Due to the dismissal of high ranking officials of the justice sector and the fact that President Bukele has strained his relationship with Washington, Salvadoran businessmen foresee an uncertain future for US investments that may come to the country.
After the dismissal of the magistrates of the Constitutional Chamber and the Attorney General in El Salvador, the business sector affirmed that this situation was "facts that consolidate an attack against democracy and threaten the liberties of Salvadorans."
Because of the economic crisis, Foreign Direct Investment flows have practically vanished, and in order to attract the few investments that are projected for next year, countries are expected to compete by offering incentives and aid programs for businesses.
The covid-19 outbreak dissipated the investment intentions of companies globally. At the beginning of the fourth quarter of the year, there are signs that business confidence has begun to recover; however, pessimism among investors is expected to continue next year.
The health and economic crisis will result in a reordering of foreign investment at the global level, and countries like Central America will have the opportunity to take advantage of their geographical position to attract fresh capital.
The outbreak of covid-19 worldwide will cause a drop in production in 2020, however, by 2021 and 2022 the forecasts of international organizations anticipate that economic activity could rebound, a rise that would be coupled with new investments in various markets and sectors.
Panama and Honduras were the only two Central American countries to report increases in foreign direct investment in 2018 over the previous year, with year-on-year changes of 36% and 3%, respectively.
The growth of investments directed to Panama, which concentrated 51% of the sub-regional total, explained the increase that was reached in 2018 in Central America (9.4%), since except Panama and Honduras, the Central American countries received less Foreign Direct Investment (FDI) than in 2017, explains the report "Foreign Direct Investment in Latin America and the Caribbean 2019", produced by the Economic Commission for Latin America and the Caribbean (ECLAC).
Because of higher dividend repatriation and lower reinvestment of earnings, Foreign Direct Investment flows reported during the first quarter of the year totaled $177 million, 55% less than in the same period in 2018.
Central Reserve Bank (BCR) figures detail that between January and March 2018, and the same period in 2019, the attraction of Foreign Direct Investment (FDI) was reduced by $224 million, falling from $401 million to $177 million.
The interest in the local and regional market, and the search for efficiency mainly in labor costs, are the factors influencing foreign companies to decide to invest in El Salvador.
A study by the Central Reserve Bank (BCR) Researchers Network, called "Characterization and Determinants of Foreign Direct Investment in El Salvador", analyzes the factors motivating foreign companies to invest in the country.
From March 28th to 30th potential international investors will learn about public and private projects in infrastructure, tourism, energy and industrial development.
From a statement issued by Proesa El Salvador:
The country will open the first International Investment Forum El Salvador 2017 and present the Country Brand for El Salvador on March 28, reported officials this morning from the Agency for Promoting Export and Investment in El Salvador (PROESA), during a press conference.
Insecurity and high political uncertainty are preventing growth of private investment in the country, increasing the gap with the rest of Central America.
From the study by Fusades:
One sentence summarizes why at FUSADES we have always been interested in the theme; "Without investment, there are no new jobs, and welfare is reduced."In El Salvador, worryingly, the average annual investment rate of 14.1% as a percentage of GDP has been decreasing from 2010 to 2015; in that period, Central America recorded 24.2% of GDP, 10 GDPpoints more than in our country.In the region, we share similar problems and opportunities, but every country has performed better than us, and we occupy the dishonorable last position.In this regard, dollarized Panama has become the example to follow because of its agenda of international integration and the reforms it implemented, raising investment to 44.3% of GDP and it is one of the fastest growing economies in the world; Nicaragua is ranked second and having recorded an average investment of 29%, despite problems in its institutions; while Guatemala, with 14.1% has similar rate to El Salvador, with which we share some problems such as high corruption, insecurity and drug trafficking.
A third and final call has started for companies and investors interested in participating in the development of projects in the program 'Apuesta por InversionES'.
Applications are open for national and international companies with the financial capacity to invest anywhere in the country.
Elsalvador.com reports that "...Interested investors should do so in a new project or expansion of an existing one in the category of tradables, which includes goods or services that can be traded internationally, said a statement issued by Fomilenio II.These are projects that can be set up in any part of the country, with a minimum investment of $100,000 by the applicant. "
Determinants of investment, committed figures, and key economic sectors in the region in which Colombian companies have ventured into in recent years.
From the summary of the document by Cepal: "Colombian Investment in Central America":
The main objective of paper on Colombian investment in Central America is to analyze the business strategies that have led to increased Colombian foreign direct investment (FDI) in Central American countries.
A bill introduced by the government intends to streamline access to the Panamanian market for foreign companies in the provision of maritime auxiliary services.
Excerpted from the bill introduced by the government of Panama:
Law 41 of June 14, 2013, through which reform is made to Law No. 8 of 1998 is amended by Decree, Act 56 of 2008 and Act 57 of 2008 which dictates other provisions on the work at sea and on waterways, significantly restricting access to the Panamanian market to foreign investors in the provision of maritime auxiliary services in the Republic of Panama.
Of the $34.095 billion in Foreign Direct Investment in Central America which arrived in the last 4 years $21.925 million left the region in the form of expenses.
The information comes from a report by the Central Institute for Fiscal Studies (ICEFI), which reveals that the most affected country is Guatemala, where outflows were 1.3 times more than income.
Honduras, Guatemala, Nicaragua and El Salvador attract investment based on the exploitation of natural resources and unskilled, but cheap, labor.
A report by the Central American Institute for Fiscal Studies (ICEF), reveals that Central America recorded last year $9.70 billion in foreign direct investment (FDI), with Panama and Costa Rica being the recipients of about 60% of these flows.
$500 million is the estimated amount that has not been invested due to bad business climate, poor image and lack of institutional credit, which frightens investors away.
These are the indications of the economist and former president of the Central Reserve Bank, Mauritius Choussy: "In four years, the amount lost adds up to $2 billion, which could have generated more than 150,000 jobs.
Lack of policies for attracting investment and the climate of insecurity both legally and for citizens is scaring away local and foreign investors.
In terms of Foreign Direct Investment (FDI), this barely grew, by $22 million, during 2012, closing with $463 million while the previous year it had been $441 million.
"A recent report by the Economic Commission for Latin America and the Caribbean (ECLAC) specifies that the balance of private foreign investment at the end of last year was $516 million, while in 2011 was only $385," reported Elsalvador.com. Although it was $130 million (34%) more than the amount of investment in the previous year, El Salvador was placed, for the fourth consecutive year, among the countries with the lowest FDI inflows in Central America.