1.2.2.- El Salvador

Figure 1.3 Country map El Salvador.

1.2.2.1.- General facts

Official name: Republic of El Salvador

Capital: San Salvador

Name
The country was named after the Spanish word for ‘The Saviour’, in honour of Jesus.

Time
Six hours behind Greenwich Mean Time (GMT -6)
The Netherlands: daylight saving time = GMT +2, winter-time = GMT +1

1.2.2.2.- Geography

Location
El Salvador is located on the Central America isthmus and lies between 13°00'-14°30' northern latitude and 87°30'-90°15' western longitude.

Borders
Guatemala to the west (203 km), Honduras to the north and east (342 km) and the North Pacific Ocean to the south (307 km); El Salvador is the only Central American country without a coastline on the Caribbean Sea.

Area
21,040 km2 (20,720 km2 of land and 320 km2 of water); after Belize the smallest country of Central America.

Altitude
The lowest altitude level in the country is the Pacific Ocean at sea level; the highest point is Cerro El Pital, a volcanic mountain with an elevation of 2,730m. The capital San Salvador has an altitude of 682 meters.

Characterization
Two parallel mountain chains, which cross El Salvador from east to west, split the country in two, with a central plateau between them and a narrow coastal belt along the Pacific. The mountain chains and central plateau cover 85% of the land and comprise the interior highlands. The remaining coastal plains are referred to as the Pacific lowlands.
The northern range of mountains, the ‘Sierra Madre’, forms a continuous chain along the border with Honduras, with altitudes ranging from 1,600 to 2,200m. Deforestation and overexploitation led to erosion. At present the land is scarcely populated, with little farming or other activities.
The southern range of mountains is a discontinuous chain of more than twenty volcanoes, clustered into five groups. The volcanic soil between the volcanoes is rich, and much of El Salvador's coffee is planted on these slopes.
The central plateau constitutes only 25% of the land area but contains the heaviest concentration of population and the country's largest cities, including the capital San Salvador. The plain is about 50 kilometres wide and has an average altitude of 600 meters.
The coastal plain has a width ranging from 1 to 32 km, with the widest section in the east near to the Golfo de Fonseca and the narrowest section at the department of La Libertad.

1.2.2.3.- Recent history

During the 1970s, the political situation began to unravel. With the presidential election of 1972, the opponents of military rule united under José Napoleon Duarte, leader of the Christian Democratic Party (PDC). However, due to widespread fraud, Duarte's reform movement was defeated. Subsequent protests and an attempted coup were suppressed. By 1979, leftist guerrilla warfare had broken launching what became a 12 year civil war.
On October 15, 1979, the Revolutionary Government Junta (JRG), a group of military officers and civilian leaders, ousted the right-wing government of the President, General Carlos Humberto Romero. Under pressure from the U.S. to institute economic and human rights reform, the Junta named Duarte as president in 1980. Although a small land-reform program was begun, fighting continued, as did rightist executions. The U.S., charging that the five guerrilla movements unified under the Farabundo Marti National Liberation (FMLN) were being helped by Nicaragua, Cuba, and the Soviet Union, increased its military and economic aid to the Salvadorian rightist government, which were actually responsible for torturing and killing innocent people. In a 1982 election, a constituent assembly was chosen to draw up a new constitution. Ostensibly the reforms strengthened human rights, but the terror campaign continued and thus the changes did not satisfy the guerrilla movements.
In 1984, Duarte won the presidential election against the rightist Roberto D'Aubuisson of the Nationalist Republican Alliance (ARENA), and became the first freely elected president of El Salvador in more than 50 years. In 1989, ARENA's Alfredo Cristiani won the presidential election and marked the first time that power had passed peacefully from one freely elected civilian leader to another. In the same year, Cristiani attempted to begin negotiating with the FMLN to end to the war, but with no result. During the FMLN’s November 1989 offensive six Jesuit priest, who were leading intellectuals and friends of the president, were murdered. The United Nations mediation of 1990 finally led to a final agreement (‘Chapultepec Peace Accords’) on January 16th, 1992 after which the FMLN commenced as a political party only. The most recent presidential election was held on 21 March 2004, resulting in the election of Tony Saca of the ARENA party.
In the 1994 the FMLN was recognized as a legitimate political party and allowed to participate. Arena retained the presidency, along with control of the legislature and the vast majority of municipalities. Although the FMLN came second in both the presidential and the legislative elections, it was unable to exert much influence in opposition, as several smaller parties supported Arena. Arena has since maintained its grip on the presidency and won the most recent presidential election for a fourth consecutive term, but the FMLN has increased its representation in the Legislative Assembly and in the municipalities.
In the period after the civil war, El Salvador was struggling to cope with growing gang violence as a result of ongoing social unrest, economic devastation from the civil war, and breakdown of social structures. Agriculture is one of the sectors of the economy that was most affected by the civil war. Therefore, one of the biggest social problems in post-war El Salvador has been rural unemployment. This has been the explanation for increased migration to the cities and to other countries, especially the United States. Unofficial estimates say that the United States is the home of around 2 million Salvadorans.

