On June 1, 2019, President Nayib Bukele assumed office. His administration immediately pledged to eliminate cumbersome bureaucracy and improve security conditions to attract investment and create jobs. Early accomplishments included increased dialogue with the private sector and reduced homicide rates, which increased business confidence. El Salvador and the United States signed a Growth in the Americas memorandum of understanding in January 2020 to promote private investment. The COVID-19 pandemic has unfortunately complicated implementation of reforms and dampened investment.
Commonly cited challenges to doing business in El Salvador include the discretionary application of laws and regulations, lengthy and unpredictable permitting procedures, as well as customs delays. In recent years, El Salvador has lagged its regional peers in attracting foreign direct investment (FDI). The sectors with the largest investment have historically been textiles and retail establishments, though investment in energy has increased in recent years.
The Bukele administration has proposed several large infrastructure projects, which could provide opportunities for U.S. investment. Project proposals include enhancing road connectivity and logistics, expanding airport capacity and improving access to water and energy, as well as sanitation. Having inherited a large public debt from the previous administration, the Bukele administration has begun pursuing Public-Private Partnerships (PPPs) to execute infrastructure projects. El Salvador launched its first PPP in September 2019 to expand the cargo terminal at the international airport. It launched a second PPP to install highway lighting and video surveillance in January 2020. With these two PPPs, the Bukele administration delivered on its commitment under the Millennium Challenge Corporation (MCC) Compact, which is due to close in September 2020. More information about the MCC Compact is available at https://www.mcc.gov/where-we-work/program/el-salvador-investment-compact.
As a small energy-dependent country with no Atlantic coast, El Salvador relies on free trade. It is a member of the Central American Dominican Republic Free Trade Agreement (CAFTA-DR) and the United States is El Salvador’s top trading partner. Proximity to the U.S. market is a competitive advantage for El Salvador. As most Salvadoran exports travel by land to Guatemalan and Honduran ports, regional integration is crucial for competitiveness. Although El Salvador officially joined the Customs Union established by Guatemala and Honduras in 2018, the Bukele administration announced in January 2020 that it would prioritize bilateral trade facilitation with Guatemala.
The Bukele administration has taken initial steps to facilitate trade – a major priority of the textile, retail, and other U.S. companies invested in El Salvador. In July 2019, the government of El Salvador (GOES) relaunched the National Trade Facilitation Committee (NTFC), which had not met since its creation in 2017. The NTFC produced the first jointly developed private-public action plan to reduce trade barriers. The plan contains 60 strategic measures focused on simplifying procedures, reducing trade costs, and improving connectivity and border infrastructure. Companies are hopeful the plan would help reduce costs and make El Salvador more attractive for further investment.
|TI Corruption Perceptions Index||2019||113 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2019||91 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2019||108 of 129||http://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2017||3,037||http://apps.bea.gov/
|World Bank GNI per capita||2017||3,820||http://data.worldbank.org/