MANAGUA – The national economy is more stable now than it was at this time last year, but the investment climate is still not as strong as it is in many other countries in Latin America, according to recent analysis from several national and international economic sources.
Political analyst Luis Humberto Guzmán and economist Nestor Avendaño last week released their quarterly analysis on the political and economic risk levels for the country, claiming that the change of government here last January caused only moderate instability. The overall risk level, the analysts reported, is lower now than it was during the election in the final quarter of 2006.
The analysts say the general improvement to the business climate has to do with the early vote of confidence that private sector groups gave the new government and strong initial support for President Daniel Ortega, whose first poll figures as President showed he had a favorability rating slightly above 60%.
The analysts calculate that the levels of political and economic risk, which spiked during the elections, has since leveled off, helping the country’s stability rating climb more than 8 points in 2007 compared to the first quarter of 2006. The numeric risk levels are calculated using a complex chart of political and economic factors.
The lowered risk is being driven by a growing economy, modest government spending and a slight drop in inflation during the first quarter. Another factor, said Avendaño, is that Ortega has shown himself to be a more capable politician than his predecessor, Enrique Bolaños.
“President Ortega enjoys the respect of his party, and although he does not have an absolute majority in the National Assembly, he has demonstrated the necessary capacity for building alliances,” Avendaño said.
“There is an enormous difference in respect from the government of President Bolaños.”
Ortega has also shown that his government can broaden Nicaragua’s economic horizons by strengthening commercial ties with leftist countries that the conservative-minded Bolaños administration had little interest in engaging. And, so far, Ortega has done this while managing to maintain good relations with the United States.
Outside of politics,Avendaño said that the strong start in 2007 was aided by a public perception of increased citizen security and safety, based largely on the high-profile police busts of Mexican drug cartels.
Still, the economist warns, Nicaragua’s judicial system, which is often criticized as too political, is still considered an area of risk.
Another area of possible concern will be how the President handles disputes with private utilities, namely energy distribution, which was privatized under the Bolaños government and has since been a constant source of criticism from Ortega.
Avendaño said that the rights to oil distribution might also prove especially contentious now that Venezuela is promising to deliver large amounts of fuel without a clear mechanism in place for how to handle the shipments.
If Ortega tries to nationalize utilities again, Avendaño warned, he will need to be exceptionally cautious of “not harming relations with the private sector.”
Challenges Ahead
Despite a lowered economic-risk level, Nicaragua has a long way to go to attract more investment, according to recent survey by U.S. magazine Latin Business Chronicle.
The publication ranked Nicaragua as the third-worst country in which to conduct business, as measured by economic growth, corporate regulations and political stability, among other factors.
The country, ranked 17th – one spot lower than last year – is ahead of only Bolivia and Haiti, and behind Honduras.
Joachim Bamrud, editor of Latin Business Chronicle, said Nicaragua’s drop in ranking was largely due to questions surrounding Ortega’s return to power. Although Nicaragua still holds a higher political ranking than the governments of Venezuela and Bolivia, Ortega has yet to do enough to boost investor confidence, Bamrud said.
Still, he points to several bright spots that bode well for Nicaragua’s future, namely its competitiveness and strong integration with global markets.Nicaraguan exports continue to rise and the amount of new businesses and commerce within the country has also increased dramatically, pushed along by remittances and foreign aid.
“As poor as Nicaragua is, it has the opportunity to improve upon its strengths,” said Bamrud, who added that the country ranked among the top in Latin America for globalization and competitiveness. “If you look at Asia, poor countries have done well by emphasizing trade.”
Bamrud sees little wrong with the new Bolivarian Alternative for the Americas, or ALBA, the trade and development accord that Nicaragua signed with Venezuela and other leftist allies, as long as it doesn’t replace the Central American Free-Trade Agreement with the United States (CAFTA), which he predicts has a greater chance for success.
Some economists fear that Ortega’s closeness to Venezuela could eventually isolate the country. But so far that hasn’t been the case.
The U.S. Overseas Private Investment Corporation (OPIC) last week announced that it is giving $10 million to help finance low-income housing, joining a flurry of recent aid packages from more conservative countries such as Taiwan, Luxemburg and Japan.
Contending that his economic program will create a new way forward for Nicaragua, Ortega said that he is unfazed by the country’s current business ranking.
“I am not worried,” he told reporters after a May 15 meeting with a Guatemalan business group that is investing $20 million dollars in an energy plant. “Here the reality is that investment is coming to Nicaragua, regardless of what magazines say.”
