Part one in a two-part series on efforts to improve shipping infrastructure
MANAGUA – The U.S. government this week renewed its pledge to help Nicaragua take full advantage of new trade opportunities by donating $510,000 to the National Port Authority (EPN) for assistance finalizing a new law that will regulate private investment in port infrastructure.
The forthcoming Law of Ports is considered a key tool for the future expansion and modernization of Nicaragua’s ports – something the country desperately needs to compete more effectively in global trade.
The donation, made by U.S. Ambassador Paul Trivelli in the name of the U.S. Trade Development Agency, came less than a week after the government of Daniel Ortega embargoed Esso Standard Oil’s holdings at Puerto Corinto, leading to the biggest international crisis at the Pacific port since U.S. Navy Seals mined it in 1984.
Trivelli said the Ortega government’s actions “put in serious doubt the good investment climate in Nicaragua,” and said he hopes the situation would be resolved satisfactorily and swiftly, with the return of all the oil company’s property (see separate story).
Despite the scandal, the Ambassador insisted the U.S. donation shows “the United States has a great commitment to the Nicaraguan people to support their economic development.”
Trivelli spoke of the importance of using the donation to help improve investor security with a solid Law of Ports, which will define clear norms for foreign investment.
“I hope that the EPN takes advantage of this donation and that it is committed to creating confidence,” the Ambassador said. “The new Law of Ports should serve as a mechanism for creating transparency, competitiveness and openness to promote private investment in Puerto Corinto and other port installations and terminals in Nicaragua.”
The Law of Ports, the first such legislation in the country’s history, will establish guidelines for the creation of public-private corporations to invest in the country’s port infrastructure, which is the least developed in Central America, according to port authority President Virgilio Silva.
By providing this legal framework, the government hopes to create a climate for much-needed investment in Nicaragua’s maritime shipping infrastructure.
“This law will be vital to the development and investor confidence in the country,” Silva said. “A lot is needed to get the economy moving.”
Since the Central American Free-Trade Agreement with the United States (CAFTA) entered into force here in April 2006, one of the biggest questions has been whether Nicaragua will be able to compete efficiently with the least-developed port infrastructure in the region.
Of the country’s three ports on the Pacific coast – Puerto Corinto, Puerto Sandino and San Juan del Sur – only the first two are equipped to facilitate cargo trade, and that capacity is limited.
Puerto Corinto, located 160 kilometers north of Managua, is the country’s main industrial port, handling most major shipping products, including oil. Corinto last year handled 28,000 containers, and is expected to top that number this year.
Some 80 kilometers south, in the department of León, is the smaller Puerto Sandino, which handles most of the country’s heavier trade in cement and metals.
Furthest south is San Juan del Sur, a small “tourism port” with a government plan to invest $30 million to facilitate the arrival of larger cruise ships in the future, Silva said.
On the Caribbean coast, Nicaragua has a small port at El Rama, which has recently been modernized but is limited in its capacity and accessibility, and Puerto Cabezas, a rotted wooden pier that is about to fall into the ocean.
The sum of those ports is a sad equation of totally inadequate infrastructure that can’t support the country’s marked growth in trade and exports in recent years.Nicaragua’s exports to the United States alone grew 17% during the first year of CAFTA, making it more important than ever for the country to improve its port infrastructure.
Nicaragua needs to “attract private investment in key sectors such as cargo transport to take advantage of CAFTA,” Trivelli said.
The shipping numbers tell the story of how far Nicaragua has to go to make up for its current shortcoming. In 2006, Central America’s ports handled 80 million tons of trade, with Nicaragua representing only 3% of that shipping activity, according to the EPN.
And on the Atlantic, where 66% of Nicaragua’s shipping travels to or comes from the U.S. East Coast or Europe, Nicaraguan businesses either have to ship their cargo through the Panama Canal or transport it overland to Caribbean ports in Honduras or Costa Rica, a process that increases shipping costs some 40%.
The Nicaraguan government thinks the solution to its shipping woes is two-fold.
First the country hopes to raise some $56 million to invest in the modernization and expansion of the ports at Corinto and Puerto Cabezas. And secondly, the Ortega administration hopes to build a brand-new $250 million deep-water port at Monkey Point, on the southern Caribbean coast.
In addition to building the deep-water port, Silva said the Monkey Point project would include construction of a highway connecting the new port to the Pacific coast, and an inter-oceanic freight-rail line known as the “dry canal.”
The EPN president recently talked to a high-ranking Iranian government delegation about the projects at Monkey Point and Puerto Corinto, and reportedly got a favorable response indicating serious interest (NT, Aug. 10).
Investment Hinges on Law
Before Nicaragua can hope to raise any money for the projects at Monkey Point, Corinto or Puerto Cabezas, lawmakers here will have to pass the Law of Ports to give investors a legal framework to provide the funds.
“The idea is to provide incentives to foreign capital so that firms come to Nicaragua to invest, to generate employment and to support our sustained economic growth by developing port facilities,” Silva said.
Ambassador Trivelli agrees, and says he hopes the EPN will use the recent donation from the U.S. government to work toward that end.
“I hope that Nicaragua takes advantage of the benefits of this opportunity that we are giving to establish clear guidelines for international investors and that you use this donation to create the confidence that investors need and thereby promote the much-needed development in the transport sector,” Trivelli said.
Next: After a five-year derailment under the previous administration, the Sandinista government is helping the “dry canal” project get back on track.