With remittances rising to well over $600 billion worldwide in 2017, there’s a newfound spotlight on the countries receiving their fair share of payments.
According to World Bank data, payments to Latin and Central America were particularly robust at a growth rate of 8.7% (representing approximately $80 billion total, a record-high). One notable recipient seeing a boom was El Salvador with nearly 10% growth alone.
But as more and more people sending remittance to El Salvador, the public might be curious as exactly why these payments are a must-have for native families.
Unfortunately, El Salvador appears to be making headlines lately for all of the wrong reasons. This can help clue us in on the situation there and why the country continues to be increasingly reliant on remittance.
We’ve outlined four significant factors impacting El Salvador’s economy to shed some light on the subject. While some of these issues may be well-documented, others perhaps aren’t so obvious to those who aren’t familiar with Central America at large.
Lack of a Notable Export
El Salvador is perhaps best known to the rest of the world for its coffee. Up until the 1980’s, the future was bright for the country’s coffee production as it represented a sort of cash crop that set it apart from its neighbors.
But inclimate weather in the form of frequent storms as well as the epidemic of coffee rust has crippled El Salvador’s coffee exports over time. Combined with the country’s civil war bringing the coffee industry to a halt, production is still going strong but nowhere near the level it once was.
Violence and Gang Activity
El Salvador’s unfortunate reputation of having some of the highest crime and murder rates in the world certainly hasn’t helped the country economically. This obviously has a negative impact on locals, but also any potential tourist income from visitors interested in Central America.
There’s the oft-cited statistic that 10% of people in El Salvador are somehow affiliated or impacted by gang violence. This creates a massive strain on public resources, and also creates a dangerous cycle where youth might feel the only way to escape poverty is by getting involved with gangs themselves.
Limited Opportunities for Young Workers
Given that the young working population doesn’t want to get caught up in the cycle of poverty or gang violence, it’s no surprise why these natives decide to uproot. This creates a phenomenon where fewer young people decide to start businesses and instead seek opportunities elsewhere.
Despite being friendly to business owners tax-wise, the social climate essentially puts a damper on the country’s economic climate.
High Population Density
Based on El Salvador’s population profile, the country represents over 6.3 million people which makes it the most populous in Central America.
However, it’s also the smallest by area.
Population density is sometimes overblown by critics of countries impacted by poverty, but this problem certainly applies to El Salvador. Cramped conditions have resulted in conflict with neighboring countries as natives are desperate to find places to settle and opportunities to work, even where they’re not necessarily available.
From both a social and economic perspective, the financial situation in El Salvador is an interesting one to watch. Although we obviously hope that the country’s economy sees an upturn, trends seem to show that reliance of remittance will continue as workers abroad continue sending their support back home.