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Economics and Business in Nicaragua

According to COUNTRYAAH, Nicaragua's political history has been of great importance to the country's economy and business and the country's economic situation has been clearly the casualties of the unstable political situation that has characterized the country. Nicaragua is Central America's poorest country and the second poorest country in the Western Hemisphere, after Haiti.

Business of Nicaragua

Economic stagnation and persistent poverty

Under the Somoza regime from 1936 to 1979, the country had economic growth, but the economy was strongly characterized by corruption and nepotism. After the 1979 revolution, a time of great unrest followed, and civil war and trade boycott hit the country's economy hard. During the Sandinist regime, the economy was to some extent nationalized, including a land reform with a high degree of expropriation. After the Sandinists relinquished power in 1990, the economy was restructured, and increasing privatization was seen. Beyond the nineties, there was also the emergence of labor-intensive industry around the big cities. After Daniel Ortegas takeover of power in 2007 changed the economy less than what the capitalists had feared. Ortega, despite a clear anti-neoliberal rhetoric, continued the elite-friendly economic policy of the neoliberal presidents before him, and continued to work with institutions such as the IMF, the World Bank and CAFTA (the Central American Free Trade Agreement).

Agriculture and primary industries

Nicaragua's business has traditionally been associated with primary industries, and land and land rights have been the traditional basis for wealth and economic differences. The large fortunes of the upper class stem largely from the export of agricultural products such as coffee, cotton, beef and sugar. One third of the workforce works in agriculture, forestry and fishing, and produces about one fifth of the total national budget.

Agriculture in Nicaragua has to a large extent been subject to external factors that farmers themselves cannot control. Fluctuations in export prices, natural disasters, environmental factors such as land depletion and water shortages, war actions and political decisions have been factors that farmers have had to deal with and which have had a major impact on their everyday lives.

The tobacco, coffee and beef produced in Nicaragua is known for keeping high quality. For local consumption, mainly rice, beans, corn, bananas, sugar and sorghum are grown.

About 35,100 square miles of land are productive forests, and the largest rainforest areas in Central America are located here. In the past, large quantities of Caribbean pine, Pinus caribaea, mahogany and cedar were exported. The autonomous regions of the Caribbean have considerable potential for timber extraction.

Fishing represents the second largest export industry, and is particularly important on the Caribbean coast. The catch has been concentrated around lobster and shrimp. The fishing fleet is in poor condition and the country lacks a coast guard. Overfishing and uncontrolled activities by foreign fishing boats represent a significant threat.

Mining, energy and industry

In the northeast of the country, significant quantities of gold, silver, copper and zinc were previously mined. Nicaragua was in the 1940s the world's sixth largest producer of gold. Today, the mines are barely operational, but gold washing is common.

Energy is primarily produced from imported petroleum. Fossil energy used in thermal power plants accounts for around 70 percent of the country's electricity generation. Otherwise, renewable energy is used such as hydropower, geothermal energy and biomass, each of which accounts for around ten per cent of the power generation. Natural gas is found on the Pacific coast.

The industry was tried to develop under the Somoza regime in the 1950s and 1960s, but much of the infrastructure was destroyed by the earthquake in 1972 and the bombing in 1978-79. Dependence on technology from the United States led to technical problems during the trade boycott, and the transition to Eastern European technology in the 1980s caused similar problems in the 1990s. The country has only one petroleum refinery, at Managua.

Beyond the nineties, there was a rise in the labor-intensive industry, close to the big cities. These factories, which are called maquiladoras, mainly produce textiles. This industry is largely based on foreign ownership and tax exemptions, and despite creating many jobs has had little impact on the country's economy.

The country's production of cigars and rooms is of high quality, and regularly claims in international quality tests.

Remittance

Nicaragua has for a long time been characterized by a large emigration, and this is becoming increasingly important for the country's economy. There are an increasing number of foreign Nicaraguans (especially in the United States, Costa Rica and Spain) and many of them send money home. In 2018, over one billion dollars were sent to Nicaragua as so-called referrals, which is equivalent to 11.5 percent of GDP and it is said that Nicaragua's most important export is now the country's labor.

