COUNTRYAAH, Guatemala is a middle-income country with deep cultural
and economic differences. The economy is the tenth largest
in Latin America, but per capita national income is half the
average for the continent. Around 60 per cent of the
population is considered poor, almost 20 per cent live in
The contrasts between industrial and efficient export
agriculture in the lowlands and small self-storage farms in
the highlands are large and enduring. The former is largely
driven by whites and Hispanics on large, private goods. The
latter belongs to a number of small indigenous communities.
There are few positive links between the two sectors. The
plantations have given work to many hands, but offered few
opportunities to develop a professional and differentiated
workforce. Public service production (education, health and
government administration) is undeveloped.
The peace agreements after the civil war entered into in
1996 opened up for comprehensive reforms aimed at creating a
more integrated and dynamic economy. However, poverty has
increased and the state's governance has been weakening in
recent decades as a whole. The state remains underfunded.
With its subtropical and predominantly rainy climate, as
well as large variations in topography and soil, Guatemala
has by nature very good opportunities for agriculture. It is
also based on exports of agricultural products such as
coffee, sugar and bananas that Guatemala became part of the
world economy in the decades between 1880 and 1920.
Today, agriculture accounts for 13.5 per cent of the
national product, but at the same time it employs 31 per
cent of the labor force. These figures reveal the huge
differences between one of the world's most efficient
industrial farms and the cultivation of basic commodities in
the traditional way. Guatemala has a so-called dual economy
with large, commercially oriented properties on the one hand
and small farms woven into a regional rural economy on the
Plantation farming continued until the mid-19th century,
when the country's upper class and European immigrants with
capital and know-how expropriated land suitable for coffee
cultivation at the expense of Mayan communities in the
highlands. The Mayans themselves were exiled to be cheap
seasonal labor. Thus, they participated only to a small
extent in the development of industry and service production
and continued to live in collectively based and often
introverted rural communities.
The export of coffee and eventually also sugar, bananas
and cotton made Guatemala a rich and modern country in many
ways. However, it also created a private sector that has
been both bigger and stronger than the state itself.
Institutional building that is so typical of the emergence
of modern, integrated economies has been seen as an expense
item. The state became an attachment to a dynamic private
sector. The distinction between the elite and a large
indigenous population divided by a number of small groups
also goes deep culturally. This has made it even more
difficult for the state to develop into an integrative force
Traditionally, coffee was the most important export
product, today it is sugar (including sugar cane for the
production of biofuels) and bananas. Guatemala is the
world's largest exporter of cardamom and sugar peas, the
second largest of bananas, the fifth largest of sugar and
the seventh largest of coffee. Palm oil (also for biofuels),
tropical fruits (mangoes) and vegetables have become
important in the last decade.
The plantations and large coffee estates are largely
based on the recruitment of cheap labor from Mayan-speaking
rural communities. The small patches of Mayan housekeeping
provide limited yields beyond corn and beans to the
household itself. However, much of the coffee is also
produced by Mayans for small, family-run uses, including
cardamom as well as vegetables and berries for export.
While exports from the plantation economy make up almost
the entire national economy, the profits of indigenous
peoples' small farms and workshops are traded in regional
markets. Here textiles (ie Mayan clothing) are the most
important item next to food and imported consumer goods.
Domestic trade is less visible and in recent decades has
been increasingly taken over by Mayans at the expense of
Industry and services
Next to El Salvador, Guatemala has the largest industrial
sector in Central America, accounting for about 23 percent
of the country's national product. The industry consists
essentially of the composition of consumer goods with
imported inputs. However, the country also has a number of
large and successful companies that have managed to become
international, such as the cafeteria chain Pollo Campero.
Few companies have managed to expand by moving up the value
In the Central American common market that was
established in the 1960s, Guatemala had economies of scale
and the industry gained such solid growth until the 1970s.
In connection with the civil wars throughout the region in
the 1980s, growth stopped. From around 1990, a number of
textile companies were established in tax-free zones (maquilas),
most of them with Korean capital. The peace agreements
included several measures to stimulate diversification.
However, deregulation of, for example, telecommunications,
energy production and the financial system has not led to
more than moderate growth of around 3.4 per cent annually
between 2000 and 2015, ie just under one per cent per head,
and the trend is negative.
Guatemala is the least urbanized country in Latin
America. Half the people live in small villages with a few
thousand people in each. Both industry and services are
mainly concentrated to the capital. Here, the per capita
income level is 7.2 times higher than in the poorest
provinces. However, the influx here has caused a large and
growing random problem with gang crime and spontaneous
housing construction in vulnerable areas.
Tourism has long been one of the country's most important
industries. With its varied and beautiful scenery, complex
population and ancient ruins, Guatemala attracts around two
million visitors a year. This generates revenues of less
than ten percent of total export revenue.
The service sector accounts for 63.2 percent of the
economy, the vast majority in informal working conditions.
Only 18 percent are in social security jobs. In addition to
seasonal agricultural work, the informal economy also
includes most of what is happening regionally, in
increasingly urbanized Mayan areas. This is the so-called
"urban Guatemala" (Guatemala rurbanana). Statistics
based on formal registrations only indirectly capture the
dynamics of this fast-growing sector. For the national
economy, the challenge is that, like in the plantation
sector, few people here want to be regulated and taxed. At
the forefront, the rich state perceives it as unnecessary,
while the poor experience it as foreign. The state lacks not
only resources, but also legitimacy.
