Manufacturing in El Salvador: Why It’s an Attractive Destination

by | Jan 13, 2025 | FDI Latin America

Manufacturing in El Salvador is steadily gaining recognition as a key contributor to the country’s economic development. With its strategic location, skilled workforce, and supportive government policies, El Salvador has created a favorable environment for manufacturers seeking to establish or expand operations in Central America. This blog will explore why El Salvador is well-suited for manufacturing, explore its primary industries and companies, and examine the infrastructure and incentives bolstering the sector.

Strategic Location and Access to Markets

El Salvador’s geographic location in Central America makes it a natural gateway to major markets in North and South America. Situated on the Pacific coast, the country provides easy access to key ports, facilitating efficient exports to the United States, Canada, Mexico, and beyond. Moreover, El Salvador is part of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), which eliminates tariffs on most goods exported to the U.S. This advantage allows manufacturers to integrate seamlessly into global supply chains, reducing costs and delivery times.

The country’s proximity to other Central American nations makes it an ideal hub for regional distribution. With a time zone aligned with the U.S. market, El Salvador’s location enhances its competitiveness in the textiles, electronics, and food processing industries.

Key Manufacturing Industries in El Salvador

  1. Textile and Apparel Manufacturing

The textile and apparel industry is the backbone of manufacturing in El Salvador, accounting for a significant portion of the country’s exports. Under CAFTA-DR, companies benefit from duty-free access to the U.S. market, and modern industrial parks and a skilled workforce support the sector.

Key players include:

Hanesbrands Inc.: A global leader in apparel with operations in several Salvadoran free zones.

Fruit of the Loom: Another prominent name in textiles, leveraging the country’s favorable trade policies.

  1. Electronics and Electrical Components

Electronics manufacturing is a growing sector, with companies producing everything from circuit boards to home appliances. El Salvador’s proximity to North American markets and developing skilled labor force make it an emerging hub for this industry.

Companies like Electrolux have established assembly operations in the country.

  1. Food and Beverage Processing

The food and beverage industry is also thriving, driven by domestic demand and export opportunities. Major players, such as La Constancia, part of AB InBev, operate in this sector, producing beverages and other consumer goods for regional markets.

  1. Plastics and Packaging

El Salvador has developed a niche in plastics manufacturing, particularly in packaging for food and industrial products. This industry complements the growing export-oriented food sector, creating a mutually beneficial ecosystem.

Physical and Human Infrastructure Supporting Manufacturing

  1. Physical Infrastructure

El Salvador has invested heavily in infrastructure to support manufacturing activities. Key facilities include:

  • Free Zones: The country boasts over 17 free zones, such as the International Free Zone and the San Marcos Free Zone, with advanced utilities, waste management, and security.
  • Port Infrastructure: The Port of Acajutla, El Salvador’s principal seaport, handles most of the country’s trade. Its modern facilities support efficient import and export operations.
  • Road Networks: An extensive highway system connects industrial parks to ports, airports, and neighboring countries, ensuring smooth logistics.
  1. Human Infrastructure

El Salvador’s workforce is one of its key assets. Known for their strong work ethic and adaptability, manufacturing companies highly seek Salvadoran workers. Government programs and partnerships with private institutions provide training in technical skills relevant to manufacturing, such as textile machinery operation and electronics assembly.

Additionally, over 50% of the population is under 30, ensuring a young and dynamic workforce for years to come.

Government Incentives for Manufacturing in El Salvador

The Salvadoran government has implemented numerous incentives to attract and retain manufacturing companies. These include:

  1. Tax Incentives
  • Income Tax Exemptions: Companies operating within free zones or under special regimes are exempt from income taxes for a defined period, often extending beyond a decade.
  • Value-Added Tax (VAT) Exemptions: Manufacturing companies benefit from VAT exemptions on imported raw materials and machinery.
  1. Special Customs Regimes
  • International Services Law: This regime allows companies providing international services to operate tax-free, fostering sectors like electronics and logistics.
  • Customs Facilitation: Fast-track customs clearance is available for manufacturers, reducing delays and operational costs.
  1. Free Zones

El Salvador’s free zones offer comprehensive benefits, including:

  • Duty-free importation of raw materials and capital goods.
  • 100% exemption from municipal taxes for a specified period.
  • Access to state-of-the-art infrastructure designed for manufacturing needs.
  1. Training and Development Programs

To enhance the capabilities of its workforce, the government collaborates with educational institutions and international organizations to provide vocational training. These programs focus on the skills needed for key manufacturing industries, ensuring a steady supply of qualified labor.

Prominent Manufacturing Locations in El Salvador

Manufacturing hubs in El Salvador are strategically distributed to leverage the country’s infrastructure and workforce. Notable locations include:

  1. San Salvador Metropolitan Area

San Salvador, the country’s capital, hosts numerous industrial parks and free zones. Its proximity to the international airport and major highways makes it a prime location for manufacturing and logistics companies.

  1. Santa Ana

Santa Ana is home to many textile and food processing plants. The city’s location near the Pan-American Highway ensures easy transportation to domestic and international markets.

  1. San Miguel

Located in the eastern part of the country, San Miguel is emerging as a hub for electronics and light manufacturing, supported by ongoing infrastructure development.

  1. La Libertad

This coastal region is gaining attention for its proximity to the Port of Acajutla and its appeal to foreign investors seeking access to export markets.

Success Stories in Manufacturing in El Salvador

Several global companies have established successful operations in El Salvador, citing the country’s business-friendly policies and skilled workforce.

  • HanesBrands Inc.: Operates multiple facilities, employing thousands, producing apparel for global markets.
  • La Constancia: A key player in the beverage sector, contributing significantly to exports and local employment.
  • Grupo Unicomer: While primarily a retail group, it also operates local manufacturing plants for furniture and appliances.

These companies illustrate the diverse opportunities available across various manufacturing sectors in El Salvador.

Challenges and Opportunities

While El Salvador offers numerous advantages, it faces challenges, such as:

  • Energy Costs: Electricity prices can be higher than regional averages, though renewable energy initiatives are mitigating this issue.
  • Security Concerns: The government has improved safety, crucial for attracting foreign investment.

On the other hand, the country’s focus on renewable energy and sustainable manufacturing represents an opportunity for companies aiming to meet global sustainability standards.

Conclusion: Why Choose Manufacturing in El Salvador?

Manufacturing in El Salvador offers a compelling combination of strategic location, skilled labor, modern infrastructure, and government incentives. The country is well-positioned to attract diverse industries, from textiles and electronics to food processing. Its free zones and special customs regimes create a cost-effective environment for businesses seeking efficiency and growth in a competitive global market.

El Salvador stands out as a reliable and strategic partner for companies considering expanding operations in Central America. With its ongoing commitment to improving infrastructure and workforce development, the country is poised to play a more significant role in the global manufacturing landscape.