Central America is an isthmus connecting North and South America, running from Mexico to Colombia. It consists of seven nations—Guatemala, Belize, El Salvador, Honduras, Nicaragua, Costa Rica and Panama—and covers an area of 522,000 sq km. The total population of Central America is estimated at over 40 million. Nicaragua is the largest nation in Central America with a surface area of 130,370 square kilometres and Guatemala is the most populous nation with 14.4 million people (2013).
The economies of Central America are diversifying considerably. While agriculture is still the largest employer, the tourism, industrial and service sectors have become increasingly important. Bananas, coffee, and cacao are the principal crops of Central America. However, there is also a small industrial and mining base and some services industries. An important economic feature of Central America is the Inter-American Highway that enables trade flows to the United States through Mexico, running along the western side of the isthmus. Panama also serves as a major trade hub for the region, with active air and sea ports, notably the Panama Canal, servicing international trade.
In the colonial period, Central America was part of the colony of New Spain and under the control of the Spanish Viceroy in Mexico City. The modern political history of Central America is one of conflict and at times turmoil. In the early 1800s, a group of Creole rebels fought to establish an independent nation. In 1823, the United States of Central America was founded based on the areas we know today as Guatemala, Honduras, Nicaragua, Costa Rica and El Salvador. However, the liberal democratic experiment was short-lived. When Honduras withdrew from the Union, a three-year civil war ensued. Throughout the 19th and 20th centuries, Central America experienced wars, border disputes and civil unrest.
Despite some enduring border conflicts, the past two decades have seen the rise of more democratic governments and greater stability. While the prospect of a return to the Union is now remote, political effort and economic integration have seen the region gradually move to more cooperative ties and economic advancement as well as the establishment of a regional advisory government. SICA plays a leading role in regional integration processes and in addressing regional challenges such as poverty, citizen security and transnational crime.
Australia's relations with Central America
Australia enjoys positive relations with all the countries of Central America underwritten by modest political and trade links. We cooperate on various multilateral issues and have a good relationship on trade liberalisation matters. As members of the Cairns Group, Australia cooperates with Costa Rica and Guatemala to promote our common commitment to agricultural trade reform. Central American communities within Australia, such as the significant Salvadoran population, help promote links between our two regions. Belize is a fellow member of the Commonwealth, with whom we share positive and friendly ties and work together in various Commonwealth organisations and events. We also cooperate with Central American countries, to varying degrees, in the United Nations and a range of other international forums on important issues such as the environment, climate change, whaling, fisheries management, human rights and security. This cooperation has included shared work on the United Nations Security Council in 2013, with Guatemala and Australia both serving as non-permanent members.
As part of the Australian Government's commitment to enhance relations with Latin America, Australia became an extra-regional observer to the Central American Integration System (SICA) in July 2011. SICA member countries are Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama. Former Foreign Minister Kevin Rudd attended a SICA Summit in El Salvador in December 2011. Former Parliamentary Secretary for Foreign Affairs Richard Marles visited El Salvador in October 2012.
The Forum for East Asia – Latin America Cooperation (FEALAC) is another body through which Australia can expand and strengthen relationships with Central America. It aims to increase and improve mutual understanding, trust, political dialogue and friendly cooperation among member states. The Forum has 36 member nations including Australia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
In 2001, the Australian Government established the Council on Australia – Latin America Relations (Coalar) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, Coalar has been active in promoting business, education, tourism and cultural links between Australia and Latin America. For updates on Coalar activities and information on the annual grants program, follow Coalar on Facebook.
Australia's Embassy in Mexico City and High Commission in Trinidad and Tobago (which covers Belize) are responsible for the countries of Central America on a non-resident basis. Australia has also opened Consulates in Costa Rica, El Salvador, Guatemala, Nicaragua and Panama headed by Honorary Consuls. El Salvador opened an Embassy in Canberra in 2012, and Belize, Costa Rica, El Salvador, Guatemala and Panama have consular representation in various Australian cities.
Development assistanceFrom 2010 to 2014, Australia provided $100 million in development assistance to Latin America, including 250 Australia Awards Scholarships. Central America received 111 Australia Awards Scholarships (9 from Belize, 29 from Costa Rica, 16 from El Salvador, 21 from Guatemala, 17 from Honduras, 12 from Nicaragua and 7 from Panama) and 18 Australia Awards Fellowships. Six Australian volunteers undertook placements in Belize under the Australian Volunteers for International Development (AVID) program, in areas including youth sports, microenterprise and renewable energy. The regional program has now closed, though some activities which have already been funded will continue until 2017.
Australia's trade and investment ties with Central America are growing, albeit from a very small base. Opportunities to expand trade exist in agribusiness, the mining sector, food commodities and the provision of professional services.
