Rail Revitalisation Could Boost Economic Growth

BMI believes that plans by El Salvador to revitalise its disused railway network will offer opportunities to freight transport companies in the region, and potentially open up new trade routes down the Pacific Coast of Central America. The stated aim of turning the country into a logistics hub for the region could bring a much-needed boost to the fragile economy, though we note that security risks could yet deter investors.

The Comisión Ejecutiva Portuaria Autónoma (CEPA), the port commission for El Salvador, has signed an agreement with Spanish consultancy firm Tramrail for the revitalisation of the country's rail network. According to the CIA World Factbook, El Salvador has 283km of rail, though the network has largely been out of use since 2002. Falling usage and the high cost of maintenance and repairs meant that the country's railways were effectively shut down, though a passenger service has been running between the major cities of Apopa and capital San Salvador in recent years.

Slow Economic Growth
El Salvador Real GDP Growth, 2008-2017

The new strategy, outlined by the minister of public works Gerson Martínez at the signing ceremony for the agreement on February 26, is to revive the entire rail network with the aim of turning El Salvador into a major freight and logistics hub for the Central American region. The aim is to have both the public and private spheres working in tandem to develop a cohesive freight transport strategy encompassing not only the reopened railway but also the country's ports and the whole logistics network.

BMI notes that there is potential for increased port traffic at El Salvador's ports in the coming years. Its relative proximity to the Panama Canal could lead to an uptick in demand at the country's deepwater port of Acajutla when the waterway's locks are widened in 2015, especially if there is an effective landside freight network. The works on the canal will enable ships with a capacity of as much as 12,500 twenty-foot equivalent units (TEUs) to pass through, compared to the current limit of 3,500TEU capacity vessels. Any increase in transit and transhipment traffic, in addition to the economic benefits a more efficient transport network would bring to the country's trade, could provide an important boost to El Salvador's economy. Our long-term forecast period (2013-2022) sees the country's GDP growth averaging a slow but steady 2.8% per annum, and this could be improved by the proposed improvements in the freight transport network.

However, we caution that El Salvador's location on the Pacific Coast of Central America has made the country a transit state for drug trafficking in recent years, and drug-related violence and rising levels of insecurity will remain the major concerns for not only the country's electorate but also any potential logistics investors.

This article is tagged to:
Sector: Infrastructure, Freight Transport, Shipping
Geography: El Salvador, El Salvador, El Salvador, El Salvador

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