News

Central America, a region with high agribusiness potential

Written by Michelle Schouwenburg on 9 May 2022

Central America is a region in itself. Sandwiched between two oceans, it forms a bridge between two continents. The countries in this region have a lot to offer. Our colleague in Nicaragua, Lucette Martinez, explains what makes Central America special and what opportunities there are for small agricultural businesses.

 

Diversity & potential

Central America connects North and South America and is made up of seven countries: Belize, Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panama. It is a region with a high diversity, a rich cultural and natural heritage, human warmth, and a tropical climate. Central America’s landscapes, climate and biodiversity make Central America a region with high potential for the agri-food sector, making up 9% of regional GDP.

Most food products are exported to international markets such as Europe, United States and elsewhere. Historically, the region's high-value products have been coffee, sugar and bananas, which generate literally hundreds of thousands of jobs. These sectors are made up of small producers, who work the land as their only or main source of income. In recent years, other sectors have grown like cocoa, cardamom and fruit and vegetables, leading to a dynamic economy and investment opportunities across the region.

 

Sold around the world

Large multinational companies operate in Central America, trading in products from across the region. Today, supermarkets in Europe are full of produce from Central America, from nutritious avocados from Guatemala and roasted coffee from Honduras to juicy pineapples from Costa Rica and delicious chocolate bars made from Nicaraguan cocoa. Small and medium enterprises (SMEs) play an important role in getting this produce to Europe, not just multinationals. In fact, SMEs make up 99 percent of all companies in the region.

 

Challenges

Although SMEs play an important role for social and economic stability in the region, historical factors in each country have generated capacity gaps that cause challenges ranging from lack of access to water or energy, to poor infrastructure, high rates of unemployment and migration and a lack of access to finance or technology. These factors combine to stifle poverty-reducing efforts in the region. For example, in Guatemala, Honduras and Nicaragua, poverty rates exceed 45%, and are even much higher in rural areas.

 

Access to finance - a key gap in Central America

Finance is a key driver for SMEs to grow, yet their lack of access has been a major obstacle. On the one hand, agri-food companies, especially those who depend on the supply of commodities produced by small farmers who depend on the climate for their livelihoods, pose a significant risk for traditional investors. Other barriers to access capital include entrepreneurs’ limited ability to clearly demonstrate the viability of their project and, very often, challenging terms and conditions such as very high collateral requirements and high interest rates.

 

An innovate opportunity

PlusPlus represents a new opportunity for SMEs to access capital on affordable terms. In Central America, PlusPlus works through Solidaridad. Both organizations believe that sustained and inclusive economic growth can drive development across the region. And so, we are working to bring finance to SMEs that demonstrate growth potential and have a clear intention and action plan to generate positive social and environmental impact.

 

Business potential of SMEs in Central America

We partner with different organizations in the entrepreneurial ecosystem across Central America that complement our work to identify a constant stream of SMEs seeking investment. In this journey, we have discovered interesting companies that produce tubers, natural fruit juices, cocoa, coffee and vegetables. These companies show a strong commitment to improve farming and manufacturing practices and to produce safe, healthy, and quality products. So far, most companies obtained certification such as Fairtrade, Global GAP, or Organic. Although these companies are small with just 2 to 20 employees, they have a positive work culture and are eager to grow and generate more jobs. Women are also empowered and play a prominent role in company dynamics: parts of these companies are managed, operated, or led by women. In addition, these SMEs have strong environmental commitments such as making better use of natural resources, designing environmentally friendly processes and products that reduce their carbon footprint, and above all, raising community awareness for collective action. 

We have found out first hand that SMEs’ main needs are working capital to both operate their business on a daily basis, and to grow, acquire new equipment to increase their productive capacity and enter new markets, or to create efficiency through new technology. Some of these SMEs hope to do so with a loan from PlusPlus, like Cosecha and Pule Lenca. And we hope that many more will follow, so keep an eye on our projects these coming months.

By: Lucette Martinez, PlusPlus Investment Team Nicaragua.

 

Sources:

https://www.bbc.com/mundo/noticias-america-latina-58522346

https://www.visitcentroamerica.com/360/

https://delfino.cr/2021/05/sistemas-agroalimentarios-para-el-futuro-de-centroamerica