Investment Policy Review of El Salvador

El Salvador made a firm strategic choice to develop as an open market economy decades ago, and it has long adopted an open attitude towards FDI. A large number of reforms have been implemented in the past decades that reflect this choice: regional economic integration has been fostered and crucial free trade agreements have been concluded, the US dollar was adopted as legal tender, competition rules have been enforced and key segments of the economy have been privatized.

This strategy has allowed El Salvador to gain macro-economic stability and attract beneficial FDI inflows. Much progress remains to be achieved, however, to eradicate poverty and reduce income inequality. In addition, El Salvador needs to improve the general level of competitiveness of its domestic firms in order to reap the full benefits of openness to global trade and investment flows.

The IPR offers concrete recommendations in order to allow El Salvador to promote FDI in support of global competitiveness and to generate higher levels of beneficial foreign investment. Suggested measures focus on:

  • Achieving global excellence in investment-related regulation and facilitation, including through changes in the structure of corporate taxation, improvements in trade facilitation services and effective implementation and administration of laws and regulations.
  • Leveraging FDI for skills development, in particular by attracting foreign investors in higher and technical education.
  • Strengthening infrastructure through FDI, in particular by conceding the operation of the port of La Unión under a new regulatory framework for public-private partnerships.
  • Fostering linkages between transnational corporations and national firms.
  • Adopting specific measures to attract foreign investors in "green and responsible" sectors, including in the export processing zones.

In addition, the IPR briefly considers the implications of this strategy for the institutions in charge of investment and trade promotion, in particular PROESA, EXPORTA and CONADEI.