Competitive Trade Hinges on Infrastructure
MANAGUA – Nicaragua was once considered the favorite candidate for an ambitious plan to build a shipping lane linking the Atlantic and Pacific oceans. But since it lost the canal to Panama in 1902, the two countries’ fortunes – at least in terms of trade –have diverged.
Panama is now host to one of the busiest shipping lanes in the world, while Nicaragua remains a provincial backwater, blessed with a privileged geographical location but hampered by inadequate port and shipping infrastructure.
With modern-day manufacturers stitching together supply chains that stretch thousands of miles, shipping and infrastructure concerns have become of paramount importance in a globalized economy.
A good road now means much more than a smooth ride; it can be the difference between economic growth and stagnation.
“The transportation problem – the issue of logistics – is a general problem within Latin America,” said Orlando Solórzano, Minister of Industry and Commerce. “Sometimes it’s easier to go between one continent and another, from Europe to the United States, than it is to cross between neighboring countries here.”
The issue of infrastructure is of specific importance in Nicaragua, Solórzano said, because the country has so much to gain from a strong trade network.
“We need to take advantage of our strategic position,” he stressed. “As a country that has such a favorable geographic location, we have even greater incentive to encourage investment, to improve the quality of our trade network, and to become competitive in logistics and transport.”
Gaining entry to the high-speed and complex global marketplace, however, is not an easy task, no matter how good a country’s location may be.
In terms of infrastructure, Latin America lags far behind its direct competitors in Asia. And Nicaragua fares worse than most of its neighbors.
“A country without infrastructure is not viable,” said Enrique Zamora, president of the private Association of Producers and Exporters of Nicaragua (APEN). “A country without infrastructure will not be able to achieve greater levels of employment, or derive any of the other benefits that such developments can bring.”
Zamora did, however, note that there has been a 20% increase in export volume this year to the United States. The growth, he said, is the result of successful private-public cooperation.
“There’s a favorable disposition on the part of the government to improve infrastructure, the ports, the airports, and to work as facilitators with the private sector,” Zamora said.
“That has not always been the case.”
This year’s export growth has largely been driven by an increasing volume of bulk-good exports like coffee and sugarcane, plus notable growth in non-traditional products.
Yet while the gains appear impressive, they are less so when compared to other Central American economies.
El Salvador, for example, has also reaped double-digit export gains in the past year.
And Nicaragua, despite its growth, still handles only 3% of Central America’s total trade volume.
That is not to say that Nicaragua is being left behind entirely by its neighbors. If anything, the region as a whole is failing to compete in the globalized economy, experts say.
Nicaragua is simply a laggard in a region that is already being outpaced by much of the world, according to experts. The reasons are many, though a large part of the blame can rest squarely upon the country’s infrastructure problems – an antiquated system of potholed roads and dilapidated ports.
Ricardo Sánchez, of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), highlighted the diverging paths that developing economies in Latin America and Asia have taken.
“If you look at the numbers, while Southeast Asia has been rapidly constructing new infrastructure improvements, Latin America has stagnated,” Sánchez said.
In 1980 there were 1.10 meters of paved road per capita in Latin America, nearly double that of Southeast Asia. As of 2000, the regions’ respective positions have flipped.
In Nicaragua, for example, the amount of paved roads per capita has actually declined, reflecting an overall trend in Latin America. Southeast Asia, meanwhile, has built its way to a healthy 1.29 meters of road per resident.
That infrastructure gap, Sánchez says, can mean a lot, especially as the two regions compete directly for manufacturing jobs from more developed parts of the world.
Ultimately, poor infrastructure affects businesses’ bottom line, and as manufacturers scour the globe for lower production costs, it can mean the difference between a factory in Nicaragua and a factory in Vietnam.
An ECLAC study released in 2006 found that in Latin America, some 20-30% of a product’s value is lost in logistical costs; in Singapore the figure is only 8.5%.
Sánchez referred to another United Nations study that ranked national economies in terms of external connectivity – a rough metric of the degree to which a country is accessible to the global market.
Hong Kong, China and Singapore led the study, followed closely by the United States, Western Europe, Korea, and Taiwan. Nicaragua ranked 124th, last among Central American nations.
Because of the high costs that such poor connectivity engenders, unless other production costs such as labor or raw materials are dramatically lower, a producer of manufactured goods here will spend more to reach the global market than the same producer would in Asia.
