Luis Losada Simón-Ricart is head of Latin America and Iberia at Aperio Intelligence
When Nayib Bukele was sworn in for a second five-year term as El Salvador’s president in June 2024, he promised to translate the country’s improved security situation into economic growth.
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That security situation, combined with Mr Bukele’s high level of popularity and pro-business rhetoric, has led some international companies such as Google to move into one of the poorest — and until 2019, most violent — countries in the Americas. Some analysts have even suggested El Salvador could turn into a new version of Singapore: a one-party state with a free-market economy.
There are, however, numerous risks and challenges awaiting companies interested in entering El Salvador.
Historically, authorities have been accused of showing favouritism to well-connected firms and individuals when awarding contracts though public tenders. Since March 2022 — when Mr Bukele introduced the so-called state of exception regime limiting civil and constitutional rights allegedly to crack down on gangs — the non-governmental organisation Washington Office on Latin America has been raising concerns over significant changes to the public procurement system that reduce controls, independence, transparency and access to information.
Mr Bukele has also been heavily criticised by human rights organisations including Amnesty International and InSight Crime over alleged violations, including arbitrary detention of adults and children, deaths in custody and due process violations.
The government is in negotiations with the IMF for $1.4bn in financial assistance. Meanwhile, the country has pursued other financing alternatives, including a global bond buyback and new debt sale in April — described as “deeply concerning” for its future debt repayment capacity in a report by Barclays investment bank.
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Picking partners
International companies should also choose carefully who they partner with when doing business in El Salvador.
During his presidency, Mr Bukele has confronted and publicly criticised the so-called ruling elite, launching politically motivated investigations against them regarding tax evasion, and closing factories due to alleged violations of Covid-19 labour restrictions. Most recently, in July 2024, he criticised supermarket chains, pharmacies and DIY stores due to their “excessive” increase in prices, promising a crackdown on “corporate mafias”.
El Salvador’s current political and social climate and the president’s hard line on crime and civil liberties are perhaps best illustrated by the appearance of a textile manufacturer’s legal representative at a government press conference in 2020, shortly after his arrest for tax evasion. In a picture posted by the government on its X (then Twitter) account, he was surrounded by police officers carrying rifles while he wore a bulletproof vest and helmet.
After Mr Bukele’s landslide election victory this year, he could potentially continue to portray these companies and their owners as the enemies of the people and, potentially, seize their assets — especially if he fails to secure IMF assistance and cannot pay the country’s debt in the coming months or years.
When assessing business and investment opportunities in El Salvador, companies should also take into account the size of its economy and the fact it still suffers from significant inequality. Some 68.4% of its workforce is in informal employment and its gross domestic product per capita is just $12,650, according to the International Labor Organization and the IMF.
There is always a degree of uncertainty when entering emerging markets and companies should not be fooled by Mr Bukele’s popularity or his rhetoric on social media. El Salvador is unlikely to become Singapore overnight, and companies must assess potential risks and uncertainties accordingly.
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