El Salvador: Beyond the Bitcoin Hype

OVERVIEW

The Republic of El Salvador is a country in Central America bordering Honduras, Guatemala and the Pacific Ocean.

In the last couple of centuries, the country of El Salvador endured chronic political and economic instability caused by colonial rule, regional geopolitical conundrums, coups, revolts and authoritarian rulers supported by different international players.[1] The culmination of the socioeconomic inequality and civil unrest emanated in the Civil War from 1979 to 1992 between US-backed military forces and left-wing guerrilla groups.[2] The Chapultepec Peace Accords established the multiparty constitutional republic form of governance[3] (which in reality has been mostly dominated by the Nationalist Republican Alliance (ARENA) and the Farabundo Martí National Liberation Front (FMLN) parties)[4]. The political situation in the country has undergone serious change since President Nayib Bukele took office in 2019 through a coup and pledged to fight gang violence, do away with corruption and break away from the ARENA- FMLN dichotomy. Despite serious international concerns over his somewhat autocratic style and drastic social-economic opinions- his approval ratings are reported to be skyrocket high domestically due to his reputation as a young, transformative leader who will bring about change and progress.[5]

In regards to it international standing, El Salvador is a member of the United Nations, the Organization of American States, the Central American Parliament, the Central American Integration System, the Central American Security Commission, the World Trade Organization, the Summit of the Americas process and is pursuing regional free trade agreement, including by chairing a working group on market access under the Free Trade Area of the Americas initiative.[6]

El Salvador ranks 124th among 189 countries in the Human Development Index[7], growing its HDI value by more than 25 per cent since 1990[8]. It is interesting to further explore the socio-political, cultural and contextual factors that affect the gender gap. While the overall gender gap in El Salvador for 2021 is at 74 percent the country has an unsatisfactory performance in terms of political empowerment (35 per cent), economic participation and opportunity (63 per cent), while exhibiting an almost perfect score in health and survival (98 per cent), and educational attainment (99 per cent).[9]

However, while those statistics appear to be promising at a glance, they also have to be referenced to the total population statistics. For instance, in relation to healthcare and welfare Britannica states: “Despite a number of governmental attempts to achieve a more equitable distribution of income through a major program of agrarian reform in the late 1970s, as well as improvements in education and social services following the war, progress in El Salvador has been exceedingly slow. Low-cost housing, medical assistance, and employment programs were improved upon in an attempt to meet the needs and problems of the displaced and the unemployed, but such programs have had difficulty keeping up with deteriorating conditions. The doctor-to-patient ratio is low, and most doctors serve only urban areas. Moreover, in many areas the war and population displacement have caused the reappearance and spread of diseases, particularly dengue fever, malaria, and cholera. Malnutrition is increasingly prevalent.”[10]

Despite the large percentage of Salvadorans living in poverty and the high rates of gang-related violent crime, the country is actually on par with world average and second- highest performer in Latin America and the Caribbean region when it comes to its GINI coefficient statistics and wealth distribution equality.[11] That said, researchers indicate that the COVID19 pandemic has exacerbated the already existing negative trend of the income equality indicators since 2010.[12]

As a result of its increased efforts to attract foreign investors through (1) simplicity in jurisdiction when it comes to the rules and regulations for foreign investors, even at the expense of international efforts for corporate ownership transparency, (2) the adoption of the US dollar as a currency solidifying the banking sector, and (3) the stringent measures in response to the COVID19 pandemic need for lockdowns and vaccinations, El Salvador is positioned in the top 10 countries least complex economies for doing business according to the TMF Group ranking in Global Business Complexity Index 2021.[13]

It is also interesting to note that El Salvador is in the top 20 tier of the Happy Planet Index for 2020 as well, largely due to comparatively satisfactory performance in wellbeing, ecological footprint and inequality.[14]

