3.1 The Costa Rica–El Salvador ferry project

Box 3.1 The Costa Rica–El Salvador ferry project

Most intraregional trade in Central America travels by land. The main route is the Pacific Corridor, or CA1 (2,461 kilometers). It begins in Tecún Umán, on the border between Mexico and Guatemala, and ends in the Colón Free Zone in Panama. This journey involves a dozen border controls (immigration, customs, quarantine, police, and so on) at six borders.

The average freight speed on CA1 is 18 kilometers per hour, which makes intraregional trade expensive and hinders regional competitiveness. Poor roads, safety problems, manual procedures, physical border controls, incomplete documentation, and uncoordinated processes among public institutions cause bottlenecks at border crossings that reduce the average speed. But multimodal transportation adding short sea shipping by ferry could skirt most of these regional transit problems.

Technical assistance

In September 2019, the government of El Salvador requested technical assistance from the World Bank to facilitate the preparation of a road map for a ferry project between Costa Rica and El Salvador. The project would allow multimodal logistics companies to offer full transportation service and substantially reduce the time spent on the road and the risks of intraregional trade.

In October 2019, the World Bank organized and facilitated a technical workshop for the governments of Costa Rica and El Salvador, with the participation of all entities involved in clearing cargo in both countries. The workshop defined a binational action plan and established a binational working group. The Bank facilitated weekly meetings between the two countries and provided technical assistance to El Salvador to design a contingency program for all border agencies and an integrated operational process at Puerto de la Unión Centroamericana (in La Unión, El Salvador).

The technical assistance has also helped develop an integrated risk management mechanism that specifies, before the arrival of a ferry, the types of integrated physical inspections and controls that all border agencies will carry out in El Salvador. The integrated oversight would avoid delays at the port, increase efficiency, and improve trade facilitation (TF) without affecting fiscal controls. This practice could be replicated in the rest of Central America or in other regions.

Expected benefits

During recent border blockades—such as the one between Costa Rica and Nicaragua in May 2020—a ferry could have allowed trade to continue between the southern and northern countries of Central America. The May 2020 blockade meant daily million-dollar losses to the Guatemalan food and beverage sector because of blocked exports to Costa Rica and Panama.

The World Bank expects a wide range of benefits in regional integration, increased exports, and reduced time and costs of transportation, together with impacts on employment, especially for the population living in the extremely poor areas near the ports. The Bank will measure progress against a baseline of the time it takes to transport freight between El Salvador and Costa Rica; it has preliminarily estimated a possible reduction from about 3 days to less than 24 hours. Various Bank studies have found that a 1 percent reduction in the time to export increases exports by roughly 0.4 percent (Subramanian 2012, 3). The development might also create market opportunities for International Finance Corporation investments in infrastructure and transportation.