Rebuilding a nation

Feb. 15, 2003
A resurgent El Salvador creates a tasty environment for food companies
A man, guitar in hand, emerges peacefully from a jungle canopy. Along the road, women in the shade of palm lean-tos sell coconuts to passing traffic. Nearby, armed guards patrol Mister Donuts, gas stations, strip malls and Wendy's. El Salvador is a lush, tropical nation of beautiful people overcoming the ugliness of civil war. Yet this contrast is its strength. Its people are dedicated to learning from the past and are passionate about building their future.The former Cold War battleground now boasts the most stable economy in Central America, and is working feverishly to make its location palatable to food processing companies."We are a country learning to live in peace," Guillermo Valiente, Investment Promotion Manager for Proesa, the country's economic development entity, aptly observes.And by all accounts, they are learning this new way of life quite well.Proesa, under the direct supervision of El Salvador's Vice President Carlos Quintanilla, is scripting an action plan for growth -- one that offers tantalizing enticements for investment, fertile grounds for agribusiness, and a dedicated workforce. "We see ourselves as a government that facilitates investment," Vice President Quintanilla told Food Processing during a November meeting at the presidential palace in San Salvador. "Many potential investors do not know about El Salvador. They still believe this is a country of war. They do not know El Salvador has, for years, been the most economically stable country in Central America."The country's fertile volcanic soil has always been a draw for agribusiness trade, but the current climate, both economically and topographically speaking, is ripe for business as well as sugar, coffee, and fruits."Since the peace accord was signed in 1992, El Salvador has been changing with its reconciliation process," continues Vice President Quintanilla, "and that has allowed us to maintain a stability not only on the economic side, but also on the social and political sides. Investors have a guarantee of stability. We are the fourth consecutive government here and we are every day growing with no inflation, no devaluation. We believe that the climate is a proper business climate for obtaining investors.""Politically we have grown a lot," adds Jose Carlos Bonilla, president of Embotelladora Salvadorena, the Central American operations hub of Coca-Cola "It has been one of the most successful rebuilding stories of the last century."Indeed, El Salvador has garnered some impressive recognition for its efforts."El Salvador has been cited as the model for conflict resolution by the United Nations," says Beatriz Peralta Avalos, executive director of Proesa and a graduate of the University of Pennsylvania's Wharton School of Business. "In the decade following the ,'92 peace accord, the country has enjoyed the second highest rate of economic growth in Central America, following only Chile."Green lands and greenbacksIn January 2001, the country dollarized its economy and privatized its infrastructure -- stabilizing the foundation of commerce and trade."Dollarization helped two things," explains Bonilla. "It lowers the lending interest rates, lowering the cost of capital, and gives comfort to the foreign investors who come here. It's made our country more attractive to foreign investors." Sr. Bonilla's point is accentuated by the fact that Proesa has been successful in attracting 65 companies from across the globe to the country in recent years. Late in 2002, Spain's Grupo Calvo, one of the world's top tuna producers, agreed to begin construction of a fishing/production facility that is estimated to bring $39 million in immediate revenue to the local economy.Like any culture, the more the differences are understood, the more they seem similar. El Salvador is, in many ways, like its northern neighbor. Through freedom comes prosperity. But it takes some getting used to."Making the transition from war to peace is very difficult," says Miguel Lacayo, El Salvador's Stanford-educated Minster of Economy. "But we believe in the same values as the United States. Democracy implies responsibility, and there is a link between liberty, democracy and development."La Constancia, S.A. BreweryHigh-tech has certainly made its way to El Salvador. La Constancia, S.A. Brewery is completely automated through a newly installed Ziemann operations system. The plant went on line in 1995, and a completely automated filtration system was added in 2002. The bottler of Cerveza Pilsener, Cerveza Premier and other beverages now produces 1.4 million hectoliters per year, much of which makes it to U.S. markets. The facility recently installed 12 uni-tanks, each insulated with an ammonia jacket and able to hold 3,600 hectoliters (six brews each). "Fermentation and storage takes place in the same tank," says Carlos Manuel Roca Molina, production manager. The beer remains in the tanks for about 20 days. "It's very good for the quality because you don't have to move it very often," Molina says. "Three bottling lines, made of Klockner Holstein and Steitz  and installed in 1996 fill cans liters and the 12-oz. 10 hours per batch and six batches or brews per dayThe brewery also installed a new malt milling system, and a fully integrated Buhler control system monitors the entire process with up-to-the-second temperature readouts and adjustments.Business advantagesSo revitalized is the Salvadoran economy that it enjoys an average inflation rate of only 1.4 percent. The country's leadership is intent on offering a fluid assimilation for potential investors by refining its infrastructure: roads, ports, customs, telecommunications and, perhaps most importantly, its workforce. In this effort El Salvador has established 15 "free zones" for export industry. The zones bisect the nation from east to west and offer the resources of millions of workers in nearby radii. Free zone infrastructures are essentially ready-made or made-to-order industrial and office parks linked to transportation centers. All of these zones are established, populating and under constant improvement.Shipping to the U.S. takes five days or less and the country has begun development of Porto Cutaco,"Every time we have turmoil, we come out stronger. We are survivors and constructors of our future."