Investing in El Salvador

Thinking of Investing in El Salvador?  Talk to the Central American Group.

I  Reasons why companies should consider investing in El Salvador:

1. El Salvador has a globally recognized workforce. Its workers have distinguished themselves for their productivity, efficiency, and work ethic.  Fifty-six percent of El Salvador’s economically active population is less than 40 years of age.  El Salvador is a young and highly productive nation.
2. Those companies that are investing in El Salvador will discover that the country’s cost structure is a competitive one. The prestigious publication the Financial Times rates El Salvador’s labor and business costs as being among the lowest in the region. 
3. Investing in El Salvador is done in US dollars. The country adopted the North American currency as its legal tender in 2001.   A dollarized economy reduces currency risk and minimizes inflation.
4. According to the World Economic Forum, infrastructure in El Salvador is among the most competitive in Central America and in Latin America as a whole. It’s modern seaports, airports, and highways enable companies that are investing in El Salvador to conduct their logistics operations in an efficient manner.  Companies that are investing in El Salvador also have access to a modern telecommunications infrastructure, as well as a reliable electricity grid.
5. The country offers businesses that choose to invest in El Salvador valuable tax incentives. These include corporate income tax exemptions, as well as exemptions from municipal and capital transfer taxes.  In designated “free trade zones,” investors may import the machinery, equipment, and raw materials that are used in production on a duty-free basis.
6. Investing in El Salvador guarantees preferential access to international markets. Companies that set up operations in the country will be able to reach 43 countries that represent a pool of approximately 1.2 billion consumers.  El Salvador has trade agreements with Bolivia, its neighbors in Central America, Chile, Colombia, South Korea, Cuba, Ecuador, the United States, Mexico, Panama, the Dominican Republic, China, Trinidad and Tobago, and the European Union.
7. Those companies that decide upon investing in El Salvador will benefit from its strategic location. Manufacturers in El Salvador can ship their goods to cities in both North and South America with both speed and ease.  The country is on US Central Standard Time which facilitates its communications and is in close proximity to the Panama Canal.  This means that companies can ship to customers on both the Atlantic and the Pacific Ocean.
8. Investing in El Salvador is easy because of the availability of industrial buildings in the country. There is an ample inventory of space in the country’s free trade zones (FTZs).  Companies operating in these specially designated areas benefit from an incentive that exempts companies from income taxes for eight years.  During a subsequent four-year period, taxes are reduced by fifty percent.  Some of the services that are offered in free trade zones in El Salvador include on-site customs, recruitment of personnel, security, fire prevention infrastructure, wastewater treatment, telecommunications infrastructure, exterior lighting, training of employees, medical clinic, and cafeteria services.
9. El Salvador offers a legal framework and package of incentives that protect and benefit companies that are investing in El Salvador. This includes the nation’s Investment Law, Free Trade Zone Law, and the International Services Law. 

• El Salvador’s Investment Law has as its objective economic growth through foreign direct investment and investment in general. Benefits of the Law include the fast-tracking of bureaucratic processes and procedures, the equal treatment of all investors, the freedom to make investments, and the repatriation of profits.
• The Free Trade Zone Law in El Salvador offers fiscal benefits to national or international companies that export their products. Activities that are allowed in Salvadoran free trade zones include the production and assembly of industrial or consumer products; the growing, processing, and sale of flora that is cultivated in greenhouses in free trade zones; as well as others.  Benefits that are enjoyed by companies investing in El Salvador under the Free Trade Zone Law include an exemption on the payment of duties for the importation of machinery and equipment, a tariff exemption for the importation of raw materials, an exemption on the payment of duties for imported lubricants and solvents, and a tax exemption on real-estate transfers.

• The Law of International Services grants tax incentives to companies that are dedicated to providing services to international companies. To be able to take advantage of the benefits of the Law of International Services companies can establish their operations inside or outside of designated free trade zones. Among the activities engaged in by companies that utilize the provisions of the Law of International Services are international distribution, call or contact center operations, the maintenance and repair of airplanes, the design and development of software and other IT systems, international logistics operations, the repair and maintenance of shipping containers, research and development, international financial services, telemedicine, and post-production work for recorded materials.

