El Salvador: A market on the rise for Indian companies

Updated: Aug 12, 2020 1:49 PM

Friendship between India and El Salvador begun some centuries ago, in the form of commercia exchange when El Salvador was still under the colonial rule of Spain, as part of the Captaincy General o Guatemala,and European merchant companies were taking Indian products all over the world.

El Salvador, Indian companies, india El Salvador trade ties, Indian companies, SMEs, post-COVID 19, international market, latest news on  india El Salvador tradeAccording to El Salvador official statistics, in 2019 US$134.4 million were imported from India, while US$2.5 million were exported, for a total goods trade of US$136.9 million. (Source: Google Maps)

By Ariel Andrade and Sandeep Wasnik

Trade between India and El Salvador grew substantially in the last decade, reaching US$1,051 million during that period. This growth, together with the need to diversify the supply chains that has arisen as a result of COVID 19, opens up countless business opportunities for Indian companies, especially SMEs, in sectors such as the pharmaceutical, textile and plastic industries, automobile and spare parts, renewable energy and services

(especially IT and industry 4.0).

Friendship between India and El Salvador begun some centuries ago, in the form of commercia exchange when El Salvador was still under the colonial rule of Spain, as part of the Captaincy General o Guatemala,and European merchant companies were taking Indian products all over the world. Though the official diplomatic relation initiated just 41 years ago (February 12, 1979)

Still more, theorists like Dr. B. G. Sidharth (B.M. Birla Science Centre) notice possible contacts betwee the Indus Valley and Mayan civilizations during ancient times. The remarkable similarity in variou astronomical, artistic and cultural references of both regions lies as a basis of their argument.

These include the connection between Arjuna and the Naga tribes recorded in the epic Mahabharata. According to Dr. Sidharth, the Naga would be associated with the Mayas, a civilization that settled in th present-day southern Mexico, Guatemala, Honduras, and El Salvador, circa2,000 B.C

While not assessing this reasoning, the enigma of an ancient relationship unknown to the vast majority serve as a right metaphor for the current relations between India and El Salvador, two countries in nearly diametrically opposed locations, but which are getting closer commercially fast

That closeness becomes more important as the world adjusts to the new normal post-COVID 19, wherr international markets and supply chains are quickly reorganizing. For this reason, it is crucial to identify areas where the greatest benefits can be obtained for companies of both countries.

An overview of economy and foreign trade of El Salvador

In 2019, El Salvador GDP was US$27 billion with a per capital GDP of USD 3,572. Foreign trade is highly dynamic: Goods export recorded US$5,943 million as well Services were US$3,197 million. On the other hand, the import of goods reached US$12,017 million as Services were US$2,005 million.

The following chart shows merchandise trade growing rapidly in the last ten years, especially Imports.

The total went from US$12,915 million in 2010 to US$17,960 million in 2019, growing by an annual average of 5.1%. Within this, the growth of imports at an average annual rate of 5.3% stands out, while exports have grown slightly less, at an annual rate of 4.6%.

It also highlights the growth of Services that has shown great dynamism in the last 10 years, with total revenues of USD 23,000 million, mainly in tourism (sun and beach, adventure, medical, and business), maintenance and repair (aircraft), contact and call centers, and creative industries (graphic design, software, video games, translation and post-production for film and television).

In addition, the impact of remittances should be highlighted, mainly from the United States, where the largest Salvadoran community abroad resides. In 2019 it was up to US$5,649 million. Remittances have grown at an average annual rate of 7.5% to a total US$77.5 billion in the period 1995-2019.

India – El Salvador bilateral trade relationship

According to El Salvador official statistics, in 2019 US$134.4 million were imported from India, while US$2.5 million were exported, for a total goods trade of US$136.9 million.

The total imported from India ranks El Salvador at the 119th position of the 220 market destinations of India. Not bad for a country 156 times smaller than India. Furthermore, in Latin America and the Caribbean, El Salvador was ranked 15 out of the 40 countries to which India exports.

In the last 10 years, trade of goods between the two countries has recorded US$1,051 million, with a favorable balance for India of more than US$955 million. Bilateral trade grew at an average annual rate of 14.9% during 2010-2019.

Among the main products imported from India in 2010-2019 are synthetic dyes (11.4%), medicines (10.9%), motorcycles (7.1%), knitted fabrics (6%) and automobiles (4.8%). Exports to India have been concentered in four products: tropical wood (63.2%), iron waste (15.5%), aluminum waste (7.3%) and paper waste (2.9%).