1.2.2.4.- Social aspects

Population

Development
Human Development Index (HDI): 0.729 (rank 101) (2006)
Human Poverty Index (HPI-1): 15.7% (rank 32) (2006)             (See Appendix C, Table c.1)

Working Population
Unemployment rate : 6% (2006 est.)
Composition : 17.1% Agriculture; 17.1% Industry; 65.8% Service (2003 est.)

Immigration / emigration
During the civil war of the 1980s, emigration started to increase and remains high. Emigration was also spurred by earthquakes in 2001 and severe drought in rural eastern areas of the country in that same year.

Social stability
Rural to urban migration within El Salvador has also continued, forced by the earthquakes, as damage occurred in poor rural areas and many residents lacked the funds for reconstruction. The decline in recent years of the coffee industry has played a large part in migration to the cities, as many rural dwellers had relied on seasonal employment in the industry for cash income. In 1950, 64% of Salvadorans lived in rural areas. By 2000 the proportion had fallen to 41%.

1.2.2.5.- Safety

Poor law enforcement and high poverty rates make crime a vast problem in El Salvador’s metropolitan areas. Throughout the post-war period, El Salvador has experienced a sharp increase in organized and common crime. The problem has been made worse by an increase in homelessness in the wake of earthquakes in early 2001, and by an increase in street gangs (‘maras’), formed by disaffected, unemployed youths. Police officials estimate that these gangs have as many as 30,000 members in total.
Whereas businesses and foreign enterprises are not specifically targeted, crime does pose a threat to personnel and property. Therefore, private security agencies have grown rapidly. The most common crimes are armed assaults, burglary, kidnappings for ransom, homicides and vehicle theft. There is an abundance and frequent use of guns, a remaining of the civil war years.
Organised crime is a serious problem in El Salvador, as is corruption in the police force. Some drug-trafficking occurs, although more frequently the main activity of organised gangs is kidnapping. Theft of lorry loads, with stolen goods ending up for sale both in informal street markets and in larger stores, is also an increasing problem. Money-laundering is generally regarded as widespread.
In August 2004 amendments of existing criminal laws were approved. The amendments have provided the police with far greater powers of arrest and detention than at any time since the end of the civil war in 1992. In February 2005, Arena managed to pass an amendment to the gun-ownership law, another step in the government’s anti-crime policy. In October 2006 the Saca government proposed further anti-crime legislation, given a continued rise in crime rates.

1.2.2.6.- Political aspects

Form of state
Unitary Republic with a Legislative Assembly

Constitution
El Salvador’s present constitution has been in force since December 1983.

Executive power
The executive power is formed by the President, which is elected for a period of 5 years, without a re-election possibility. He is supported by a Vice-President and a Cabinet of 13 Ministers.

Legislative power
The legislative power is constituted by a single chamber, the Legislative Assembly (‘Asamblea Legislativa’), consisting of 84 Parliament Members, elected for a period of 3 years and with the possibility of immediate re-election. 20 Parliament Members are elected nationally, 64 are elected locally.