To compete with such efficient international trade juggernauts, Latin American infrastructure must be brought up to the standard of the highly developed mercantile routes between Europe, Asia and the United States. That’s a tall order.
The world’s largest trading hubs – Singapore, Rotterdam, Los Angeles – are driven by intricate multibillion-dollar networks of ports, rails and roads that have been constructed over decades.
In Los Angeles, for example, computerized cranes load and unload 43,000 Twenty-foot Equivalent Units (TEUs) daily – a TEU is a standard industry measurement of container volume.
In contrast, Nicaragua’s principal port, just north of the Pacific city of Corinto, moved 46,000 TEUs last year – about what Los Angeles moves in a day.
Even that small quantity represents a dramatic increase over previous years’ totals. In 2006, the CorintoPort processed more containers than it did in the previous three years combined.
Still, the port is far from the Central American hub that Virgilio Silva, the president of the National Port Authority (EPN), envisions. He sees a brighter future.
“In our compañero President Daniel Ortega, we have a promoter of the modernization of the ports of Nicaragua,” Silva said.
“In the past 16 years, we have not seen any investment in the ports.”
Silva pointed to a number of new development projects, including a recent $3 million investment in container equipment at the Port of Corinto. He complained of prior administrations’ failures.
“When we took office nine months ago, we found that there had been serious container congestion because of a lack of logistical equipment,” he said.
New loading equipment from Italy and the Netherlands has since been added and will hopefully alleviate the crush, Silva said.
He also described an ambitious plan for a major port on the Atlantic coast, in a remote jungle area known as Monkey Point.
“The dream of the EPN and of our government is an investment in a modern deepwater port at Monkey Point,” he said. “It will cost around $350 million, though that will include facilities for processing liquid cargo, grain and containers.”
At its most grandiose, the plan also includes a rail line or “dry canal” across the country to the Port of Corinto, connecting the two coasts and providing an overland alternative to the Panama Canal (NT, Sept. 7).
Iran has expressed interest in helping to fund the port project, but so far no concrete plans have been unveiled.
Like many other impoverished countries, Nicaragua has found itself forced to rely heavily on the whim of sympathetic foreign governments or private groups of investors to front the large sums of money needed for development.
Silva said that the government is in talks with several countries, including a group from continental China and “our brothers from Venezuela,”who are interested in funding the massive Monkey Point project – purportedly to use the port to ship oil across Nicaragua to the refinery that Venezuela is building in León.
Venezuela plays a prominent role in a number of the government’s planned infrastructure projects; it has pledged development money for three of Nicaragua’s six ports, includes a significant $36 million expansion of the Port of Corinto next year, adding two new storage docks to the three that already exist.
Critics of the government, however, doubt that Venezuela is as good at keeping its promises as it is at making them.
Still, Silva hopes that the modernization plans will come through, making the port more competitive in an increasingly crowded Central American field.
El Salvador will soon complete a new $500 million Pacific port complex in Cutuco, just 75 miles north of Corinto. Plans have been floated to connect Cutuco to Honduras’ principal port in the Caribbean, the modern Puerto Cortés.
That link would provide another cross-oceanic avenue and could perhaps scuttle Nicaragua’s own persistent ambition to link its east and west coasts.
The future of Nicaragua’s proposed megaprojectsremains unclear, and their fate seems to hinge on whether promised investment, both from Venezuela and other countries, pans out.
If not, as with the decision to build the canal in Panama over a century ago, Nicaragua could again be left waiting for its ship to come in.
Nica Shipping Totals, ‘06
Maritime Port Metric Tons Shipped
Puerto Corinto 1,659,542
Puerto Sandino 998,485
Puerto El Rama 12,351
Puerto El Bluff 18,001
Puerto Cabezas (Bilwi) 18,233
San Juan del Sur Recreational
Source: NationalPort Authority (EPN)
Central American Trade, ‘06
Country Thousands of Tons Handled in ‘06
Percentage of Total Cen.American Trade
Panamá 39,244 45.5
Guatemala 16,080 19.5
Costa Rica 12,824 14.1
Honduras 9,393 11.5
El Salvador 5,965 6.3
Nicaragua 2,706 3.1
Source: Central American Commission on Maritime Transport
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