--Guillermo Valiente, Investment Promotion Manager for Proesa a colossal port by Central American standards, set to open in 2005. Global players like Unilever and Bimbo are already taking advantage of the benefits of proximity to U.S. and Mexican markets by establishing distribution centers in the country. There is already a warm market indeed; 33 percent of El Salvador's population is living in the United States and hungry for Salvadoran products. With 20 flights daily to and from the U.S., the cultural gap is disappearing. Companies like Arrocera San Francisco, S.A. de C.V., a distributor of Goya and manufacturer of Dona Lisa, among other brands, has been trading in New York and Western U.S. markets for years."We as a government can be the provider of the infrastructure the investor needs to do business, and that means, roads, better ports and better labor," says Vice President Quintanilla.Tiendecitas -- the network of economy.Palm-leaf lean-tos weave together the Salvadoran packaged goods economy. Generally operated by Salvadoran women and children in colorful dress, these tiendecitas purvey everything from fresh fish and coconuts to Coca-Cola and cookies. Often little more than shade, there are approximately 50,000 of these independently operated tiendecitas, which dot nearly every street, road and path in El Salvador. Collectively, they form one of the most independent yet concerted distribution networks in the Americas, and are the key to product distribution for small and large manufacturers alike."Eighty percent of our customers are tiendecitas," says Jose Carlos Bonilla, president of Embotelladora Salvadorena, the Central American operations hub of Coca-Cola. No matter how remote a tiendecita may be, it is well stocked with Coca-Cola and a menu of snack foods from Diana Productos Alimenticios and other manufacturers."The key to the success of our business is this distribution," says Renato Barrera of Diana Productos Alimenticios. "We go to the small mom and pop stores; that's what this region is all about."Diana has a fleet of some 70 trucks and small vans that navigate through the country delivering the multitude of snack products. "We know where to find them," continues Barrera. "We know the people."Shack-like structures or more developed, the tiendecitas also serve as cultural centers for both rural and urban Salvadorans. After working hours, the roadsides are lighted by tiendecitas sending music and aromas of native dishes through the humid night.Of course, there is more to business on foreign soil than roads and ports. It takes governmental cooperation in paper-trail navigation. Potential investors have, in this case, a governmental pledge to provide smooth sailing through paperwork. In reality, the country offers a one-stop window for all business permits."Many problems the investor has are the hidden costs of the bureaucracy, and that is somethingwe have been working very hard on since the beginning," says Vice President Quintanilla. "There is one office window where you can do every procedure to obtain your permit."The incentives are apparent for any size business and El Salvador has worked out a plan to keep the climate comfortable for foreign investors for years to come."You can have your company legally working in 10 days. There are no limits on foreign capital," continues Peralta. "You don't need a local partner. You can invest $2,000 or  $200 million. To further entice business, there are no taxes on capital gains; we offer duty-free imports of machinery, raw materials and intermediate goods for 10 years. Additionally, we offer a flat corporate tax rate of 25 percent." Export permits, through the Export Electronic System on-line clearinghouse, take bout 45 minutes and the country offers self-clearing, ISO-certified customs.Economy without bordersThe new government is "transparent," says Lacayo, in that its dealings are above board and easy to understand. "We should finish negotiating with the U.S. and Canada in the next couple of years. When people go to a foreign country they generally find a lot of red tape. That is not the case here. The cost of doing business is very predictable."El Salvador FactsYear-round average temperature: 77 degrees FPopulation: 6.2 million , 70 percent under 34Minimum wage: about $144 per month.Less than 10 percent employee attrition per yearNovember marks the beginning of the dry seasonMay starts the wet seasonIn the early 1800s Central America was one nationEl Salvador claims to be one of the top seven surfing destinations of the world.In January, the White House officially opened negotiations with five Central American countries (collectively importing a reported $9 billion in trade each year) to create a free trade agreement within a year. U.S. trade representative Robert B. Zoellick now has chief responsibility for promoting improved NAFTA-like relations with Central America, which, in turn, exports a reported $11 billion to the U.S. The move puts the U.S. in straight competition with a European push for trade leverage with an Argentine, Brazilian-led consortium.El Salvador as an individual concern is small, and country officials know that. But there is strength in resolve and the country is working to be part of the global economy."Half of our trade is with the U.S.," says Lacayo, "and Central America as a region is number 19 as a buyer of U.S. goods. We are about a year and a half or so away from eliminating the [commercial] Central American borders. We still need to harmonize fiscal policies. We want to ensure we have similar policies.""Both current [U.S. and Canadian trade] agreements are with Central American countries, which is important because separately we cannot succeed in this globalized world," says Vice President Quintanilla. "It has forced us to prepare our strategies and discuss our differences. With those agreements, we will be part of an extension of NAFTA, meaning that from Canada to Panama we will have the biggest region of free trade. "Not many people know that we are an important trade partner of the United States," he continues. "Sixty percent of our trade is with the U.S., as El Salvador, but if you add the trade of seven Central American countries, we trade with the U.S. in the same quantity as Brazil, mainland China, or Spain. As a region, we are the third largest trade partner of the United States."El Salvador is hoping many of the tools its government has developed, in addition to commercial incentives, will make the country attractive to investors"Many do not know about the telecommunications facilities we have established," says Vice President Quintanilla. "It is probably cheaper to talk from El Salvador to Los Angeles than New York to Los Angeles."
