Investors should not consider Central America as a ‘single market’

Law firms in the region need to keep pace with client demands – the ‘generalist lawyer is almost an endangered species’, with clients requiring more specialisation from their advisers

Investors should resist the temptation to look at Central America as a single entity and instead understand that all the jurisdictions in the region offer a diverse range of attractive assets, according to Hernán Pacheco, EY Law’s managing partner for Central America, Panama and the Dominican Republic.

Pacheco says that, while international investors tend to look at Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic and Panama as a single market, each country has distinctive characteristics. He says that Costa Rica and Guatemala are characterised by a higher level of M&A activity, as well as an increasing amount of opportunities for investment in infrastructure and technology. Meanwhile, there is also a trend for companies in Costa Rica and Guatemala to seek to expand their businesses outside the Central America region via acquisitions. As the markets in Central America become more mature and family-owned companies sell their assets and become cash-rich, they often seek to invest in other sectors beyond their home countries. “This is an interesting new trend and we have seen Central American companies targeting businesses in countries such as a Colombia,” Pacheco says.

Regional hub
Meanwhile, Panama and the Dominican Republic offer potential investment opportunities in the energy, transport, hospitality-related infrastructure and real estate sectors, according to Pacheco. He adds: “Panama is a particularly interesting market, with a great offering for companies that choose the country as a hub for regional shared services.”

However, the outlook for all countries in the region – with regard to opportunities for both investors and law firms – is not as optimistic. Pacheco sounds a note of caution regarding the complicated political and social situations in El Salvador, Honduras and Nicaragua, which have had a negative impact on economic growth.

High demand
Law firms in the region need to keep up with demand from clients that are seeking higher standards of service and more in-depth sector knowledge. “The generalist lawyer is almost an endangered species as global clients require more specialisation from their legal advisors,” Pacheco says, adding that there is high demand among multinationals for advice on an ever-changing regulatory environment, both in their home countries and in the jurisdiction they are targeting. “Local lawyers need to have exposure to, and knowledge of, both local and international regulations in areas such as data privacy, compliance, cybersecurity and finance.”

Business-focussed’ solutions
Meanwhile, another major trend in the legal market is the use of technology to add value to services, Pacheco says. Legal service providers with a global footprint have the advantage of being able to harness market knowledge and technology to create business-focussed solutions for clients “even in areas which might have been deemed as being commoditised by other market players,” Pacheco claims. “Often the challenges faced by clients are not only multijurisdictional, but also multidisciplinary, within an increasingly complex global regulatory and legal scenario.”

Battle for talent
In Pacheco’s view, the legal landscape in Central America is changing rapidly. Law firms in the region, like their counterparts in other parts of the world, are under pressure to expand their operations in order to enhance their offering to clients, he adds. Pacheco says that, with the arrival of global law firms and the ‘Big Four’ in the region, the battle to attract and retain the highest quality legal talent is intensifying. “There is also a new competitor in the market – the in-house team,” he adds. Pacheco says that as Central American companies expand their operations throughout the region and beyond, they have been taking the opportunity to bulk up their legal teams, often bye recruiting younger talent from the law firms they instruct.

Meanwhile, Pacheco argues that law firms have an important role to play in making jurisdictions in Central America more attractive to international investors.