Over the past five years of President Daniel Ortega’s government, Nicaragua’s economy has gone from being Central America’s perennial basket case to the region’s rising star.
Not only is Nicaragua the fastest-growing economy in Central America in terms of exports and foreign-direct investment, it’s also becoming a heavyweight contender in a neighborhood where it used to be the skinniest kid on the block. In 2011, Nicaragua exported $4.3 billion in goods and services (including free-trade zone exports) and attracted $967.8 million in foreign-direct investment—up a whopping 91% from 2010.
Indeed, Nicaragua is not longer just “doing well for Nicaragua.” Now it’s doing well for Central America—a distinction the country hasn’t had since the antebellum days of the 1970s.
“Six years ago, we were generating 5% of the total investment in the region. But in 2011, we represented 20% of the foreign-direct investment in the region, based on the preliminary numbers for Costa Rica and El Salvador,” says Javier Chamorro, executive director of investment-promotion agency ProNicaragua.
By comparison, Costa Rica, the region’s leading economy, represents 32% of the total foreign-direct investment in Central America per annum. Panama, which has an on-again-off-again relationship with Central America, is not included in the comparative data.
Some of Nicaragua’s regional surge is due to other countries falling behind, namely Honduras and El Salvador, which have yet to return to their “pre-economic crisis” investment or growth levels. But that only makes Nicaragua’s growth during a time of global stagnation even more impressive.
“In absolute values, Nicaragua is positioning itself as the second-ranked country in the region in terms of dollars coming into the country,” Chamorro told The Nicaragua Dispatch. “Costa Rica, which has not yet closed out its 2011 numbers, is already No. 1. But El Salvador (which has only presented third quarter numbers for 2011) would have to really pick up its final numbers to surpass Nicaragua. We will probably see Nicaragua finish No. 2 in the region in terms of attracting foreign investment in 2011.”
Guatemala finished close behind Nicaragua with $910.8 million in foreign-direct investment last year, followed by Honduras and El Salvador.
While Nicaragua’s growth is impressive under any circumstances, it’s amazing considering the country’s political context and the uncertainty caused by the Sandinistas’ return to power five years ago. Though President Ortega’s erstwhile revolutionary government in the 1980s captained the Nicaraguan economy to the bottom of the sea (something Sandinista economic planners seemed determined to do even without the crippling U.S. embargo), the Sandinistas have bucked the odds the second time around by managing the economy within the framework of the neoliberal model.
Since Ortega returned to power in 2007, banking deposits have increased steadily, foreign reserves have more than doubled to $2.6 billion, exports have more than doubled and foreign-direct investment has grown five-fold.
Critics argue the macroeconomic growth is not benefitting the middleclass or the majority of the country’s impoverished population, rather creating a new class of Sandinista nouveau riche. Still, all that growth—even if concreted in the hands of some—certainly hasn’t hurt the economy. Indeed some data suggests the economic growth and Sandinista social handouts have helped reduce extreme poverty in Nicaragua.
Nicaragua’s economy is growing, diversifying
Not only is Nicaragua’s economy growing faster than the rest of Central America (Nicaragua last year grew 4.7%, well above the Central American average of 3.4%), it’s also spreading in multiple directions as the nascent economy diversifies and matures.
The diversity can be seen in Nicaragua’s growing number of trade partners, and also in the growing number of foreign countries investing here.
“In 2007, which was a record year at that time for foreign-direct investment, there were 22 countries investing in eight sectors of the economy. And the top three sectors of the economy— energy, telecom and free zones—constituted 88% of the total investment in the economy,” Chamorro explained. “Now, if you look at 2011, the top three sectors represent 52% of the total investment pie, and now there are 41 countries of origin investing here.”
“There are all positive tendencies,” Chamorro said.
Last year, Nicaragua registered impressive foreign-direct investment growth in each of its top three sectors: investment in energy grew 37% ($158.8 million to $217 million); telecom by 35% ($118.7 million to $160 million); and free-zones by 35% ($96.6 million to $130.2 million). The country also saw impressive growth in foreign-direct investment in the following sectors: commerce and services (up 1,467%), mining (352%), industry (751%), agriculture (11,541% —from $400,000 to $47.7 million), construction (1,311%) and transportation (1,250%).
The only sectors that saw a dip in foreign investment were tourism (down 48%), forestry (down 97%), and fisheries, which dipped 61%.
In the case of tourism investment, which in dollar terms dropped from $51.24 million in 2010 to $26.5 million in 2011, the dip in foreign investment is not worrisome, Chamorro says. That’s because overall the tourism industry continued to grow, and the difference in foreign investment from one year to the next could be made up with the construction of a single new hotel.
Plus, Chamorro notes, the foreign-direct investment numbers for tourism don’t take into account all the new Nicaraguan investment in the tourism sector. The Grupo Pellas project at Guacalito de la Isla alone invested some $20 million in Nicaragua last year, making up for the dip in foreign-direct investment, Chamorro said.
“We hope to continue to bring more and more foreign investment into the country each year, but if you see a shift with local business groups picking up the pace and investing more in Nicaragua themselves, I think that is very positive too,” Chamorro said. “For local business groups to be investing heavily in the tourism sector is a sign of confidence.”
41 countries and counting
Canada was the leading country of origin for foreign-direct investment in Nicaragua last year, investing $255.52 million, mostly in mining and energy. In second place was the United States, with $158.8 million, followed by Spain, with $115.6 million. Those three countries alone represented 55% of the foreign-direct investment in Nicaragua last year.
Venezuela was in fifth place, with $45 million in foreign-direct investment.
The diversification of countries and projects investing in Nicaragua helped the country get close to meeting last year’s investment goals, but really by accident. When President Daniel Ortega boldly projected $1 billion in foreign-direct investment last year—100% growth from 2010—many critics scoffed. Then, when the first semester investment numbers came in showing Nicaragua had attracted only $284 million in foreign-direct investment in the first half of 2011, critics scoffed even louder; the goal of $1 billion seemed to slip from unlikely to absurd.
Ortega, apparently, had been basing his initial projections on the insider knowledge that the Tumarín hydroelectric project and his own ALBANISA investment group were going to invest $500 million in Nicaragua last year. But when both those long-term projects under-executed in 2011—investing about $100 million combined—Ortega’s projections were thrown way off mark.
However, Chamorro notes, a lot of other smaller investment projects that the government didn’t plan on—such as a $54 million investment by Walmart—ended up picking up the slack in the second half of the year. So in the end, Ortega’s original estimate was close to accurate, even though the way Nicaragua ended up reaching that goal was much different from what the president was expecting.
“The gap was picked up by a lot of smaller projects we weren’t planning on,” Chamorro said. “So in the end, the difference was offset by many new projects.”
Chamorro says that happened because Nicaragua is good, not lucky. The country has been working hard to attract new investment and create a series of incentives for various sectors of the economy.
As a result of that hard work, this year’s investment projections are similar to last year’s. If those goals are met again in 2011, Nicaragua will prove that last year wasn’t a fluke, rather the beginning of a new chapter in the country’s economic history.
Read part II of the series here.