Thus, the informal economy works to the benefit of a
large, black economy dominated and built around drug
trafficking. It is estimated that the crime that has grown
after the war loses the economy of about ten percent of
national income in the form of protection money and private
security services. Moreover, the black economy uses the
policy to launder money and buy control of elected bodies.
The corruption has further undermined confidence in the
The money that 1.4 million Guatemalan migrants send to
the United States makes up about ten percent of the
country's national income. This figure is lower than in
neighboring Honduras and El Salvador, but high on a global
scale. In addition to being an important subsidy to
households in very many poor households, the effect is
likely to be negative for the macro economy as the increased
purchasing power goes to imported consumer goods.
Through the peace treaties, Guatemala committed itself to
the international community to increase tax revenue to
strengthen the state. Between 1996 and about 2010, the
country received substantial aid to democracy building, but
the tax rate remains one of the world's lowest at less than
eleven percent. In a 2015 analysis, the World Bank concluded
that the country had lost the necessary momentum to overcome
the dual economy. The bank urged the country to put in a
"powerful shock" to reverse the negative dynamics, including
through efforts on education, health and strengthening of
the state's regulatory institutions.
Natural resources and mining
Guatemala is one of the ten countries in the world most
exposed to climate change and natural disasters such as
earthquakes, volcanic eruptions and hurricanes. This is
related to the country's geographical location in the
fracture zone between two tectonic plates and between two
seas with associated weather systems. Beyond the 2000s,
climate change has been instrumental in making the
hurricanes more frequent and stronger and the drought times
longer and more intense. This has particularly affected
agriculture in the highlands as well as in the so-called
'dry corridor' in the border areas towards Honduras and El
Salvador. Here, there have been periods of hunger crises and
for the country as a whole infant mortality and malnutrition
increased after 2010.
The country has large forests and great biological
diversity. Cedar and pine in the highlands have always been
important in the craftsmanship of furniture making. Petén's
tropical forest has supplied mahogany, color wood, balsa and
rubber, as well as chicle to the chewing gum industry. With
strong population growth, much of the forest has come under
strong pressure through unregulated and intensive
harvesting, especially in Petén. This, in turn, has led to
changed rainfall patterns and increased exposure to erosion.
Regular unregulated new construction in the slums around the
capital leads to landslides.
Fishing for local consumption is important along the
coasts. There is also some commercial farming of shrimp and
catches of lobster and squid on the Pacific coast.
Guatemala has large deposits of nickel, gold, zinc, iron
and gemstone such as jade. However, the deregulation of the
mining operation, with favorable conditions of establishment
for foreign mining companies, has led to strong conflicts
with indigenous communities due to different perceptions of
property rights and environmental damage. Oil has been mined
since 1974, but production is limited.
Next to wood, oil and coal power plants have long been
the most important source of energy. After significant
hydropower development in the 1980s, 31 per cent of the
power now comes from this, while oil and coal account for 41
per cent. The country also has a geothermal power plant.
Privatization of electricity distribution in the 1990s
accelerated development, but has also led to a high level of
conflict in the villages as many poor people cannot afford
electricity. The most remote parts of the country still have
no electricity supply.
The country's exports mainly consist of agricultural
products from the plantation sector, as well as textiles
from the frisons, and then consumer goods for the Central
American market. Imports include oil and coal, chemical
products, machinery and transport equipment, grain and
fertilizers, as well as various consumer goods.
The most important trading partner is the United States.
About 34 percent of exports go here, while eleven percent go
to El Salvador. Then follow the other countries of Central
America and Mexico. Most of the imports also come from the
United States with almost 40 percent. Next, China and Mexico
follow with about eleven percent each and El Salvador with
just over five percent.
Guatemala is a member of the Central American Common
Market CAFTA-DR and has signed integrated trade agreements
with the US and the EU. In both recent cases, negotiations
have been delayed for a long time as Guatemalans have low
standards in environmental and labor law.
Transport and Communications
Guatemala has a relatively poor infrastructure. All main
roads radiate from the capital. The most important are
paved, but are often under-dimensioned. The main one runs
northwest from the capital through the western highlands to
Mexico as well as southeast to El Salvador. This stretch is
part of the Pan-American Highway built in the 1950s. From
the capital there are also main roads to the port towns on
both coasts, as well as to Cobán in the northern highlands
and to Petén. The road network is otherwise quite dense,
especially in the western highlands, but the standard is
A narrow gauge railway network was developed in the years
between 1877 and 1908 and connected the capital with both
coasts. This network was taken over and operated by banana
producer United Fruit Company between 1912 and 1957, when
road transport took over. Both the state and a Canadian
company have since tried to run the railway as a tourist
train, but gave up in 2007.
In connection with the deregulation of the economy in the
1990s, state telecommunications were sold to foreign
(Mexican and Spanish) companies. At that time, the landline
network was still poorly developed. The new owners invested
in mobile telephony. The country now has twice as many
mobile phones as its inhabitants. In 2018, 42 percent of the
population had access to the Internet. Half of these used
cell phones to connect.
The state airline Aviateca (founded 1929) was privatized
in 1989 and merged with the Salvadoran company TACA. TACA
was in turn acquired by Colombian Avianca in 2009. The
country's main airport La Aurora is located in Guatemala
City. From here, routes go all over the world as well as
domestic routes to Petén.