Presentation El Salvador - University of Economics, Prague

Embassy of El Salvador

Agencia de Promoción de Exportaciones e Inversiones de El Salvador

1

Presentation – Economic, political and social factors

Business opportunities

November 2012

El Salvador

Capital San Salvador

Official Language Spanish

Area 21,041 Km2 / 8,124 sq mi

Population 6.2 million (2011)

GDP Nominal (2011) 23,054 million USD (2011)

Currency $USD

Time Zone UTC -6


Ahuachapán

Santa Ana

Chalatenango

Sonsonate SanVicente

Cabañas

La Paz

LaLibertad

SanSalvador

UsulutánSan

Miguel

Morazán

LaUnión

Gulf of Fonseca islands

• Solid political & economic environment

• International view of El Salvador

• Commercial openness & strategic location

• Foreign direct investment in El Salvador

El Salvador


Political Stability

More than 25 years of free and democratic elections

GANA

Other

Parties

11%

9 seats

• Balance of power in congress

• Alternating governance

54%

68%

52%

58%

51%54%

40%

60%

80%


4

ARENA

39%

33 seats

FMLN

37%

31 seats

GANA

13%

11 seatsLegislativeAssembly

0%

20%

1984 1989 1994 1999 2004 2009

PD

C

AR

EN

A

FMLN

Presidential election: % of votes for Presidential Candidate of winning partySource: Supreme Electoral Court of El Salvador (TSE ).

President for 5 year term with no possible

consecutive reelection

1 chamber with 84 seats for

3 year terms

March 2012 Congress election results, seats won by each party

Central American Market

Country

EL SALVADOR GUATEMALA HONDURAS NICARAGUA COSTA RICA PANAMA

Central

America

Capital San Salvador Guatemala City Tegucigalpa Managua San Jose Panama City

Official Language Spanish Spanish Spanish Spanish Spanish Spanish

Area (‘000 Km2) 21.0 108.9 112.1 130.4 51.1 75.4 498.9

Population (‘000,000) 6.2 14.7 8.0 5.8 4.6 3.5 42.8

GDP PPP (Bn US$) 2011 44.6 74.8 35.7 18.9 55 50.6 279.6


GDP PPP (Bn US$) 2011 44.6 74.8 35.7 18.9 55 50.6 279.6

GDP per capita PPP (US$) 7,550 5,079 4,444 3,206 11,923 14,096 6,533

Average Inflation rate

2010-20113.6% 5.8% 6.0% 8.6% 5.3% 5.6%

CurrencyDollar

USD

Quetzal GTQ

Lempira HNL

Cordoba NIO

Colon SJC

Dollar USD

Time Zone UTC -6 UTC -6 UTC -6 UTC -6 UTC -6 UTC -5

Source: Multi –Purpose Household Survey, Central Reserve Banks, and IMF.

70% of the population and commerce concentrates in ES, GT, and HN.

Fringe benefitsrepresent 27.61% of nominal wage

SectorMonthly

Minimum Wage*Daily Wage

Agriculture $ 105.00 $ 3.50

Maquila $ 187.50 $ 6.25

Industry $ 219.30 $ 7.31

Commerce & Services $ 224.10 $ 7.47

0%

20%

40%

60%

80%

100%

120%

140%

Nominal

Wage

100%

Fringe Benefits

27.61%


Annual Severance

Provision**

8.33%

Social Security (ISSS)

7.50%

Retirement Fund

(AFP)

6.75%

Christmas Bonus2.78%

Vacations paid yearly1.25%

Training Fund(INSAFORP)***

1.00%

Fringe Benefits (27.61% of nominal wage)

* Effective since May ** 2011 Provision in case of termination of contract*** Applies to companies with more than 10 employees

Source: Ministry of Labor El Salvador

0%

1

20.4

21.3

23.4

24.7

Guatemala

Honduras

Nicaragua

El SalvadorM 23.4

30 - 34

35 - 39

40 - 44

45 - 49

50 - 54

55 - 59

60 - 64

65 - 69

>= 70

Female

52.3%

Male

47.7%

years

Young Population

Average Age(Estimates)


7

24.7

27.8

29.2

0 10 20 30

El Salvador

Panama

Costa Rica

F 26.2

EAP: 2,641,133

0.0% 5.0% 10.0%

0 - 4

5 - 9

10 - 14

15 - 19

20 - 24

25 - 29

30 - 34

0.0%5.0%10.0%

Source: Multi-Purpose Household Survey 2011, CIA World Factbook

El Salvador






International view of El Salvador

IndexEl Salvador Guatemala Honduras Nicaragua Costa Rica Panama

Human

Development Index

(2011)