Foreign trade and economic impact

The United States was formerly the most important trading partner. This relationship became very strained under the Sandinist government, and the United States introduced a trade boycott in 1985. The Sandinist government sought to distribute trade equally between North America, Europe, Japan and the Comecon countries. Trade with the Soviet Union and the other Comecon countries increased in the 1980s, but this slowed dramatically from 1990, the same year that the United States lifted the trade boycott and left a strong mark on trade. Japan, Taiwan, the Nordic countries and the EU also increased their trade with Nicaragua after 1990.

In 1990, Nicaragua was characterized by civil war and trade blockade, and the country was heavily indebted. This debt burden was an important reason why Nicaragua had to undergo the structural adjustment programs required by organizations such as the IMF and the World Bank. In short, the structural adjustment programs imply that countries must introduce market economics. They must be open to international investment, cut public spending and subsidies and not least get a balance in foreign trade. The IMF and the World Bank surrendered debt after one could show adjustments. Nicaraguans returning from exile in the United States also contributed positively to the economy and led to greater confidence in US trade.

From the late 1990s, several players cleared Nicaragua's foreign debt, and the World Bank and the IMF established the HIPC initiative and began deleting debt to poor debt-heavy countries. Several national states, including Norway, followed up with similar initiatives.

After Ortega's election victory in 2006, Venezuela was given a very important role for Nicaragua's economy. Political similarities between Ortega and Hugo Chávez was the basis for major bilateral trade and assistance agreements. The countries formalized these agreements through the ALBA cooperation, which essentially meant that Venezuela's oil and oil money was used to fund social programs and public investment in Nicaragua. Social programs such as poverty reduction have been very popular especially in the Nicaraguan countryside and in the poor parts of cities, but ALBA cooperation has also been frequently criticized for lack of transparency and coordination between the state and politicians' economy. The death of Hugo Chávez and the collapse of Venezuela's economy had a major negative effect on Nicaragua's economic situation.

Transport and Communications

There are approximately 14,500 kilometers of roads, including Nicaragua's part of the Pan-American Highway. With the exception of this and the main roads between Managua and the major cities, the road standard is low. The railroad was closed down in 1993, but there is a shorter private rail line in Chinandega for shipping bananas to the port city of Corinto. The most important ports are located on the Pacific Ocean, of which Corinto is the only one with modern deep water ports. Puerto Sandino is the oil port. Managua has the country's only international airport, and communication with the partially unscathed lowland towards the Caribbean is largely conducted by air.

Nicaragua is considering building a channel to link the Atlantic to the Pacific, which President Daniel Ortega has claimed will give Nicaragua a "financial independence". Researchers have raised concerns about environmental impact, but the government has maintained that the channel will be positive for the country by creating new jobs and boosting economic growth. The project was scheduled to begin construction in December 2014, but the Nicaragua Canal has not yet been started.

The tourism

Nicaragua was a popular tourist destination in the 1960s and 1970s, but the revolution and the civil war put a brutal end to this. Towards the end of the 1990s, the tourism industry again began to make positive contributions to the economy. As Nicaragua began to build a reputation for stability, low crime, low prices and high hospitality, tourists began to travel to the country again. The tourist stream was first characterized by backpackers and surfers, but as the infrastructure and reputation as a tourist destination was built up so that visitors began to leave more and more money. There are most tourists in the areas along the Pacific coast.

Nicaragua experienced solid economic growth from around 2010 to 2018 and had annual GDP growth of about five percent. This economic growth had a sudden stop in 2018 when the country was hit by extensive riots.

Riot and political violence

In April 2018, tens of thousands of protesters gathered in the streets protesting the government's change in national insurance. These protests were answered with violence from the government and more than 400 people were killed by the police and by paramilitary groups linked to the government. These riots have also had a major impact on the economy. Tens of thousands of Nicaraguan emigrated and the tourism industry got a big bang.

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