El Salvador’s garment industry has served as an engine for the country's economic development over the past 20 years. This sector has, by far, increased its manufacturing capacities, and the services offered range from yarn spinning to the full production of the garment; this has resulted in the reception of more investment than the rest of sectors. Currently, more than 260 textile and apparel companies, including many of the apparel industry’s top brands, already call El Salvador home. The country offers a variety of services, including embroidery, industrial laundry, dyeing and finishing, cutting rooms and packaging, which have helped manufacturing operations such as Sara Lee, Levi’s, and Liz Claiborne. Many others companies outsource their production and rely on the working ethic of Salvadorans to compete in today’s crowded marketplace.
Given the industry’s growth, many of the existing companies in the country are converting to “full package” and developing the supply chain through distribution centers for the necessary provision of materials required for the vertical integration and sustainability of the industry.
The high point of development in the Apparel Industry in found between 1990 and the year 2000, driven initially by access preferences to the US through the Caribbean Basin Initiative (CBI). To date, the sector employs approximately 90,000 people, uses over 700 thousand square meters of industrial space, and has reached a level of exports surpassing 1.8 billion USD in 2004.
The main factors contributing to the success and development of this industry in El Salvador are related to its geographic proximity to the main market, attractive production costs vis-à-vis with the rest of the region, and human resource availability with the capacity to provide high productivity indexes. The scheme of preferences granted through the CBI has had an evident incidence on industry make up, which has been characterized by the growth of the apparel manufacturing sector, specifically apparel for the US market. However, due to the broadening of the CBI Program in the year 2000, the industry has witnessed the incorporation of larger value added processes as well as diversification by allowing cutting, sewing and use – under quota – of knits manufactured in the region with US thread.
With the ratification of the Central America free trade agreement with the Dominican Republic and the Unites States of America, sector growth and expansion opportunities have broadened substantially, due to the freedom granted by the textile rule of origin and also by the fact that treaty ratification converged with the recovery of trade activity and the demand of apparel in the United States and European markets.
The rule of origin under the treaty is much broader, allows access to 0% tariffs for fabrics manufactured in the region with regional thread, as well as apparel manufactured with both of the before mentioned.
There is also the possibility of carrying out coloring and finishing operations in the region. Exceptions to the rule are established, allowing the use of thread and fabrics from third party countries, as long as they do not exist in commercial quantities in the member countries (these are established in a scarcity list). In addition, there are those apparel categories that can enter the United States under the rule of substantial transformation, which involves simple assembly within the region – allowing the fabric to come from any country in the world.
Investment Opportunities
Fabric is the main component in apparel. In El Salvador, 50% of apparel manufacturing is done using US fabric, 40% with fabric from Asia, and only 10% with local fabrics.
The fabric deficit in the region makes textile investment appealing, especially when fabric manufactured with synthetic fibers, such as nylon, polyester, micro fibers, and others, pay 32% import tariff to the US market if imported from Asia.
The global trend of the industry marks the decrease in the cycles demanded for production and delivery, which adds to the advantages of having a vertically integrated industry close to the target market in order to serve niches with a high fashion content and high rotation such as: sport apparel, women’s clothing (blouses, skirts, swim suits, dresses), dress shirts for men, socks, etc.
The dry tropical climate of El Salvador provides an excellent environment for a great variety of agricultural products. The average temperature in the country is 77°F (25°C), with an average monthly rainfall of 300 mm during the rainy season, allowing production and harvesting year round.
El Salvador’s geographic location allows the delivery to the east and west coasts of the United States in time periods less than a week by sea and air cargo connections, with over three daily flights to Miami.
Within its economic development strategy, the Salvadoran Government is promoting the growth, culture and processing of high quality agroindustrial products, valued highly in the global market. El Salvador is committed to diversifying agriculture, promoting programs and reforms that promote the development and use of new technologies. Areas of prioritization include food, vegetable, fruits, decorative plants, and marine industries.
For further information on the sector please contact:
Juan Zepeda / jzepeda@proesa.com.sv
Alejandro Carías / acarias@proesa.com.sv
Luisa Valiente / lvaliente@proesa.com.sv
• Textile & Apparel – Investment Advisors