23 October 2010
Doing business in Central America presents unique challenges: small and fragmented markets, diverse rules and laws, inconsistent application of rules and rising security concerns, to name a few.
Valderrama works with eight countries in Central America in Chevron’s downstream unit that sells refined energy products (not the upstream business that handles oil production.) Her unit works with about 500 service stations in Central America under the Texaco brand, which Chevron bought. Chevron holds a top market position in gas sales in each country, building on its roughly 90 years of business in the region. It sells roughly 80,000 barrels a day of oil in the eight countries, said Valderrama.
Business is complex, because Central American nations differ widely in their laws and rules. In Guatemala, for example, the rate retailers can charge for gas products is deregulated. In Honduras, in contrast, it’s so tightly regulated that gas suppliers there had to band together and negotiate a new rate formula with the government to end years of losses on business, Valderrama told the group.
“It’s important when countries change regulations that they involve the industry,” she said. In Central America, that does not routinely happen. “It’s a huge challenge for business,” said Valderrama.
Central American countries might take a cue from Chile, which has top-notch Customs operations, or from Peru, which modernized its Customs unit in the 1990s, said Johnson, who was raised in Peru.
Business is complicated, too, by the rising influence of drug-trafficking rings and gangs, or maras. Drug-trafficking has moved to the area partly because of crackdowns on cartels in Colombia. The maras arose in part from Central Americans who were active in Los Angeles gangs and deported, participants said.
“The drug money is sort of taking over” in parts of Central America, said public relations specialist Fernando Figueredo, a Latin America public relations veteran who represents Chevron, the event sponsor. “What has to change is in the United States, because the huge consuming market is here.”
Washington seems to be paying little attention to growing problems in Central America, as politicians and officials focus on bigger and richer markets as well as war-torn Iraq, Afghanistan and the Middle East, participants agreed. “It’s not even registering on the radar in Washington,” said Johnson.
Companies active in Central America are trying to raise awareness through groups such as the U.S. Chamber of Commerce or the Association of American Chambers of Commerce in Latin America, or AACCLA, but with limited results so far, said Valderrama, just back from an AACCLA conference.
Washington’s new, stricter guidelines on the Foreign Corrupt Practices Act add further complications. Companies from other countries face fewer restrictions, so U.S. companies are “out of the game,” said Stan Clement, a senior advisor to Fedex on international regulatory affairs.
Asked what he viewed as the top challenge in Central America, Clement cited modernization. He said many governments are reluctant to modernize and shake-up entrenched interests in their countries. Johnson cited corruption, while Valderrama bemoaned a lack of consistency in policy and operations.
“Every time there’s a new player, there’s a shift,” Valderrama said, contrasting Central America with Chile, where policy is consistent from government to government and doing business far easier.
Government Affairs Connections is one of six event series hosted by WorldCity to bring together executives on international business topics. The series is sponsored by Chevron. The next meeting of Government Affairs Connections is set for Dec. 16.