Notwithstanding, serious human rights concerns remain on the agenda of the international community when it comes to police violence[15], human trafficking (incl. of children for sex and forced labour) [16], inefficient persecution of crimes against women forcing them into suicide or immigration[17], discrimination against LGBT people throughout society (incl. at the highest echelons of power)[18]. Amnesty International has been the most vocal proponent of addressing the human rights situation under the Bukele government.[19]

YOUTH

Among El Salvador’s predominantly urban (73.4 per cent) 6,526,545 population and a median age of 27.6 years old [20] approximately one third are young people [21]. The government has outlined the national youth-related legislation in three main documents- the National Youth Policy (2011-2024), the Youth Action Plan (2011-2024) and the Reformed General Law of Youth. The National Youth Policy defines the following six priority areas: (1) Education: Access, quality & building future human capital; (2) Employment, productive development & entrepreneurship; (3) Healthcare, risky practices & promotion of healthy lifestyles; (4) Culture, entertainment & sport; (5) Prevention of violence, public safety & peaceful culture; and (6) Youth participation & citizenship.[22] It also established the National Institute of Youth[23], which is responsible for design, delivery and evaluation of “youth policies in the context of the public agenda.”[24] The National Youth Action Plan is divided into three parts- the context, the public policy with corresponding budgeting 2011-2024 and the actual Action Plan 2011-2014.[25] The Reformed General Law of Youth defines the “fundamental rights of young people”, and emphasizes their “political, social, cultural and economic participation […] in terms of equity and solidarity.”[26]

In reference to education, an estimated 28 per cent (2019) of total youth population are not in education, employment or training.[27] Despite the high rate of secondary school dropouts (completing six out of the nine grades), the literacy levels of youth 15-24 years old are at an almost 98 per cent (2018)[28] due to the compulsory and free nature of primary and secondary education that have resulted in high net enrolment rate according to OECD statistics[29]. The country continues to struggle with “equity in terms of access to quality education for youth from disadvantaged backgrounds, such as urban and rural poor, minorities, youth of uneducated parents and indigenous girls.”[30] The very strict COVID19 restriction have put an additional strain on the educational system. Given the dire socio-economic situation in many communities in the Central American country, the main means of reaching the students were public television, a youtube channel called “Aprendemos en Casa” and a website set up by the Ministry of Education, all of which as good of a supplementary tool have come decidedly short in reaching all students and providing them with all necessary educational support- for instance not all students have access to computers and are forced to do all their studies via mobile phones, not to mention that exactly the most vulnerable social groups struggle to have access to broadband internet (only 50 per cent of the population was stated to be using the internet in 2019). Furthermore, the structural divide between private and public education, a direct reflection of the wealth inequality in society, has been broadening the gap in adequate access to quality education.[31]

The situation is similar in healthcare. A significant percentage of the mortality rate can be attributed to crime and violence. Moreover, sexual violence victims, mostly young girls are banned by law to have abortions- “even in cases of rape, incest, a deformed fetus or when a mother’s life is in danger, the girls must carry the pregnancies to term or seek risky backstreet abortions”.[32] According to OECD reports “With regard to sexual and reproductive health, most youth face significant obstacles in accessing adequate health information and services. Low access to and quality of basic services, compounded by stereotypes and cultural attitudes, make young Salvadorans more vulnerable to sexually transmitted infections, HIV and sexual exploitation.”[33]

Employment-wise, young Salvadorans are faced by “the lack of employment opportunities, job insecurity and inclusion in low productivity activities”. The ILO project Social Inclusion of Young People through Youth Employment Initiatives- El Salvador further states that “opportunities for young people to access productive and decent work are limited by their rather short education career and by the mismatch between the training offered and the qualifications requested by the labour market”.[34] What’s more, there are other socio-economic factors that adversely affect the entry of youth in the labour market and have pushed youth unemployment rates to 14.70 per cent in 2020[35] which is more than two times the national unemployment rate for the same period- 6.98 per cent[36]. One way the country could address the structural undersupply of decent work opportunities for youth within the Salvadoran economy could be presented by introducing more effective vocational and skills training, adequate to the demands of the future of work. Unfortunately, the other face of the “High rates of youth unemployment constitute the major push factor for labour migration, informal work and the recruitment of young people for violent youth gangs or for lucrative involvement in illegal drug trafficking.”[37]

