Strengthening Public Private Partnerships in Guatemala

Legal Feasibility

Background

Investments in infrastructure work contribute to increasing the coverage and quality of public services (for example, health, education and recreation), reducing the costs associated to mobility and logistics, improving access to different markets (goods and services, work and finance), thus allowing a favorable environment to increase the population’s well-being.

According to the work of World Bank’s César Calderón and Luis Servén (2010) “Infrastructure in Latin America” (World Policy Research Working Paper 5317)”, it is estimated that the impact that an additional growth of infrastructure of 1.0% may increase the rate of growth of GDP per capita by 0.5 percentage points, average. Also, the author states that the economic growth is benefited not only by the amount of infrastructure, but also by the quality of such.

In Guatemala, the levels of joint investment (public and private) have decreased by 3.5 percentage points of GDP, with respect to the levels recorded prior to the 2008-2009 global economic and financial crisis, affecting to a large extent private investment, which represents around 90.0% of the total investment.

It is worth noting that public investment on the country’s infrastructure is one of the lowest in Latin America and in emerging markets, limiting the ability of growth in the economy and the possibilities of improving the population’s standard of living.

According to estimates made by ECLAC (2014), the countries of the region should have invested 6.2% of GDP between 2012 and 2020 in order to fulfill the estimated infrastructure needs for the period. However, according to ECLAC, in Guatemala investment on potable water, energy, telecommunications and transportation has been around 2.5% of GDP, average, between 2008 and 2015, which is why the deficit in infrastructure is increasing.

Flamini and Teodoru (2017) point out that a greater investment in infrastructure in Guatemala, would have a positive impact in terms of economic growth, as well as in the reduction of poverty and income inequality. Improvement in the land transportation network will facilitate regional trade and internal transportation, which would increase supply of goods and lower prices; in addition, such reductions on logistic costs would contribute to an improvement on competitiveness and an increase in employment, among other benefits. They also indicate that a sustained increase of 1.0% of GDP in public investment in the next five years would increase the product by 1.2%. Which is

consistent with the International Monetary Fund’s conclusion that an increase of 1.0% of GDP in infrastructure spending, on average, would increase GDP by approximately 1.5%, both in advanced and emerging economies.

According to the “Analysis of the country’s performance in terms of competitiveness” conducted by the National Competitiveness Policy, in which businesspeople were asked to determine which are the most problematic factors for doing business in the country, answers pointed that the 5 most relevant factors are crime and theft, corruption, inadequate infrastructure, inefficient government bureaucracy and inadequately trained workforce.

The Problem

During 2015, the Congress of Guatemala approved the amendments made to the “State Procurement Law” in an attempt to ensure greater transparency. Unfortunately, it resulted in additional steps that ended up harming government purchases, creating a gap between budget and spending. As a result, the ability of government institutions to execute was damaged, particularly that of investment institutions (infrastructure) such as the Ministry of Communications.

The result has been road systems in precarious state due to the lack of ability of the government to execute the budget for the construction new roads and/or to repair them. The spending of the Ministry of Communications, as a percentage of the budget allocated for infrastructure, has reached an historic minimum point (close to 40% in 2016), which could explain the current condition of the road system in Guatemala. During 2017 the Ministry of Communications succeed on increasing the budget execution by almost 30% more than 2016.