Project assistance completion report of the industrial reconstruction project no. 519-0323

Before the passage of Section 599 of the Foreign Assistance Appropriation Act of 1993, the project supported the development of three private free zones (El Pedregal, El Progreso, and San Marcos) through funding of pre-investment studies, TA, and training on free zone administration and operation through the Salvadoran Foundation for Economic and Social Development (FUSADES), and construction of public services infrastructure through the Government of El Salvador (GOES). The project also trained Government officials on credit analysis of free zone projects and on how to provide better support to export activities. As of 12/93, achievements of the free zone development phase included: 10,200 new jobs, some 8,670 of which benefitted women; $22.6 million in new exports; 52,900 square meters of industrial space built; 35,000 square meters of industrial space rented; and 14 export firms operating in three free zones. By 6/98, the three zones had generated 15,255 jobs, a number expected to swell to 30,727 after El Pedregal reaches full capacity. The project also promoted the construction of four additional free zones, two of which -- Export Salva and American Industrial Park -- are already in operation and to date have generated 8,400 new jobs, and Lido and El Salvador, which will begin operations by 11/98. Because of the Mission's 7/30/96 decision to deobligate $9,255,345 from the project and reduce its goals, the achievements of the industrial reconstruction phase were reduced to the performance of only the feasibility and design studies of Concordia Industrial Park. These studies were completed by 12/96 and are being used by the Technical Secretariat for External Financing (SETEFE) to build the public services infrastructure for the park. Although industrial development is not currently an area of interest to USAID, it requires further development and should be promoted. The free zones have benefitted and continue to benefit an important portion of El Salvador's poor population and have also contributed to industrial development. The following lessons were learned: (1) Since industrial development generates employment rapidly, the promotion of free zones and industrial parks could be a very good economic alternative for countries like El Salvador, where agriculture is hindered by geographic, financial, and technological constraints. Industrial development provides employment opportunities to less qualified labor, thereby increasing their economic and social opportunities and lessening social and political pressures. (2) The generation of employment in the formal sector through industrial development highly benefits labor by opening its economic and social opportunities through the access of housing facilities through the Fondo Social para la Vivienda, and medical care and retirement programs through the Instituto Salvadoreno del Seguro Social.