Perhaps the worst factors affecting the lives and development of youth in El Salvador are the violence, crime and overall insecurity. According to the United Nations Office on Drugs and Crime’s Global Study on Homicide 2019, 464,000 people were murdered in 2017 and El Salvador ranks at the top with 61.7 per 100 000 population[38]- making a dismal inference to the fact that Salvadoran youth are much more likely to become either perpetrators or victims of crime and violence. El Salvador tracks eleven specific categories of crime- theft, bobbery, injuries, homicide, extortion, theft of vehicle, carjacking, rape, road deaths, truck jacking, and kidnapping. A comparatively new and non-traditional, but even more lucrative endeavour are the cybersecurity crimes of skimming and fraud. [39] The OECD reports that “There are a number of risk factors contributing to high levels of youth violence and crime in El Salvador, including high rates of poverty, inequality, under- and unemployment and school drop-outs, dysfunctional family structures, easy access to arms, alcohol and illegal drugs, chaotic urbanization, and finally local gang structures and organized crime (especially drug trafficking). It is estimated that between 20,000 and 35,000 young Salvadorans belong to youth gangs, the so-called ‘maras’ – young members are 20 years old on average, with a mean entry age being 15 years.”[40]

The strong culture and practice of violence has also been preventing youth from participating in the socio-economic and political development of El Salvador, effectively structurally excluding them from society either by the lack of implementation of levers for serving justice and consequent reintegration or through extremely repressive government-enforced measures. Furthermore, there has been a significant drain of human capital due to the Civil War when a lot of immigration took place, as well as currently. Youth are negatively affected by the immigration dynamics threefold- firstly, they can become victims of trafficking while attempting to illegally cross borders; secondly, as second-generation immigrants, Salvadoran youth face many issues of marginalization; and, thirdly, should they be the ones left behind, while their parents/guardians immigrate- youth run the “high risk to become involved in youth gangs, criminal activities or substance abuse”[41].

The above has resulted in the development of a number of programmes, projects and activities targeting youth but with the lack of government coordination most of the interventions end up with limited comprehensiveness in scope and coverage. According to the OECD Youth Inclusion project in El Salvador for the reintegration of youth in conflict with the law “a comprehensive and integrated approach is required to formulate effective youth-oriented policies and programmes that go beyond the issue of violence and insecurity”.[42] Another example of a project to combat violence, however at a municipal level, is the USAID funding the “FORMATE” program for free vocational training for youth started in 2017, particularly for technical careers (English and IT).[43] The center in Colón is one of the flagships that also battle the misconception and stereotypes that all young people are connected to gags that curb job opportunities even for skilled youth. [44] The aforementioned is part of the larger assistance program of USAID to El Salvador with the objective of “violence prevention; human rights protection; building effective and transparent government institutions; strengthening economies; increasing trade; creating jobs; regional environmental activities; food security programs; and HIV/AIDS prevention projects. “[45]

TECHNOLOGICAL INNOVATION

According to WIPO’s Global Innovation Index 2021 that aims to capture the multi-dimensional facets of innovation in world economies via approximately 80 different indicators divided into innovation inputs sub-index and outputs sub-index, El Salvador overall ranks #96 out of 132 featured countries, which is a drop down from #92 in 2020 and an improvement to the 2019 #108 position. In 2021 El Salvador scored better in innovation outputs (#89) than innovation inputs (#100).[46] In the same report El Salvador ranks 15th among the 34 lower middle-income group economies and 14th among the 18 economies in Latin America and the Caribbean. Given the positive relationship between innovation (GII score) and development (income levels measured by GDP per capita) and the challenging level of economic development, El Salvador performs as expected.[47] Given that El Salvador has higher innovation outputs than innovation inputs that effectively translates into the fact that the country actually produces more and higher-quality outputs in comparison to the costly innovation investments made.[48] The findings indicate that El Salvador performs best in Creative outputs and worst in Knowledge and technology outputs. A comprehensive breakdown of level of performance of the different indicators is available in the report.[49]

