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Editorial

Legal market overview

Undoubtedly one of the most important markets in the Central American region, Guatemala in 2014 saw GDP rise by 4.2%, marking the highest rate of growth since 2011. The Central Bank has predicted growth of 3.8% for 2015, the year of the country’s general election.

The banking and finance sector has been particularly active. Citibank announced in 2014 that it is to close its commercial banking operations in six Latin American markets, including Guatemala, and this has created an opportunity that Colombian groups such as Grupo Aval and Davivienda, which have been aggressively entering the Central American region, appear eager to take up.

Law firms report an increased level of involvement by local banks in project finance, an area in which they have traditionally been reluctant to participate. In the energy sector, local and international banks and other financial institutions have increasingly been collaborating. The country’s first wind farm, in the San Antonio region, was financed by a syndicated loan from foreign, private and local banks, and the market has also seen a solar-energy project financed by Guatemalan-lender Banco G&T Continental.

In the corporate and M&A arena, Colombian interest in acquiring local companies become increasingly relevant alongside more traditional Mexican and US investment; the global economic conditions are such that there are greater opportunities for local and regional corporations to gain a foothold in the market as major foreign players turn their attentions elsewhere.

Mining plays an increasing role in the country’s economic development, although the development and exploitation of the energy and natural resources sectors has brought a wave of environmental opposition and significant social protest. On the hydrocarbons side, despite new oil exploration agreements having been signed, most projects remain on hold due to the severe drop in global oil prices. While Guatemala is the only oil-producing country in Central America, the electricity sub-sector is the region’s most mature and developed; however, with high capacity exceeding current demand, prices are being depressed.

The diversification of the country’s energy matrix is leading to significant activity in areas such as infrastructure and renewables. The development of the first local utility-scale solar power plant in 2014 was closely followed by the establishment of the largest solar plant in Central America, with a capacity of 58MW. The government is also pushing for natural gas, and has signed an agreement with Mexico for a 600km gas pipeline to cover the regional market and enable fuel distribution throughout Central America; Honduras recently joined the project. The regional summit on energy investment in Central America, held in Guatemala City at the end of 2014, raised hopes for further steady investment in the sector.

Using international and regional regulations in addition to local ones, Guatemala has been trying to reform its tax laws, which have historically been weak and open to avoidance. Income tax and transfer pricing are two areas attracting particular attention and generating a high volume of work for lawyers; rules on transfer pricing were enacted in 2012, but were suspended a year later and only came back into force at the beginning of 2015. Law firms are also predicting an increase in tax litigation.

Navigating the waters of dispute resolution remains challenging for law firms and international business, with the judicial system riddled with longstanding problems. While reform is under way and it is sought to have this in place by the end of the decade, fraud and corruption remain major concerns. Criminal cases are on the rise, and firms also report an increase in IP litigation.

The most notable developments in the legal market have been the merger of local full-service outfit QIL Abogados with boutique firm 4abogados, to form QIL+4 Abogados; and the arrival of (the originally Costa Rican) specialist labour law firm BDS Asesores, which now has offices in five regional jurisdictions. The trend towards regionalisation was also followed by Arenales & Skinner-Klée – LatamLex, one of seven firms which created the LatamLex Abogados partnership at the end of 2014.

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