Judiciary power
The judiciary power is subdivided in civil, criminal and special courts. Judges are appointed by the ‘Asamblea Legislativa’ and are eligible for re-election. The highest judiciary power is in the hands of the Supreme Court, of which the judges are selected by the Legislative Assembly.

Main political parties
Government: Alianza Republicana Nacionalista (Arena)
Opposition: Frente Farabundo Martí para la Liberación Nacional (FMLN); Partido de Conciliación Nacional (PCN); Partido Demócrata Cristiano (PDC); Centro Democrático Unido (CDU)
Political stability
Political stability and absence of violence indicator (PV): -0.14 (2005)
(See Appendix A, table a.1)
Since the end of the civil war in 1992 armed conflict and political violence has been low in El Salvador. The FMLM (comprising of four former guerrilla movements) has been fully integrated into the country’s democratic institutions. Furthermore, a long-standing border dispute between El Salvador and Honduras ended in 1992 with the acceptance of a ruling by the International Court of Justice in The Hague. Political campaigning often creates a tense political environment, and in the run-up to elections public protests and violence between supporters of the major political parties are common.

Effectiveness
Government effectiveness indicator (GE) : -0.30 (2005)
Regulatory quality indicator (RQ) :  0.12 (2005)
(See Appendix A, table a.2)

Corruption
Control of corruption indicator (CC)            : -0.39 (2005)
Corruption Perception Index (CPI)            :  4.0 (rank 57) (2006)
(See Appendix A, table a.3 and Appendix B, table b.1)

1.2.2.7.- Economic aspects

Currency
On January 1st 2001 a de facto fixed exchange rate was forced by law and the US dollar was introduced as legal tender.

Developments

In the past 30 years, El Salvador’s economy has been transformed from an economy mainly based on agriculture, to a largely industrial and service-based economy. This development took place due to fluctuation of the international coffee prices, the main agricultural export product of El Salvador, which made the government decide to implement economic policies to stimulate the growth of non-traditional exports. Nevertheless, agriculture remains an important branch as about one fifth of the working population is employed in the sector. Furthermore, agriculture contributes to about one third of revenues from export (e.g. coffee and sugar) and provides in food for the majority of the population.

A solid Salvadorian economy was created during the last decade by the government policies focused on economic reforms, i.e. liberalisation of local trade, labour and financial market; privatisation of several government monopolies; foreign investment in ‘manufacturers’; and introduction of the U.S. Dollar currency (January 2001) created the conditions for a strong recovery of the economic collapse during the civil war period and turned El Salvador’s economy into the most open economy of Central America.
Improved trade relations with several countries (e.g. U.S.A., Mexico, Chilli, Panama, Guatemala, and Dominican Republic) benefited the economic growth. El Salvador's economic development has therefore mainly relied on the income provided by exports. However, the foreign currency coming into the Salvadoran economy has not been able to keep up with the value of the goods imported by Salvadorans, which caused a growing deficit in the trade balance.
El Salvador’s largest source of foreign exchange, and a main driver of the economy, continues to be remittances from Salvadorans working abroad. An increase in remittance inflows has combined with a rise in rural to urban migration, the result of a shift in employment from traditional agriculture to industrial and services sectors, to produce a large urban informal sector.
During the years 2003 and 2004, the annual economic growth has slowed down. The declining growth in these years is partly due to a high import tendency and an over-reliance on the growth of export sectors. Nevertheless, 2005 and 2006 have shown recovery of the economy while the year 2007 seems to confirm this trend.

Foreign investment
FDI to El Salvador averaged US$ 340 million in the period 1997-2006. 2005 was a particularly good year with a total of US$ 517 million.
The government has concentrated more and more on attracting foreign investment, especially investments in ‘maquillas’, which are now the country’s largest export-goods earner. While the Salvadorian government considers foreign investment to be crucial for the economic growth of El Salvador, a number of changes in law were implemented to create a friendly investment environment for foreign enterprises. One of these amendments is the so called ‘investment law’, which guarantees equal treatment of local and foreign companies and ensures absence of major barriers in order to facilitate the start up of a company in El Salvador.
Furthermore, the DR-CAFTA free trade agreement with the U.S.A., which came into effect in March 2006, is expected to increase the foreign investments in El Salvador. Statistics from the Salvadorian Central Bank shows that this is actually the case for the recent year.

