The Nicaraguan economy has been crippled in recent years by the 1972 earthquake and policies of the Sandinista regime. The Sandinistas were in power from 1979 to 1990 and the economy was not merely stagnant during this era--it declined drastically. Interest rates reach unheard-of levels and many businesses crumbled and investors avoided the nation like the plague. However, the election of Violeta Chamorro in 1990 reinstituted democracy and the nation has experienced tremendous growth which has continued through the Aleman administration. Gross domestic product rates have climbed to their highest since 1977, more than 5%, (some observers believe that the relatively high figures are being held down, less the country become too rich to qualify for the Highly Indebted Poor Countries incentive) and investors are returning to exploit Nicaragua's commercial potential. Nicaragua has always been an agricultural country and much of the potential for investment and growth lies there. However, there is also room for export-based manufacturing, construction, tourism, mining, energy generation, and the sale of certain consumer artifacts such as computers and automobiles. Overall, foreign investment has grown by 400% over the last three years and the Ministry of Economy and Development (MEDE) estimates that new private investment will be, in descending order, in services, housing, industry, mining, non-residential construction, energy, tourism, and aquaculture.
The fact that Nicaragua is a member of the Central American Common Market (CACM) is helpful for importation and exportation and it is expected to sign a free trade agreement with Mexico and Mercosur (Common Market of Southern South America) soon and has recently signed a free trade agreement with the Dominican Republic. In 1999, Central America will be set up as a free- market region for the very first time and there will be no tariff restrictions, barriers, or borders and by 2005, Nicaragua and 33 other American countries could create the Free Trade Area of the Americas. Nicaragua's central geographic position could become a great asset in the future, especially if the dreams of a inter-oceanic canal come true.
The Aleman administration has made considerably progress in eliminating Nicaragua's .6 trillion dollar debt, including facilitating the March approval of the new Enhanced Structural Adjustment Facility (ESAF) by the IMF and reaching an agreement with the Paris Club to reschedule Nicaragua's debt and creating potential agreements with the HIPC and other organizations. The president has also expressed his dedication to bring in foreign investment while promoting imports and non-traditional exports. Another plus is that the annual inflation rate has been decreased to below the Central American average and the currency is stable--the Nicaraguan stock market reports that trading on cordoba-based securities has increased while dollar-based decreased. However, there are some areas which still remain a problem for investment and need to be remedied. One problem is the national infrastructure--roads are substandard when they exist and there are not enough suitable ports for shipping. The judicial system in Nicaragua is cumbersome and inadequate, inconsistently and sometimes unjustly resolving disputes and enforcing rulings. One classic example are the thousands of property disputes which have rendered many premium pieces of property in Managua and elsewhere unavailable. Also, corruption, especially bribery, begins at the lowest levels of business and government and extends upward. Business success often depends on who you know and contacts are therefore of the utmost importance. Another pitfall are the taxes on imports. Although the Aleman administration has eliminated most non-tariff barriers to investment and eased the rates, taxes can reach 50% of the products face value and many investors complain of steep secondary customs costs. On the good side, foreign investors are allowed to remit all of their profits and foreigners are not required to share ownership of the enterprise with nationals. Another plus, which is sure to damage the country in the long- term, is that there are no pollution controls so industries need not spend money on expensive pollution preventatives.
Even though the GDP is reaching high levels, the average annual salary of full-time workers is less than 300 dollars a year, including benefits, and half of the workers in the country are either under-employed or unemployed. However this does make the country good for investors who are looking for lots of low-cost unskilled laborers (the hourly pay for workers is the lowest in the Americas).
The private banking system in Nicaragua is generally considered to be sound although there is no deposit insurance and total deposits have grown greatly over the last few years to reach a total of 837 million dollars by the middle of 1997. Of the thirteen commercial banks, all but one have ties to North American and European banks and deposits of dollars and cordobas are accepted. Dollars can be purchased or sold through the banks or through a legal secondary market which offers a better exchange rate. Interest rates are established by the market and they are currently at about 16 to 25 percent on short-term loans and 14 to 20 percent on long term loans, but long-term financing is scarce.
A major concern of potential investors has been the threat of political violence and turmoil and it was just that threat which has kept investors out of Nicaragua for almost two decades. However, political turmoil in Nicaragua has declined steadily since the inauguration of Violeta Chamorro and the Sandinista party, which has typically been behind the disruptions, seems to be losing its potency (in the last major show of strength in which the party leaders were estimating a minimum of 40,000 in participation only 8,000 appeared). In the last two years, students have protested three times by digging up the cobblestone streets and building blockading in front of the universities and defacing public property. However, each protest has been weaker and found less support than the last. Aside from the students, transportation and agriculture workers are the most likely to stage labor protests, but these are rarely potent.