Central American integration is crucial to building the region’s economies
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Over two years ago, the COVID-19 pandemic disrupted the lives of millions of people in the Central American region and the world, and to this catastrophic situation were added the adverse effects of the war in Ukraine. As a result, today, we see significant setbacks in the fight against poverty and inequality, especially in Central America, which in 2020 faced the worst contraction in its history and one of the largest globally. Central American integration will be critical to bettering the region’s economic fortunes.
How can this be done? It is time to turn the page, reverse the damage of the crisis and move forward. A standard road map for regional integration must enable the countries of the isthmus to return to sustainable and inclusive growth to generate wealth and reduce poverty for the region’s citizens.
Greater prosperity and quality jobs
Specific achievements will be critical to greater prosperity, stimulating the generation of quality jobs. Central America is open to international trade, which is reflected in the trade agreements the region’s countries have signed. However, it is one region that trades the least among its member countries. On average, about a third of Central America’s trade flows are intraregional, compared to more than 51% in East Asia and the Pacific and 68% in Europe and Central Asia.
More Central American integration and more significant trade between the region’s countries are essential to strengthen their economies and take advantage of the opportunities through greater participation in the global and regional economy. In addition, central America has great potential to improve its exports’ quality, sophistication, and competitiveness. Evidence of this is the position of Costa Rica in the global supply chain of the medical device industry.
But for this to develop to a greater degree, Central American integration must improve in moving forward in six priority areas. These include technology adoption, education, infrastructure, trade facilitation, factor and product markets, and institutions. Progress on these fronts will favor the reduction of intraregional and international commercial costs and waiting times in international trade. Achieving these things will result in greater regional integration.
Steps to promote Central American immigration
The coordination of policies for the facilitation of trade in Central America involves achieving a simplified, digitized, and harmonized process. Streamlining trade procedures can reduce the cost of waiting time to almost zero. In addition, the extensive paperwork that must be carried out between the countries, added to weaknesses in infrastructure, is a center of opportunity for productivity and promoting greater trade and Central American integration.
It is estimated that the average speed of roadway traffic in the six Central American countries is 18.5 km/h, and the average time to cross borders is nine hours. This is without counting the time spent in queues. In international trade, every hour that Central American customs procedures delay merchandise decreases the competitiveness of countries involved in trade. But even more worrying is that these delays translate into an increase in the prices of products, which in turn impacts the pocketbook of consumers throughout the region.
Reducing trade costs would increase commerce
The report “Unleashing the Growth Potential of Central America” reflects that the complete application of the commitments of the Trade Facilitation Agreement of the World Trade Organization could reduce trade costs by up to 15.5% in the Central American region. This would boost intraregional trade by 61% and Central America’s joint Gross Domestic Product by 4.3% by 2030.
Trade facilitation is one of the World Bank’s priorities for post-pandemic recovery and promoting Central American integration. To that end, reforms have facilitated trade at the regional and national levels in Costa Rica and El Salvador. In the latter, for example, due to the support provided to streamline air cargo processes, import times decreased from 36 to three hours.
Faced with the new challenges, promoting greater Central American integration with dynamic and inclusive economies is crucial to reduce the region’s poverty and inequality rates that impact the lives of millions of people, especially those who occupy the lower rungs of the regional economy.
In conclusion, Central American integration is critical because it promotes regional trade, attracts foreign investment, drives infrastructure development, enhances stability and political cooperation, and strengthens the collective bargaining power in trade of the countries involved. It is a pathway toward greater prosperity, development, and integration into the global economy.
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