Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
The most common challenges that U.S. companies experience in El Salvador include an unpredictable regulatory environment, lengthy permitting procedures, and customs delays. The business sector remains concerned about the country’s fiscal outlook, corruption, security, and rule of law.
Many regulations are approved with limited to no public consultation period. The Administrative Procedures Law in El Salvador mandates a 15-day notice and comment period for private sector contribution to regulation development. However, not all government entities comply and there is no single website or standardized process for providing notice and soliciting comments on proposed regulations and reforms.
Market entry requirements for importing goods and services are often related to environmental controls, consumer protection, and controlled products. U.S. and local companies have raised concerns about customs and non-tariff barriers, including customs valuation, tariff code reclassification, labeling requirements, and the inconsistent application of customs regulations. However, the National Trade Facilitation Committee, reactivated under the Bukele Administration and in conjunction with the private sector, has identified measures intended to simplify customs procedures, reduce costs, and improve the process for moving products through some border crossings. In October 2021, the Salvadoran government announced it would proceed with Customs Union implementation with Guatemala and Honduras, which is another positive step forward for facilitating the movement of goods across borders.
El Salvador’s economy rebounded with a 10.8% GDP growth rate in 2021 but is expected to grow by only 2.4% in 2022 and 2% in 2023, according to the World Bank. Unsustainable public finances and a growing public debt to GDP ratio are major risks to the economy and creates uncertainty regarding El Salvador’s ability to cover its debt payments. The government’s bitcoin investment and limited scope for local and international market financing negatively influence risk assessments.
Corruption remains a problem in El Salvador, which scored 34 points out of 100 and ranked 115 out of 180 on the 2021 Corruption Perceptions Index reported by Transparency International, which scores countries on their perceived levels of corruption. Soliciting, offering, or accepting a bribe are considered criminal acts, and U.S. companies doing business in El Salvador are subject to the United States Foreign Corrupt Practices Act (FCPA).
El Salvador’s procurement law calls for competitive contracts and applies to all Salvadoran public institutions. The procurement process is decentralized; each government agency is responsible for promoting and awarding contracts. There is no electronic contracting platform, only an electronic notification system for companies registered online as providers at Comprasal, which is open to U.S. companies. Procurements are sometimes posted without sufficient advance notice, with short timelines to submit tenders, and the results are not always transparent. Technical specifications are occasionally tailored in a way that favors one over another.
In March 2022, the Legislative Assembly approved the State of Emergency in El Salvador due to gang-related violence. This measure has been extended multiple times in 30-day intervals, without a clear end date. Within this State of Emergency, the Executive Branch allows contracting and acquisitions without adhering to the Law of Acquisitions and Contracts of the Public Administration (LACAP) if they can demonstrate ties with the emergency. This creates a fast-moving and nontransparent procurement process.
Recent legislative changes in El Salvador undermine judicial independence, raising concerns over the rule of law and posing significant risks to the predictability and stability of the business environment. In May 2021, the Legislative Assembly dismissed the Attorney General and all five justices of the Supreme Court’s Constitutional Chamber and replaced them with officials chosen by the administration. In August 2021, the legislature amended the Judicial Career Organic Law to force into retirement judges ages 60 or above and those with at least 30 years of service. The move was justified by the ruling party as an effort to root out corruption in the judiciary from past administrations. A September 2021 ruling from the newly appointed Constitutional Chamber allows for immediate presidential re-election, despite the Constitution prohibiting presidential incumbents from re-election to a consecutive term. Legal analysts believe these measures were unconstitutional and have enabled the Legislative Assembly and the Bukele administration to exert control over the judiciary.