El Salvador’s economic growth rate and investment relative to GDP has remained below the average for countries in Latin America and its GDP growth rate has been the lowest in Central America. Foreign direct investment has declined significantly. Under the Partnership for Growth (PFG) agreement between El Salvador and the U.S., a jointly conducted economic analysis identified low productivity in the country’s tradables sector as a major constraint to growth. Tradables are defined as those goods and services which are or can be traded internationally and whose prices are set on world markets. The PFG Constraints Analysis indicated that the issues limiting El Salvador’s productivity in tradables are factors of productivity-- physical capital (infrastructure), human capital, and financial capital—and the institutional environment in which tradables firms operate. Based on this analysis, the goals of the PFG Joint Country Action Plan (JCAP) with the GOES that address low productivity in the tradables sector include: improving the business enabling environment to spur private investment, competitiveness, and export potential; investment in infrastructure to reduce production costs; improving the quality of the education system in order to create a more highly qualified and technologically skilled labor force; strengthening tax collection and the efficiency and transparency in the use of public resources; and improving production innovation and quality of tradables, with a focus on the international market.
Under the PFG agreement, USAID is working with the government of El Salvador and the private sector to address the economic challenges that the country faces to help rapidly expand broad-based economic growth. USAID assistance helps improve the business-enabling environment at the national and local level; strengthen tax collections and fiscal transparency; provides greater business development services for small and medium enterprises (SMEs); and increase the productivity of selected agricultural commodities for export. By supporting quality higher education and establishing job training programs that align workforce skills with productive sector needs, USAID is helping to bolster the Salvadoran labor market. To spur innovation, USAID helps create stronger and effective linkages between academia and the private sector.
- Increases government revenues for social investments through improved tax administration and greater transparency
- Improves municipal administration and service delivery capacity to increase investment
- Improves effectiveness of business and export development services and helps small and medium enterprises (SMEs) become more productive and competitive.
- Increases access to market information, business management, and technical skills training
- Increases the production of key exportable agricultural commodities using sustainable production methods, including a national cacao value-chain to increase cacao exports.
- Improves workforce training and professional education to develop industry standards in the skills and competencies needed by private industry
- Strengthens the ability of Higher Education Institutions (HEI) to develop a workforce that is responsive to private sector needs with relevant, high quality educational programs that contribute to economic growth.
Last updated: July 17, 2015