The Challenges of Port Investment in Guatemala: The Need for Legal Certainty  

Rodolfo Salazar, BLP,  September 20, 2023

The port infrastructure of a country is undoubtedly one of the pillars that sustains and enhances its economy. In this context, Guatemala, with its strategic geographical position, has extensive potential to consolidate itself as an important international trade center.

However, in recent years, we have faced a reality that contrasts with this vision: an evident recession in investment in the port sector. This situation not only implies the loss of commercial opportunities, but also signals delays and additional costs in export and import operations, directly affecting the economic and competitive dynamics of the country.

Recognizing the vital importance of this issue for the prosperity of Guatemala, it is essential to analyze and understand the reasons behind this lack of investment and the administrative and legal implications it entails.

Recent History: Lack of Investment and Legal Certainty

Investment decisions in any sector, especially in the port sector, require adequate conditions that make it possible to anticipate the return on investment and the any associated risks. In this sense, Guatemala has faced significant challenges that have hindered the attraction of investors in its port sector. One of the main barriers has been the lack of legal certainty in the contracts signed with companies interested in developing or modernizing port infrastructure.

This situation is not a recent phenomenon. Over the years, various actors have pointed out inconsistencies, gaps or ambiguities in the regulatory framework and the stipulated contracts, which generates mistrust and prevents the commitment of resources for long-term projects. This uncertainty translates into doubts about protecting investors’ rights, the possibility of unexpected changes in the rules of the game and, ultimately, the fear of suffering considerable economic losses.

In a globalized world, where investors may point their resources towards countries with favorable and stable environments, it is essential that Guatemala offers a setting of trust and transparency. Legal certainty not only favors companies and their investments, but also promotes competitiveness in the international scope.

In this scenario, it is imperative to address the review and strengthening of the legal and contractual framework that govern the port sector, emphasizing adaptability, clarity and solidity, with the aim of recovering investor confidence and reactivating the necessary momentum for development and modernization of our ports.

To fully understand the direction port management has taken in Guatemala, it is essential to analyze the case of Puerto Quetzal, an example of port infrastructure in the country. In its beginnings, Puerto Quetzal was not designed to generate state profits but as a tool to consolidate Guatemala as a significant player in international trade. The philosophy behind this port was to offer competitive rates and efficient operations, guaranteeing fluid merchandise traffic and turning the country into a preferred destination for global trade.

In this scenario, it is imperative to address the review and strengthening of the legal and contractual framework that governs the port sector, emphasizing its adaptability, clarity and solidity, to recover investor confidence and reactivate the necessary momentum for the development and modernization of our ports.

Over the years, this noble vision has lost clarity. Instead of maintaining an approach that promotes trade facilitation and operational efficiency, the State has taken a different direction, assuming a more leading role in the management and operation of Puerto Quetzal. This direct intervention, seen as an attempt to optimize the benefits derived from port operations, has sometimes led to decisions that are not necessarily consistent with the primary objective of efficiency and competitiveness.

The transition of the role of the State, from a mere facilitator to an actor with direct economic interests in the port has raised concerns. This change can not only lead to decisions unaligned with the original purpose of the port, but can also generate conflicts of interest, opacities in management and, ultimately, discourage investment and the trust of private actors and business partners. international.
It is vital to reassess and redirect the management and vision of Puerto Quetzal, reaffirming its original commitment to be an engine of growth and competitiveness for Guatemala on the global stage.

Monopolization of Port Services

In recent years, we have witnessed a worrying trend: the monopolization of port services. Instead of favoring an environment where several companies compete with each other, thus offering quality services and competitive rates, we have observed how the scenario is leaning towards a centralization of services under the auspices of the State.

The impulse behind this centralization is that controlling most of the sector guarantees a greater flow of income to the state coffers. But this model, which pressures private investors to enter into partnerships with the government through public-private partnership contracts or indirect partnerships, carries significant risks. One of the most obvious is reduced efficiency. In a competitive environment, companies constantly seek to optimize their operations, improve their services, and offer attractive rates; however, in a monopolized environment, this stimulus disappears.

