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."
Due to the precariousness of the English language, in recent years’ companies in the Contact Center & BPO sector have decided to close thousands of jobs in the region and relocate their investments to other markets where they have no difficulty in recruiting qualified personnel.
Reports at a global level show that the command of English is one of the weaknesses at a Central American level.
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.
After the first semester of 2018 reported a 29% year-on-year fall in the flow of Foreign Direct Investment, in the period from January to June 2019 the increase was 52%.
During the first semester of 2019, El Salvador received $435.9 million in net Foreign Direct Investment (FDI), which allowed it to surpass by far the historical average of the last ten years, informed the Central Reserve Bank.
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.
Last year, foreign direct investment in the country reached $1.855 million, 5% more than in 2017, mainly because of the behavior of industrial and commercial activity.
The industrial sector maintained its leadership as the sector with the highest net foreign direct investment, recording a net amount of $579.6 million, which results in a 28.6% growth, and represented 69% of the total net flow, explains a report from the Central Reserve Bank (BCR).
Despite the location and the fiscal benefits that in some cases the countries of the region offer, the lack of education of the population will be the main barrier to continue attracting large investments.
The lack of guarantee of finding the competent and sustainable human capital necessary for the proper operation of companies is an issue that negatively influences the attraction of important investments in Central America.
During the first nine months of 2018, Foreign Direct Investment flows to the country totaled $457 million, almost 5% more than in the same period in 2017.
From the Central Reserve Bank statement:
At the end of the third quarter of 2018, increases in foreign direct investment (FDI) totaled US$1,221.8 million, reflecting a 24.1% increase (US$237.2 million) over the previous year.
Partly explained by the regimes created to encourage investment in different sectors, countries in the region went from receiving $11 billion in 2016, to $12.1 billion last year.
According to a study by the Center for Economic Integration Studies, in 2017 inflows of Foreign Direct Investment (FDI) in the region reached a record figure of $12.083 billion, registering an increase of 9.8% compared to 2016.When analyzing the period from 2010 to 2017, it can be seen that the inflow of FDI has increased considerably, showing a growth rate of 7.9%.
During the first semester of 2018, direct foreign investment received by Salvadoran industry grew by almost 40% over the same period last year.
During the first quarter of 2018, Net Direct Foreign Investment increased by 42%, amounting to US $238.8 million.Gross entries totaled US $380.6 million, while gross outflows decreased by 34.4%, reaching US $141.9 million.
In the first quarter of the year, foreign investment flows received in El Salvador grew by 42% compared to the same period in 2017, rising from $168 million to $239 million.
The Central Reserve Bank reported that from January to March of this year "...Net FDI was concentrated in four strategic sectors: industry, electricity, communications and trade, with investment flows channeled in the form of inter-company loans and reinvestment of profits."
Figures from Funde detail that last year FDI totaled $445 million, and in March 2018 economic activity grew by 2%.
The National Development Foundation (Funde) presented the results of the report "Economic and fiscal situation 4th year of the administration 2014-2019", and among the main conclusions of the study is that "...El Salvador remains behind as a recipient of resources Direct Foreign Investment in Central America, even though Guatemala and Nicaragua had falls in net inflows in 2017."