Home financing is common in El Salvador and is usually structured from 10 to 15 years. Interest rates hover between 19 and 21 percent, charged monthly on the unpaid credit balance. Down payments range from 15 to 20 percent of the purchase price. All banks lend to construction companies for the construction of housing developments that range in size to 5 to 500 houses.
El Salvador uses the metric system of measurement. Land is generally measured in manzanas (1.73 acres) or varas (.70 sq. meter). Construction values are quoted in square meters.
The Salvadoran socialized medicine system (Instituto Salvadoreno de Social Seguro, ISSS), was established in 1952 to provide hospitals, medicine, and benefits for industrial injury, sickness, accidents, disability, maternity, old age, and death. Good english speaking doctors and dentist work in the country's medical facilities. Many have been educated and trained in the U.S. and Europe.
Education is free in state schools, and is officially compulsory from the ages of seven to sixteen years. Secondary education begins at the age of sixteen and is not compulsory. There is an estimated 3,700 public and private schools in the country. There is one national university and 33 private universities. Official statistics show a 65 percent literacy rate overall, but this figure falls to 40 percent in the rural areas.
El Salvador appears to be headed for real economic growth. The key event was the elections in 1994, which included for the first time the former rebels as a political party, and subsequent peaceful transition into a new government. In spite of El Salvador's war torn past, increased international financing and foreign investment indicate the country is back in business.
With the signing of the Chapultepec Peace Accords in January, 1992, international investors have begun to take another look at this bustling economy.
The economy grew 6 percent in 1994, with solid gains in manufacturing, transport and construction sectors. The trend is expected to continue in the coming years.
Over the past years a market based exchange rate was adopted, coffee, sugar, and cotton marketing monopolies abolished. Most of the banking system has been privatized. The president has also pledged to implement a study by the Salvadoran Foundation for Economic and Social Development (FUSADES) on how to improve economic growth over the next five years.
Inflation has been reduced to around 12 percent, and the International Monetary Fund (IMF) provided the country with a structural adjustment loan of U.S. $25 million. Further IMF financing is being negotiated, and the Inter-American Development Bank recently approved a $225 million loan for the period of 1993-1995.
Made painfully aware by the war
of the importance of social programs, the country
is rebuilding the country's damaged
infrastructure an re-establishing critical social services. In Feb. 1994,
there was an important economic
seminar in San Salvador that
discussed future options for the government..
The guest speakers all agreed on the need for increased government.
spending in education and health. Business leaders
also confirmed that low education levels must be
Generally about one third of all Salvadoran imports come from the U.S.. The Salvadoran market is very receptive to U.S. products.
Important U.S. exports to El Salvador include grain, animal and vegetable oil, processed agricultural products, chemicals, electric machinery, and construction equipment. Excellent opportunities exist for power generation and distribution equipment, machine tools, telecommunications equipment, computers and software, and transportation equipment including buses. One fast growing but very fragmented sector is that of automobile parts and accessories. In 1993, U.S. imports from El Salvador included coffee, shrimp, sugar, melons, and apparel produced in free zones.
A key factor in the Salvadoran market is the direct and indirect influence of the one million or more Salvadorans who live in the U.S.. Word of new products or new U.S. fashion arrives there quickly.
The Salvadoran Foundation for Economic and Social Development (FUSADES) is a private, non-profit, non-partisan foundation created to improve the quality of the Salvadoran life. The foundations Trade and Investment Center (PRIDEX) explains nine reasons why foreign investors should consider El Salvador.
1. The Foreign Investment Promotion and Guarantee Law provides the following benefits...
A. Free remittance of net profits
generated by the investment.
2. The country's minimum monthly wage for a factory worker is around $0.70, including benefits.
3. Companies operating inside a free trade zone are entitled to a 100 percent exemption for 10 years (renewable for another 10) on income tax, equity tax, and import duties on machinery, spare parts, and intermediate goods, etc. 100 percent of production must be exported outside the Central American region for these benefits to apply.