Diana Productos AlimenticiosDiana, a family business founded in 1951, is the nation's largest snack-maker, supplying some 80 different candies and snacks to the southeastern, southwestern and southern U.S.Diana is typical of Salvadoran company because of its dedication to its 3000 employees. A family may have three generations working in its facilities, and Diana offers on-site medical clinics, occasional on-site housing and educational opportunities "Some people actually learn to read here," says Renato Barrera, gerente de nuevos mercados.Diana uses a fleet of 60 to 70 small vehicles to make deliveries to tiendecitas cross the country"It's a sentimental market," says Barrera. "We are more concerned with volume than price point." The vertical company makes its own flour and processes its own oil."Labor costs are more expensive in the United States," he adds. "In agribusiness are the opportunities you can find here that are not in the United States; there are agricultural products that cannot be grown in the U.S. These can be exported to the United States and be something different for the U.S. consumers."
Embotelladora Salvadorena (Coca-Cola)Embotelladora Salvadorena is a fine example of how El Salvador welcomes a global economy. The subsidiary of SABMiller is not only aware of the value of global interactions, but is very intent on ensuring the future of El Salvador as a land."We have a serious ecological program," says Jose Carlos Bonilla, president of Embotelladora Salvadorena, the Central American operations hub of Coca-Cola. "We are actively participating in reforestation and have provided more than two million trees. It is impossible not to make use of the natural resources, but it is important to compensate," says Sr. Bonilla.Strength in its peoplePerhaps nowhere is El Salvador's advantage more clear than in its workforce, one that is both dedicated and hungry for advancement."A key advantage is our labor force," says Peralta. "There is a strong cultural work ethic."The people, she explains, are aware of their disadvantage and willing to work together to continue the rebuilding of the country. "Truly we have a poverty problem," says Vice President Quintanilla. "The way to overcome that is to create jobs. The only way to create jobs is to increase our productivity, so we then need to find markets. So we need to determine where to sell our products."To ensure this growth, El Salvador is working to educate its people with a 158 percent  increase in its education budget. A labor training institution, INSOFORP, was created to customize training and employee education in concert with companies' needs. El Salvador has also revamped a number of its Master's-level business schools."Through INSOFOPR, we can set up programs for companies," says Lacayo. "The areas we need to concentrate on are strengthening our human resources in technical areas. Business people are involved in the development of the curriculum.""I see the young people here being very well qualified these days," says Bonilla.In accord with building the minds of its people, El Salvador is intent on ensuring any intellectual property rights within its borders. Vice President Quintanilla was on his way to collect an international award for the country's advances in intellectual property rights the day after his meeting with Food Processing. The country is also a member of the World Intellectual Property Organization. It is an issue it takes very seriously.Today, country officials say, they feel prepared to offer a peaceful, prosperous and cooperative environment for any food processing company."El Salvador is now known," says Lacayo. "Now it is considered a good alternative if you are targeting the U.S. market or the Canadian markets. We don't blame anyone else for our past troubles, but with free trade we can build our economy fairly.""What this country needs now is foreign investment," adds Bonilla. "El Salvador has done its homework.""Every time we have turmoil, we come out stronger," says Guillermo Valiente, a Texas A&M graduate. "We are survivors and constructors of our future."http://www.elsalvadorworks.com/

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