorSector

SocialSocial

BALANCES

Temporal asymmetryTemporal asymmetry

CAFTA: Impact and CAFTA: Impact and Investment OpportunitiesInvestment Opportunities

Central America´s market share in Central America´s market share in the United States has been growing the United States has been growing

steadilysteadily

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0.00

0.20

0.40

0.60

0.80

1.00

1.20

US Imports from Central America 2,548 2,974 3,722 4,264 4,802 5,865 6,867 8,421 9,254 11,035 11,766 11,090 11,867

Central America s Market Share 0.51 0.61 0.70 0.73 0.72 0.79 0.87 0.97 1.01 1.08 0.97 0.97 1.02

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: Magic, ECLAC

Why?Why?

CBI.CBI. Geographic location: proximity to the Geographic location: proximity to the

US market.US market. Improvement in the business climate.Improvement in the business climate. Off-Shore Assembly.Off-Shore Assembly. Natural resources.Natural resources. Human resources.Human resources.

CAFTA will provide a new CAFTA will provide a new context that will…context that will…

Increase sales to and from the United States.Increase sales to and from the United States. Improve market access for the regions products Improve market access for the regions products

(from a unilateral concession under CBI to a (from a unilateral concession under CBI to a permanent treaty with the CAFTA).permanent treaty with the CAFTA).

Reverse trade and investment deviations that Reverse trade and investment deviations that resulted from NAFTA.resulted from NAFTA.

Increase FDI flows towards the region.Increase FDI flows towards the region. Allow for greater knowledge, technology and Allow for greater knowledge, technology and

management sharing.management sharing. Institutionalize clear rules for investment and trade Institutionalize clear rules for investment and trade

in a variety of sectors.in a variety of sectors.

……and if we manage the potential and if we manage the potential geographic, sector and social geographic, sector and social imbalances, the CAFTA will foster imbalances, the CAFTA will foster greater growth and prosperity in greater growth and prosperity in Central America and closer political, Central America and closer political, economic, financial, social and economic, financial, social and cultural ties between Central cultural ties between Central America and the United States.America and the United States.

Towards greater Partnership…

Some Challenges…Some Challenges…

Strengthen institutions.Strengthen institutions. Improve the business climate.Improve the business climate. Foster greater macroeconomic stability.Foster greater macroeconomic stability. Promote human resource development.Promote human resource development. Reduce poverty.Reduce poverty. Protect the natural environment. Protect the natural environment. Seek greater social integration.Seek greater social integration. Improve business strategy and operations.Improve business strategy and operations.

Opportunities in Opportunities in productive sectors productive sectors

Agribusinesses.Agribusinesses. High value added products: Fruits, vegetables.High value added products: Fruits, vegetables. Agribusiness processing: Fishery, forestry, furniture.Agribusiness processing: Fishery, forestry, furniture. Support services: Technology, innovation, human resource development, research.Support services: Technology, innovation, human resource development, research.

Tourism.Tourism. Niche market tourism: arqueology, culture, nature, adventure, health, business.Niche market tourism: arqueology, culture, nature, adventure, health, business. Tourism services: hotels, transport, restaurants, entertainment, shops, training Tourism services: hotels, transport, restaurants, entertainment, shops, training

institutesinstitutes Infrastructure in support of tourism: roads, telecommunications, energy, water.Infrastructure in support of tourism: roads, telecommunications, energy, water.

Textiles and clothing.Textiles and clothing. Mens, women's and children's clothing.Mens, women's and children's clothing. Accessories.Accessories. Raw materials: cotton, wool, silk, fiber.Raw materials: cotton, wool, silk, fiber.

Electronics and high technology sector.Electronics and high technology sector. Software development.Software development. Electronic circuits.Electronic circuits. Computer components.Computer components. Biotechnology and medical research.Biotechnology and medical research.

Opportunities in services Opportunities in services and infrastructureand infrastructure

Financial services.Financial services. Leasing.Leasing. Investment banking.Investment banking. E-banking.E-banking. Investment funds.Investment funds.

Central America´s Logistic Corridor (PPP).Central America´s Logistic Corridor (PPP). Roads and highways.Roads and highways. Ports.Ports. Energy.Energy. Telecommunications.Telecommunications. Transport.Transport.

Services.Services. Trade services.Trade services. Information technology.Information technology.

Housing.Housing. Social developmentSocial development

INVESTMENT INVESTMENT OPPORTUNITIESOPPORTUNITIES

CABEI HAS IDENTIFIED CLOSE TO CABEI HAS IDENTIFIED CLOSE TO US$2.5 US$2.5 BILLION IN INVESTMENT OPPORTUNTIESBILLION IN INVESTMENT OPPORTUNTIES WITHIN THE CENTRAL AMERICAN COUNTRIES.WITHIN THE CENTRAL AMERICAN COUNTRIES.

