Legal market overview in Central America

Central America’s economies are continuing to rebound from the impact of the Covid-19 pandemic – albeit at a slower pace than in 2021 – as key sectors such as tourism, agriculture and manufacturing recover. The region has also benefitted from robust government support packages and remittances from the US, which reached record levels in 2021 thanks to rising US wages and government assistance.

However, the global geopolitical crisis caused by Russia’s war in Ukraine is still a cause for concern for the region as elevated inflation and higher food and energy costs are a particular challenge for smaller economies such as those in Central America. In addition, Honduras, El Salvador, Guatemala and Nicaragua are still recovering from devastating back-to-back hurricanes and tropical storms in 2020, which caused widespread damage and internal displacement.

Another pressing concern is the rise of authoritarianism in the region, most notably in Guatemala, Nicaragua and El Salvador. In Guatemala, Attorney General Consuelo Porras began a crackdown on anti-corruption prosecutors investigating President Alejandro Giammattei in early 2022, and in March was barred from the US over her links to corruption. Nicaraguan President Daniel Ortega was re-elected to a fourth consecutive term in November 2021, in an election referred to as a ‘pantomime’ by US President Joe Biden; prior to his re-election, Ortega oversaw the arrests of more than 40 opposition figures, including several presidential candidates. In El Salvador, President (and self-styled dictator) Nayib Bukele recently announced his intention to seek re-election in 2024, despite consecutive terms being banned by the Salvadoran constitution.

There were reasons for hope in Honduras, after Xiomara Castro was sworn in as the country’s first female president, who ran on an anti-corruption platform, in January 2022, and former president Juan Orlando Hernández was extradited to the US in April of that year to face drug-trafficking and firearms charges, although there are still concerns about human rights and security issues. Meanwhile, Costa Rica remained politically and economically stable, officially becoming a member of the OECD in May 2021.

The uncertain political situation in much of the region has led to a wariness on the part of investors, although Costa Rica and Guatemala continue to be the main recipients of foreign direct investment (with many multilateral development agencies entering the financial market in Guatemala in particular). This has also meant a slowdown in major M&A and financial transactions in many countries. In the financial sphere, fintech is playing an increasingly greater part, particularly following El Salvador’s adoption of Bitcoin as legal tender (the first country in the world to do so) in 2021.

The lockdown measures imposed by the pandemic in most Central American countries (with the notable exception of Nicaragua) have had a severe impact on litigation proceedings and intellectual property matters, as courts and intellectual property offices were closed for long stretches in 2020, causing a huge backlog. There has, however, been a trend towards digitalisation of some processes; Costa Rica, for example, introduced digital trade mark filings.

The employment sphere has also seen an increase in work since the pandemic began: while in 2020, firms focused on advising employers on major restructurings, the suspension of employees and the transition to remote working, more recently firms have seen an uptick in work relating to the return to the workplace, including occupational health and safety issues and Covid-19 vaccination policies.

Real estate is a key driver of activity, particularly in Guatemala, where large-scale construction continues in Guatemala City, and Costa Rica, due to its thriving second-home market, especially in the popular tourist region of Guanacaste.

As a region rich in natural resources, Central America is also home to many major mining and energy projects; with the significance of renewable energy growing, firms have frequently advised on the development of hydroelectric and solar energy plants. However, such projects have also led to conflicts with local indigenous populations and human and environmental rights campaigners, leading to drawn-out litigation. On the environmental front, Costa Rica remains a leader, with a focus on renewable energy, environmental policies and the development of an eco-tourism industry.

Within the Central American legal market, the landscape has remained relatively stable. New regional outfit Alta, formed by firms in Guatemala, Honduras, El Salvador and Costa Rica in 2021, is continuing to establish itself, while another key development was the merger of MCM Legal in El Salvador into Dentons Muñoz, the regional arm of global firm Dentons, which has established a strong presence in Central America.