Free trade zones
At the moment there are 18 Free Trade Zones (‘Zona Franca’) located in El Salvador:

El Pedregal Zona Franca, Export Salva Free Zone, Lido Free Zone, Parque Industrial La Concordia, Zona Franca El Transito, Zona Franca 10, Zona Franca American Park, Zona Franca Calvo Conservas, Zona Franca El Progreso, Zona Franca Internacional, Zona Franca Miramar, Zona Franca Pipil, Zona Franca San Bartolo, Zona Franca San Marcos, Zona Franca Santa Ana, Zona Franca Santa Lucia, Zona Franca Santa Tecla, Zona Franca Santo Tomas

(For more information: http://zonasfrancas.net/zonas.php)

Regional development
El Salvador is a small, densely populated country. The greater San Salvador metropolitan area has swollen with internal migration since the 1980s, as peasants have been driven out of rural areas by war and the decline of export agriculture, and more recently by natural disasters including drought, Hurricane Mitch in 1998 and the earthquakes of early 2001. The eastern provinces in particular have suffered from a lack of infrastructure development and from a harsh climate. Farmers in the depressed eastern half of the country have suffered in the past few years from low annual rainfall. The insufficient rainfall led to food shortages in 2002.
The Saca government has continued the commitment of its predecessor to the rejuvenation of the impoverished eastern provinces, particularly La Unión, through the attraction of FDI inflows into rebuilding infrastructure, particularly the seaport at Cutuco.

1.2.2.8.- Fiscal aspects

Tax system
Table 1.5 shows the tax rates in El Salvador. In the ease of doing business ranks, El Salvador occupies the lowest rank of ‘Paying taxes’ in Central America (rank 101 in 2008). 

1.2.2.9.- Invesment capital

Availability and capital guarantees
Capital has been a major restraint for development of primarily non-traditional crops due to the lack of interest from commercial banks for this sector. Official rates are:

Lending rate: 6.9% (2005)
Deposit rate: 3.4% (2005)

As a result of efforts from both the private as the public sector, the agricultural sector is gaining more attention and is regarded as a target sector to be developed. Due to political and economic developments, the private sector has regained its confidence in especially the production of non-traditional crops. This confidence is stimulated by government policy aimed at development of rural areas and export of agricultural goods. Due to the change, banks have started to become more interested in this sector as well. Loans are easier to obtain and interest rates are within acceptable margins, especially compared to other Central American countries which are not dollarized. The recent acquisition of various Salvadoran banks by international financial institutes like HSBC can facilitate the entrance of foreign investors in the Salvadoran agricultural sector even more.

1.2.2.10.- Infraestructure and communication

Roads
About 3000 km (30%) of the road network in El Salvador is paved (concrete or asphalt).
The condition of El Salvador’s two main highways, the Pan American Highway (which crosses the country from the Guatemala border in the west to the southern Honduras border) and the ‘Carretera Litoral’ (running along the Pacific coast), has been affected by frequent natural disasters but has been repaired and is in good condition. Secondary and rural roads can be impassable during the six-month rainy season from May to October and urban areas are facing the growing strains of traffic jams.
In 2002 the ‘Fondo de Conservación Vial’ (road maintenance fund, financed by a patrol tax) was implemented. With this fund, private companies are contracted to refurbish the road network. The construction of a ring road around El Salvador is continued to reduce the traffic jams in the city (project of 10 years) and is financed with the assistance with the Inter-American Development Bank.

Airports
The international airport of El Salvador is located at Comalapa, about 42km from San Salvador. The airport is managed by the CEPA (‘Comisión Ejecutiva Portuaria Autónoma’ or Independent Executive Harbour Commission), the government body responsible for the management of harbours and airports. Every year about 2 million passengers make use of the airport. Airfreight is, due to the lack of carriers and adequate cooling facilities at the airport, a problem.

