LatinFinance - March/April 2014 - 66

Regional
economy
The frontier markets
of the Americas make
their claim

INVESTOR
REPORT
CAFTA-DR

PAGE 68

Dominican
Republic
Foreign direct
investment is
stepping up in mining
and telecoms
PAGE 70

Stepping up

Guatemala
A trade agreement
with the EU could
help food exports
businesses?
PAGE 71

Central America - and the Dominican Republic, now linked to the isthmus via a free trade
agreement - might be home to some small economies, but with some interesting stories
to tell.
frontier markets have ridden a wave of
investor enthusiasm for over a year, as
growth has waned in more mainstream
emerging markets. africa is perhaps
the continent most associated with the
trend. But central america and the
Dominican Republic have some similar
characteristics. in some ways, this is
latin america's frontier.
for investors, these are small
economies - and even smaller capital
markets. Guatemala, for example, is
the biggest country in central america,
and roughly the size of the US state of
tennessee. Dominican Republic, soon
to overtake cuba as the most populous
caribbean nation, is only 11 million
people: roughly equivalent to the US
state of ohio.
But as the economic environment in
the bigger developing nations becomes
more challenging emerging-market
investors keen to find growth stories,
may find it harder to ignore the less well-

66 l atinfina nce.com - March/April 2014

known opportunities in countries in this
region - and some investors are already
paying more attention.
Partly as a result of the region's
less developed capital markets,
most countries here have not been
destinations for hot-money flows. as
such, the region may be less affected
now, as these flows are reversing globally.
at the same time, exporters in these
countries still hope to benefit from the
recovery in developed markets.
as this section details, corporate bond
issuance from the region is scarce. But
investors fed up from low and less certain
returns from more hackneyed markets
like Brazil are finding value in debt issued
by the likes of cabei, the investment
grade-rated regional development
bank, and Digicel, the mobile operator
covering much of the region.
telecoms has also been one of the
sectors targeted by foreign direct
investment in Dominican Republic,

for example, which has seen healthy
inbound m&a activity. a multi-billiondollar investment in mining, and the
country's biggest ever investment in its
sea cruise industry, are set to further
propel that country's economy.
Governments in the region are clearly
doing some things right if foreign direct
investors' willingness to deploy capital.
But policymakers also need to do more
to develop local capital markets, so
corporates are less reliant on the local
banking sector - and at the same time
take steps to make the banking sector
more competitive and more likely to
support businesses.
Despite these challenges, even in
Guatemala - with its troubled history,
and high crime, and inequality -
business optimism seems strong,
thanks to a new trade agreement with
the eU. the country's businesses hope
this will boost exports, particularly in
agriculture. LF
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