10. Companies that are investing in El Salvador will find that the country’s labor force is numbered at 2.9 million people.   El Salvador’s workers are highly productive and capable of learning new tasks in a short amount of time.  In addition to manufacturing, the labor force in El Salvador is optimally occupied in the agricultural and service sectors.
11.  Companies that are researching the possibility of investing in El Salvador will find that the country is a signatory of all major international treaties that have been established for the protection of intellectual property.  In addition to being protected by international laws, intellectual property protection in El Salvador is granted by the country’s Law of Trademarks and the Law of Intellectual property.  Trademarks can be registered in El Salvador for a period of ten years.  However, companies can petition to extend this term.
12. El Salvador’s Labor Law balances workers’ rights and the interests of employers.  In general terms, the relationship between labor and management is a positive one.  El Salvador has not experienced any major legal disputes or workers’ strikes in recent years.
13. Institutions of higher learning in El Salvador provide a base of technical and professional workers for companies that are involved in investing in El Salvador.  The nation has 24 universities, 11 specialized schools, and 6 technical institutes that serve the instruction needs of its students.  Each year El Salvador’s system of higher education equips 22,400 new workers to fill technical and professional positions.

14. Companies that wish to provide on the job training can seek assistance from the Salvadoran Institute of Professional Formation (INSAFORP). INSAFORP is an autonomous government agency that works to provide the human capital that is required to grow El Salvador’s economy.  Foreign companies investing in El Salvador can receive funds to finance the training of their workers.

II.  Among the sectors in which to invest in El Salvador are the aerospace industry, agro-industry, the energy sector, light manufacturing, business services, tourism, and textiles and clothing manufacturing.

1. The aerospace industry has had a thirty-year presence in El Salvador.  Airlines such as American, Southwest, Delta, LAN, COPA, Avianca, Jet Blue, and Volaris have entrusted more than 200 yearly maintenance and repair services to the country’s experienced workforce. 

Among the advantages that are enjoyed by companies that join El Salvador’s emerging aerospace cluster are the following:

• A labor cost that is forty percent below that of similar operations that are located on the US-Mexico border;
• A low level of worker turnover at less than 2% annually;
• Integration of the universities with the aerospace cluster;
• Availability of land in the airport industrial zone for the conduct of maintenance, repair, and overhaul (MRO) activities.

The most attractive areas for investment in the Salvadoran aerospace industry include:

• The maintenance and servicing of commercial aircraft;
• Ground services;
• Operations related to the maintenance and assembly of helicopters;
• The manufacture of fuselages for small aircraft;
• The painting and maintenance of aircraft interiors;
• The manufacture of aircraft wire harnesses;
• The subassembly of aerostructures;
• The warehousing and distribution of aerospace parts.

2. Agroindustry is another area that welcomes companies that are investing in El Salvador. The Central American nation offers the ideal location for the production and processing of food items.  El Salvador’s proximity to large consumer markets facilitates the export of these products.
   

   Among the advantages that are enjoyed by companies that become a part of El Salvador’s agroindustry cluster are the following:

• Optimal climate and soil for the cultivation of fruits, vegetables, and ornamental plants;
• An excellent highway and port system;
• Free Trade Agreements that provide favorable access to the principal markets in North America and Europe;
• An abundance of sugar with five-year fixed prices to use in the production of soft drinks and sweets;
• Access to an abundance of water that can be used in food processing operations;
• The presence of complementary industries such as packaging;
• A competitively priced labor force;
• An ideal geographical location to establish distribution centers from which to ship products to other Central American countries, the United States and Canada, as well as Mexico and the Caribbean.

The most attractive areas for investment in Salvadoran agroindustry include:

• Fishing, fish farming, and fish processing;
• The cultivation of ornamental plants;
• The growing of vegetables;
• Elaborating products made from sugar such as rum and confectionery products;
• The processing of food items for consumption both locally and internationally.

3. The Government of El Salvador has devised an energy policy for the period 2010 – 2024. Plans are to diversify the country’s power supplies by promoting the development of both traditional and renewable sources of energy.   El Salvador’s National Energy Council estimates that during the period from the present to 2026 the demand for electricity in the country will grow by a steady 2% annually.

