ImpactAlpha, Feb. 27 – The U.S.- Mexico border gets the attention. But in addressing the root causes of migration, it is long-term investments in Central America that are doing the work.
Roughly 400,000 people have fled north to the U.S. each year for the last five years from Honduras, Guatemala, El Salvador and other countries in the region. Increasingly volatile storms, growing food insecurity and crime and violence at home are pushing growing numbers of Central Americans to seek opportunity elsewhere.
To change the calculus, the Biden Administration, led by Vice President Kamala Harris, has rallied corporations, investors and entrepreneurs to pledge more than $4 billion in investments to create good jobs, upskill people for the digital economy and expand access to small business financing in the region.
“Locally rooted economic development is the best solution to the migration pressure in the region,” Root Capital’s Willy Foote told ImpactAlpha. Root’s $80 million commitment in loans to agricultural enterprises in Honduras is among $950 million in new pledges to the Biden administration’s Partnership for Central America.
Impact investors like Root Capital have emerged as key partners in the Biden administration’s root cause strategy.
To build climate and economic resilience, particularly in Central America, impact investors for decades have been mobilizing public, private and philanthropic funding to plug financing gaps for local agribusinesses and small and growing businesses. “This is what Partnership for Central America is focused on,” says Foote.
Other impact firms that have committed to Partnership for Central America are starting to fulfill their pledges.
Impact investment firm CrossBoundary has closed two transactions in mid-sized businesses and mobilized more than $1.5 million for El Salvador, as part of a pledge to mobilize up to $30 million in the country. Deetken Impact has closed two transactions in El Salvador and mobilized more than $17 million, including $2.2 million for renewable energy. The firm has pledged to support at least 10 investments in El Salvador.
Argidius Foundation backed Multiverse and Earth University with $1 million for their entrepreneurial support services, roughly a third of its commitment to Guatemala.
The four-year pledge from Root would effectively double the agricultural lender’s loan volume in Honduras. With $6.5 million in support from USAID, Root will focus on supporting early stage agribusinesses and improving the climate resilience of farming families. Root pledged another $1.4 million in loans to small agricultural businesses in Guatemala.
Among the other pledges: Brisbane-based Microwd will issue $20 million in debt to 10,000 additional female entrepreneurs El Salvador and Honduras. Nestle will help more than 7,500 coffee producers implement regenerative agriculture practices. The online-learning platform Chegg will certify 100,000 young adult learners in Honduras.
The Biden administration approach is in stark contrast to the previous administration’s brute-force strategy of deterrence and border control.
In 2019, the Trump administration froze $450 million in already committed aid for programs in Honduras, Guatemala and El Savador aimed at preventing violence, curbing extreme poverty and hunger, and strengthening the justice system.
Another change: USAID Administrator Samantha Power has sought to work through locally-rooted partners rather than traditional contractors.
“We have not been a prime candidate in the past for working with local USAID missions,” says Foote. The new strategy, he says, “has opened up a lot of dialogue, private sector engagement and more diversified funding going into different players.”