ECONOMY
With a gross domestic product (GDP) of $5.7 billion and a per capita income of $1,023 in 2007, Nicaragua is the second-poorest country in the Western Hemisphere. From 1991 to 2006, three successive administrations focused on free market reform as the path to recovery from 12 years of economic freefall under the Sandinista regime and civil war of the 1980s. They achieved macroeconomic stability, cutting inflation from 33,500% in 1988 to 9.45% in 2006, and dramatic debt reduction through the Heavily Indebted Poor Countries Initiative, the Multilateral Debt Reduction Initiative, and a $1 billion commercial debt buyback led by the World Bank. By the end of 2007, external debt as a percentage of GDP was 59.1%, down from more than 400% in 1990. Since 1995, real economic growth averaged 4.0%. In 2006 and 2007, it came in a bit less than average, at 3.7% and 3.8%, respectively.
The pace of economic growth slowed in 2008, as growth in the agricultural sector was offset by a decrease in investment and rising wages, food prices, and energy costs. Inflation, which had been in the single digits for several years, appears on track to exceed 20% in 2008. Official unemployment was 4.9% in 2007, but most do not believe this reflects reality. Sixty percent of all workers earn a living in the informal sector, where underemployment is high and the data is not clear. In 2007, Nicaraguans received $740 million in remittances from abroad, the majority of which from the United States. This equals almost 13% of GDP.
Because Nicaragua has abundant arable land and water resources, agriculture will always be an important component of the economy. About a third of GDP revolves around agriculture, timber, and fishing. Opportunities exist in food and timber processing and preparation for export. Currently, most agriculture is small-scale and labor intensive. Livestock and dairy production have seen steady growth over the past decade and have taken the greatest advantage of free trade agreements. Many export products, especially coffee, have benefited from the recent rise in international commodity prices. Manufacturing accounts for about 11% of GDP and the construction sector another 5%. Services (banking, transportation, trade, retailing, and tourism) accounts for about half of GDP.
Social indicators for Nicaragua have improved since 1991. The current population of Nicaragua is 5.4 million; life expectancy at birth is 72.9 years. Nicaragua has steadily improved prenatal care coverage and made impressive gains in infant mortality, dropping from 52 deaths per 1,000 live births in 1991 to 29 per 1,000 in 2006. The country has successfully controlled the spread of many diseases by achieving and maintaining high vaccination coverage (85%) and introducing vaccines, for example, the MMR vaccine in 1998, the pentavalent vaccine in 1999, and the rotavirus vaccine in 2006. Since 2004, infectious disease has fallen from fourth to fifth place among the leading causes of death, with the number of such deaths down nearly 50% since 1996.
In 2007, the Minister of Education reported school enrollment as 86.5%. Nicaragua's score on the United Nations Human Development Index rose by 40% from 1990 to 2004 (from 0.496 to 0.698). Despite these statistical gains, the benefits of economic development have been uneven. Blackouts, water shortages, and high energy prices disproportionately affect the poorest in the population. Over 50% of Nicaraguans fall below the poverty line and poverty reduction, including advances in health education in rural areas, has been slow.
Since taking office again in January 2007, President Daniel Ortega has maintained the legal and regulatory underpinnings of the market-based economic model of his predecessors, but has rejected what he terms the "neo-liberal economic model," and along with it capitalism and the United States, which he refers to as the imperial power. Instead, he has allied himself with the Bolivarian Alternative for the Americas (ALBA), whose other members include Bolivia, Cuba, Dominica, and Venezuela. In 2008, Ortega declared that socialism was the only path for Nicaragua if the country wanted to alleviate poverty.
Nonetheless, Nicaragua under Ortega has stayed current with its U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) obligations and signed a three-year Poverty Reduction and Growth Facility (PRGF) with the International Monetary Fund (IMF) in October 2007. As part of the IMF program, the Government of Nicaragua agreed to implement free market policies linked to targets on fiscal discipline, poverty spending, and energy regulation. The lack of transparency surrounding Venezuelan bilateral assistance, channeled through state-run enterprises rather than the official budget, has become a serious issue for the IMF and international donors. On September 10, 2008, with misgivings about fiscal transparency, the IMF released an additional $30 million to Nicaragua, the second tranche of its $110 million of its PRGF.
