Due largely to a rapid increase in prices for Nicaraguan exports (coffe, gold, tobacco etc...) and an influx in funds provided by Venezuela (ALBA) Nicaragua's GDP increased by an estimated 4.5% in 2010. Inflation in 2010 was 9.2%, mostly as a result of rising food prices. The Central Bank of Nicaragua forecasts GDP growth between 4% to 5% in 2011 with an inflation of almost 10%.
Thanks to the CAFTA-DR agreements, 80% of U.S. exports of consumer and industrial goods are now entering Nicaragua, duty-free, with remaining tariffs to be phased out by 2016. Tariffs on most U.S. agricultural products will be phased out within 15 years. All tariffs will be eliminated in 20 years.
As a counterpart, CAFTA-DR agreements, will allow substantial market access for U.S. firms into Nicaragua including the following services such as telecommunications, computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, and professional services. The agreement features key protections for U.S. investments and intellectual property.
The United States is Nicaragua's largest trading partner, aprox 25% of Nicaragua's imports and two-thirds of its exports (including free zone exports). U.S. exports to Nicaragua totaled $924.2 million in 2010, including cereals, donated goods, mechanical machinery, textiles and apparel, oils and fats, medical and dental equipment, electrical machinery, vehicles, and plastics.
Nicaraguan exports to the United States were $2.0 billion in 2010, including textiles and apparel, coffee, meat, fish, tobacco, gold, fruits, vegetables, and sugar. Other important trading partners for Nicaragua are Venezuela, El Salvador, Costa Rica, Mexico, and the European Union.
It is estimated that foreign investment in Nicaragua amounted to $500 million in 2010, an increase of over $100 million since 2009. More than 125 US companies and subsidiaries currently operate in Nicaragua. The bulk of these investments being in textiles and apparel, energy, financial services, light manufacturing, tourism, airline, fisheries, and shrimp farming. Other major sources of investments include Venezuela, Russia, Mexico, Canada, and other Central American countries.
DOWNSIDE
Nicaragua's political situation has been slowing down the pace of development for institutions and policies directed to strengthen the private sector.Ultimately ranking Nicaragua to number 112 out of 144 countries according to The World Economic Forum's Global Competitive Index for 2010-11.
Foreign investors perceive an uncertain policy environment. Derogatory statements by the present Government of Nicaragua against the United States has contributed to this negative perception ultimately contributing to the assumption of an undesirable risk factor by foreign investors.
The small population of Nicaragua (5.8 million), because of its high level of poverty has a limited purchasing power. 46% of the population live below the poverty line. A positive difference is made out thanks to the Family remittances, $822.8 million in the year 2010, and Venezuelan financial help channeled directly to the present Sandinista Government in power.
The legal system is among the weakest in Latin America. Property rights are especially hard and time consuming to defend. It is common belief that the judicial system is controlled by political interests and its corrupt croonies. Regulatory authorities are arbitrary, negligent, slow to apply existing laws, are prone to conflicts of interest and often favor one competitor over another. The poor and short resolution of a dispute is favored over a long and sometimes endless dispute.
. With the exception of the Pan-American Highway and major city connecting routes, roads in rural areas are poorly maintained and sometimes cannot be transited through. Although the present government is making infraestructure a priority, seaport infrastructure for instance is very limited and almost strictly to the Pacific Coast. This increases costs to businesses.
It is to be noted that electricity service in Nicaragua is the most expensive in Central America (most of the power plants are being generaqted by oil). Until recently windmills and solar panels on an experimental basis have been implemented.
UPSIDE OF THE ECONOMY
Market opportunities exist in the following sectors: renewable energy; vehicles, auto parts, and equipment; consumer goods; computer equipment and peripherals; telecommunication equipment and services; medical, optical and dental equipment; plastics; agricultural inputs; food processing and refrigeration equipment; construction and hardware equipment; wheat; yellow corn; soybean oil; soybean meal; rice gold. coffee, cigars and many non traditional fruit and vegetables.
Nicaragua offers business opportunities in the tourism the law 306 allows attractive tax incentives. Nicaragua's emerging tourism industry allows for opportunities to those entrepreneurs who accept the risk of investing in Nicaragua, especially with regard to possible disputes over land title.