Harbours
El Salvador has no direct access to the Caribbean Sea, but only to the Pacific Ocean. The only operational harbour at the moment of El Salvador is the Acajutla harbour, located at 85km from San Salvador. The harbour is currently managed by the CEPA, but is in the process of privatisation and modernisation.
The Cutuco harbour in La Unión at the Golfo de Fonseca was closed in 1996 and is being renovated and restructured with funds from the Japanese development aid fund (JICA) and the Central American Bank for Economic Integration (BCIE). It is supposed to become El Salvador’s second main harbour.
The import from Europe mainly takes place through the Santo Tomás harbour in Guatemala. Access to the Caribbean Sea is also possible by using the harbour in Puerto Cortez, Honduras.

Railroads
The network covers about 550 km connecting major cities (San Salvador, Santa Ana, Acajutla, Sonsonate, Soyapango, Zacatecoluca) but since October 2002, no trains are running anymore. However, now that the Acajutla and Cutuco harbours are being modernised, plans are being developed to modernise the railway connections as well, with possibly a connection to the international airport.

Telephone
Telephone mainlines : 131 /1,000 people (2006)
Cellular subscribers : 271 /1,000 people (2006) (See Appendix C, table c.1)
In 1998, the country's telecommunications has been privatized. At least 17 companies offer fixed and wireless telephone services, data, voice, video, cable TV, Internet connectivity, and public and private regional networking.
Nine companies participate in the land-line sector, with America Movil (Mexican) leading the way. On the wireless side, four mobile operators are aggressively competing in the market. A Panamanian-Salvadoran consortium was recently reported to be the new entrant in mobile services with an investment estimated at US$50 million to provide digital radio and GSM mobile telephone services with ISDN technology.

About 70% of the telephone lines in El Salvador are in the capital San Salvador. At the moment, El Salvador commands the largest mobile telephone market of Central America. Consequently growth in fixed-line services has slowed dramatically.

Internet
Internet users: 87 /1,000 people (2006) (See Appendix C, table c.1)
During the civil war, leftist Guerrillas often attacked telecommunications targets in order to weaken the strength of the right-wing El Salvadoran government militias. Therefore, the rebuilding of telecommunication infrastructure, a necessity for access to the Internet, has characterized the years following the war. The urban concentration of El Salvador's telephony in San Salvador is also a weak link in the internet chain. Without telephone lines that run to non-urban areas a comprehensive network cannot be attained.
Internet usage has risen rapidly in recent years from 54,250 Internet subscribers in 2000 to 117,495 in 2004. There are several Internet service providers (ISPs). As Internet cafés have sprung up outside the capital into the provinces, Internet penetration has risen sharply, from 23.4 users per 1,000 people in 2001 to 87 users per 1,000 in 2004.

Electricity
The production sector for energy in El Salvador is dominated by the Comisión Ejecutiva Hidroeléctrica del Rio Lempa (CEL), the body responsible for electricity generation and development of energy resources. Before 1999, the CEL was a Government division, but has partly privatized thereafter. Business and consumers complain that the part-privatisation never led to the promised fall in electricity prices.
With no known deposits of petroleum or coal, El Salvador’s only energy resources are hydroelectricity, geothermal power and firewood. About 50% of El Salvador’s electricity generating capacity is accounted for by 4 hydroelectric power stations. A fifth station is under construction and will in the future contribute to 15% of the country’s power generating capacity. The remaining of El Salvador’s energy consumption comes from oil imports.
The need for a national energy policy for the next decade has become more urgent following the sharp rise in oil prices. The government is aiming to produce an energy policy that takes the country’s geothermal and hydroelectric resource potential into account, creates energy-saving measures and analyses the possibility of importing natural gas as an alternative fuel source.

1.2.2.11.- International trade agreements

Multilateral Agreements

Customs Union

Free Trade Agreements

Partial Preferential Agreements

(For more information: http://www.sice.oas.org/ctyindex/SLV/SLVagreements_e.asp)

1.2.2.12.- Labour

Availability
El Salvador has a potential work force of over 2.6 million persons. Salvadorans are said to be ‘the Chinese from Central America’ referring to their dedication, their motivation and their preparedness to be trained and to succeed in what they are doing. Middle management is still hard to find due to the lack of adequate education. 

