Entrepreneurs without money (XV). Let´s learn about El Salvador from the perspective of its entrepreneurship journey after the local civil war.
Last week we posted about my personal concerns in relation to establishing economic ties with China. Why? I simply have not been involved in any type of activity related to decision making in terms of commercial cooperation between El Salvador and China. What I write here or on Twitter in relation to these matters is based on public information I have seen from media news, or from the internet. Little I know, if at this specific moment of time, the Government of El Salvador has been negotiating the terms of any commercial agreement with the Government of China, and I apologize in advance if my value judgments are hypothetical, or too-soon / too-late to express.
Nevertheless, when reading the news about this topic last week, a question came into my mind. What is the value added of establishing diplomatic, commercial-economic relations with China? Which contexts apply to this question? In addition, I couldn´t give an answer right away. I had to think about it. For several days.
Today after thinking for quite a while, and keeping my original mental model of a corporate strategist, I framed my thoughts from the perspective of an entrepreneur journey of sailing. Similar, as when we commit to racing a Volvo Ocean Race Regatta: El Salvador country entrepreneur sailing journey to become a profitable country with advanced education and flourishing industries. I will start writing about general things from El Salvador economy, an economy that was blocked by a civil war of more than a decade in the 80s.
Let´s start with a metaphor. After the war, in the year 1992, we ended sailing in a boat like this one:
And now, the most flourishing cutting-edge modern countries are sailing with beautiful modern boats. The Champion of the Volvo Ocean Race 2017-2018, the Chinese Dongfeng journey looks like this one:
When we compare the Dongfeng VO65 Class boat model, with the first one, we can understand why of my worries. Realistically, in some industries, we are competing in the global business landscape with a VO65 Class boat model, but we are still in many industries struggling to leave the VOD (Valley of Death) stage to become an industry startup.
Source: The impact of corporate characteristics on the financial decisions of companies: evidence on funding decisions by Italian SMEs. 13 January 2016
Background about El Salvador:
El Salvador Economic Activity Map (1980), before the civil war.
There are general economic aspects to understand my country. “El Salvador achieved independence from Spain in 1821 and from the Central American Federation in 1839. A 12-year civil war, which cost about 75,000 lives, was brought to a close in 1992 when the government and leftist rebels signed a treaty that provided for military and political reforms”. During the last decade, El Salvador has been struggling to diminish its level of violence. For years this country has been known as one of the world’s highest homicide rates because of pervasive criminal gangs. The Government has been looking for international help (non-reimbursable cooperation funds) to eradicate this problem from its roots.
From the economic perspective, at the moment, El Salvador is the 99th largest export economy in the world. In 2016, El Salvador exported $5.71B and imported $9.9B, resulting in a negative trade balance of $4.18B. But the remittances flow from Salvadorans living in the USA is around the same level. In 2016 the GDP of El Salvador was $26.8B.
El Salvador has a group of industries or economic sectors. Some of them are traditional with origins in the earliest 1900s or beforehand. For example, the coffee industry. Other industries are nascent, or new, and started their entrepreneurship road challenge after the peace agreements of 1992, for example, the textiles industry. Many economic sectors were wiped out by the war, such as the cotton production industry. Some of these industries were not rebuilt, they were substituted by others or became obsolete; meanwhile, others started as a conceptual idea and evolved the pre-seed and seed stages, to become industry early start-ups in the 2000 decade, and now are in their emerging to mature transformation stages.
Even though the next graphics do not show the total segmentation of industries as a percentage of GDP, I would like to show you the exports from El Salvador, as a way to understand what is happening in our economy. It is interesting to compare them in order to grasp our local industries evolution. Please visit the following website if you wish to see the evolution of Salvadoran exports yoy (year over year): The Observatory of Economic Complexity by Alexander Simoes.
The first graph is about how was our exports segmentation in the year 1980. This was the screenshot of our exports at the beginning of the Civil War between the left guerilla and the government of that time. I was 10 years old by then.
What does El Salvador export in 1980? Total exports: 1.4 Billion USD. Source: OEC by Alexander Simoes.
In the year 1990, when I was 20 years old, two years previous to the Peace Agreements, our exports were reduced in size to 541 Million USD, and we can observe that coffee exports were reduced by 16%. The war was fought in the rural areas, particularly in places where the coffee producers had their production “fincas”. The family owners of coffee left El Salvador escaping from the violence too. The Coffee industry was hit directly by the local civil war. We can see it in the following graphic:
What does El Salvador export in 1990? Total exports: 541 Million USD. Source: OEC by Alexander Simoes.
In the year 2016, when I was 46 years old, we can observe a dramatic shift in El Salvador exporting proposal below. The coffee represents only 1.9% of the total exports, meanwhile, the textiles industry (Knit T-shirts, undergarments, socks, sweaters, etc) is around 40% of the total exports offer.
What does El Salvador export in 2016? Total exports: 5.7 Billion USD. Source: OEC by Alexander Simoes.
After learning about my country exports. Let´s start today with a few of the most important questions to ask ourselves when doing a contextual analysis of El Salvador Entrepreneurship Journey.
- Temporal Context: Let´s situate El Salvador country in a temporal dimension. When doing this contextual analysis, we have to use the variable time. For each of the relevant industries, we have to define the stage of development. What industries are still in the valley of death (pre-seed or seed stages)? What industries are emerging with rapid growth? Which are in the mature stage? Alternatively, which are starting to decline? For each industry, can we draw a curve over time and understand their own time status development stage? Can we switch each of these curves from Sales to the Free Cash Flows measure in the Y-axis to understand their evolvement over time? Can we prepare a graph for each of the industries in terms of Free-Cash-Flows over time? What will happen next in our Salvadoran entrepreneurship journey? Can we project our new industries which are now in pre-seed and seed stages?
Tomorrow we will continue with the questions to ask in the industry context analysis for El Salvador entrepreneurship journey. We will also ask ourselves all the pertinent questions for the rest of the contexts (technological, social, institutional policy, organizational, geographical, spatial, cultural, political, environmental, ethical). All these questions must have realistic and projected answers. Questions, which our government leaders must ask themselves before establishing a trade agreement with China.
To be continued… Thank you!
Source References:
https://atlas.media.mit.edu/en/profile/country/slv/
https://www.cia.gov/library/publications/resources/the-world-factbook/geos/print_es.html
Disclaimer: All the presentation slides shown on this blog are prepared by Eleonora Escalante MBA-MEng. Nevertheless, all the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
Eleonora Escalante Strategy 