105 131 121 129 69 58

Index of Economic

Freedom (2012)41 82 93 101 44 55

Ease of Doing

Business (2013)113 93 125 119 110 61


Business (2013)

Freedom in the

World

(2012)

FreePartially

FreePartially

FreePartially

FreeFree Free

Global

Competitiveness

Index (2012 – 2013)

Infrastructure

Roads

Airports

Energy

Mobile Telephones

Taxes

101

66

52

42

70

37

56

83679158672379

90979271

1067992

1081067590

100108130

5795

131604294

119

4044496

432

96

El Salvador






Legal Framework

Investment Law

• Equal treatment to national & international investors

• Liberty to transfer funds and profits abroad

• Access to local financing

International Services Law

• Incentives to strategic sectors (contact centers, BPO’s, maintenance and repair of airplanes, logistics, etc.)

• Total permanent tax exemptions (income and municipal taxes) and import duties.


municipal taxes) and import duties.

Tourism Law

• Incentives to industrial activities

• Total permanent taxes exemption (income and municipal taxes) and import duties.

Free ZonesLaw

• Requires minimum $25,000 USD investment

• Corporate tax exemption (income and municipal taxes)

• Real estate transfer tax exemption

• Import tax exemption

Commercial Openness Access to a potential market of 1,200 million people


12

Main Trade Partners

Main Export Products

Main Trade Partners and Export Products

El Salvador Exports 2011

USD 5,308.8 million

United States

46%

Central America

36%

Germany

Japan1%

Taiwan1%

Other6%


Source: Central Reserve Bank

Germany3%

Panama2%

Mexico2%

Spain1%

Canada1%Dominican

Republic1%

Apparel35%

Agriculture, agroindustry, and food agroindustry.

18%

Foods, beverages, tobacco and similar

8%

Metal-mechanic industry, electrical equipment

11%Paper

5%Plástics5%

Chemical products5%

Textiles 5%

Mineral Products3%

Products of stone, ceramic and others

2%

Footwear 1%

Furniture and medical devices

1%

Others1%

Strategic

Location

Close to key markets• Closeness to the vital maritime

routes.

• A natural bi-oceanic logistics

corridor.

• Container terminal ready for

post panamax ships.

• A dominant airport certified A1

by the FAA linking important

cities.


14

Main airlines serving El Salvador

Main Freight Companies

Air Cargo• DHL• UPS• Arrow

Regular charter flights

Maritime• MAERSK• CROWLEY• MSC• SEABOARD

• NIPPON• CSAV• APL • Hamburg Süd

(Montreal, Toronto)

Strategic Location


El Salvador






Foreign Direct InvestmentStock 2011 USD 8,141 million (35.3 % of GDP)


Investment Opportunities

Specialized Textiles Aeronautics Electronics Medical Devices


Offshore Business Services Health Services

Tourism Agro-industry Logistics and Infrastructure Footwear

El Salvador offers an aircraft

maintenance, repair and overhaul

(MRO) industry for commercial aircraft,

which has successfully placed the

country on the global aviation map.

The successful operations of Aeroman,


The successful operations of Aeroman,

a member of Canadian MRO group

Aveos, are widely recognized within the

emerging Latin American aeronautical

clusters.

AeronauticsCompliance with international certifications ensuring the

highest quality required in aircraft maintenance services.

El Salvador:

Quality in aircraft maintenance services� Technical Universities and Institutes have specialized curricula

developed in conjunction with the private enterprise to ensure the availability of skilled labor.

� In addition to maintenance services for commercial aircraft, a variety of other companies in the emerging aerospace clusters offer the following services:

• R44 helicopter and corporate airplane maintenance.

• Distribution and warehousing services for aircraft parts.

• Component maintenance shops.

• Ground Services.

• Light sports aircraft (LSA) airframe, wing tip, and engine part manufacturing in composite materials, etc.

• Aircraft harness system assembly.

• Refurbishment on older Light Sports Aircraft (LSA) models.

� A Free Trade Zone Law and an International Services Law which provides tax incentives to these types of manufacturing.

� Available land for the development of industrial operations next door to the International Airport of El Salvador, under Public Private Partnership (PPP) mode.


Investment Opportunities in Aeronautics:

• Commercial aircraft maintenance service operations.

• R44 helicopter maintenance operations.

