El Salvador’s garment exports are forecast to rise 6% to roughly $2.3bn this year as the US lifts demand for the country’s performance and cotton apparel, executives have told just-style.

Exports “grew 5.6% in the first half so we could grow 6% this year,” says Patricia Figueroa, general manager at main industry association Camtex, adding that Central American neighbours are also demanding more of its fabric feedstocks to assemble clothing for US shipment.

Indeed, El Salvador in June booked the highest year-on-year growth of the top ten largest apparel suppliers to the US.

The hike comes as neighboring Nicaragua is expected to slip into recession as a major political crisis has brought violence and spooked global clothing manufacturers. While the spectre of rising violence in Guatemala and Honduras is also unnerving investors, El Salvador has a more peaceful outlook that could rev up investments, the executives add.

Hanesbrands is expected to complete a $10m expansion by year-end, adding 600 jobs to its operations in capital city San Salvador. The basic apparel and activewear maker in July added a new $5.2m finished-garment dyeing site to its San Juan Opico factory employing 1,900 operators.

An additional $5m investment is expected to take place to further expand production this year. That, in addition to strengthening investments by knitwear maker TexOps, which supplies yoga wear for Lululemon, and other spending from synthetics manufacturer Pettenati and sewer Textufil, could see investment surpass 2017 levels, sources say.

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Garment makers are also winning a rising number of fast-fashion orders including Varsity sport jackets, while El Salvador is making more products for children’s activewear label St Jacks including its FitOne “dry-tech” line, according to Figueroa.

10-year plan on track                                                   

Synthetic socks and pants, cotton pullovers and T-shirts are topping international orders, she says, adding that manufacturers are working to launch new performance and functional fabrics including heat-and-cold resistant varieties.

Meanwhile, a 10-year plan to boost the industry’s fortunes is also underway. Figueroa cautions, however, that the scheme is being pursued internally instead of through a public campaign like Honduras, whose 2020 development plan is seen as a game-changer, wooing large investments.

“This is an internal route the industry is pursuing and we are making headway in one of the chapters, which is improving human capital by launching [fashion] design careers with Fomilenio” a social aid programme that receives US funding. “We are looking for the right government and private sector partners” to take the plan forward.

The decade-long scheme also calls for El Salvador to streamline customs and accelerate synthetic apparel and yarn exports to the US to boost its regional competitiveness.

Stable elections?

Following legislative elections in March, El Salvador has a more democratic, pro-business congress that should help mediate a peaceful change of guard in February. Incumbent, left-wing presidential candidate Hugo Martinez will then face opposition front-runner Carlos Calleja and millionaire newcomer Nayib Bukele.

“Congress is more business friendly so if the least favorable candidate wins, he won’t have free hand to do whatever he wants,” says Juan Zinghelboim, president of TexOps, adding that manufacturing investments are set to grow as US-China trade war uncertainties, and the views of some investors that El Salvador could have a peaceful transition, boost sourcing interest.

Zinghelboim says the wage front also looks calmer after the country agreed to have the International Labor Organization (ILO) mediate in future hikes. A 39% wage jump last January angered many maquilas who had expected a gradual increase, fuelling concerns that they could depart the country. The country lost 6,000 jobs or 7.4% of its labour force as a consequence.

He adds things have stabilised since then, and despite rumours that TexOps was considering leaving the country, he says the firm remains committed to El Salvador and is improving customer services with exports set to jump 10% in 2018.

Limited capacity

As demand rises, Zinghelboim concedes El Salvador does not have enough capacity to meet an avalanche of apparel orders and that the future government should work to boost manufacturing capacity to help the country prepare for a possible spike in orders.

“It is not possible for a particular factory to increase its capacity in the short term and, while we see an improvement in the [political/business] environment, we are not going to suddenly increase capacity like crazy. We need to grow prudently and at our own rhythm,” Zinghelboim concludes.

Despite views that San Salvador could see a peaceful transition, its outlook could still turn volatile, analysts say.

“Risks to the outlook are tilted to the downside,” Fitch Ratings said on Tuesday (14 August), adding that real economic growth will remain modest, hovering at 2% this year and 2.3% in 2019. It added a shift in US immigration policy could also accelerate deportations and cripple key remittance flows to El Salvador, while the elections could see political gridlock.

The possibility of a US recession as the country enters its 10th year economic cycle also looms in the horizon, it added.

According to re:source, the new online sourcing tool from the team behind just-style, El Salvador is one of the major suppliers operating in the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) region, which also includes Honduras, Nicaragua, Guatemala, the Dominican Republic and Costa Rica. For all these countries, the US is by far their largest market; they have the advantage of close proximity to that market; and they enjoy duty-free access. El Salvador also benefits from local textile production in the country with vertical integration offered by most manufacturers. Accessories and trims are also available.