Overview
National Focus
Amid the global shift towards digitalization, El Salvador is positioning itself as a key player in Central America’s evolving digital landscape. The Salvadoran government has launched ambitious initiatives, such as the National Digital Agenda, to accelerate digitalization across various economic sectors. These efforts include expanding internet access, enhancing digital literacy, and establishing a comprehensive legal framework to support technology and innovation. Landmark legislation, including the Digital Assets Law and the Promotion of Innovation and Manufacture of Technology Law, underscores this commitment by promoting digital currencies, regulating digital assets, and fostering innovation. The risks of El Salvador using Bitcoin as legal tender identified by some international financial institutions have not materialized. El Salvador’s digital initiatives are laying the groundwork for a dynamic digital economy poised to drive economic growth and create new opportunities for businesses and consumers alike.
Projected Digital Economy Growth: El Salvador’s digital economy is set for robust expansion, driven by the government’s strong commitment to technology and strategic infrastructure developments. The government aims to position El Salvador as a prominent tech hub in Central America, with numerous forthcoming projects centered around this goal. Key initiatives include developing e-government services to streamline public administration and implementing digital payments to enhance financial inclusion. Central to this growth are significant investments in digital infrastructure, such as broadband network expansion and data center development, which are crucial for boosting connectivity and supporting economic advancement. With aims to develop its tech sector and a growing consumer interest in digital platforms, El Salvador shows potential as a participant in the digital economy, offering possible opportunities for businesses and investors.
Market Challenges
Regulatory Environment
Despite the promising opportunities within El Salvador’s expanding digital economy, several challenges need to be addressed. Key concerns include establishing a secure and regulated environment for digital transactions, protecting data privacy, and addressing infrastructural and logistical barriers. The data privacy framework, Law on the Protection of Personal Data in Possession of Private Parties, remains under development;. However, a draft has been prepared and awaits political approval. There have been no updates since November 2023. The data privacy legislation would also designate the Ministry of Economy as responsible for the supervision of cross-border data transfers. Additionally, there has been no progress on cybersecurity legislation, and the absence of a central authority responsible for its implementation adds complexity to the regulatory landscape. Unclear standards for emerging technologies such as AI and IoT further contribute to regulatory uncertainty.
Digital Trade Barriers
Digital trade barriers in El Salvador present several challenges. A notable example is the Credit History Law amendment passed on August 17, 2021, which introduces data localization requirements, mandating that credit bureaus and economic agents store data and backups exclusively within El Salvador, and grant unrestricted access to the Central Bank and the Superintendency of the Financial System (SFS). As a result, U.S. stakeholders have raised concerns about potential compromises to consumer data privacy and protection. Additionally, technology barriers, including restrictions on certain technologies and services, may impede foreign companies’ operations. Limited internet infrastructure and regulatory obstacles could also hinder the expansion of internet services, particularly in rural areas. Furthermore, third-country influence on technology standards and procurement processes may create competitive disadvantages for U.S. companies. In response, the United States actively engages with El Salvador to address these concerns and seek balanced solutions that ensure data security while meeting regulatory needs.
Digital Trade Opportunities
El Salvador’s digital transformation presents several key areas with significant potential for investment and collaboration:
E-Commerce and Digital Payments
With the rise of online shopping and digital transactions, there is growing demand for e-commerce platforms and digital payment solutions. U.S. companies specializing in fintech, payment gateways, and digital wallets can capitalize on the expanding market by offering innovative solutions that cater to both businesses and consumers.
Infrastructure Development
Investments in digital infrastructure, including broadband expansion and data center development, are crucial for supporting the country’s digital economy. U.S. firms involved in telecommunications, network solutions, and data center operations can find opportunities to contribute to these infrastructure projects and benefit from the growing demand for robust digital connectivity.
- Fintech Solutions: The Salvadoran government’s push for financial inclusion and digital payments opens doors for U.S. fintech companies to introduce innovative banking solutions, digital lending platforms, and blockchain technologies. These solutions can help address gaps in the financial system and enhance accessibility for underserved populations.
- E-Government and Digital Services: El Salvador’s efforts to streamline public administration through e-government services create opportunities for U.S. companies specializing in digital government solutions. Projects related to digital identity management, online public services, and data management systems have potential.
Education and Digital Literacy
As digital literacy becomes increasingly important, there is a demand for educational technology and training programs that can help individuals and businesses adapt to new technologies. U.S. companies in the Edtech sector can explore opportunities to provide digital education tools and training programs to support the workforce’s transition to a digital economy.
Cybersecurity Solutions
With the growth of digital transactions and online activities, there is an increasing need for robust cybersecurity measures. U.S. companies offering cybersecurity solutions, including threat detection, data protection, and risk management, can address emerging security challenges and contribute to creating a safer digital environment.
Innovation in Traditional Sectors
Digital transformation is not limited to tech-specific industries; traditional sectors such as agriculture, manufacturing, and healthcare are also undergoing digital changes. U.S. companies can explore opportunities to introduce digital tools and technologies that enhance productivity, efficiency, and sustainability in these sectors.
Helpful Resources
- National Digital Agenda
https://www.innovacion.gob.sv/downloads/Agenda%20Digital.pdf
- SecretarÃa de Innovación
https://www.innovacion.gob.sv/
- National Trade Estimate Report by USTR
https://ustr.gov/sites/default/files/2024%20NTE%20Report_1.pdf
Interested parties may contact Senior Commercial Specialist Carmen Saprissa at carmen.saprissa@trade.gov