CAFTA WILL OPEN GREATER BUSINESS CAFTA WILL OPEN GREATER BUSINESS OPPORTUNITIES, AS OUR COUNTRIES WILL NEED OPPORTUNITIES, AS OUR COUNTRIES WILL NEED TO DEVELOP KEY INFRASTRUCTURE AND TRADE TO DEVELOP KEY INFRASTRUCTURE AND TRADE SERVICES, STIMULATE PRODUCTIVE SECTORS SERVICES, STIMULATE PRODUCTIVE SECTORS AND PROMOTE HUMAN DEVELOPMENT, IN AND PROMOTE HUMAN DEVELOPMENT, IN ORDER TO INCREASE COMPETITIVENESS AND ORDER TO INCREASE COMPETITIVENESS AND GROWTH.GROWTH.

GUATEMALAGUATEMALA(IN MILLIONS OF US$)(IN MILLIONS OF US$)

Investment opportunities identified by CABEI: US$605 Investment opportunities identified by CABEI: US$605 MillionsMillions

Social development and environment,

$142

Tourism, $28

Agribusinesses, $65

Trade services and infrastructure, $370

EL SALVADOREL SALVADOR(IN MILLIONS OF US$)(IN MILLIONS OF US$)

Trade services and infrastructure,

$180.00

Tourism, $15.00

Education and health, $28.00

Investment opportunities identified by CABEI: US$223 Investment opportunities identified by CABEI: US$223 MillionsMillions

HONDURASHONDURAS(IN MILLIONS OF US$)(IN MILLIONS OF US$)

Pipeline and investment opportunities identified by CABEI: Pipeline and investment opportunities identified by CABEI: US$692 MillionsUS$692 Millions

Social and human development and poverty reduction,

$618

Housing, $8

Trade services and infrastructure, $61

Textiles and clothing, $2

Tourism, $4

NICARAGUANICARAGUA(IN MILLIONS OF US$)(IN MILLIONS OF US$)

Investment opportunities identified by CABEI: US$304 millionsInvestment opportunities identified by CABEI: US$304 millions

Trade services and infrastructure, $280

Ecotourism, $10

Textiles and clothing, $5

Agribusinesses and forestry, $9

COSTA RICACOSTA RICA(IN MILLIONS OF US$)(IN MILLIONS OF US$)

Trade services and infrastructure, $475

Agribusinesses, $25Electronics, softw are development and high

technology sector, $115

Biotechnology and medical research, $15

Investment opportunities identified by CABEI: US$630 millionsInvestment opportunities identified by CABEI: US$630 millions

CABEI´s Role in CAFTACABEI´s Role in CAFTA

What does CABEI offer?What does CABEI offer? High market share, with 43% of multilateral lending to the region.High market share, with 43% of multilateral lending to the region.

A regional strategic focus, with a physical presence and knowledge in A regional strategic focus, with a physical presence and knowledge in the five CAFTA negotiating countries.the five CAFTA negotiating countries.

Attends to different market segments, given the nature of clients and Attends to different market segments, given the nature of clients and the variety of projects that are financed.the variety of projects that are financed.

Credit facilities, such as direct co-financing, two tier lending, and new Credit facilities, such as direct co-financing, two tier lending, and new financial products and operations.financial products and operations.

Financial soundness, with investment grades, assets of US$3.4 billion, Financial soundness, with investment grades, assets of US$3.4 billion, a loan portfolio of US$2.4 billion, and a net worth of US$1.2 billion.a loan portfolio of US$2.4 billion, and a net worth of US$1.2 billion.

Different investment funds.Different investment funds.

Specialized and well trained human resources.Specialized and well trained human resources.

Modern technological platform that connects all the Central American Modern technological platform that connects all the Central American countries and these countries with the rest of the world.countries and these countries with the rest of the world.

Strategic initiatives under Strategic initiatives under consideration to support consideration to support

CAFTACAFTA

For the Ratification and negotiation For the Ratification and negotiation

Phase.Phase.

For the Preparation and For the Preparation and

Implementation Phase.Implementation Phase.

For the Maturity and Sustainability For the Maturity and Sustainability

Phase.Phase.

IMPACT OF CAFTA ON IMPACT OF CAFTA ON INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

Dr. Marvin Taylor, Ph.DDr. Marvin Taylor, Ph.D

Chief Economist, CABEIChief Economist, CABEI

mtaylor@bcie.orgmtaylor@bcie.org

October, 2003October, 2003