Supersize me: Golden arches crowd El Salvador's economy

El Salvador’s capital comes with a side of fries.

At least that's how it seems based on the sheer number of fast-food chains here, clustered together in malls and lined up along main thoroughfares. A local guide even touts a “luxurious” McDonald's as offering one of the best views of the city. From Burger King to KFC to Guatemalan chain Pollo Campero, many see this country of 6.2 million people as a quintessential example of the effects of globalization. 

When William Robinson, a sociology and Latin America studies professor at the University of California, Santa Barbara, traveled to San Salvador in the 1980s, his lunchtime decisions were between multiple mom-and-pop restaurants selling the national dish of stuffed corn tortillas, or pupusas. 

“Today, there is not one pupusería outside the university gates [in San Salvador]. The skyline is instead blighted by an endless array of signs beckoning diners to all the well-known transnational fast-food chains,” Mr. Robinson writes in his 2008 study, “Latin America in the New Global Capitalism.”

The “McDonaldization” or globalization of the retail sector “has taken Latin America by storm,” he writes, and it has affected everything from political systems to cultural practices to class structures.

But globalization does not deserve all the blame in El Salvador. 

The small Central American country, about the size of Massachusetts, lacks a clear investment plan to develop its own productive industries, says Roberto Rubio, the director of the National Foundation for Development (FUNDE), a Salvadoran think tank. That’s left many entrepreneurs focused on ventures that tap into the country’s consumer demand, which is fueled by high levels of remittances from Salvadorans living abroad.

“El Salvador is becoming a giant supermarket … international products keep increasing, and it’s due to a structural problem with the economy,” Mr. Rubio says. El Salvador’s trade deficit – the amount by which products brought into the country exceed exports – is one of the highest in the region relative to the size of its economy.

“We take in a lot, consume a lot. Our trade deficit is almost 20 percent of our GDP,” Rubio says, blaming a lack of adequate economic and fiscal policies “that stimulate investment.”

Instead of choosing an investment path and creating incentives in sectors like alternative energy or technology, “what’s growing in this country? Commercial centers, car sales, cellphone consumption,” Rubio says.

National investors – who don’t take their money to neighboring countries with more developed investment opportunities – might be more inclined to open gas stations or fast-food chains at home, he says.

International investment

Historically, levels of investment in El Salvador have never been very high, Rubio says. But international investment has decreased in recent years. There are a number of reasons: Neighboring countries have created niche markets like technology or green tourism to draw investors. Basic costs of doing business here – like electricity – are high. Violence is an ever-present blemish on its international image, and the country is involved in two international investment dispute arbitrations in the mining and energy sectors.

According to the World Bank, foreign direct investment in El Salvador was $385 million in 2011. That's more than double the 2010 tally, but about half of 2008 totals.

Rubén Zamora, El Salvador’s ambassador to the United States, told The Christian Science Monitor in May that “anyone who analyzes the economy of El Salvador and why it hasn’t been growing can see the reason is plain and simple: There is no investment.”

El Salvador’s main industries include textiles, tourism, and coffee production. 

In the 2000s there was a spike in international investment, largely caused by El Salvador's decision to sell its national banks, as well as its cement and beer companies. 

“More capital came into the country, but the impact wasn’t long term” because profits from these companies are now largely leaving El Salvador, Rubio says.

“El Salvador has distinguished itself in recent years as the country in Central America that receives the least amount of international investment,” Rubio says. El Salvador “is without a direction,” when compared with Costa Rica’s investment draw in high-tech development or tourism, and Panama’s attractiveness due to the canal.

“We need more than brochures saying El Salvador is great,” Rubio says, referring to marketing materials produced by PROESA, the country’s national investment agency. (In fact PROESA lists seven reasons, including El Salvador’s geographic location, tax incentives, and a competitive labor force as reasons to invest.)

Ambassador Zamora says that attracting both national and international investors is a challenge. “Some people say the market in El Salvador is too small for certain kinds of investment,” he says.

Late last month, the US approved a second Millennium Challenge Corporation compact with El Salvador for $277 million in funding over the next five years. The funds are to be directed toward improving El Salvador's competitiveness and productivity in international markets.

"This compact represents a tremendous opportunity to help reduce poverty in El Salvador by spurring investment and increasing economic growth," Daniel W. Yohannes, MCC chief executive officer said in a statement announcing the award.

Remittances

An estimated 20 percent of El Salvador’s GDP is made up of remittances, and nearly 1 in 5 Salvadorans live in the US, according to the Migration Policy Institute.

Rubio points to remittances as a perfect investment target. “Remittances transform a place,” he says, pointing to rural parts of the country where community members have traded in their horses for bikes, and straw hats for baseball caps.

El Salvador doesn’t have well-established programs to capitalize on remittances, such as savings programs or investment funds. “This money falls from the sky,” Rubio says.

“If left alone, remittances lead to more consumption....You can’t tell someone to stop buying Nikes or baseball caps or TVs. But savings programs can encourage a more robust financial system and community funds,” Rubio says.

• Reporting in El Salvador was made possible by a fellowship from The International Center for Journalists.