The Northern Triangle of El Salvador, Guatemala and Honduras should be the major beneficiary of “nearshoring” — but to reduce poverty (and the temptation to migrate) and take full advantage of the region’s great potential, the Northern Triangle needs major investments — both public and private — in infrastructure. The International Monetary Fund has found that a sustained 1 percent GDP increase in investment in road infrastructure has the potential to reduce extreme poverty by 5 percent.
Competitive advantages of the Northern Triangle region are plenty and self evident but are overshadowed by the significant gaps in infrastructure development. For example, since 1995 the Guatemalan government has built only 135 miles of new roads per year. The average speed on these roads 27 mph. At this pace of construction, Northern Triangle countries would need over 100 years to have the roads needed to reach international standards.
Guatemala lags behind El Salvador and Honduras in road infrastructure, but as a region roads are a major problem with significant impacts:
- Higher costs of transportation and logistics in general
- Difficult access to rural communities due to the current state of roads
- Higher levels of traffic accidents and deaths caused by poor road conditions
- Reduced economic competitiveness and attractiveness when companies choose where to relocate
According to the World Economic Forum (WEF), the Northern Triangle countries not only have few and poorly maintained roads, but also very limited road connectivity. This places Guatemala in the 132nd, Honduras in the 66th and El Salvador in the 61st positions within the ranking of 139 countries evaluated in the latest report of the Global Competitiveness Index. This alone undoubtedly highlights the urgency of increasing investment in more and better infrastructure.
Nearshoring is the biggest opportunity for the Northern Triangle, especially as interest grows around reducing the United States’ commercial dependency on Asia and especially mainland China. Taking advantage of this opportunity requires supply chains to locate facilities in the Northern Triangle, where costs of transport and labor are more competitive, where friendly governments create an attractive business ecosystem, and where supply chains can be secure.
With that in mind, we belive that a modern infrastructure network that meets the economic and social development needs of the entire region requires investing in the improvement of logistics corridors and the expansion of local connectivity. We have the responsibility to connect more communities and to promote and invest in strategic infrastructure that helps reduce the time it takes to travel throughout these countries, to move cargo and increase the speed at which people and goods are moving.
The H.U.G.E. (Honduras, USA, Guatemala, El Salvador) Business and Investment Council convenes the largest, most socially responsible local business leaders who have the ability to invest billions of dollars in the Northern Triangle, pay taxes locally and employ hundreds of thousands of local people. HUGE is putting forward ideas and proposals to the American government, the local governments and critical institutions such as the Inter-American Development Bank and the World Bank.
We know that private sector job creation is the best tool to eliminate poverty and to incentivize people to succeed at home. To that end, the HUGE Infrastructure Working Group has identified a portfolio of strategic infrastructure projects that can accelerate nearshoring, create jobs in the Northern Triangle and reduce the pressures of migration.
For example, the XOCHI Bypass Project in Guatemala’s southwest region shows what can be accomplished when we come together. The project seeks to improve mobility and save travel time for vehicles between the urban centers of San Bernardino, Mazatenango and Cuyotenango. It is estimated that 60 percent of Guatemala’s GDP transits through CA-2 Highway and up to 75 percent of Mexican exports/imports use this corridor to transit daily on their way to El Salvador, Honduras and the rest of Central America. With an investment of $175 million and more than 2,000 direct jobs created, the Xochi Bypass Project is a model of private sector infrastructure investment for the region.
The Northern Triangle has enormous potential. It is blessed by geography, the creativity of its people, and its diverse natural resources. The Northern Triangle as part of the CAFTA-DR free trade agreement should be at the top of the list for nearshoring partners. The local private sector is ready to invest billions, but one of the main bottlenecks is a lack of road infrastructure which isolates communities and holds the region back.If Ukraine wins the war, democracies must help keep the peaceRise of the tax machines: IRS algorithms are coming for you
Fixing infrastructure requires an intentional partnership with the local governments, international financing institutions, the private sector and the United States.
Originally published on thehill.com on June 6, 2022.