EL SALVADOR - Economy
Managing Partner, Torres Legal
Bio
Hector Torres is Managing Partner of Torres Legal.
El Salvador is sending a consistent message about attracting investment. Legislation has been improved and expanded, including benefits in the Free Zones Law, the International Services Law, and laws aimed at promoting innovation and technology manufacturing, as well as reforms in the Income Tax Law. All these business-related regulations changes provide a level of certainty that encourages both national and international businesses to invest and operate in El Salvador. A notable focus is on innovation and technology, with laws designed to enhance the local industry and create a secure environment for innovators and tech companies. The goal is to position El Salvador as a platform for the world. The legislation offers significant tax incentives, with the condition that businesses reinvest 5% of their total budget into innovation, either within your business or through third parties such as associations or foundations that promote or develop new technologies. An important aspect of this law is its focus on technologies that can be integrated into the global production chain and be scalable, one of the main challenges for tech companies. This law offers benefits to develop El Salvador not only as a technological hub, but also for motivating its population to further their education. So, from a human capital perspective, which not everyone considers, this legislation is incredibly valuable. There is a positive feeling, and it all starts with security which has created opportunities, and naturally, the economy needs to improve alongside this growth. We have already seen reports from the International Monetary Fund and better risk ratings for El Salvador, showing that the country’s bold bets are paying off.
The adoption of decentralized technology is one of the greatest gifts that Bitcoin has brought to El Salvador. People have realized that decentralized business models are more efficient, faster, and more secure than previous technologies. The traditional banking sector has responded by leveraging technology to offer more accessible financial services. This evolution is creating financial inclusion, particularly in countries like El Salvador, where over 70% of the population has traditionally been excluded from the financial system. In the early 2000s, El Salvador passed a law to promote financial inclusion, but no further progress was made. The Bitcoin Law has made significant strides in just a few months. The key is creating an ecosystem that supports scalability and interoperability among financial actors, allowing fintech companies and banks to collaborate on offering diverse financial services and products. In particular, fintech companies can serve customers with lower amounts, providing essential entry-level access that traditional banks might overlook. Fintech lowers barriers to accessing financial services, expanding beyond just bank accounts to include lending, investments, and more. While there is no specific fintech law yet, existing legislation is shaping a more inclusive financial landscape.
The primary challenge is finding a niche or an opportunity in the market to fill. If that niche or opportunity is already occupied, the next step is to assess whether I can be more efficient than those who are currently there. After that, it is about having a service that is scalable across Latin America. El Salvador is a small market, so it is essential to ensure that scalability allows for expansion within the region, not just within one country. However, El Salvador serves as an excellent base for operating across Latin America. Another significant challenge is constant innovation. For financial institutions, the biggest challenge is not letting technology surpass them and not becoming complacent simply because they have resources. Fintech companies can scale and increase in value so exponentially that acquiring them might become too costly for traditional financial institutions. Overall, I see a promising future for companies that establish themselves in El Salvador. They just need to stay vigilant and maintain technological leadership to compete in a rapidly changing landscape.
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