The manufacturing industry developed slowly. In 1950, when
manufacturing accounted for about 7 percent of GDP, it comprised
mostly cottage industries. Of the fourteen larger manufacturing
firms (with more than 100 employees), thirteen were located in
San Salvador and produced mainly textiles, tobacco, and
beverages; most of the smaller firms manufactured clothing,
shoes, furniture, and wood or straw products.
The development and manufacturing industries was slowed by a
shortage of reliable year-round labor--most Salvadorans worked
seasonally as agricultural laborers--and an even more acute lack
of skilled workers. In 1952, however, when the government offered
tax breaks to small businesses, industry grew almost 5 percent a
year from 1955 to 1958. During this period, cement, chemical, and
transportation equipment industries began. The intermediate goods
sector was much more dynamic than the capital goods sector; with
the development of modern chemical, pharmaceutical, and petroleum
product industries, it grew rapidly in the 1960s and 1970s. The
production of machinery and transport equipment remained fairly
stable in terms of its share of the value added for total
Salvadoran manufactured goods, rising from 3 percent of total
value added in 1970 to 4 percent in 1985.
By 1960 the manufacturing sector represented 14.6 percent of
El Salvador's GDP, the highest percentage of any Central American
country at the time. The creation of the CACM boosted the rapid
development of manufacturing firms in El Salvador throughout the
1960s. By 1965, following three years of 12 percent average
annual growth, manufacturing represented 17.4 percent of GDP.
Between 1961 and 1970, value added in manufacturing increased (in
nominal terms) from US$89.2 million to US$194.1 million.
The manufacturing sector received a temporary setback because
of the 1969 war with Honduras, which disrupted CACM trade. Even
the CACM's share of Salvadoran exports fell from 40 percent in
1968 to 32 percent in 1970. Nevertheless, manufacturing output
increased by a modest 3.9 percent in 1969. Following the war,
however, foreign investment replaced CACM trade as the engine of
growth for the Salvadoran manufacturing industry.
During the 1970s, manufacturing was the most dynamic segment
of the Salvadoran economy, growing by an impressive 16.8 percent
yearly between 1971 and 1978. Consumer goods (especially
foodstuffs, textiles, clothing, and shoes) continued to be the
most important products. Because of the CACM's decline, El
Salvador was forced to seek new export markets like the United
States, which in the 1970s imported over 20 percent of the
country's food exports and almost 35 percent of its exports of
beverages and tobacco products. El Salvador also sought export
markets for textiles and other light manufactures in the United
States and the Federal Republic of Germany (West Germany). The
project was not competitive, however, because of poor product
quality and outmoded manufacturing techniques and expensive
foreign materials. Eventually Japan and West Germany became
important export markets for the bulk of El Salvador's nonedible
raw materials, fats, and oils.
Because foreign investors funneled their capital to
industries producing intermediate goods these industries
increased in importance relative to consumer goods during the
1970s. As a result, El Salvador increased the percentage of its
exports of manufactured goods exported to industrialized
countries. In 1965 over 90 percent of Salvadoran manufactured
exports went to other developing countries (primarily CACM
states), but by 1986 about 87 percent were being shipped to
industrialized countries. Overall exports of manufactured goods
increased (in real terms) from US$32 million in 1965 to US$170
million in 1986.
During the 1980s, the manufacturing sector, buffeted by the
chaos of the civil conflict, labor unrest, declining investor
confidence, and world recession, experienced a major decline.
Aside from the generalized capital flight spurred by political
instability, the second most damaging effect of the conflict,
after guerrilla sabotage of the electrical grid, was attacks on
The industries hit hardest by guerrilla attacks were those
producing nontraditional capital goods such as transportation
equipment, intermediate goods such as metal products and
machinery, and capital-intensive consumer goods such as electric
appliances. Traditional industries (foodstuffs, beverages,
tobacco, wood products, and furniture) were least affected
because their factories tended to be smaller and thus less
subject to guerrilla attacks. These industries also had welldeveloped domestic markets and consequently were less affected by
the 1980-82 world recession. Exports of manufactured goods
declined by 48 percent in value and almost 80 percent in volume
between 1979 and 1982, mainly as a result of lower shipments of
chemicals, textiles, clothing, and petroleum products.
Labor unrest became a major contributing factor in declining
manufacturing output. But it is unclear whether or not there is a
direct relationship between guerilla activity and that unrest.
There were, however, eighty-six strikes in 1979, involving almost
23,000 workers, compared with only one strike, involving 700
workers, in 1975.
Data as of November 1988