El Salvador: the first economic (and social) policy should be increasing exports

If El Salvador wants to increase its growth rate, the first economic (and social) policy should be increasing exports, especially the ones from SMEs. The Salvadoran market is so small that businesses do not reach an appropriate level of economies of scale by serving just the local market. Development policies should be focused on expand exports opportunities.

According to CONAMYPE (2018), 90.6% of the exporting businesses are in La Libertad or San Salvador. The ability to export should not be a luxury that only centralized businesses may have access. In addition, contrary to expectations, access to credit is not the main constraint that SMEs reported in CONAMYPE (2018). One out of four SMEs stated that low profitability and the absence of new markets outside the country are the binding constraints for their development.

Percentage of exporting businesses in El Salvador (2017)

Source: CONAMYPE 2018

An export promotion policy starts with technical advice to SMEs. In several cases, SMEs does not know about access to technologies, distribution channels, and new clients in other countries. Without this know-how it is practically impossible that firms reach economies of scale, so we can observe lower prices in the Salvadoran markets. In the same line, Cardoza et al. (2015) argue about the domestic business environment along with the poor information on potential host markets are high barriers for the companies’ international expansion.

Promoting exports is also a social policy. SMEs contributes to society by lifting people out of poverty. We cannot expect that firms will generate all the jobs that our country requires by just selling the products or services internally. The upcoming government should realize that the first step to development is expanding markets.

Sources

https://www.transparencia.gob.sv/institutions/conamype/documents/estadisticas