As early as UNCTAD’s science, technology and innovation policy review from 2011[50] referencing the country’s science, technology and innovation (STI) policies, UNCTAD concluded in 2012 calling for “increased investment in science, technology and innovation (STI) to boost the country’s economic performance. UNCTAD’s review underlines the need for greater public and private investment in the creation of knowledge, which would in turn lead to new productive activities. Coherent public policies should be in place to make full use of the country’s human and economic potential, promoting innovation and capacity-building,”[51]

Extremely low levels in research and development expenditure (per cent of GDP) in El Salvador were reported in 2017 – 0.18115 per cent, according to the World Bank collection of development indicators.[52] Moreover, the firms that spend on R&D record a mere 8 per cent in 2016 in comparison to above 30 per cent in 2006.[53] To a large extent this is also the cause for the bad performance in innovation linkages and University-industry R&D collaboration in 2021.[54] World Bank data from 2017 shows that technicians and equivalent staff who perform scientific and technical tasks in relation to basic research, applied research and experimental development score 13 per million.[55] In comparison, the same year Austria had 2,648 per million. [56] Considering the serious problems of the country with deforestation and the low level of optimization in agriculture that accounts for 12% of gross domestic product[57], funding for agricultural research is still predominantly through government allocations and only 1 out of every 5 agricultural scientists holds postgraduate degrees[58]. In 2017, El Salvador ranked #72 in the world in “Ratio of researchers in research and development (R&D)”[59] and “El Salvador’s Ratio of researchers in research and development (R&D) “63.71196 (Per 1 million people)” is more than half lower than the median”[60].

According to ITU’s ICT Development Index, El Salvador ranks #119 in 2017 in comparison to 2016’s ranking at #117.[61] Data on ICT indicates the value for ICT goods imports in El Salvador was 5.10 per cent of total goods imports as of 2017. [62] ICT goods exports in El Salvador came at 0.24241 per cent of total goods export in 2019.[63] Unfortunately, the last available data on public private partnership investments in ICT (22 million USD)[64] and Investment in ICT with private participation (367 million USD)[65] is more than 20 years old with no new entries for later dates in the World Bank database. Notwithstanding, The United States of America International Trade Administration has stated in its 2020 Commercial guide for El Salvador that ICT is “the best prospect industry sector” for the country.[66] Statistics from the Central Reserve Bank of El Salvador, and U.S. National State trade data indicate that the US continues to dominate one third of the import market, followed by China and most of the domestic ICT produce takes place in the free trade zones.[67] The same source states that “In El Salvador, the ICT sector operates under a privatized legal and institutional framework since 1997, one of the most liberal ICT sectors in Latin America, encouraging competition in most areas and allowing foreign investment”.[68] That said, some of the biggest challenges in ICT development remain the broadband and accessible infrastructure.

The Global Initiative for Inclusive ICTs Digital Accessibility Rights Evaluation Index (DARE Index) globally ranks El Salvador at #51 with a score of 47/100 and performance requiring improvement in the areas of “Process to involve DPOs in ICT accessibility policy making”, “ICT accessibility courses available at universities” and “Country Policies and Programs Outcomes by Areas of ICT Accessibility and Level of Implementation”.[69]

According to the United States of America International Trade Administration the leading ICT sub-sectors with the highest probability of success include:[70]

Consulting, professional and technical services
Software development
Database management
Data center operations
Cybersecurity operations
Computer and network hardware and software
Telecommunication systems and products