On April 1, 2006, CAFTA-DR entered into force for Nicaragua. Since 2005, Nicaraguan exports to the United States rose 36.3% to $1.6 billion in 2007, about 55% of all Nicaragua's exports. Textile and apparel account for three-fifths of these exports, while automobile wiring harnesses add another 10%. Other leading exports include coffee, meat, cigars, sugar, ethanol, and fresh fruit and vegetables, all of which have seen remarkable growth under CAFTA-DR. Market opportunities created by CAFTA-DR have contributed to the growing diversity of Nicaraguan exports. During the first full year of the agreement, Nicaragua shipped 274 new products to the United States. Since 2005, U.S. exports to Nicaragua rose 43.6% to $846.8 million. Other important trading partners for Nicaragua are its Central American neighbors, Mexico, and the European Union, with which it is negotiating a trade agreement as part of a Central American bloc.
Foreign investment inflows totaled $337 million in 2007, including U.S. firm
Cone Denim's $100 million mill and Mexican and Spanish investment of $120
million in telecommunications infrastructure. There are over 100 companies
operating in Nicaragua with some relation to a U.S. company, either wholly or
partly owned subsidiaries, franchisees, or exclusive distributors of U.S.
products. The largest are in energy, financial services, apparel, manufacturing,
and fisheries.
Despite important protections for investment included in CAFTA-DR, the investment climate has steadily worsened since Ortega took office. President Ortega's decision to support radical regimes such as Iran and Cuba, his harsh rhetoric against the United States and capitalism, and his use of government institutions to persecute political enemies and their businesses, has had a negative effect on perceptions of country risk, which by some accounts has quadrupled since he assumed office.
Poor enforcement of property rights deters both foreign and domestic investment, especially in real estate development and tourism. Conflicting claims and weak enforcement of property rights has invited property disputes and litigation. Establishing verifiable title history is often entangled in legalities relating to the expropriation of 28,000 properties by the revolutionary government that Ortega led in the 1980s. The situation is not helped by a court system that is widely believed to be corrupt and subject to political influence. Illegal property seizures by private parties, occasionally in collaboration with corrupt municipal officials, often go unchallenged by the authorities, especially in the Atlantic regions and interior regions of the north, where property rights are poorly defined and rule of law is weak. Foreign investor interest along the Pacific Coast has motivated some unscrupulous people to challenge ownership rights in the Departments of Rivas and Chinandega, with the hope of achieving some sort of cash settlement.
The U.S. Embassy's Economic and Commercial Section advances U.S. economic and business interests by briefing U.S. firms on opportunities and challenges to trade and investment in Nicaragua, encouraging key Nicaraguan decisionmakers to work with U.S. firms, helping to resolve problems that affect U.S. commercial interests, and working to change local economic and trade ground rules in order to afford U.S. firms a level playing field on which to compete. U.S. businesses may access key Embassy economic reports at http://nicaragua.usembassy.gov/econ.html.
GDP (2007): $5.7 billion.
GDP real growth rate (2007): 3.8%.
Per capita GDP (2007): $1,023.
Inflation rate (2007): 16.9%.
Natural resources: arable land, fresh water, fisheries, gold, timber, hydro and geothermal power potential.
Agriculture and agricultural processing (33% of GDP): Products--corn, coffee, sugar, meat, rice, beans, bananas, beef, dairy.
Manufacturing (11% of GDP): Types--textiles, paper and wood products, metal products petroleum refining, plastics.
Services (51% of GDP): Types--banking, wholesale and retail distribution, telecommunications, and energy.
Construction (5% of GDP): Types--housing and infrastructure.
Trade (2007 est.): Normal exports--$1.202 billion (f.o.b.): coffee, seafood, beef, sugar, industrial goods, gold, bananas. Free trade zone exports--$1.088 billion, mostly textiles and apparel, automobile wiring harnesses. Markets--United States, Central American Common Market, European Union (EU), Mexico, Japan. Imports--$3.294 billion (c.i.f.): petroleum, agricultural inputs and equipment, manufactured goods. Free trade zone imports--$783.6 million. Suppliers--Central American Common Market, United States, EU, Mexico, Venezuela, China.
