Motoring to El Salvador

Quote: “We are putting special efforts also in the electronics industry, where El Salvador has demonstrated effectiveness for investments” – Vilma de Escobar, vice-president of El Salvador

El Salvador is on a drive to attract automotive suppliers to set up factories in the country, which has become more competitive with the singing of the Central American Free Trade Agreement or CAFTA.

The country is positioning itself as a cost-effective destination to produce bumpers, brakes, transmission gear boxes, differentials, suspension, shock absorbers, radiators, mufflers, exhausts, steering wheels, harness, safety belts and air bags. Wages in El Salvador for industrial workers is around US$5 a day – substantially lower than wages paid in the US.

According to PROESA, the National Investment Promotion Agency of El Salvador, the economically active population or EAP in 2006, was 2.8 million people. Education is a high priority. About 110 000 students enroll at universities each year. With 5000 students graduating with technical degrees per year, it has a strong technical base

The 2005 Index of Economic Freedom ranked El Salvador as the second freest economy in Latin America and in the 2004-2005 Global Competitiveness Report by the World Economic Forum, the country was listed as the fourth most competitive country in Latin America and 53rd out of 104 economies in the world.

Also in El Salvador’s favor is good infrastructure such as an international airport, paved highways that connect airports and ports. A deep-sea port is being built in La Union, which will be the second-largest in Panama and which will have an overland route to connect it to the Atlantic.
Recently, US-based Saturn Engineering & Electronics, which manufactures electronics, components for fuel actuators or electronic controllers and solenoids and electrical cables and harnesses for batteries for the automotive sector, set up an unit in El Salvador. The company’s initial investment of US$2- million, is likely to go up. “After an exhaustive search of two years, we found in El Salvador competitive and stable labor, a labor market open to foreign investment and government plans and private initiative well focused in investments attraction” said Mario Okubo, Vice President of Operations of Saturn, in a press release.

Automotive Industries spoke to Vilma de Escobar, vice-president of the Republic of El Salvador and asked how she hope to attract more automotive companies to invest in her country.

AI: Why is attracting automotive companies important in the overall industrial development of El Salvador?

De Escobar: The automotive industry is a potential booster for our local companies as it can develop local providers, especially in the metal mechanic and plastic industries that are the main promoters of the diversification of our exports and we are looking at several other initiatives to support them (among these initiatives we have a new Industrial Policy and certain studies that are being made to identify ways to upgrade the competitiveness of these industries).

AI: Have any other automotive companies evinced an interest in setting up units in your country?

De Escobar: PROESA manages a long list of potential investment projects, these are about 130 and out of this, we have contacts from the most important car manufacturers in the world. What is important that we have gained the trust of a Japanese company such as Yazaki.

AI: What kind of foreign direct investment is El Salvador hoping to attract over the next five years and how much do you expect for automotive companies?

De Escobar: El Salvador, and certainly the whole of Central America, is the new third border for US companies. We expect to see more interest from American car manufacturers in our region and especially in El Salvador as it is a dollarized economy with zero devaluation risk, the lowest interest rates in Latin America, a very stable political outlook, and an economy that grows sustained in a well-diversified base of exports and value added products.

Furthermore, we are putting special efforts also in the electronics industry, where El Salvador has demonstrated effectiveness for investments such as the one of AVX Kyocera, a company with almost 3000 employees and 30 years of experience in El Salvador.

El Salvador will also receive important investments related to logistic activities due to the opening of our new post-Panamax port in La Union in 2009 and the Services Law that the government is expected to pass in the next months. This new law will provide incentives for those activities related to the services sector. Overall, the outlook for El Salvador is bright and we fully believe our country, with its people, infrastructure and modernization of public institutions, will be able to account new and more significant investments.