How is business in El Salvador and what should you know about its economy? El Salvador is the smallest and the most densely populated country in Central America. The country’s capital city and largest city is San Salvador; Santa Ana and San Miguel are also important cultural and commercial centers in the country as well as Central America. El Salvador borders the Pacific Ocean on the west, and the countries of Guatemala to the north and Honduras to the east. As of 2009, El Salvador had a population of approximately 5,744,113 people. The colon was the official currency of El Salvador from 1892 to 2001, when it adopted the U.S. Dollar as its national currency. In 2010 El Salvador ranked in the top 10 among Latin American countries in terms of the Human Development Index and in the top 3 in Central America; as a result of this, the country is undergoing rapid industrialization. Does this mean that it’s a good idea to do business in El Salvador?
How the economy plays a part in business in El Salvador
According to the IMF and CIA World Factbook, El Salvador has the third largest economy in the region, behind Costa Rica and Panama, when comparing nominal GDP, with El Salvador’s being $21.700 billion in 2010. El Salvador’s GDP per capita stands in PPP terms stood at US $7,429 in 2010, according to the IMF. There are a total of 15 free trade zones in El Salvador. El Salvador signed the CAFTA, which was negotiated by the five countries with the United States in 2004. CAFTA requires that the Salvadoran government adopt policies that foster free trade. El Salvador has also signed free trade agreements with Mexico, Chile, the Dominican Republic, and Panama and increased its trade with those countries. El Salvador has promoted an open trade and investment environment, and has embarked on a wave of privatizations extending to telecom, electricity distribution, banking, and pension funds.
Common imports and exports
El Salvador primarily imports raw materials, consumer goods, capital goods, fuels, foodstuffs, petroleum, electricity, and textile materials. The markets that El Salvador imports the most from are the US 29.79%, Mexico 10.26%,Guatemala 9.7%, China 4.5%, and Honduras 4.4%. El Salvador imports roughly $6.697 billion worth of goods, while it exports $3.849 billion worth of goods, as estimated in 2009. The primary exports of El Salvador are offshore assembly exports, coffee, sugar, shrimp, textiles, chemicals, electricity. The main industries that the economy of El Salvador specializes in are food processing, beverages, petroleum, chemicals, fertilizer, textiles, furniture, and light metals. The El Salvadorean economy is primarily focused on services with the economic structure broken down by agriculture: 10.8%; industry: 29.1%; services: 60.1%.
Overall, El Salvador is a decent market to invest in. It was ranked as the 112th Easiest Place to do Business by the World Bank for 2012. In the same ranking table, El Salvador was ranked at 166th for Protecting Investors, 69th for Trading Across Borders, and 66th for Enforcing Contracts. So while these are not the best of numbers, it does give you a sense of business in El Salvador and its environment. The political situation is also quite stable in El Salvador, with a Judiciary that is independent of the executive and the legislature. While the market may be somewhat small, it is still a relatively decent market to invest and do business in.