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In the early 1990s the countries of Central America had relatively undeveloped economies in which agriculture was the most important sector. Manufacturing largely involved processing raw materials. The annual per capita income was low.
Farming is by far the leading economic activity in Central America. The principal cash crops, such as coffee, bananas, sugarcane, and cotton, are typically produced on large landholdings, and a substantial proportion are exported, mainly to the United States and Europe. Food for local consumption is raised mainly on small farms; most of it is consumed by the farm families, and relatively little is marketed. The chief subsistence food commodities are corn, beans, bananas, manioc, rice, and poultry. Cattle are raised on big ranches located mainly in the drier regions of western Central America. Modern farming methods are used on the large landholdings, but the small farmers generally use relatively simple techniques that hold down productivity.
Forestry and Fishing
About 40 percent of Central America is forested. The early years of European activity in Belize, for example, revolved around the extraction of dyewoods, and later mahogany, chicle, and pine timber were produced. British timber companies also cut mahogany and cedar along the greater Caribbean coast. Today, forestry is a relatively unimportant aspect of the Central American economy. Pine is the main wood harvested, and some hardwoods, such as cedar, mahogany, and rosewood, also are cut.
Fishing too is a comparatively minor economic activity in Central America. Shrimp and spiny lobster, caught off the coasts of Belize, El Salvador, and Panama, are mostly exported to the United States. Since the mid-1960s Panama has developed a fish-meal and fish-oil industry. Central America has a low rate of per capita fish consumption.
The mineral output of Central America is small. El Salvador, Honduras, and Nicaragua produce limited quantities of silver, gold, lead, copper, and antimony. In the early 1980s Guatemala began to export small quantities of crude oil.
Most of the manufacturing plants of Central America process raw materials of the region such as sugarcane, coffee, cotton, timber, and fish. In addition, since the 1950s a concerted attempt has been made to reduce the need to import basic fabricated articles. Thus, factories making paint, detergents, tires, paper and cardboard articles, fertilizer, and insecticide have been established in the major urban areas.
Many manufacturing establishments in Central America involve only a handful of workers, and few employ more than 10 people. Large-scale manufacturing is hindered by the region’s lack of energy sources, its undeveloped transportation systems, and its small markets.
About half of the electricity of Central America is generated by hydroelectric installations; important dams include those on the Lempa River in El Salvador, the Cajón River in Honduras, and the Corobicí and Arenal rivers in Costa Rica. Most of the rest is produced in plants using petroleum products. A small amount is generated in wood-burning facilities.
The mountains of Central America present a major obstacle to overland transport, and the only surface transportation artery linking all the countries of the region is a section of the Pan-American Highway. Railroads connect the Caribbean and Pacific coasts in Guatemala, Costa Rica, and Panama. Inland water transportation is of little economic importance, but Central America has several important seaports, such as Puerto Santo Tomás de Castilla and Puerto San José in Guatemala; Puerto Cortés in Honduras; Acajutla in El Salvador; Corinto in Nicaragua; Puerto Limón in Costa Rica; and Bahía las Minas in Panama. The Panama Canal is a major shipping link between the Atlantic and Pacific oceans; Panama took over its operation from the United States in 1999. A crude-petroleum pipeline across western Panama was completed in 1982. Airlines provide transportation among the big cities of Central America and serve some remote mountain communities.
About half of Central America’s intercontinental trade is with the United States and Canada. Almost all the rest is with Western Europe, Mexico, and countries of South America. Central America’s principal imports are manufactured goods, such as motor vehicles, farm machines, textiles, electrical equipment, processed food, chemicals, and pharmaceuticals. The main Central American exports are basic commodities, which include bananas, coffee, cacao, meat, chicle, cotton, mahogany, balsa, hides and skins, and rubber.
The Central American Common Market (CACM), established in 1960, included all the Central American countries except Panama and Belize. However, several circumstances kept it from achieving its goals of trade liberalization and the establishment of a free-trade area. Among these was the infamous “Soccer War” of 1969 between El Salvador and Honduras, caused in part by CACM rules that favored El Salvador as well as Honduran policies against migrant Salvadoran workers. As a result, CACM trade was affected for more than a decade. Other countries’ internal conflicts also played a role in the disturbance of trade and by 1970, intra-CACM trade was insignificant. Today, Central American countries are facing new tariff barriers as the result of the Caribbean Basin Initiative (1984) and the North American Free Trade Agreement (NAFTA) (1994) and these barriers are preventing them from benefiting from increased global trading patterns.
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