El Salvador seeks to ride an investment wave

Fanned by robust Pacific breezes, the veranda of the Puro Surf Hotel – on El Salvador's coastline – overlooks the ocean’s elegantly breaking waves. As sun-tanned surfers haul their boards down past an infinity pool and clutches of coconut plans while a fiery sun begins its descent into the sea, a more brochure-worthy tourist image would be hard to imagine.

Long dogged by scenes of violence and a resulting image problem – a civil war that lasted from 1980 to 1992 and, in recent years, a further war between the state and the MS-13 and Barrio 18 street gangs – El Salvador receives the smallest level of foreign investment of any country in Central America, with the exception of Belize. With a population of about 6.4 million, this country with a sparkling coastline and atmospheric mountain towns is making a pitch for foreign investment as it prepares for presidential elections in 2019, which will mark the sixth peaceful transition of power since its war ended. 

Getting a break

“I fell in love with El Salvador a long time ago, and I always had the dream of developing surf-specific projects here,” says Pedro Querejeta, a Cuban-American developer from Miami and Puro Surf’s co-founder. “I had travelled many places all over the world to surf, and I saw a lot of potential in El Salvador. There was a lot of potential for this to be a destination, not just because of the waves – the quality of waves are world-class – and the proximity to [capital city San Salvador], but the people, who are amazing.”

A boutique hotel of just 13 rooms fronting the beach at El Zonte, Puro Surf, as its name would imply, houses a surf school and a restaurant as well as a hotel. Though the ambience of Puro Surf suggests an appeal to well-heeled beach bums, it also has a community development aspect: the hotel has partnered with the US Agency for International Development and the Salvadoran NGO Glasswing International to help ameliorate conditions at a local school and local healthcare facilities. 

With El Salvador’s Pacific Coast consistently rated among the top 10 surfing destinations in the world, Puro Surf is not the only outfit seeking to capitalise on El Salvador’s endless summer vibe. Just down the coast there is Palo Verde, which bills itself as tapping into the sustainable luxury market, and whose ocean-front location, bathed in greenery, offers classes in Spanish and yoga as well as surfing.

Cutting its cloth

In 2016, El Salvador received $373m in foreign investment, or about 2% of GDP, according to Unctad. Its rate of unemployment is relatively low, at about 7%. As a signatory to the Dominican Republic-Central America Free Trade Agreement, El Salvador benefits from various tariff waivers with the US, and about one-third of its foreign investment comes from that country, especially within the textile industry. From nine free-trade zones in 2004, El Salvador now boasts 17, mostly situated along or near the Pan-American Highway.

“We are trying to bring textile companies here because the demand is really high, not only in El Salvador but in the region,” says Celia María Hernández, investment promotion specialist for textile and apparel and tourism with the Organismo Promotor de Exportaciones e Inversiones de El Salvador (Proesa), the country’s export and investment promotion agency. “There’s not enough space in those zones for what we want to bring here, so they need to expand.”

Stability dividend

One attraction for investors looking at El Salvador is that, despite sharp ideological divides, its political climate remains surprisingly stable: the former combatants of the right-wing Alianza Republicana Nacionalista (Arena) and the left-wing Frente Farabundo Martí para la Liberación Nacional (FMLN) have decided to resolve their differences politically rather than by military means. Though the FMLN has governed the country since 2009, state seizures of private enterprises of the heavy-handed tactics of leftist leaders such as Venezuela’s Hugo Chávez and Nicaragua’s Daniel Ortega have not materialised. 

“I think both parties have come to understand that investment from abroad through private companies is a very important part of what we have to do,” says Jessica Bukele, who heads Proesa’s offshore business services investment sector.

Some of El Salvador’s leaders, however, believe the country needs to take a more visionary approach to integrating foreign investment into its economy.

“We’re producing 5000 jobs a year. We need 100,000 just to keep things are like they are right now,” says Nayib Bukele, who served as mayor of San Salvador from 2015 until April 2018. Mr Bukele took office as part of the ruling FMLN, but has since been expelled from the party and become a fierce critic of both it and Arena. 

During the 36-year-old Mr Bukele’s tenure as mayor of the capital, some believed they saw hints of what El Salvador as a whole could become. Reclaiming the capital’s once-disused and dangerous historic centre, his administration spearheaded initiatives such as the Mercado Cuscatlán, a public market adorned with evocative murals and featuring a public library packed at all hours, and a restoration of the Plaza Francisco Morazán, an important public square.

“One software engineer... could produce the GDP of El Salvador,” says Mr Bukele. “Of course we should focus on things such as agriculture and agro-industry because we have to feed ourselves, but why are we not focusing on the jobs of the future, the things that will make us as individuals grow and our society grow?”

Call from the future

It would be a mistake, however, to view El Salvador’s investment potential to be strictly married to tourism, manufacturing and agriculture. 

The country is also viewed as increasingly attractive to firms operating call centres and other shared services given the relatively high level of English proficiency among a number of Salvadorans (particularly those who have spent time living in the US). Canada’s Telus Corporation, for example, a national telecommunications company, employs more than 2500 people in El Salvador. The country’s stake in providing offshore business services has also grown sharply, with the sector growing by double digits over the past 20 years. 

“We’re not the cheapest nor the most expensive labour force in the region, but we get the most return on investment per employee,” says Proesa’s Ms Bukele. “It’s attractive here mainly because of our labour force, which is very well known for its work ethic and skills.”

With presidential elections scheduled for next year and Nayib Bukele’s star as a potential independent presidential candidate on the rise, the next few months may well determine if and how El Salvador finally takes flight.