Among the sources of fuel to be further developed by those investing in El Salvador will be:

• Hydroelectric;
• Thermal;
• Wind energy;
• Solar;
• Biomass

The most attractive areas for investment in the Salvadoran energy sector include:

• Long-term international bid projects and contracts that can be for up to twenty years;
• Projects that diversify El Salvador’s sources of energy;
• The distribution of power for industrial use;
• Large hydroelectric, geothermal, and solar power generation projects.

4. Light manufacturing is another area in which investing in El Salvador can be lucrative. There are opportunities for those that are producing items such as pharmaceuticals and cosmetics, footwear, auto parts, and electronics for shipment to markets in the US, Canada, Mexico, Central America, and the Caribbean.

Among the advantages that are enjoyed by light manufacturers in El Salvador are:

• A strategic location;
• A network of free trade agreements that give preferential access to Salvadoran goods in principal global markets;
• An existing industrial base consisting of maquiladoras and supplier companies;
• Low operational costs;
• A trained and trainable workforce.

As regards a trained and trainable workforce, Salvador has a network of twenty-four universities and five technical institutes.  The country has an adequate supply of mechanical, electrical, and communications engineers, as well as technical workers in the areas of electronics and global logistics.

5. Business services activities have expanded in El Salvador in recent years. Prestigious international companies find that El Salvador is a favorable place from which to do sales, operate call centers, and provide other business services.

Investing in El Salvador in the area of business services brings with it the following advantages:

• Workers that have neutral accents in both English and Spanish;
• A cultural affinity with large markets such as the United States and the whole of Latin America;
• A work ethic that stands out among other countries in the region;
• An excellent telecommunications infrastructure with guaranteed redundancy and cost competitiveness.
• A time zone that is conducive to doing business in the United States. El Salvador is on Central Standard Time (CST);
• Government-supported English as a Second Language (ESL) programs.
• More than seven hundred students graduate from bilingual schools each year.

The most attractive areas for investment in the Salvadoran business services sector include:

• Product sales;
• Order taking and fulfillment.
• Customer service;
• Prospecting for clients;
• Client acquisition and retention;
• Scheduling of appointments;
• Data entry and consolidation;
• Inventory recordkeeping.

6. A promising area for investing in El Salvador is in its tourism sector. El Salvador occupies an area of more than 13,000 square miles and is roughly the same size as the state of Massachusetts.  The country has almost two hundred miles of shoreline on the Pacific Ocean.  El Salvador offers opportunities to surf, scuba dive, and hike.  The country also has archeological parks and museums.  Tourism represents one of El Salvador’s most important economic sectors.  It generates approximately 46,000 jobs and makes up approximately 4.5% of the country’s GDP.

Investing in El Salvador in the area of tourism brings with it the following advantages:

• Flights to the principal cities in both North and South America;
• Air traffic of an average of 460 roundtrips weekly;
• A solid and growing demand. (El Salvador has approximately two million visitors annually).

The most attractive areas for investment in the Salvadoran business tourism sector include:

• Hotels and boutique hotels;
• Convention centers;
• Marinas
• Spas and health clubs;
• Medical tourism (hospitals, specialized clinics, medical spas, and resort hospitals).

7. The Textile industry is one of the principal motors that drive the Salvadoran economy. Over time it has been able to develop to the production of higher value-added products.  The textile industry in El Salvador is increasingly vertically integrated from the production of fibers to the manufacture of clothing.  There are opportunities for investing in El Salvador that are found on the top through the bottom of the textiles supply chain.

El Salvador exports textiles and clothing to more than fifty countries.  The country is the ninth-largest supplier of clothing to the United States.

Investing in El Salvador in the area of textiles and clothing brings with it the following advantages:

• Strategic access to buyers’ markets in both North and South America;
• A network of free trade agreements that ensures that Salvadoran textiles and clothing receive duty-free treatment in principal world markets;
• A “yarn forward” rule under the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) that allows for duty-free access for qualifying textile and apparel products made using US and/or DR-CAFTA yarns and fabrics such as nylon and polyester.

The most attractive areas for investment in the Salvadoran textile and clothing sector include:

• The manufacture of yarn and cloth (synthetic and natural);
• The production of knit and embroidered products, as well as athletic wear;
• The making of garments that are in the category of “simple transformation.” These include items such as bras, boxer shorts, girls’ clothing, pajamas, and cloth utilized in the manufacture of suitcases.

Source: PROESA