El Salvador Becomes the Epicenter of Investments from Colombian Companies

by | Oct 4, 2024 | FDI Latin America

The Carvajal Organization and Davivienda have been present in El Salvador since the 2000s, and conglomerates like Corficolombiana have included the country on their investment map. Over the past 12 years, investments from Colombian companies into El Salvador have exceeded $504 million, with Colombian capital inflows growing at double-digit rates since 2019. According to data provided by the Central Bank of Colombia, as of June, foreign investment from Colombians in Salvadoran territory had already reached $32 million, almost matching the total for 2023, which was $35.4 million, in just six months.

Among the most recognized Colombian companies with a vested interest in El Salvador are Davivienda, Grupo EPM, Procaps, and the Carvajal Organization. This last company, originally from the Valle del Cauca region, will soon open a new plant in El Salvador, where it has invested $10 million. “We are about to inaugurate a plant in El Salvador. We first arrived in the country in 2007 by acquiring Carvajal Empaques. Of the products we manufacture there, 70% are exported to other countries. This operation is essential to us, and we are expanding our footprint in Central America,” explained Pedro Felipe Carvajal, president of the company.

The Bukele Effect?

Jaime Alberto Cabal, president of the National Federation of Merchants (Fenalco), recently pointed out that Colombia’s domestic economy is still being determined. While foreign direct investment (FDI) in Colombia fell by 22% in 2024, the flow of capital from Colombia to other countries has increased by 400%. The rise in investments from Colombian companies in El Salvador coincides with the presidency of Nayib Bukele, a leader who has sparked resistance from non-governmental organizations and human rights advocates due to his strict security policies but who enjoys a 92% approval rating, according to CID Gallup.

The Investment and Export Promotion Agency (Invest in El Salvador) highlights several competitive advantages that have fueled investor interest, including a dollarized economy that avoids the volatility of exchange rates, good infrastructure, a legal framework that protects investors, and improved security and public order conditions.

According to the Salvadoran government, efforts to enhance the business environment and streamline global trade dynamics have intensified over the past year. “These efforts have culminated in updates to the legal framework, notably the reform of the Income Tax Law.” While it’s worth considering whether Bukele’s leadership is the magnet attracting capital, it’s important to note that Davivienda entered El Salvador in 2012, and Grupo EPM arrived a year earlier. Gustavo Tamayo, a delegate of the Colombo-Central American and Caribbean Chamber of Commerce, stated that “the main factor driving investments from Colombian companies to invest in El Salvador is security.”

“Security has become the greatest attraction. What kind of security? Legal and financial. Under any circumstances, the government guarantees respect for the invested capital, that it won’t be confiscated, and that it will receive full support,” he added. Tamayo also mentioned that other companies interested in El Salvador that have made some investments include Noel, Grupo Oma, and Crepes & Waffles. “The expectation is that the investment flow from Colombia to El Salvador will continue to increase, especially because the country’s brand, built around security, is highly influential.”

Bilateral Relations Mark 200 Years

Next year marks the bicentennial of bilateral relations between El Salvador and Colombia. “We are working on major initiatives with both countries’ foreign ministries and ambassadors. Of course, from Colombia, we are particularly interested in technology and agricultural matters,” said Germán Benacek, El Salvador’s ambassador to Colombia.

“We have a strong relationship, and although we haven’t fully recovered the momentum we once had, we’ve begun resuming some economic activities. For instance, Grupo Éxito is now part of a Salvadoran chain, Grupo Calleja. We also have a significant presence in the banking sector,” Benacek concluded.

Conclusion

The growing investments from Colombian companies in El Salvador highlight the deepening economic ties between the two countries, driven by strategic advantages and favorable conditions in El Salvador. The influx of Colombian capital has surged recently, fueled by El Salvador’s improved security environment, legal protections for investors, and a stable, dollarized economy that mitigates exchange rate risks. Combined with the Salvadoran government’s pro-business reforms, these elements have made the country an increasingly attractive destination for foreign direct investment (FDI). Major Colombian companies, such as Davivienda, Grupo EPM, and Carvajal, are already reaping the benefits of their investments from Colombian companies in El Salvador, with future growth anticipated as more Colombian firms explore opportunities in the region.

While security and economic stability remain primary drivers of investment, the symbolic milestone of 200 years of bilateral relations underscores the importance of collaboration between Colombia and El Salvador in sectors like technology and agriculture. As these ties strengthen, Colombian companies are not only diversifying their portfolios but also contributing to the development and growth of El Salvador’s economy. With continued investments from Colombian companies, the two nations are poised to expand their partnership, leveraging shared economic interests and solidifying their roles in the Central American and Latin American markets.