Quality
In El Salvador only a few percent of the GDP is used for education policies. Although the public education of El Salvador is free, the number of private schools is increasing (especially in the urban areas) as the quality is considerably higher. However, in recent years the government has gradually increased the budget for education and new policies are being implemented (e.g. increased period of compulsory education, improved access to primary education, improved infrastructure of the education system).

Minimum wages

Labour unions
Salvadoran law has never permitted Labour Unions in the public sector but this is about to change. Unions in the private sector do exist.
Source: EIU

Public holiday
January 1st; January 16th (Peace Day); Maundy Thursday, Good Friday and Easter Sunday;  May 1st (Labour Day); early August (San Salvador Day); September 15th (Independence Day); October 12th (Columbus Day); November 2nd and 5th; December 24th and 25th.

1.2.2.13.- Climate and natural resources

Climate
El Salvador has a tropical climate with pronounced wet and dry seasons. The rainy season extends from May to October. Almost all the annual rainfall occurs during this time. Rainfall during this season generally comes from low pressure over the Pacific and usually falls in heavy afternoon thunderstorms. From November through April, the northeast trade winds control weather patterns. During these months, air flowing from the Caribbean has released most of the precipitation while passing over the mountains in Honduras. By the time this air reaches El Salvador, it is dry, hot, and hazy.
Temperatures vary primarily with elevation and show little seasonal change. The Pacific lowlands are the hottest and most humid region, with annual averages ranging from 25°C to 29°C. Mountain areas are the coolest, with annual averages from 12°C to 23°C and minimum temperatures sometimes approaching freezing.
El Salvador lies along the Pacific ring of fire and is thus subject to significant tectonic activity, including earthquakes and volcanic activity. El Salvador's position on the Pacific Ocean also makes it subject to severe weather conditions, including heavy rainstorms and severe droughts, both of which may be made more extreme by the El Nino and La Nina effects (in the summer of 2001, a severe drought destroyed 80% of the country's crops, causing famine in the countryside; In October 2005 severe rains resulted in dangerous flooding and landslides). El Salvador's location in Central America also makes it vulnerable to hurricanes coming off of the Caribbean, however this risk is much less than for other Central American countries like Nicaragua, Honduras and Guatemala.

Average climate of San Salvador
Hottest month : May (average 19-33°C)
Coldest month : December (average 16-32°C)
Driest month : February (5mm average rainfall)
Wettest month : June (328mm average rainfall)

Arable and permanent crop land as percentage of land area is 38% (Source: www.fao.org/trade/docs/FAO-Small.htm).

1.2.2.14.- Subsidies and development programs

El Salvador provides no direct subsidies on sectors and/or crops included in this market study but plays a rather proactive role. The Dutch EVD has the programs PSOM, Matchmaking Facility, CPA, PSB and PESP available for El Salvador (see Appendix G).

1.2.2.15.- Agricultural sector organization and trade promotion

Agricultural sector organizations
The agricultural sector as described in this report is small. More extensive crops like coffee are present in large acreages but production of fruits, vegetables and ornamentals is limited. Therefore, no private sector organizations as such exist. Proesa and Exporta are the main organisations taking care of the interest of export companies and foreign investors, together with Coexport. It can be concluded that the interests of the sector are being taken care of in a proactive and professional way by mentioned organizations with. There is strong support from the government to attract foreign investment and to increase exports. El Salvador is a business minded country where priority is given to economic development in order to create a sustainable basis for the future.
The ornamental sector in El Salvador has an organization set up between the country’s ornamental producers (Exporplant) but has no real active agenda.

Ministry of Agriculture
The Ministry of Agriculture in El Salvador is redefining its role and implementing systems to create competitiveness of the Salvadoran agricultural sector. A project supported by the IADB is likely to be executed in 2007 / 2008 to stimulate this objective with external consultants. The role of the Ministry as far as the Phytosanitary Service is concerned, is widely considered as positive and regulations for imports and exports are without too much bureaucracy.