4. El Salvador is trying to attract industry that requires an abundant amount of manual labor, preferably with a high value added. The apparel industry currently accounts for much of the country's investment, but the government is also actively seeking electronic assembly firms and metal mechanics.
6. With an unemployment rate at around 10 percent, there is an abundant force of highly trainable labor.
8. Future legislation could lead to the privatization of currently government owned monopolies, such as the telephone and electric companies, opening the door to foreign investors.
9. Foreign investors who wish to reside in the country must apply for residency. To qualify, investors must have a profession or sufficient resources to devote themselves to financial, industrial, or commercial activities. This permit may easily be requested of the Ministry of the Interior by indicating the reason for residing in El Salvador.
PRIDEX can help facilitate the
process of foreign investment in El Salvador.
Contact them at: Edificio FUSADES;
The majority of banking institutions have been privatized as a result of the banking system's need to support a free market economy. The market sets the rates for literally all banking operations and services, including interest rates on loans and deposits. All legally established banks and finance companies are supervised by the Superintendecia del sistema Financiero, which enacts banking laws, and the Central Reserve, which dictates monetary policy. Funds in El Salvador banks are insured by the government.
Foreigners can open savings and checking accounts in dollars or colones without restrictions. Banks offer the same services as any local or international U.S. bank in four different types of currency Salvadoran: Colones, Guatemala: Quetzals, Honduras: Lempiras and U.S.: Dollars
Financial system reforms have resulted in increased efficiency and have led to the return of the financial system's traditional role of promoting the economic development of El Salvador as a solid and solvent country.
Foreigners can own 100 percent of any legal business without any government intervention. El Salvador's economy, on hold during the civil war, has begun to expand, driven by aggressive economic and social reforms.
Many well established business opportunities in other developing countries still have not reached this small nation. Opportunity abounds in every field from computers to food franchising to manufacturing for export.
11 Steps to establishing a business...
Hire a lawyer to help you with residency procedures. All the necessary documents can be obtained at the Ministry of the Interior. There are four types of residency in El Salvador...
1. Temporary residency, granted to foreigners as a work permit.
2. Permanent residency, granted to foreigners who can prove they have lived in El Salvador for at least five years.
3. Residency as a Financier, (Rentista) granted to retired foreigners with outside income.
The following documentation is required for residency...
For enterprising investors, aware of possible risk in a developing nation recovering from a civil conflict, El Salvador presents a promising investment opportunity. The country invites foreign investment. Its free market economic reforms have considerably enhanced prospective returns for foreign investors,. No expropriation cases are pending.
Foreign investors, in El Salvador are not required by law to operate through a joint venture. Similarly, local management and control are not required by law, but in the country's small and highly concentrated economic environment, local participation is generally desirable for all but major companies with significant overseas experience. Many foreign maquila investments do not have local participation. Promising investment opportunities include; apparel assembly, fruit and vegetable processing, fast food franchises, supermarkets, hardware and building supplies, and auto parts and accessories.
The embassy estimates that in 1993 there was about $40 million of new direct foreign investment. This investment includes equipment for maquila plants, gasoline stations, and terminal expansion for one or more major oil company.
Factors that favor El Salvador for foreign investment include the modern airport with many direct flights to the U.S. daily; A new intellectual property rights law that was enacted in 1993; Reasonable industrial electricity cost of about eight cents per kilowatt hour; and a highway system that is being rehabilitated with the support of loans from the Central American Development Bank.
The tax system is being overhauled to strengthen administration and enforcement, and in Sept. 1992 a new 10 percent value added tax was established, which has been a major source for government revenue.
Also, four additional free zones are being constructed to bolster the country's current four, to ease the import of raw materials needed in the manufacturing process.
Foreigners pay taxes on income earned inside El Salvador, and not from any foreign source.
Income tax for corporations owned by foreigners, either domiciled or not, is 25 percent of the taxable income, with a deduction of approximately $8,600. Natives not residing will pay on the income earned in El Salvador, a rate of 25 percent as income tax.
Trust and successions not domiciled will also pay a tax of 25 percent on the income obtained in El Salvador. Both foreign and domestic corporations also pay a rate of 25 percent.