The ‘Bukele Experiment’ Has Yet to Bring of Surge of FDI to El Salvador

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It’s round two for the “Bukele Experiment” in El Salvador, and while its results are coming in bit by bit, a clear answer has yet to emerge on whether it has been successful or not for foreign investors.

Available data and some testimonies point to a dramatic improvement in El Salvador’s situation. Though the country is better off –economically– compared to 5 years ago, before president Nayib Bukele began his first tirm, those improvements have yet to crystalize its performance as a foreign investment magnet.

Foreign direct investment (FDI) inflows have been quite uneven for El Salvador since President Bukele officially took the reins of the country back in mid-2019.

The year before (2018), El Salvador drew US$826 million in foreign investment. The closest Bukele’s administration has gotten to that number was in 2023, when FDI inflows reached US$759 million.

Foreign investment in El Salvador reached US$639 million in 2019, the year in which Bukele officially began his first term. FDI collapsed in 2020 –the year of the COVID pandemic– to US$24 million. It healed back to US$385 million in 2021. FDI fell back to US$170 million in 2022. During Q1 of 2024, El Salvador recorded US$176 million in FDI inflows, an 8% from the same period of last year.

Over the past five years, President Bukele has become one of the more eye-catching political figures in the world. He has grabbed the attention of the global press thanks mostly to his controversial policies, which include the “bitcoinization” of El Salvador’s economy and the incarceration of 80,000 people in two years as part of a brutal crackdown on crime.

Bukele himself has argued that his policies, though unorthodox, have worked like a charm. El Salvador went from being one of the most dangerous countries in the Americas to one of the safest; the volume of tourists visiting the country increased 22% during the first half of 2024; and even the US’ State Department gave a thumbs-up to the improved security and business situations in the country.

El Salvador became the first country to accept bitcoin as legal tender in June of 2021. Bukele’s state of exception, which kick-started his war on crime, was officially declared in March of 2022. Both policies have been widely publicized by Bukele’s administration –and by the president himself–, but there have yet to be concrete signs of either raising El Salvador’s profile in the eyes of investors.

Analysts from credit rating agencies have applauded the improved security situation of the country in particular. Fitch Ratings pointed out back in April of this year that the crackdown on crime “has helped support solid economic activity, and could be a potential upside to the country’s muted potential growth”. Moody’s pointed out in May that the decline in crime “could potentially remove a major deterrent to investment.”

However, neither has seen any signs of that actually happening. Moody’s stated that “the improved security situation has not yet led to a marked shift in FDI inflows or the overall levels of gross investment in the economy.” Fitch made no mention of proof of those potential improvements at the time of its credit action report.

A shift coming? There’s still hope for the Bukele Experiment to be successful before the two-time Salvadoran president leaves office. Market observers, macroeconomic analysts and even organizations from other governments agree that the ground has been set for an important shift in the country’s economic performance.

Optimism seems to be bubbling up at least in some high-performing sectors. Such is the case of technology, which benefited tremendously during the years of the pandemic.

“We have actually seen an exponential growth [of clients] since 2019. A lot of them came to us during the [COVID] pandemic,” commented José Giammattei, Founding Partner and COO of software firm Applaudo. “Things slowed down during 2023, but 2024 has been a very good year.”

“I think there is [more interest from foreign investors],” José added. “I’ve participated in several industry events for software development. Events in which attending companies showed a lot of optimism in regard to their commercial operations.”

The year 2024 will be a defining one in that regard. FDI performance for the previous year almost reached the country’s 2018 peak. If El Salvador can close 2024 with a jump in FDI inflows, it will add to its story of a renovated land full of promise for its people and opportunity for foreign capital.

The country’s biggest hurdle (insecurity) is out of the way, and the Bukele administration has been trying hard to grab de attention of global capital: through bitcoinization, major tax incentives for the tech industry, special visa programs and very favourable tax regimes for foreign investors. The ground is set. It will be a matter of seeing if all of that effort changes the minds the Bukele experiment is aiming for.

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The ‘Bukele Experiment’ Has Yet to Bring of Surge of FDI to El Salvador

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