FIRST IMPRESSIONS: INEQUALITY
I have only been in Guatemala City for 3 and a half days and I have already done about a weeks worth of activities ranging from exploring a craft market near the centro histórico, eating typical Guatemalan dishes, attending a yoga class, and riding on a chiva (party bus) around the city. During these activities the one thing I couldn’t help but noticed was the enormous inequality in Guatemala City. Development in Guatemala City appears to be centrally located with pockets of extreme wealth. I live in Zone 10 which is considered the safest and most touristy zone in the city. That being said, I have seen virtually zero tourists and have been warned not to walk more than 2 blocks alone, not to step foot outside after dark, and to avoid public transportation at all costs. However, within this zone and the nearby residential zones, there are highly developed areas of extremely concentrated wealth. For example, there is a miniature “city within a city” called Cayala. I went to dinner there and it feels like you are in the capital of a wealthy European city. It is full of upscale art gallerias, shops, restaurants, and bars. Zone 10 and the nearby residential zone 14 are full of similar but much smaller semi-enclosed shopping and eating areas. They are full of designer-clad couples texting on their iphones, enjoying expensive meals, and admiring beautiful artwork. These establishments seem somewhat out of place when mere minutes away are Asentamientos, or shanty towns. These “red zones” are controlled by extremely violent gangs and are so dangerous that local police refuse to enter. About 8 murders occur in these zones each day. (http://www.globalpost.com/dispatch/news/regions/americas/110519/crime-murder-guatemala)
In order to get a better picture of the inequality and other struggles in Guatemala here are some statistics on the country:
- Human Development Index (HDI) Rank: 131 out of 187 (Lowest in Latin America besides Haiti)
- Population: 14.7 million
- GINI Index (measure of equality of income distribution, 0 is perfect equality, 100 is perfect innequality): 53.7 = one of the most unequal in the world
- Gross National Income (GNI) per capita: US$2,740
- Chronic under-nutrition (children under 5): 49.8 % = highest in region, 4th highest in world
- Chronic under-nutrition (indigenous areas): 69.5%
- Population in poverty: 53% (70% of rural, 30% of urban)
- Population in extreme poverty (less than $1.25/day): 13.5%
- Population living with less than $2/day: 26%
- Illiteracy (women 15yrs+): 31% (59% in indigenous)
- Secondary school enrollment: 58%
- Labor force with secondary education: 14%
- Labor force with tertiary education: 7%
- Income spent on food: 33%+ (70% in rural)
- GDP spent on crime and violence: 8%
- Access to electricity: 80.5%
- Rural population without access to water: 13%
- Income Distribution: wealthiest 10% of population controls 45% of wealth, poorest 10% of population controls 1% of wealth
(Stats from: http://www.wfp.org/countries/Guatemala/overview, data.worldbank.org/country/guatemala)
PLENTY OF ROOM FOR IMPACT INVESTING!
Impact investors are increasingly turning to emerging markets for investment opportunities. Emerging markets around the world are home to the bottom of the pyramid (BoP) (the 2.5 billion people who live on less than $2.50/day). These people desperately demand cheap, sustainable solutions to the most basic services (healthcare, clean water, food, education, housing, etc.). With 53% of its population living in poverty, Guatemala is the perfect place for impact investing. (Source: Impact Investing in Emerging markets, Marco Arosio). In addition, the economy of Guatemala is very underdeveloped (partly a result of a 36-year civil war that lasted from 1960 until 1996) providing a market ripe for the emergence of social enterprises.
As shown in the statistics above, solutions are needed to problems such as illiteracy, under-nourishment, violence, poverty, and inequality. Since the government is plagued with corruption and international aid has been insufficient, local solutions are needed to solve these problems. Furthermore, the Guatemalan economy relies on agriculture, leaving other industries underdeveloped. As a result there is plenty of space for small and medium enterprises to develop and focus on the demand for social and environmental market solutions. There is already a visible network of social enterprises as well as a very wealthy upper-class with expendable income.
In a report published by the World Bank titled, “Doing Business”, Guatemala ranks 97 out of 183 countries in the Ease of Doing Business. This ranking indicates how easy or difficult it is for a local entrepreneur to start a small or medium-sized business. Guatemala ranks just outside the top 50% and ranks slightly lower than the regional average. Although the country ranks rather low in the category of “protecting investors” and costs are very high, it ranks very high in “getting credit”, “getting electricity” and “registering property” which are both very important aspects of conducting business. In addition it only takes 37 days to start a business in Guatemala.
It is time to begin to bridge the gap between the rich and the poor. The market is ready, the capital is available, and the ease of doing business is improving. All that is needed now are investment-ready social enterprises. It will be my job over the next few months to find these enterprises and learn as much as possible from them in order to gain the insight necessary to help the impact investing and social enterprise industry develop successfully.