Three areas, together, have a weight of 22% in the economies of Panama, Dominican Republic and Central America, according to an IDB report.
Economists, institutions and multilateral organizations agree that in 2023 there will be an environment of lower growth, higher interest rates and price increases, which are a challenge in terms of poverty and food security for Central America, Panama and the Dominican Republic (Capard).
In view of this unfavorable outlook, the Inter-American Development Bank (IDB) points out that the construction sector, tourism and agribusiness are key to being resilient and facing these crises.
This is because, together, they have a “great economic weight” in the region, representing about 22% of its gross domestic product (GDP).
Individually, manufacturing is the most important sector in the Central American region with an average of 30%, followed by finance and insurance with 15%. However, these do not have the characteristics of being “economic multipliers”, which is the gross production that includes both end-use and intermediate production with linkages and impact on sub-sectors.
The magnitude of the gross production multiplier depends on the degree of use of domestic or local intermediate goods. Agro-industry by antonomasia conjugates a series of several sub-sectors directly and indirectly. Tourism and construction alike. Moreover, they proved to be key to economic recovery between 2021 and 2022, according to the report “Opportunities to Boost Production, Employment and Value Chains 2023”.
In the region, Costa Rica is the country where agribusiness has the greatest weight as a multiplier impact (1.8%). Guatemala and Honduras follow, reporting the same values of 1.7%, followed by the Dominican Republic with 1.6% and El Salvador with 1.5% in 2022. Tourism is of great incidence in Guatemala and El Salvador with 1.7%, respectively.
Costa Rica and Honduras have the same productive impact and the local economy reports 1.5%. Meanwhile, the construction sector has the greatest weight in Guatemalan and Costa Rican production with 1.6%, simultaneously. The Dominican Republic and Honduras reflect the same value of 1.5% and El Salvador 1.4%.
At the end of 2022, economic growth in Capard, Mexico and the other countries of Latin America and the Caribbean (LAC) was reported at 5.7%, 3% and 3.9%, respectively. The first region shows better results due to exports of agricultural products and the recovery of tourism. The latter was led by the Dominican Republic, which reached 7.1 million non-resident tourists and slightly more than US$8 billion in revenues.
Agriculture and livestock
Agriculture and livestock production allowed the Carpard countries to recover their pre-Pandemic growth level with an increase of 5.1%, while in Mexico it was 4.9%. Therefore, developing this activity with the appropriate investments could exceed the growth expectations for 2023, according to the IDB, which projects a GDP of 3.6% (Capard) and 1.7% (Mexican) in these areas. Both figures are higher than those of the United States, which estimates 1.4%.
International food prices, especially raw materials such as corn (10.3%), wheat (0.1%) and rice (23.3%) increased in December 2022. However, in the middle of the same last year they exhibited exorbitant percentage increases of 34%, 44% and 19%, respectively.
These, together with energy prices, influenced inflation, however, they present a downward trend that could continue if there are no exogenous disturbances, in addition to the level of importance that governments assume with respect to agriculture and livestock, the multinational bank affirms.
An increase in prices means higher inflation. In effect, it is less purchasing power and, therefore, a trend that increases the poverty rate. An index that experienced a break from 2020, since from 2010 to 2019 the region had significant progress in decrease.
“Highlighting the cases of El Salvador, Panama and the Dominican Republic, the Caribbean country even reduced its poverty levels by more than half,” the study argues.
It adds that this reality makes it urgent to prioritize investments to increase household income through a reactivation of production and employment, in order to have a favorable year and continue growing in the coming years without reducing important socioeconomic indicators. This scenario includes the three sectors that drive the “goods-services” dichotomy and mobilize other productive activities: agribusiness, tourism and construction.
One sector that, by increasing its production, stands out in the creation of wage bill in the total economy is tourism, according to the IDB.
In Costa Rica and the Dominican Republic, the increase in production in this sector is reflected in a boost to the wage bill of almost 50%, higher than the average for the economy. In the cases of El Salvador and Guatemala, the largest wage bill creation in the service provision process is registered in the tourist lodging subsector.
The Dominican Republic’s agro-industrial sector reflects 1.8% and manufacturing reports close to 1%.
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