Spain Was a Major Source of Foreign Investment in El Salvador in 2024

In the first three quarters, the amount reached $396.21 million, almost $9 million more than the total from all other countries. It may involve the repatriation of capital by Salvadoran entrepreneurs with registered companies there.

According to data from the Central Reserve Bank (BCR), Spain primarily drove foreign investment in El Salvador during the first three quarters of 2024. This European nation recorded positive flows that even exceeded the total FDI received by the country.

In the first nine months of 2024, the net flow of FDI from Spain to El Salvador amounted to $396.21 million. The total from all countries was $387.44 million, meaning Spain alone contributed $8.77 million more than the combined total of all nations.

How is this explained?

FDI from Spain offsets the significant outflows to other nations, which recorded negative FDI flows to El Salvador.

The largest outflow was to Panama, amounting to—$141.04 million. In this case, nearly $127 million was left for Panama in the second quarter alone. According to economist Luis Membreño in a previous report for El Diario de Hoy, this translates to Panamanian individuals or companies divesting from Salvadoran companies and Salvadoran citizens moving their capital to that country.

The United Kingdom, with—$78.74 million, and Guatemala, with—$9.36 million, follow Panama in negative FDI flows.

Economist Rafael Lemus suggests that Spain’s significant foreign investment in El Salvador does not manifest in visible investments. Instead, he believes it is more likely a process of capital repatriation by Salvadoran businesspeople who have registered companies in Spain, which, in turn, hold equity stakes in local businesses.

He notes that a similar phenomenon may occur regarding outflows to Panama: Salvadorans transferring funds to a country with a more lenient tax regime to reduce their tax burden. However, the situation with the United Kingdom is less clear.

“In summary, these movements are not typical, where one can directly identify investments behind the inflows and outflows… I believe the reality is more along those lines,” he explains.

Where are the clear investment movements?

Precise investment movements are evident in the case of the United States, which contributed a positive FDI flow of $103.39 million to El Salvador, making it the second-largest investor after Spain.

Many companies in El Salvador’s manufacturing sector are in the United States. Despite the closure of several plants, this sector remains the country’s largest creator of formal employment.

The third-largest amount comes from Colombia, with $29.41 million. However, there was a negative flow in the first quarter of 2024 due to the sale of AFP Crecer, a company previously owned by Colombia-based Protección S.A., a subsidiary of Grupo Sura. Centro Financiero Crecer, a Panamanian company, now owns AFP Crecer.

Another key takeaway from the data is that foreign investment in El Salvador from cryptocurrency-related companies like Tether is marginal. The funds from the British Virgin Islands (Tether’s former headquarters) amounted to only $8 million in the first three quarters of 2024.

Spain’s FDI in El Salvador has fluctuated over time

In March of last year, El Diario de Hoy reported that Spain had experienced the sharpest decline in foreign investment in El Salvador since the third quarter of 2021. This decline coincided with the Legislative Assembly’s removal—without due process—of the Constitutional Chamber justices and the Attorney General, which had a pro-government majority at the time.

Between June 2021 and September 2023, the net flow of Spanish FDI in El Salvador was -$220.85 million.

The Salvadoran government and the Spanish Embassy have been working on initiatives to attract Spanish investment since at least 2023 to reverse this trend.

One such effort occurred on March 12, 2024, at the Spanish Embassy in El Salvador. The event was attended by then-Spanish Ambassador Carlos de la Morena and former Presidential Commissioner for Strategic Projects Cristian Flores, who is now under investigation for corruption. Neither of them remains in office. Sonia Álvarez Cibanal replaced De la Morena, while Flores’ replacement has yet to be announced.

Representatives of ten Spanish companies from various industries attended the meeting. Most of them, such as CEMOSA and Civing, had already been operating in El Salvador for several years. Their purpose in visiting was to explore new investment opportunities in the country.

At the event, Flores highlighted two key investment plans:

Strengthening El Salvador’s Agricultural Infrastructure

This plan involved investments in agricultural production zones, post-harvest centers, high-quality supply hubs, transportation logistics, and retail market improvements.

The proposal was striking because, in 2023, El Salvador’s production of staple grains was lower than in the previous decade. However, there is no evidence of significant capital injections into this sector. The Salvadoran government has instead set up its supply center in Soyapango (East San Salvador) and established dozens of agricultural markets in different districts. Yet, this distribution network remains insufficient.

Establishing a Logistics Hub at La Unión Port

This project aimed to turn La Unión Port into a central logistics hub.

The Salvadoran government, however, has taken a different approach by granting the port’s management to a public-private company led by the Turkish firm Yilport.

During the meeting, Flores emphasized political stability and favorable investment conditions, stating:

“President Bukele’s reelection with overwhelming support confirms the people’s trust in his leadership… We offer democratic governance… I invite you to be part of this transformation in an investment-friendly environment.”

A history of fluctuating Spanish investment

Between the third quarter of 2019—when Nayib Bukele took office—and the second quarter of 2021, Spanish foreign investment in El Salvador ranked as the second-largest source, totaling $503 million. The highest investment figure during this period occurred in the second quarter of 2020, at the onset of the COVID-19 pandemic when Spain’s FDI reached $306 million.

However, this trend reversed starting May 1, 2021. Spanish FDI recorded negative figures in the last two quarters of that year, amounting to -$14.77 million.

While there was a brief recovery at the beginning of 2023 with an injection of $79 million, the following quarter saw a severe downturn, marking the worst record, with -$287 million.

When former Spanish Ambassador Carlos de la Morena was presented with consolidated data showing Spain’s declining foreign investment in El Salvador—plummeting from the second-largest investor to one of the worst performers following the rise of the pro-government Legislative Assembly—he was asked whether legal uncertainty, triggered by the removal of magistrates and the Attorney General, was the main reason behind this capital flight.

De la Morena attributed the investment decline to the COVID-19 pandemic and its aftermath. However, the data shows Spanish investments in El Salvador remained strong during 2020 and the first half of 2021.