Undoubtedly, India has positioned itself as an important economic partner for El Salvador. It took the 17th place in 2019 as a supplier of goods (out of 124). In contrast, it is located in position 38 as an export destination (out of 120).

All the above confirm that there is an already strong and growing bilateral trade relationship, but the good news is that in El Salvador's foreign trade, there is still plenty of room for India to expand, especially in imports.

Potential trade between India and El Salvador

Traditionally, El Salvador tended towards the concentration of markets, especially the adjacent ones (Central American countries), North America (Mexico and the United States), Europe (Germany, Italy, and Spain) and some countries in Asia (Japan, Taiwan). However, a trend towards diversification (e.g. China and India) has been observed since the 1990s, which in the new post-COVID 19 context will definitely deepen.

The following chart shows the evolution of El Salvador's five main partners in terms of merchandise imports plus India. Three of these partners (United States, China and Mexico) are extra-regional and two of them (United States and Mexico) have free trade agreements with El Salvador.

In the last decade, the total growth of imports from India (239.4%) greatly exceeded that of imports from the first five partners in El Salvador: The United States (31.7%), China (97.6%), Guatemala (73.2%), Mexico (22%) and Honduras (133.2%).

The growth potential for imports from India is high, as can be seen in the following table. This shows the 10 largest import items of El Salvador in 2019, the corresponding imports from India and the total exports of India in these items.

Business opportunities for Indian companies are evident in six of these tariff lines. A relevant case is that of Medicines (HS 300490), where there is already an import volume of USD 8.34 million, but which only represents 2.8% of total imports in the category. A deeper analysis reflects more opportunities, especially for small and medium businesses.

Two other areas with great potential are renewable energy, especially in residential generation of solar energy, storage and efficiency; and the supply of raw materials for light industries such as plastics, textiles and pharmaceuticals, which are flagship industries for Salvadoran exports, mainly to Central America countries and the United States.

Likewise, there are great opportunities as a result of the new normal after COVID 19, especially in areas such as medical supplies and devices, and in transportation (particularly motorcycles and their spare parts and accessories, whose local consumption has soared).

Vertical integration in TICs, call and contact centers, creative industries in video games and movies, specialized medical services and medical tourism, and industry 4.0 stand out with greater relevance.

A new bridge for the 21st century

The dawn of the 21st century was promising a new era for the world, that finally left the cold war behind and delved into globalization and the technological revolution, however, many subsequent events disturbed that desire: terrorism, climate change, economic crisis, pandemics, etc.

Despite this, one of the best news in the first 20 years of the century is the resurgence of India as one of the main economies in the world, destined to regain the position it held before colonialism that for centuries submerged our peoples in misfortune.

In the words of Prime Minister Modi: "the sleeping elephant has woken up and has joined the race" and in the next three or four decades, it will become the world's leading economy, which not only brings increasing responsibilities on the global stage but great opportunities for benefit.

However, these opportunities only make sense when they are seized at the right time by those who are called to do so, that in the case of the relationship between India and El Salvador are the SMEs, at this precise moment.

We believe that it is the time to build new collaboration bridges, both to supply local markets with more competitive products and services, and to supply better inputs and raw materials that allows local industries to better export to third markets.

In El Salvador, interest and appetite for Indian products and services will continue to grow due to the interest in diversifying supply chains and the incessant search for higher quality products at more competitive prices, emblematic characteristics of Indian products.

Since the 90s, El Salvador has promoted the opening of markets through free trade agreements and partial agreements with a large number of countries and regions such as Central America, the United States, the European Union, Korea, Mexico and Colombia, among others, enabling preferential access to a market of more than 1,200 million people.

This strategy seeks to convert the country into a platform for the transformation and re-export of goods and services to this large network of markets, for which it has also adopted other measures such as the use of the US dollar as legal tender, the establishment of numerous free-trade zones, the development of the country's airport and seaport infrastructure and the renewal of its legal framework.

In analogy to the mythical contact between the Mayan and Indus Valley civilizations, the need of the hour are new Arjunas in the form of brave companies willing to take the risk of crossing half the planet to take advantage of the wide range of opportunities indicated.

(Ariel Andradeis a former Ambassador of El Salvador to India &; Managing Director of Grupo 108. Sandeep Wasnik is Director of Trade and Investment of Grupo 108. The views and opinions expressed in this article are the sole responsibility of the authors, whom can be reached for any query at info@108ca.com | https://108ca.com.)

 

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