Nicaragua: Economy

With a gross domestic product (GDP) of $6.55 billion and a per capita income of $1,126 in 2010, Nicaragua is the second-poorest country in the Western Hemisphere. In 2010, the economy grew by 4.5%, according to official government sources, largely due to an increase in demand for Nicaraguan exports abroad and increased consumer spending at home. Official unemployment in 2010 was 8%, but 65% of all workers earn a living in the informal sector, where underemployment is high. In 2010, Nicaraguans received $823 million in remittances from abroad, the majority from the United States and Costa Rica. Total exports are equivalent to 48% of GDP.

Because Nicaragua has abundant arable land and water resources, agriculture will always be an important component of the economy. Thirty-one percent of GDP is derived from 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 and gold, have benefited from the recent rise in international commodity prices.

Social indicators for Nicaragua have improved since 1991. The current population of Nicaragua is 5.6 million; life expectancy at birth is 71.9 years. Prenatal care coverage has steadily improved and infant mortality has dropped from 52 deaths per 1,000 live births in 1991 to 22.64 per 1,000 in 2011. The country has achieved 85% vaccination coverage, and 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 25% from 1990 to 2010 (from 0.454 to 0.565). 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. About 46% of the population lives on less than $1.15 a day.

President Ortega’s stated objective is to implement socialism in Nicaragua, which he further defines as a mixed economy, guided by Christian and socialist ideals. He has used funds provided by Venezuela through the Bolivarian Alliance for the Americas (ALBA) to increase the role of the FSLN party in the economy, including the purchase of a hotel, cattle ranch, television station, gasoline filling stations, construction equipment, and electricity generators. At the same time, President Ortega has maintained many of the legal and regulatory underpinnings of the market-based economic model of his predecessors, despite rhetoric decrying the "neo-liberal economic model," and along with it capitalism and the United States, which he refers to as the imperial power.

Nicaragua signed a 3-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 ALBA funds, channeled through state-run enterprises rather than the official budget, has become a serious issue for the IMF and international donors. In November 2010, the IMF approved a 1-year extension of the arrangement. The extension allows for the disbursement of the remaining $36 million dollars in 2011, but the program is contingent on the publication of additional information about off-budget expenditures.

Nicaragua has stayed current with the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), which entered into force for Nicaragua on April 1, 2006. Nicaraguan exports to the United States, which account for two-thirds of Nicaragua’s total exports, were $2.0 billion in 2010, up 70% since 2005. Textiles and apparel account for about half of all exports to the United States, while automobile wiring harnesses add another 10%. Other leading export products are coffee, meat, cigars, gold, sugar, ethanol, and fresh fruit and vegetables, all of which have seen remarkable growth since CAFTA-DR went into effect. U.S. exports to Nicaragua, meanwhile, were $924 million in 2010, up 57% from 2005.

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 have had a negative effect on perceptions of country risk. The government reported foreign investment inflows of $500 million in 2010, mostly in energy and telecommunications. There are over 100 companies operating in Nicaragua with some relation to a U.S. company, either as wholly or partly-owned subsidiaries, franchisees, or exclusive distributors of U.S. products. The largest are in energy, financial services, textiles/apparel, manufacturing, and fisheries.

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. The court system is widely believed to be corrupt and subject to political influence. 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. Authorities seldom challenge illegal property seizures by private parties, occasionally undertaken in collaboration with corrupt municipal officials.

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 decision makers 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.

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