• Light Sports Aircraft (LSA) airframe part manufacturing.

• Painting and maintenance of commercial aircraft interiors.

7

For investors in agro industry and entrepreneurs who seek a platform to produce and export, El Salvador offers

attractive opportunities in the following sectors:

• Fruit Farming

• Aquaculture

• Ornamental plant farming


• Ornamental plant farming

• Food & Beverages

These sectors are highly favored by good weather and easy access to

regional and international markets.

AgroindustryClimate, tax incentives and a platform connected

to additional markets.

El Salvador:

A production and export platform• El Salvador possesses suitable climatic and soil conditions for

fruit and ornamental plant farming.

• Suitable soil and climatic conditions for the production of a wide variety of tropical fruits.

• The country has optimal interconnections for the trade and transport of agro industrial products.

• Availability of water resources for the sustainable development of aquaculture.

• Negotiated trade agreements open the possibility for the sector to expand to regional and international markets.

• Competitive labor costs.


Investment Opportunities in Agro Industry:

• Aquaculture Sector: Development of the production chain through the supply of young fingerlings, feed and other inputs to attain productivity and quality of aqua cultured products.

• Fruit Farming Sector: Development of supporting industries for the provision of supplies, equipment, quality vegetative materials and processing technology for the expansion of crops of avocado, Persian lime, coconut and organic products.

• Processed Foods Sector: Opportunities in the development of complementary industries in a sector in continuous growth in areas such as: packaging, process technology, machinery and equipment.

International medical device

manufacturing companies will

find in El Salvador a strategic


partner to be used as a

platform for export to markets

in North America, Central

America and the Caribbean.

Medical DevicesRapid access to markets

El Salvador:

A strategic partner in medical devices• El Salvador has tax incentives that encourage the

establishment of foreign companies within a regulatory framework.

• Investors enjoy rapid access to markets with a potential of 1,100 million people through the existing FTAs and thanks to its strategic location.

• The country has focused on developing industrial and service parks boosting industrial growth, especially in the textile and plastics sectors.

• El Salvador is a pioneer in Latin America in the training of professionals in prosthetics and orthotics, putting a highly skilled workforce at the disposal of businesses.


Investment Opportunities in Medical Devices:• Disposable laboratory and diagnostic equipment.

• Hospital linen and disposable clothing.

• Hospital furniture.

• Orthopedic products.

• Packing and packaging of disposable medical devices.

El Salvador offers a successful platform for

electronic component manufacturing, with

over 30 years of proven credibility. The

country has experience in the manufacture of

ceramic and tantalum capacitors in

compliance with required international

standards.

This has enabled the country to acquire and

implement state-of-the-art technology and

know-how.


The high quality, efficiency and productivity

of operations in El Salvador have ensured the

transfer of manufacturing plants from

England, the Czech Republic, Mexico, China

and the U.S., achieving continued expansion

in all processes.

ElectronicsHigh productivity and quality manufacturing at competitive costs.

El Salvador: A platform for electronic components manufacturing

• Setting of strategic alliances with academia to ensure availability of skilled workforce.

• E-cluster in formation around the AVX Kyocera Company in El Salvador.

• Wide local supply chain in place in the areas of metalworking, plastics, support systems, automation systems, engineering, transport and chemicals, among others.

• Existence of a Law on Free Zones offering tax incentives to this type of manufacturing.

• The best international airport in the region just 35 minutes from San Salvador, and 2.5 hours from Miami.

• Available land for the development of industrial operations next door to the International Airport of El Salvador under Public Private Partnership (PPP) mode.

• Electrical network system with strong capacity for expansion.


Investment Opportunities in Electronics:• Electronic component manufacturing and production.

• Electronic equipment and parts assembly.

• Cell phone electronic component repair.

For offshore business service firms seeking

to enter markets in the U.S. and Spanish-

speaking countries, El Salvador is a strategic

partner for providing quality multi-region

business services.

Our dynamic business environment,

strategic location for near-shoring, time-

zone complementarity and the outstanding

performance of our bilingual human

resources (English/Spanish), makes us a


strategic platform for companies offering

global services.

The modern and advanced local

telecommunications infrastructure ensures

the delivery of quality services and cost-

effective location for this industry.

Offshore Business ServicesCost effective near-shore location, based on a state of the art

telecommunications platform which guarantees your global offer.

El Salvador: Complementary strategic partner for multi-region operations• Strategic location in relation to English- and Spanish-speaking

customers (shorter flight times from North and South America).

