Central America has continued to see economic growth over the past year – although the pace has lessened as a result of global financial uncertainty and a slowdown in the economy of the US, one of the key trading partners of the region and the source of high levels of workers’ remittances.

Thanks to its longstanding political and economic stability, Costa Rica remains an attractive jurisdiction for foreign direct investment, particularly in the tourism, technology and energy sectors (where it has recently seen a notable step-up in interest in the financing of wind power projects). Costa Rica’s reputation as a global model for green policies – it was the first tropical country to reverse deforestation – also means it is a prime location for sustainable real estate development.

Despite a period of turmoil following the 2023 elections, when attempts by the attorney general’s office to prevent president-elect Bernardo Arévalo from taking power led to mass protests, Guatemala has also seen an uptick in investment activity. Arévalo, who took office in January 2024, has pledged to fight institutional corruption, creating a safer climate for investment, and to improve Guatemala’s underdeveloped public infrastructure (following the approval of the country’s first PPP in 2021, there are numerous transport, logistics, health and education infrastructure projects in the pipeline).

In El Salvador, in spite of widespread concerns about the increasingly authoritarian tactics of President Nayib Bukele (who was re-elected in a landslide in February 2024, notwithstanding a constitutional ban on standing for a second term), the severe crackdown on gang violence has led to a more stable market and a greater interest in investment from abroad. The country has also positioned itself as a hub for fintech activity in the region (and was the first in the world to adopt Bitcoin as legal tender in 2021).

In Honduras, the M&A market has remained quieter, as investors await greater certainty about the impact of wide-ranging reforms to laws on energy, tax, employment and the free trade zone regime. In particular, the trend towards nearshoring – which is prevalent throughout Central America, thanks to the region’s strategic location near the US – is likely to stall in Honduras following the repeal of the law permitting per-hour employment. However, the country’s establishment of diplomatic relations with China has led to a $275m cooperation agreement to finance the renovation of education infrastructure.

The repressive political regime of Nicaraguan President Daniel Ortega (whose government has been accused of serious human rights abuses by the UN Human Rights Council), as well as his support of Russia over the invasion of Ukraine, has led to a severe deterioration in the country’s relationship with the US, and a corresponding drop-off in investment activity. Another country to have re-established diplomatic ties with China, Nicaragua has a free trade agreement with the country (which took effect in January 2024) that is likely to boost investment in infrastructure.

Panama’s stable political and economic climate, strategic geographic location and dollarised economy has long made it a top destination for investment, along with Costa Rica. While the removal of the country from the FATF’s anti-money laundering grey list in October 2023 was a reassuring sign for investors, the M&A market has been unusually quiet in 2024 as a result of the closure of the contentious Cobre Panamá copper mine (which accounted for around 5% of GDP), after the operator’s contract with the government was ruled unconstitutional by the Supreme Court, and the controversy surrounding the May 2024 election of President José Raúl Mulino, who stepped into the race following the disqualification of his running mate.