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Agility for investment

12:36 18 de November de 2021 By Daniel Oiticica

Las inversiones extranjeras directas en 2021, en El Salvador, ya superan el total de 2019, antes de la pandemia. Foto: Fabio Lima

Agility and simplicity is everything that the Government of El Salvador seeks to facilitate investment procedures in the country. At the same time, the objective is to maintain the collection capacity so that the country can continue to grow. In this interview Miguel Kattan talks about the growth of the country, the increase in exports and the great attractions of El Salvador.

Miguel Kattan, Secretary of Commerce and Investments of El Salvador

What is the institutional and executive role of the Secretary of Commerce and Investments of El Salvador?
President Nayib Bukele, from the beginning of his administration, decided to give this role the impetus that investments in our country needed. Thus, the Secretariat of Trade and Investment was created as a new institution in charge of strengthening ties between the government and the private sector, but at the same time generating the conditions to have a true policy of trade and investment facilitation in El Salvador.

International organizations and banks forecast growth for El Salvador above the average for Latin America, and the second highest in Central America. What do you consider to be the highlights of this two-years administration?
The response that the government has had since the beginning of the pandemic, with the strengthening of medium and small companies and the ability of our entrepreneurs to recover from the crisis, with a recovery of 100% of jobs and even an increase compared to pre-pandemic times. The economy is reacting swiftly, and we have increased our exports significantly, as well as the volume of family remittances, an important engine for growth in the country.

In the first quarter of 2021, El Salvador has registered a strong increase in the volume of direct foreign investment, which already exceeds the total invested in 2019, prior to the pandemic. What are the main factors for such a positive result?
Firstly, it has to do with trade facilitation, but also with the fact that it is very easy to invest in El Salvador, because all the rules and laws are in place to do so quickly and efficiently. We no longer have to deal with old problems, with the obstacles that previous governments put up. We have changed the laws to make our country more attractive and facilitate investment capacity.

Which are currently the highlights of El Salvador for foreign investors?
The first thing is the stable currency. Secondly, the ability of our people who are extremely hard-working and, at the same time, learn very quickly. This has allowed us to turn El Salvador into a country where foreign investors have many possibilities for growth. You can see that the products made with Salvadoran labor are going to be of much better quality and that our people are much more productive than in other countries.

Which are government’s strategies to make costs more competitive for investors, without compromising fiscal balance?
The investment costs are closely related to deadlines. For an investor, sometimes it is more important to get return on investment within a short period than the tax benefits they can get. However, we have changed laws to be more effective, which generate significant savings in tax payments. And this does not affect the government’s ability to collect, because they apply to new investment. At the same time, any foreign company that invests has tax benefits. The more they create employment, the higher the tax collection.

What is and how does the “single business window” work, a benefit that very few countries have?
The single business window that the Ministry of Economy has launched is a tool to register a company and do all the procedures that are required in record time. The idea is to ensure that small and medium-sized companies can start their work in an agile and timely manner and be able to comply with the law in the shortest possible time. It works through the website and, in fact, its launching has been a huge success.

In recent years, El Salvador has been managing to diversify its exports. What policies are currently being implemented to further diversify the country’s exports?
Through the Secretary of Commerce, we have been working on the creation of business clusters for different activities. We have created the fashion and aerospace clusters. We are creating the technological cluster and we are also working on the marine cluster. The idea is to be able to build groups of companies that are interested in investing in our country but that, at the same time, can be one another’s suppliers, to promote different activities within the business “task”. The technology cluster has been giving excellent results. We expect to quadruple our production of technology products, mainly chips, starting in 2022.

The free trade zones for manufactured goods are a key element for goods trade. What are the biggest benefits of free trade zones in the present? and are there any plans to expand this area?
Our country is strategically located in the center of the world, very close to the United States and we have an extremely high frequency of sea and air freights. This fact enables El Salvador to have a very beneficial position in nearshoring, the new business vision. Free trade zones have grown significantly. Now everything is produced in the region, from the button, the box, the label, the fabric, it is cut in the country, it is made, packed and dispatched. This is known as full package, and it means added value and new jobs. Now, 100% of our companies work in the full package function. That also allows us to have great benefits in different areas.

The United States is one of the largest commercial partners of El Salvador, the main destination for its exports. How do you assess this relationship, and which are the main strategies to achieve further expansion of this partnership?
El Salvador is not the United States ‘political opponent. We believe that the US government and the El Salvador government are friends, with different ideas and different ways of doing things. But this does not detract from our friendship with the US people and government. Where can we grow towards the US? There are many sectors like plastic, textile, aerospace, aeronautical, shipping, technology, artificial intelligence sectors, such as software and hardware. In addition, we should become one of the main tourist destinations in the US, because we are a country with a stable weather throughout the year. We offer beach and mountain nearby, everything to be able to grow in the tourism, which is one of our great bets as well.

El Salvador has always been known by its support for Free Trade Agreements. How have you been conducting this effort to strengthen alliances and sign new agreements?
We are working on various treaties, mainly bilateral, some short-term and others full free trade. We have this need to attract investors who can open new business fields, but they have to get to know us, and the best way to get to know us is through free and more transparent trade. Through the Secretariat, with the Ministry of Economy and the Ministry of Foreign Affairs, we are working on exploring new niches in this regard.

Recently, you signed a Free Trade Agreement with Korea …
With Korea it is the same: it is a new treaty, and we are exploring this market to see what it has to offer. But also, to attract investors. We are betting very strongly on the possibility of attracting investors in the automotive assembly area, especially in electromobility, to become the country that exports these products assembled in our country, with many local components, to the rest of the Central American region.

You often say that the real changes are to make El Salvador not only the most attractive country temporarily, but permanently. What guarantees can the government give investors that the implemented changes will last in time?
Firstly, laws have been created and more laws are being created to generate stability and security. The second point, and most important, is that we are investing in our people, in education, health and security for the first time in our country. All of our children will receive state-of-the-art computers, with internet connectivity, allowing them to access a new world. This also makes us more attractive, because we will be able to have our new generations with a greater capacity to compete throughout the world. I believe that the most important commitment of President Bukele is to create conditions for equal opportunities. A country’s growth is not their wealthy people’s success. It also means that those who are lower have the opportunity, through their effort and work, to grow and become one day a little more privileged. And this is what is going to make a country more attractive permanently for investments. We are sure that, beyond having the best roads in Central America, we are betting on having the best connectivity in the region. Our goal is that the micro becomes small, the small becomes medium, the medium turns into large and the large into giant.

Which country serves as a growth model for El Salvador?
Personally, the greatest reference is the United States of America, in terms of Economics. The United States has been the largest country, among other things because its founders, the first thing they did was get to a place to establish themselves and build a church, then a school and then they built everyone’s houses, helping each other. We invite all foreign investors to look at El Salvador not as a small country in Central America, but as a large country, with small territory. For the capacity of its people and the effort of a government to grow its businesses and our country.