The country’s transition to digital transformation effectively started in 2018 with the adoption of the Japanese-Brazilian Digital Standard (ISDB-T).[71] The two regulatory bodies responsible for the spectrum development and telecommunications respectively are the General Superintendence of Electricity and Telecommunications and the Superintendence of competition.[72] For instance, regionally, El Salvador is in close cooperation with the Uruguayan Agency of Electronic Government and Information Society receiving expert digital support.[73] Since 2019, El Salvador has been pushing forward with LTE services provision. Mobile penetration is comparatively high for the state of socio-economic development (higher than the average for Latin America and the Caribbean).[74] In 2017 the percentage of households with internet access was at 16.90, while the percentage of households with computers was at 20.80.[75] Despite the progress in enhancing access to digital resources, the digital gap remains with “active mobile broadband subscriptions in 2018 were below Latin American and Caribbean (LAC) and Organization for Economic Co-operation and Development (OECD) averages, while Internet users represented 33.8% of the population, compared with 62.9% in LAC and 83.4% in the OECD in 2017. More progress is needed in enhancing trust in the digital ecosystem.” [76]

An example of how a European company is engaging with the ICT sector in El Salvador is the Technological Corporation of Andalusia (CTA) winning its first Latin American tender (in cooperation with Consocio Creativo as a local partner) to support MSMEs (Micro, Small and Medium Enterprises). The project is tendered by Francisco Gavidia University of El Salvador and funded by the Central American Bank for Economic Integration (CABEI) and consists of providing consulting services for the development of 10 Salvadoran MSMEs in the ICT sector, which are part of the Germina Business Incubator and the Micro and Small Enterprise Development Center (CDMYPE UFG). [77]

El Salvador also has a recently established specialized body- The Technical and Innovation Secretariat, which has been very vocal in its intentions to initiate a guided process of digital transformation in order to encourage the social and economic development of the country.[78] The Secretary has the prerogative over developing and implementing digital identity and electronic signature services.” For this purpose, information registration systems are being standardized through adoption of a single informatics system in the Register of Vital and Family Records. Other planned projects include: achieving interoperable systems to facilitate exchange of digital information within public administration; integrating digital technologies into education curricula at all levels; and creating a regulatory framework for Fintech.” [79] In an effort to curb corruption and promote transparency, El Salvador devised the National Policy on Open Data in 2018 and went on to set up the open data portal Datos.gob.sv. [80]

The 2020- 2030 Digital Agenda is centered around four main pillars: 1. digital identity; 2. innovation, education, and competitiveness (boost the country’s standing in the Global Competitiveness Index currently at #103 of 140)[81] ; 3. modernization of the government; 4. digital governance.[82] The most prominent ICT service and product enablers include the digitalization of medical records at selected public hospitals; reduction of digital gap; setting up of centralized data center; electronic commerce, electronic signature, and electronic invoice implementation; biometric passport; and, national registry of mobile phone numbers.[83] By implementing the digitization of government processes and improving public infrastructure and services, the ambitious Agenda aligned with the United Nations Sustainable Development Goals and the eight national strategic projects[84] also aims at attracting foreign investments.

A Giga Connect opportunities report on El Salvador’s efforts to digitally transform the Latin America country with the support of local authorities, the private sector and USAID, outlines the education sector as a significant axes.[85] Highlights of the 365 million USD pact include initiatives to: enhance logistical infrastructure and connect the whole country to improve the investment environment; and expand digital literacy (education curriculum and teacher training) and equitable digital inclusion across all communities to improve the human capital.[86] The “One Girl, One Boy, One Computer” project is a direct reflection of the commitment to upskill students through device distribution and investment in digital content, considering that 29.7 per cent of schools are connected to the internet, however they have coverage below 10 Mbps, with the remaining schools unconnected or having limited connectivity.[87] Giga Connect is currently working with the Ministry of Education to map school coverage and accumulate connectivity school data. According to Giga Connect estimates, “school connectivity will require an estimated $34M of upfront capital expenditure and up to $15M of ongoing annual funding.”[88]

