One of life’s harsh if reassuring rules is that there is always someone in a more difficult spot than you. This applies to countries as well as people and can offer a few pointers.
A drive through Guatemala City, now teeming with nearly four million souls, on the campaign bus of Nineth Montenegro, a human-rights activist and two-term congressional representative, highlights the problems faced by the Central American country and makes South Africa’s crime situation pale by comparison.
Montenegro went into politics when her husband, Fernando Garcia, was “disappeared” by state agents in February 1984. Just 25 years old at the time, and with a young daughter, she took up his case and those of others in her “struggle for justice” and “against impunity”. She put herself through law school, earned a master’s degree and was elected to congress in 1996.
Luis Pedro Alvarez, political party Encuentro’s top congressional candidate for Guatemala City, says he went into politics because “the situation is horrendous. Weak institutions are crumbling in the face of the narcos. Traffickers kill with impunity – district attorneys, assistant DAs, lawyers, witnesses.
“There is a lot of drug money in political parties,” he says, indicating a billboard with a prominent leader gazing over the heads of his electorate.
Alvarez should know. He has been a criminal lawyer for 12 years, not an occupation designed for longevity. “It has been terrible for me. I have lived in a bullet-proof environment — my car, wearing a vest, carrying a concealed weapon. My family, parents, brothers, sisters, brothers and sisters-in-law all live the same way.”
Guatemala’s principal challenges are hardly different from those of other developing countries: to create a positive cycle of development in which stability, transparency and accountability, as well as attractive policies, entice investment-generating jobs, greater prosperity and government revenue — thus improving health, infrastructure and education facilities, which, in turn, improves security and so on.
But this goal remains elusive. Investment is limited, politics is fraught and offers little comfort to business and the public. Corruption is a way of life, government’s tax income is just 10% of GDP, state institutions are weak, education systems are poor, skills are limited, jobs are hard to come by, wealth inequalities are great, social cohesion is fragmentary at best and insecurity is pervasive. Where the state is weak, others, including the “narcos”, slip easily into that ungoverned space. The narco-economy, which takes the product from the producers to the consumers of North America, is estimated today to be around 20% of the country’s formal one of about $38-billion.
This situation relates in part to Guatemala’s two societies. Reputedly, eight families (nicknamed “the G7”) “own” the economy — 70% of arable land is in the hands of fewer than 3% of the country’s 14-million population. As a result, it leads in wealth inequality and criminality. In 2006 56% of the poor lived below the poverty line and 16% in extreme poverty.
Guatemala has the second-worst infant mortality rate in Latin America, behind failed state Haiti. “Yet we are just two hours away from the biggest market in the world,” says Alvarez. “It’s absurd.”
Such inequities explain the high levels of lawlessness and murder, lubricated by a so-far losing battle against drug money and power. Guatemala City is the murder capital of the world, with 77 homicides per 100 000 people, more than 10 times the global average.
An estimated two-thirds of Guatemalan Maya — broadly defined to include the indigenous population — remain marginalised by poverty, illiteracy and access to medical facilities. As one official from an international financial institution notes: “It is still a country, in the rural areas, of owners and slaves.”
As a result, Guatemala has battled to create a sense of national identity. Wealth divisions largely replicate ethnic differences, though there are more complex dynamics in the wealth equation. “The biggest problem in Guatemala,” says one observer, “is that the political parties do not represent the real owners of the country — the sugar barons, the trade unionists and now the druglords.”
There are further challenges. Half the population is under 30 and only about 20% is in formal-sector employment. As Hugo Maul, a local economic analyst, observes: “The roots of our problems are in Spanish colonialism – crony capitalism, mercantilism and over-regulation. This makes it costly to comply with regulations for which there are few benefits, hence the preference for informality. But this does not provide a good environment for entrepreneurship to flourish beyond subsistence and survival.”
Rising costs and increases in minimum-wage levels (to just $237 — about R1 600 — a month) have severely stressed the once-important maquila (factories in tax-free zones) sector, with job numbers declining to 90 000 from a peak of 200 000 a decade ago.
“We lost these industries,” says Maul, “because the minimum-wage policy is an income policy, not a competitiveness policy.”
Unlike South Africa’s policy planners, he believes that a change in the wage rate and greater flexibility in allowing piece rates (payment for production rather than time) could create as many as one million maquila garment jobs within 10 years.
“For us,” says Sergio de la Torres, head of industry body Vestex, “Vietnam is an example of how quickly one can create jobs — one million in just five years.”
Guatemala has lost market share to Vietnam and other competitors despite moving into the higher-end apparel market, producing the “full package” of spinning, dyeing, weaving, printing, designing, cutting, sewing and packaging. Today there are 149 sewing and 37 textile plants, as well as 260 associated industries. Two-thirds of sewing factories are Korean-owned and -operated, and the bulk of the textile mills are Guatemalan.
As a result, non-traditional exports (including services and manufactured goods) today amount to $6.2-billion, with apparel at $1.4-billion of this total, whereas traditional exports (coffee, sugar, cardamom and bananas) amount to $2.3-billion. The industry believes that rising demand in both India and China, coupled with the United States market advantages supplied by the Central American Free Trade Agreement (Cafta) and rising unit costs in China, promise a bright future. “But, like Vietnam, we need to make a decision as a country to go after the apparel business,” says De la Torres.
“We believe we can increase direct job numbers in the sector to 125 000 and double exports to $2.25-billion by 2015” — but only if Guatemala can improve security and labour flexibility, differentiate salaries (with lower salaries in poorer rural areas), keep fiscal incentives and decrease electricity costs. “It’s not rocket science to create jobs here. It requires security, competitive wages and some basic conditions.”
Guatemala is similar in some ways to some sub-Saharan African countries: Higher labour costs than competitors, a lack of labour-market flexibility, unions intent on protecting jobs at the expense of creating new ones and the exclusion of a large part of the local economy from both the formal sector and the global economy. Maul says: “If you could repeal the labour laws, you would at least get rid of unemployment in the cities.”
There is also a need for “aggressive” investment incentives and a plan to promote this, including a waiver on labour laws for the maquila sector, and a need to “flexibilise” wage levels and institutions, as Emmanuel Seidner, an adviser to presidential frontrunner and former general Otto Perez, puts it.
This requires tackling the political economy that has perpetuated Guatemala’s two societies: the crony-capitalist cycle that has kept the vast majority outside the formal economy and the government’s bias against legitimate business interests.
Overall, the political class “does everything it can to avoid creating employment — and this must be changed”, says Maul. Without these changes, he says, “we will lose another decade”.
Bridging Guatemala’s two worlds demands a different view — away from one centred on the maintenance of elite interests and towards the creation of a sense of national solidarity. The cost of not doing so, and of keeping the state weak and vulnerable to vested interests, is rampant, drug-fuelled criminality.
Greg Mills, who heads the Johannesburg-based Brenthurst Foundation, has been travelling in Guatemala in the past month