Country Private Sector Diagnostic

Creating Markets in Guatemala

December 13, 2023

Download: Executive Summary (English) | Full Report (English) | Executive Summary (Spanish) | Full Report (Spanish)

Unlocking Private Sector Potential to Achieve Sustainable and Inclusive Growth and Economic Development

Guatemala, Central America’s largest economy, continues to struggle with modest rates of economic growth and high levels of poverty and inequality. With a small government, the private sector must be the primary driver of growth and job creation, but it remains constrained by a weak business-enabling environment, the lack of access to finance, infrastructure gaps, and governance constraints, among others. This challenging private sector environment creates substantive barriers to entry for both domestic and foreign firms, lowers returns to entry, limits competition as firms exert market dominance, and reduces innovation, thus significantly reducing potential private sector employment and productivity growth.

Coming in the aftermath of the pandemic, this CPSD provides timely support to the government by identifying key constraints for private investment and formulating appropriate policy reforms. The diagnostic delves into three cross-cutting issues and two specific sectors. From the cross-cutting perspective, the report details the following long-standing fundamental constraints on the private sector: (a) limited access to finance for micro, small, and medium enterprises (MSMEs), (b) infrastructure gaps, and (c) weak governance, corruption, and ineffective dispute resolution systems.

From a sectoral lens, the CPSD prioritizes investment opportunities that foster inclusive job creation, especially among female workers, as well as those that promote progressive formalization of informal activities. The agriculture and light manufacturing sectors are two such sectors with significant potential to drive more inclusive development—and are priority sectors for the government. The agriculture sector, in which Guatemala has a comparative advantage, could boost job creation, especially in rural areas, and exports. Light manufacturing has significant employment generation possibilities, export potential, economic inclusiveness, and potential to foster innovation.