What’s more, the COVID19 pandemic appears to have reinforced the government’s commitment to using technology for access to education. As another step in the direction of becoming a country where all students are digitally connected, El Salvador obtained 1.3 million licenses for students and teachers in the public sector through an agreement with Google For Education.[89] “Video editing tools, Microsoft Office accounts, technical support, Google Classroom, and other platforms for the development of online classes” have been focused on providing the service and instructional kits for students, as well as the necessary training for teachers to develop digital competences.[90] The implementation of the innovative solutions would have proved redundant from the outset should it not have merited from the complementary “Data Plan for Internet Access” project, which “includes developing the connectivity and infrastructure for 4,780 schools in coastal areas- usually remote places that are difficult to access, and with lack of infrastructure- as well as the connection of more than 500 hospitals and health centers.”[91]

A pivotal part of the Agenda 2030 is the Smart Cities Initiative, which focuses on SDG3, SDG7, SDG8, and SDG11 by coordinating multidisciplinary efforts with the diverse social actors, promoting the use of connectivity and technology for the efficient resolution of the needs of citizens’ daily life and business operations, including:[92]

– Formulate and promote a Smart Mobility and Smart Traffic Strategy to decongest vehicle traffic and road safety using smart devices and data analysis, through institutional and technological mechanisms.[93]

– Formulate and implement a Clean, Intelligent and Decentralized Energy Plan that allows expanding the sources of obtaining renewable and environmentally friendly energy.[94]

– Tourism- formulate a Connectivity Plan and use smart devices in tourist sites for community assistance[95]

– Design, create, implement a Smart Cities Laboratory, which will allow the development of roadmaps to turn municipalities into smart cities through the creation of scale models.[96]

– Formulation and development of a strategy for the strengthening of Local Governments and promoting the transformation of smart cities (Smart Cities) in urban centers.[97]

– Smart Health- exploration and prototyping of new mechanisms to guarantee better public health provisions[98]

– Smart Urban Development-sustainability, technology and efficient resource management[99]

In practice, the Smart Cities Initiative largely emerged through the need for surveillance technology to confront crime and violence but has developed into comprehensive and “ambitious plans to modernize ports, airports, water and sewage systems, improve and expand mass mobility, lighting and surveillance of roads. There are opportunities for water metering, smart traffic solutions, smart lighting systems, cctv cameras, and city monitoring systems.”[100] One of the first instances of El Salvador pushing for technological innovation for smart city development took place in 2015 with the city of Sonsonate becoming the first city in Latin America to adopt GE’s intelligent lighting system (LED fixtures, LightGrid and a web central management system) in a joint project with UNITAPE Latino America that would provide “savings above 50% in energy consumption compared to the current obsolete and depreciated system of 175 Mw mercury lamps, as well as reduction of maintenance costs.”[101]

In 2019, the Inter-American Dialogue hosted “5G and the Evolution of Smart Cities in Latin America and the Caribbean,” an event in Washington, which featured Ernesto Muyshondt, the mayor of San Salvador. In his intervention he outlined the importance of improving public services for the most vulnerable groups in society through technology.[102] Once challenges in the cellular infrastructure and broadband availability are overcome, he noted that “flexible, adaptable platforms utilized in smart cities can address citizens’ concerns and help government provide better education, security and health outcomes”.[103] On the one hand Muyshondt emphasized the need for more private investments in the development of the ICT sector, while, on the other hand, he stressed the need for simultaneous evolution of “the legal and regulatory framework around telecommunications and new technology innovations”.[104] The ambition is for San Salvador to become a smart city leader through a robust collaboration on a federal and municipal level.

