Our comprehensive assessment of El Salvador's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect El Salvador, as well as the latest industry developments that could impact El Salvador's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in El Salvador before your competitors.
El Salvador Country Risk
El Salvador Country Risk
External Tailwinds Supporting Regional Underperformers
Central American outperformers Costa Rica and Panama are facing a more challenging road ahead in the coming years. As real GDP growth slows in Panama on the back of the end of canal construction, establishing fiscal discipline will be crucial. Should the country fail to rein in spending in an environment of lower growth, this would likely cool investor enthusiasm toward the country. Similarly, Costa Rica is also facing a challenging fiscal outlook - a situation which is only exacerbated by the fragmented political environment.
In contrast, our outlook for most of Central America's underperformers is brightening. Guatemala, Honduras and El Salvador will benefit from stronger US demand for their manufactured goods, rising remittance inflows and lower oil prices in the quarters...
El Salvador Industry Coverage (8)
El Salvador Agribusiness
BMI View: Coffee production in the Central America region will remain at risk over the next few years as the nature of subsistence farming will limit investment into safeguards against diseases such as coffee rust (roya). Countries in Central America are generally dependent on corn imports and we expect the corn production deficit to widen over our forecast period. Strength in the US dollar over this time frame will hurt the capital accounts of the region's countries. We have turned more negative on our short-term outlook regarding the regional sugar industry as a result of low international prices, but expect Central America to remain self-sufficient in sugar and even increase its potential for sugar exports out the long term. In this time frame, the sugar industry has strong potential to attract investment.
|Honduras Agribusiness To Outperform|
|Select Countries -...|
El Salvador Autos
BMI View: The outlook for the autos industry in the Central Americas region in 2015 is modest, with tepid sales growth expected in some markets, but contractions likely in others. This is broadly in line with our outlook for the Latin America region, although many markets in Central America are very small in volume terms, and modest changes in sales figures could have a relatively large impact on the year-on-year growth rate.
Income distribution across much of the region is highly unequal, and the majority of headline spending growth comes from the relatively wealthy sections of the population. This income structure is likely to continue to restrict growth in the regional autos sector.
Food & Drink
El Salvador Food & Drink
BMI View: The economic trajectory for the region remains divergent. Despite our expectations for slower real GDP growth in Panama in the next several years, it will remain the regional outperformer. On the other hand, we have a more mixed outlook for growth in the 'northern triangle' countries. While they will likely benefit from improved agricultural yields and stronger US demand for manufactured goods, Guatemala, Honduras and El Salvador are still vulnerable to significant structural macroeconomic weaknesses. We have upgraded our 2015 real private consumption growth outlook for several Central American economies, mainly due to an uptick in remittances from the US and the positive effect of cheaper fuel prices on household spending.
Headline Industry Data (regional averages)...
El Salvador Freight Transport
Oil Prices Boost Regional Freight Prospects
Since our last quarterly report it is clear that as 2015 began, international oil prices slumped more sharply than most analysts had been expecting. It is also evident that they will remain lower than at first projected for 2015 as a whole. This is good news for the Central American freight transport sector in various ways. First, it helps strengthen the US recovery, which boosts US demand for Central American exports, as well as increasing remittance payments sent back home by Central American migrant workers. Second, it creates a windfall saving on import costs which raises consumer spending and may find its way into increased freight demand. And third, because fuel costs are a significant item for freight companies, it improves operating margins for the industry.
That said, the freight industry improvement will be relatively limited. Higher demand...
El Salvador Infrastructure
BMI View: We currently forecast an average of 3.6% real growth in Central America's construction industry value for 2015, which is considerably higher than the regional average for 2014 at 1.3%. We expect Honduras and El Salvador's construction industries to return to positive growth in 2015 on the back of increasing government support for infrastructure projects and a strengthening project pipeline, particularly in the transport sector.
Despite the small size of their construction industries, Central American countries present a wide range of small-scale opportunities (albeit the inter-oceanic canal projects) as the region aims...
El Salvador Insurance
BMI View: Central America's insurance markets are diverse in terms of size, ranging from Nicaragua's total premiums of just USD170mn to Panama's at almost ten times that size. Most are growing quickly, and a broad trend towards health insurance products will continue to spark growth. Many markets remain fragmented, and opportunities abound for acquisitions both from within and without. Product innovation, particularly in low-cost alternatives, has been limited but has the potential to deliver long-term growth in many sectors.
BMI expects Central American insurance markets to continue to grow rapidly in the coming years. Annual growth rates outside Nicaragua, the region's underperformer, will consistently hit high single-digit rates, with some sectors consistently posting growth rates in excess...
Pharmaceuticals & Healthcare
El Salvador Pharmaceuticals & Healthcare
BMI View: Favourable tax incentives, continued demand for both generic and patented medicines, and regional anti-counterfiet measures solidify Central America's revenue generating opportunities for multinational pharmaceutical companies in coming years. Despite political instability in some areas of the region, Central America's medicine consumption will continue to grow in 2015.
Headline Expenditure Projections
Pharmaceuticals: USD3.7bn in 2014 to USD3.9bn in 2015; +4.1%. Our forecast has been maintained since Q215.
Healthcare: USD16.8bn in 2014 to USD17.8bn in 2015; +5.1%. Our...
El Salvador Telecommunications
BMI View: Number portability, with four out of eight countries having implemented or in the process of implementing a form of number porting, should encourage an increase in competition, but the progress will depend on the commitment of the individual countries. Mobile forecasts show much slower growth across the board, with only Nicaragua offering any real growth potential. Increasing government interference, as is the case of Guatemala, is a worrying new development. Data-driven 3G/4G services will offer real growth potential as all the large operators are investing heavily into new infrastructure.
Number porting in Panama increased 37.4% in 2014, highlighting that the population is increasingly more willing to take advantage of better available deals as they switch operators.