• Same time zone for primary customers (U.S. and Canada) and Spanish-speaking markets (91% of the global Spanish-speaking population).

• Time-zone complementarity for customers in Europe and Asia (24/7 possibility).

• Friendly, hardworking and service-oriented people with neutral English and Spanish accents.

• Exceptional performance against key indicators (KPIs) such as Sales, C-Sat, FCR, etc.

• Complementary service to other geographical areas and high-end front-office services.

• Young and committed workforce (60% of the population under 35 years).

• Cultural affinity of the workforce with priority markets.


Investment Opportunities in Offshore Business Services:• Voice Business Process Outsourcing (Call Centers)

• Non-voice Business Processes Outsourcing (BPOs)

• Shared Service Centers (KPOs)

El Salvador offers the opportunity to

invest in health establishments

catering to patients living in the U.S.

and Canada, taking advantage of the


geographical proximity to those

markets, the low costs of health

professionals and the fast connections

between medical facilities and

enviable landscape sites..

Health ServicesGeographical proximity to the main countries of origin of medical

tourism, offering quality services at low costs

El Salvador: Strategic location and excellent connectivity between touristic sites

• The strategic location of El Salvador and the presence of TACA airline's hub in the country provide excellent air connectivity to the U.S. and Canada (2 hours from Miami and 5 hours from Los Angeles by direct flight).

• The best road infrastructure in the region allows visiting the wide variety of tourist attractions the country offers in a short time (beaches, lakes, volcanoes, colonial cities, etc.) .

• The community of Salvadorans abroad, about 2 million people, is A natural market who constantly visits the country and buys health treatments locally.

• The existence of qualified medical professionals who have earned postgraduate degrees abroad offer their services at very competitive costs.

• There is a Law on International Services that encourages the establishment of health centers.


Investment Opportunities in Health Services:• Hospitals

• Specialized clinics

• Rehabilitation centers

• Medical spas

• Hospitals Resorts for treatment of chronic diseases.

El Salvador offers attractive

investment opportunities to

specialized textile and clothing

companies wishing to enter the

regional Central and North American

markets based on the favorable tariff

conditions of FTAs with the U.S.

(CAFTA) and the European Union.


(CAFTA) and the European Union.

El Salvador offers a vertically

integrated industry, which promotes a

competitive high-fashion, high-

turnover garment manufacturing

industry.

Specialized Textiles and ApparelVertically integrated industry with easy access to markets

El Salvador: Specialized textile and apparel sector environment

• More than 260 textile and apparel companies have establishedthemselves in the country, including internationally recognizedcompanies such as Pettenati, George C. Moore, UNIFI, Swisstex, CSAmerica and APS.

• The rule of origin granted by the CAFTA-DR Free Trade Agreementallows free access for textiles manufactured in the region with yarnproduced in Central America.

• A cluster of companies that use synthetic fibers (nylon, polyester,micro fiber, among others –products paying a 32% tariff whenimported from Asia through the U.S.) is in the process ofconsolidation.

• The country offers a wide variety of services, including embroidery,industrial laundry, dyeing and finishing, cutting and packing, whichhave been a great support to the manufacturing operations ofcompanies such as HBI, Fruit of the Loom, Adidas and Lacoste,among others.

• The evolution of the manufacturing scheme from "maquila" to "fullpackage" has developed the supply chain through materialsdistribution centers, required for vertical integration andsustainability of the industry.


Investment Opportunities in Specialized Textiles and Apparel:• Manufacture of yarn and fabrics.

• Manufacture of knitted garments with accessories and embellishments (embroidery, screen printing, heat transfers, etc.).

• Manufacture of garments included in the “Single Transformation” category: bras, girl dresses, boxer shorts, sleepwear and luggage.

El Salvador offers attractive tourism projects

in various stages of development that take

advantage of a wide array of attractions

located close to each other (surf spots,

beaches, mountains, lakes, volcanoes).

The country has a historical past inherited

from the Maya, a pleasant climate all year

round, competitive pricing of land, low


round, competitive pricing of land, low

construction costs and proximity to

important markets of origin of international

tourism.

TourismSurf, fishing, adventure tourism and the

Maya world ... all in one place.

El Salvador: Variety of close-by touristic attractions

• Tax incentives regulated by a Law on Tourism.

• Foreign investors have the opportunity of acquiring propertyin their own name.

• Competitively priced land and low construction costs.

• Rapid access to a variety of tourist attractions.

• Short flight times from North and South America.

• The International Airport of El Salvador handles more than470 arrivals and departures every week.