The period directly preceding the pandemic was very important in terms of the country’s current efforts to recover economically and socially from the impacts of COVID19 through international cooperation. Between El Salvador’s growing technology sector pushing the increase in FDI flows (724.8 billion USD in 2019) beyond remittances and helping the economy recover from a loss of approximately 200 000 formal jobs, contraction by approximately 8.7 per cent of the country’s GDP and the severe strain to 40 per cent of SMEs during the pandemic (according to Mauricio Choussy, former president of the Central Reserve Bank)[105], the establishment of even more comprehensive bilateral relations with countries exporters of development and investments like the US, China and India has become essential.

In 2019 visiting El Salvadoran President Nayib Armando Bukele Ortez and Chinese President Xi Jinping agreed to strengthen the cooperation between their two countries in infrastructure, agriculture, quality inspection, energy, and science and technology.[106] There also appeared to be willingness on both sides for jointly building the Belt and Road Initiative, setting a positive example for the region of Latin America.[107] A series of MOUs promised China to assist El Salvador with 500 million USD in development projects[108] and expand imports of specialty goods (e.g. sugar, coffee). During the same visit, Premier Li Keqiang also expressed his wishes that El Salvador would support Chinese enterprises who want to invest in the country.[109]

Again in 2019 Q3, El Salvador actively seeked Indian investments and expertise in artificial intelligence, security, renewable energy and infrastructure projects. In an interview, then Ambassador of El Salvador to India Ariel Andrade Galindo, said that “At the age of 37, President Nayib Bukele is the youngest leader in the region. Coming in with fresh ideas, he is working hard with a new team of ministers to make the country more investor-friendly … We are in the phase of getting to know what is good for the youth of our nation, incentives which would attract investors, and how to maximize our resources for the betterment of our own economy as well expanding our trade relations with other countries through key concepts as blue economy and orange economy … We are looking to India for technology related to several areas, from agriculture and water management to industry 4.0 and Artificial Intelligence.” [110]

In recent years, considerable electronics legislation has been passed in El Salvador in the context of the government’s wider efforts to modernize the country through the 2020-2030 Digital agenda that engages with issues of personal data management, cybersecurity and digital inclusion through fintechs. As a reference for the long road ahead for the country, it is important to note for instance that according to the Global Cybersecurity Index, El Salvador is performing below LAC and OECD averages ranking at #148th.[111]

A very indicative interview related to the latter was conducted by BNamericas with Daniel Leiva, an associate of Consortium Legal and an expert on El Salvador’s nascent fintech industry. Important highlights from the interview include:[112]

– The El Salvadoran fintech market is taking strides in development-moving away from traditional actors like banks and engaging with non-traditional actors like telecommunication companies and startup enterprises

– The El Salvadoran fintech regulatory environment is at an early stage with legislation available in terms of electronics and tech trade but not data protection or payment systems.[113]

-The COVID19 pandemic sped up the generation of new payment methods and introduced the emergence of new actors (e.g. online banking apps, payment solutions, etc.), both of which have contributed to greater financial inclusion. [114]

– The El Salvadoran financial system is comparatively robust with “the creation of marketplaces for entrepreneurs and small and medium businesses to energize activities, creating payment solutions and technological infrastructure to collect payments, inter-banking transfer ecosystems, and technological platforms for business management that allow them to do many business operations remotely.”[115]

– Headway is also being made in personal finance, crowdfunding loans and crypto/remote banking however regulatory barriers need to be taken into account as well as the fact that non-traditional intermediary activities cannot be effectively analysed due to lack of regulatory sandboxes and the unregulated crypto asset market.[116]

– The 2021 El Salvador e-commerce law will namely enable and regulate remote contracts that guarantee judicial safety for all parties involved in the trade process and would potentially stimulate the further adoption of digital tools. Combined with other upcoming legislation related to the digital agenda and financial inclusion policies, it is expected to positively impact investment prospects.[117]

