El Salvador: Investing

FDI in Figures

According to the UNCTAD's World Investment Report 2023, FDI flows to El Salvador were negative by USD 99 million in 2022, compared to a positive inflow of USD 314 million one year earlier and a three-year average of USD 585 million in 2018-20. At the end of the same period, the total stock of FDI in the country was estimated at USD 10.5 billion, representing around 33.4% of GDP. The latest data from the Banco Central de Reserva show that the country received USD 759 million in net foreign investments in 2023. Transport led the influx of foreign capital, receiving over USD 285.4 million by the end of 2023, marking a 37.6% growth, with the financial sector following closely behind at USD 132.8 million. The electricity industry reported USD 98.3 million, while commerce and the information and communications sector received approximately USD 95.9 million and a little over USD 57 million, respectively. Panama emerged as the primary source of foreign direct investment, contributing over USD 297.4 million by the end of 2023. The United States followed as the second-largest destination, attracting USD 121.5 million. The United Kingdom accounted for USD 89.8 million, trailed by Mexico with USD 77.3 million, and Colombia with USD 72.3 million. Overall, the main investing countries are the United States (one-third of the total volume of FDI), Mexico, and Guatemala. The textile and retail sectors attract the most significant investment, while energy has seen notable growth over the past five years. The Bukele administration has outlined ambitious infrastructure projects that may offer opportunities for U.S. companies. These projects aim to improve road networks, logistics, airport capacity, and access to water, energy, and sanitation. Due to limited fiscal resources, the government intends to leverage Public-Private Partnerships (PPPs) for infrastructure development. The country has nine free-trade zones and seeks to attract textile companies (FDI Intelligence). El Salvador also uses export processing zones (EPZs) to receive preferential access to the U.S. market (UNCTAD).

El Salvador's strategic location, preferential trade terms under the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR), and utilization of the U.S. dollar as legal tender position it favorably as an investment destination. However, challenges such as high levels of sovereign debt, longstanding issues with gang violence, and a lack of transparency in rulemaking pose significant obstacles. In 2021, El Salvador made history by becoming the first country to adopt Bitcoin as legal tender alongside the U.S. dollar. While this move garnered significant international attention and contributed to the country's growing popularity as a tourist destination, its impact on the Salvadoran economy has been relatively minimal. The Investments Law ensures parity between foreign and local investors. While there are restrictions on micro-businesses—defined as those with 10 or fewer employees and annual sales under USD 175,930—foreign investors are permitted to establish any domestic enterprise without hindrance. However, those initiating operations with 10 or fewer employees must submit employment expansion proposals to the Ministry of Economy’s National Investment Office. Regarding extractive resources, the Investment Law stipulates that they belong solely to the state. Although private concessions for resource extraction may be awarded by the GOES, such grants are rare. Notably, metal mining is outlawed in El Salvador. The country ranks 126th among the 180 economies on the 2023 Corruption Perception Index and 117th out of 184 on the latest Index of Economic Freedom.

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Latest Update: May 2024