Additionally, the risk of cost increases is inherent. With fewer players competing in the market, the incentive to keep prices in check is far less. Such disincentive not only affects port operators, but, in the long term, also impacts the national economy, making exports and imports more expensive and affecting the final consumer.

Last but not least is the question of security. Port operations require strict protocols to guarantee the safety of merchandise, workers, and facilities. In a monopolized environment, where priorities may drift toward political or financial objectives and not necessarily operational ones, the integrity of these protocols is threatened.

Guatemala must reconsider the direction to take concerning the monopolization of port services. Only fostering an environment that encourages innovation, efficiency and safety in the sector can guarantee a prosperous and competitive future.

The Solution: Legal Certainty and Autonomy for Investors

The port sector, vital to Guatemala’s prosperity and competitiveness on the global stage, has faced challenges that have restricted its growth and development. A palpable and effective solution to encourage investment and reactivate this sector is to provide investors with legal certainty and autonomy.

What does it mean, in practice, to grant legal certainty? It implies designing a legal framework that is coherent and predictable, where the rules are not only clear, but also constant over time. This predictability would give investors confidence in the system, knowing that changing political decisions or unforeseen legal interpretations will not threatened their investment. When investors are confident in the legal environment, they are more willing to commit capital and resources to long-term projects, thus benefiting the sector and the country overall.

On the other hand, it is imperative to recognize the role that the State should and should not play. While the State has the responsibility to supervise and regulate to ensure that operations are safe, fair and in line with the public interest, it should not try to be an active player in the management and operation of ports. The market, with its competitive dynamics, is naturally efficient in driving innovation, optimizing processes and offering attractive rates. A direct intervention of the State could destabilize this dynamic.

If Guatemala is to position itself as a benchmark in port operations, private actors, under a fair and predictable regulatory framework must run the show. This arrangement will attract investment and foster an environment of competitiveness and excellence in the sector.

Benefits for Guatemala

It is a common myth to think that by giving space to private investment, the State loses prominence or relevance. In reality, a strategy that fosters a favorable climate for investment in the port sector may, in fact, be one of the most beneficial actions for the State itself. By establishing a transparent and competitive investment environment, the State give investors confidence and generates a willingness to invest in infrastructure, technology and personnel training, improving the quality and efficiency of port services. And although these advances are driven by private investment, they generate a multiplier effect on the country’s economy. The State, for its part, does not remain a mere observer of these developments.

As trade grows, thanks to more efficient ports, the flow of goods increases. Every product that enters or leaves the country is subject to duties and taxes. Therefore, a greater volume of trade means an increase in tax collection. The State can reinvest these additional revenues in other priority sectors, such as education, health or security, benefiting the population as a whole.
In addition, by having an efficient and quality port system, Guatemala is positioned on the global map as an attractive destination for international trade. This system not only generates more direct income through the port sector but also boosts related sectors such as tourism, logistics and transport.

Finally, there is an intangible but crucial benefit: the positive image of a country that encourages investment and offers quality infrastructure attracts more investors in other sectors, diversifying and strengthening the national economy.

In short, allowing an environment conducive to investment is not renouncing the welfare of the State or society; it is a visionary strategy to enhance the development and prosperity of the country as a whole.
Guatemala faces the challenge of revitalizing its port sector. For this, it is essential to recover the original vision of efficient and competitive ports and offer investors the environment of certainty and confidence they need. Only in this way will we achieve that our country resumes its position as a relevant actor in international trade.

The lack of legal certainty in contracts has hampered investment in the port sector. Inconsistencies and ambiguities generate mistrust and prevent the attraction of investors.
Guatemala has faced significant challenges that have hindered the attraction of investors in its port sector. One of the main barriers has been the lack of legal certainty in the contracts signed with companies interested in developing or modernizing port infrastructure.



Rodolfo Salazar
Partner, BLP Guatemala
rsalazar@blplegal.com

blplegal.com