The latest 2021 World Economic Forum Technology Pioneers cohort of a hundred young and growing tech companies focusing on innovation from artificial intelligence to healthcare to fintech, combined entrepreneurship and science to provide potential solutions to pressing global challenges.[118] El Salvador made its appearance on the list for the first time with Hugo Technologies, which is a SuperApp that provides a variety of services including food delivery, transportation, e-commerce and payments with a total funding of approximately 13.7 million USD from 6 capital investors.[119], [120] Hugo has managed to expand to other Central American countries, such as El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica, and the Dominican Republic. In addition, the company is expected to offer transportation services for people and financial services in the future.[121] There are only three other entries that are Latin America- based (Algramo, Chile: A platform connecting smart-reusable packaging with internet-of-things dispensers; Fondeadora, Mexico: Eliminating the inefficiencies related to the traditional banking system; and, Truora, Colombia: Fast, innovative, safe background checks and identity theft detection solutions).[122] For reference, alumni that have already featured in WEF Technology Pioneers list include Airbnb, Google, Kickstarter, Mozilla, Palantir Technologies, Spotify, TransferWise, Twitter and Wikimedia).

Another El Salvadorian tech company that has been growing during the pandemic is the IKÉ Virtual platform focused on construction services (property maintenance, remodeling, plumbing, appliance installation, shelf installation, painting, and cleaning, etc.). The company launched its mobile application in 2020 and made accessible a virtual registry of suppliers and independent professionals for users to choose from. Furthermore, “in 2020, IKÉ was handed the ‘best company’ award at the ‘El Salvador Colabora’ contest, which judges companies according to their impact on the country and their business potential”.[123]

Finally, a company that is expected to continue on its upward trajectory is SPOT. The company is also the most prominent enterprise in the country to specialize in creating corporate solutions with artificial Intelligence (AI) and machine learning (ML), facilitating the incorporation of intelligent analysis of images and videos for different companies and industries across Latin America.”[124] The International Entrepreneur Congress (CIES) in 2017 named SPOT as one of the most innovative startups in El Salvador. In 2018, SPOT participated in the startup Chile contest “where it was classified as the disruptive startup of Latin America at demand solutions”. Considering the growing importance of Artificial Intelligence and Machine Learning solutions in the commercial sector, SPOT is predicted to keep growing its business.[125]

Written by Angela Sarafian (AI 4 Development Agency Chief Operations Officer)

REFERENCES:

[1] Montgomery, T. S. (2018). Revolution in El Salvador: From civil strife to civil peace. Routledge.

[2] Wood, E. J., & Jean, W. E. (2003). Insurgent collective action and civil war in El Salvador. Cambridge University Press.

[3] Negroponte, D. V. (2012). Implementation of the Chapultepec Peace Accords: The Achievements. In Seeking Peace in El Salvador (pp. 131-143). Palgrave Macmillan, New York.

[4] https://time.com/6046941/el-salvador-nayib-bukele-crisis/

[5] https://www.latimes.com/world-nation/story/2021-05-16/nayib-bukele-the-most-popular-president-in-the-world-is-a-man-with-one-ideology-power

[6] https://en.wikipedia.org/wiki/Foreign_relations_of_El_Salvador#:~:text=El%20Salvador%20is%20a%20member,American%20Integration%20System%20(SICA).

[7] http://hdr.undp.org/sites/default/files/Country-Profiles/SLV.pdf

[8] http://hdr.undp.org/en/content/latest-human-development-index-ranking

[9] https://www.statista.com/statistics/802659/el-salvador-gender-gap-index-area/

[10] https://www.britannica.com/place/El-Salvador/Health-and-welfare

[11] https://www.worldbank.org/en/country/elsalvador/overview

[12] https://www.worldbank.org/en/country/elsalvador/overview

[13] https://www.tmf-group.com/en/news-insights/publications/2021/global-business-complexity-index/thank-you/#cta-reveal-anchor-publication

[14] http://happyplanetindex.org/countries/el-salvador

[15] https://www.hrw.org/world-report/2020/country-chapters/el-salvador#