Industrial free trade zones have been a great success in Nicaragua since
their inception a few years ago and growth has been tremendous, no doubt
fueled by the government's efforts to streamline imports and exports as
well as to promote free trade. The US embassy has calculated that
export-oriented manufacturing at Nicaragua's Free Trade Zone rose
30% in 1997 to a value of $130.3 million and the industry is expected to employ
30% more workers in 1998. The Las Mercedes Industrial Free
Trade Zone, which is located near the Managua international airport, is
state-owned but it will be turned over to the Central American Bank for Economic Integration soon.
The 19 companies (European,
Nicaraguan, US, South Korean, and Taiwanese) in it produce mostly
clothing but the government is pushing to diversify into technological
manufacturing. There is also a private zone called "Zona Franca Index."
The main attractions of the zones are that Nicaraguan labor
is the cheapest in the Americas and that the land is very inexpensive, but
financial incentives such as total exemption from income tax for the first
ten years and 60% exemption thereafter, exemption from municipal taxes,
all import duties, levies, and sales taxes on the import of raw materials,
supplies, machinery, and equipment play a role as well. In an effort to
encourage the creation of new zones around the country, the government
has passed new laws which make the creation of free trade zones much
simpler. One of the disadvantages involved here is that, because of the lack of national
infrastructure, transportation costs are high.