• Pleasant climate all year round.

• Warmth and friendliness in tourist service.


Investment Opportunities in Tourism:• Mixed-use developments .

• Hotels: Urban, Resort, Boutique, Bed & Breakfast, Eco-lodge, Hostels.

• Vacation homes.

• Properties with tourism potential

• Marinas

For companies producing consumer

goods seeking to sell to larger markets,

El Salvador, the ‘logistics hub of Central

America,’ provides air and seaport zones

with tax incentives for manufacturing,

logistics and distribution, becoming a

gateway to U.S., Asian and European

markets.


El Salvador has the infrastructure,

geographical proximity and free trade

agreements to ensure easy and timely

access to large markets.

LogisticsEasy and timely access to large markets.

El Salvador: Strategically located and available infrastructure

• Convenient location: Proximity to the trans-Pacific route (connecting Asia and the Americas); proximity to the Panama Canal (1. 5 days by sea); rapid maritime access to U.S. markets on the East and West coasts; and rapid road access to the Southern and Eastern U.S. markets.

• Maritime infrastructure available to receive large ships: La Union Centroamericana Port with the potential to become the leading container port on the Pacific coast of Central America.

• Land connectivity: The port is located 371 km. away from Puerto Cortes (Honduras Atlantic Coast); 8 hours from the border with Mexico; and 34 hours from the U.S. border (Texas).

• Air connectivity with rapid access to U.S. markets from the International Airport of El Salvador. Approximate flight durations: Miami: 2:30 hours; Los Ángeles: 4:00 hours; Houston: 4:00 hours; New York: 5:00 hours; Panama: 1:30 hours.


Investment Opportunities in Logistics:• Logistics activity zones in the proximity of seaports.

• Airport logistics center

• Distribution centers

Puerto de Acajutla, located in Sonsonate Puerto La Unión, located in La Unión

For companies producing footwear

seeking to sell to larger markets, El

Salvador, the ‘logistics hub of Central

America,’ provides air and seaport zones

with tax incentives for manufacturing,

logistics and distribution, becoming a

gateway to U.S., Asian and European

markets.


38

El Salvador has the infrastructure,

geographical proximity and free trade

agreements to ensure easy and timely

access to large markets.

LogisticsEasy and timely access to large markets.

Footwear

A platform to export to large markets.

Began in the city of Santa Ana with local artisans.

El Salvador:

Footwear Industry

Currently:

� Big companies as ADOC, DURAMAS, CARICIA, GARBAL, exports to United States, Central America and The Caribbean, Europe and Asia.

� 16 small enterprises, primarily produce to the Salvadoran market.

� 390 handicraft workshops producing for the small and large companies located in San Salvador and Santa Ana.

� ASPC: Salvadoran Association of Footwear Producers with 125 companies of La Libertad, La Paz, La Unión, San

2011� Exports: US $42 million (12% annual growth

over the last 6 years -2005/2011-).

� El Salvador has the 26th position as a footwear supplier of the United States. El Salvador exports to the US market grew 28% in 2011. Source: USITC

� The Imports grew by 23% compared to 2010 (US $106 million) and 9% annually in the last


with 125 companies of La Libertad, La Paz, La Unión, San Vicente and San Salvador.

(US $106 million) and 9% annually in the last 6 years.

Services provided by PROESA

� Information on the business climate, economic factors, set-up and operational costs, regulations, availability of human capital and any other information required in the early stages of the evaluation process.

� Personalized attention to specific enquiries.

Informationand Advisory

Facilitates the evaluation process of the country by offering:

Advises international companies on investment opportunities in El

Salvador by providing:

� Information on investment opportunities in strategic industries, as well asincentives and investment advantages of those industries.

� Statistics and customized industry information.

Business Opportunities


Works to identify contacts and locations

for international investors through:

� Finding of specific locations and sites for each project.

� Facilitating contacts of potential partners, government institutions and providers of goods and services including legal, financial, customs, real estate, among others.

� Organization and coordination of customized site visits to El Salvador.

Assists potential and established investors with:

� Integral support on procedures required to establish or expand business operations in the country.

Establishment and Expansion

Assistance

www.proesa.gob.sv


EXPORT AND INVESTMENT PROMOTION AGENCY OF EL SALVADOR

TEL +503 2246 6400

Edificio D'Cora Primer Nivel, Urb. Santa Elena, Antiguo Cuscatlán, La Libertad, El Salvador, C.A.

Presentation El Salvador - University of Economics, Prague

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