For further information, refer to individual fact sheets:
- Belize [PDF 36 KB]
- Costa Rica [PDF 31 KB]
- El Salvador [PDF 35 KB]
- Guatemala [PDF 36 KB]
- Honduras [PDF 31 KB]
- Panama [PDF 27 KB]
While still modest, two-way merchandise trade with Central America has increased steadily over recent years to around $302 million in 2013. Australia's main exports to Central America are orthopaedic appliances and dairy products, in particular milk, cream, whey and yogurt. Our major imports include electronic integrated circuits, coffee and substitutes, and medical instruments.
Costa Rica is Australia's major trading partner in Central America. In 2013, two-way merchandise trade between Australia and Costa Rica was $138 million (exports $3 million, imports $135 million). Australia's principal export to Costa Rica was electrical circuits equipment. Principal imports from Costa Rica included electronic integrated circuits and medical instruments (including veterinary).
Ratified by the US Congress in July 2005, the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) is one of the key structural elements underpinning Central America's trade relations with the United States. The Agreement includes seven signatories: the United States, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The export zone created the United States' third largest market in Latin America after Mexico and Brazil, by the time it entered into force for all parties in 2009.
CAFTA-DR requires important reforms of the domestic legal and business environment that encourage competitive business development and investment, protect intellectual property rights, and promote transparency and rule-of-law in the democratic systems that have solidified in the region over the past decade.
AFTA-DR is thus an important instrument to support growing economic and political cooperation between Central American states and the US. In July 2012 the EU and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) signed a comprehensive Association Agreement which also includes an ambitious trade component, with a focus on fostering sustainable development and reinforcing regional economic integration in Central America.
In November 2012, Australia became an observer of the Pacific Alliance, an Asia-oriented, trade-liberalising bloc between Chile, Colombia, Mexico and Peru. Costa Rica’s bid for membership has been approved and it is undertaking accession processes. Panama, currently negotiating a free trade agreement with Mexico, has also expressed interest in membership. Guatemala, Honduras, El Salvador, and the Dominican Republic are also observers.
Despite the modest nature of two-way trade, Australian companies are taking advantage of niche opportunities to provide professional services throughout the region. The Australian Government, through our post in Mexico City and our Austrade representation there, helps raise the profile of Australian companies and ensures that Australian businesses and exporters are well positioned to make the most of emerging opportunities. Australia’s network of Honorary Consuls in several Central American countries also assists the Australian Embassy in Mexico to identify commercial opportunities in the region.
There is scope to promote the Australian education system as an attractive option for Central American tertiary students and students wanting to study English. Costa Rica and Panama face a shortage of skilled labour, with potential opportunities for the provision of vocational training.
Mining and resources
In Central America there are seven Australian Stock Exchange-listed companies with 41 projects and sub-projects for a range of minerals, almost all of which are at the exploration stage. Orica (explosives) is active in several Central American countries, including Panama. The mining sector is of growing importance in countries such as Panama and Nicaragua, opening up opportunities for Australian suppliers of mining equipment, technologies and services as well as investors.
Panama Canal expansion
The expansion of the Panama Canal, currently underway and due for completion in 2015, should double its capacity and increase the scope for inter-continental trade with more and larger ships transiting between the Pacific and Atlantic Oceans (via the Caribbean Sea). It is anticipated that one fifth of world trade will pass through the canal. The Colón Free Trade Zone (CFZ), linked to the canal on the Caribbean coast, is the world’s second largest free trade zone after Hong Kong and may be attractive to companies looking to access Central America, the Caribbean and northern South America.
Apart from dairy products, Central America continues to import significant quantities of food commodities and processed products. These markets have traditionally been dominated by US and European exporters. However, as the Australian commercial presence in Mexico grows, new opportunities to expand food export markets are likely to arise.
With a strong agricultural base, many Central American countries demand farm inputs and other related technologies. Agribusiness is a potential growth area for Australian companies, which are already taking advantage of some opportunities to provide animal genetics and farm technologies in Costa Rica and Guatemala.
Information technology and communications
As Central American countries move into the digital age there is an increasing demand for IT products, including broadband internet, computers, cables, routers and cellular services equipment. A number of foreign companies have established call centres in Costa Rica. Australian ICT company Opmantek has opened an office in Panama.
Infrastructure renewal in Central America, particularly Panama and Costa Rica, may provide opportunities for Australian involvement. Projects include airport terminal expansions, new highways including toll roads, port infrastructure, canal development and public transport.
Clean energy and environment
Several Central American countries, including Panama and El Salvador, are developing potable water and wastewater treatment plants. Opportunities in this sector are likely to continue to grow.
Health is also a sector offering some opportunities in Central America. Austrade Mexico has assisted Australian businesses such as Cochlear in both Panama and Costa Rica to position the company as a preferred supplier of hearing implants in those two markets.
Updated August 2014