CIUDAD SANDINO – President Daniel Ortega said investment can be “fragile, like a passing swallow” in a speech last week inaugurating a $100 million U.S. blue jeans plant that opened the same day he announced plans by Taiwanese textile giant Nien Hsing to pull out of Nicaragua and relocate to China or Vietnam.
Ortega said the Cone Denim’s “longterm investment” – which will employ 850 Nicaraguans and represents the largest investment under the Central American Free-Trade Agreement with the United States (CAFTA) – is proof positive that the Sandinista government is capable of guaranteeing investors’ “legal security.”
Still, the opening of the plant – the largest structure in Nicaragua – was celebrated in the shadow of the departing Nien Hsing, which has been in an ongoing labor dispute with fired Nicaraguan union workers since 2001.
At the inauguration, Ortega, who in the past has been critical of textile plants and the type of investment that U.S. free-trade agreements bring, also stressed the importance of the initiatives championed by the Bolivarian Alternative for the Americas (ALBA), such as the need to get fair levels of interest for small farmers, and to “seek out just markets” for Nicaraguan food exports (see separate story, pages 1, 2).
His comments stirred concerns over whether Nicaragua’s participation in ALBA – under which Nicaragua has been exporting cattle and beans and importing tractors and oil from Venezuela – will in any way clash with CAFTA, which entered into force two years ago this month.
Conflicting Trade Accords?
Nicaragua’s Central Bank estimates that foreign direct investment will grow by 16% this year, about the same rate as last year, to reach a record $390 million. Exports are expected to skyrocket by 31%, the bank calculates.
At the Cone Denim inauguration, U.S. Ambassador Paul Trivelli noted that Nicaraguan exports to the United States have grown more than those of any other Central American country since CAFTA was approved, up 36% since 2005.
Cone Denim announced its investment in Nicaragua before Ortega was elected, and, as the president pointed out, immediately wanted to meet with the leftist leader once he won the November 2006 election.
“There were fears that if the (Sandinista) Front won, we were going to confiscate all the businesses,” Ortega said.
Instead, Cone Denim has become a poster child for CAFTA investment in Nicaragua, and has been chugging along on schedule since Ortega took office last year.
Cone Denim is a subsidiary of the North Carolina-based International Textile Group, a $1 billion company operating in 27 countries.
The Group’s CEO, Joe Gorga, said Cone Denim will manufacture 28 million yards of fabric a year at the Ciudad Sandino plant, which is now one of a dozen textile plants in Nicaragua’s tax-free zones.
Ortega said he is talking with the group about possibly reactivating the cotton industry in Nicaragua to supply the plant’s massive appetite for primary materials – a possibility that agricultural experts have said is unlikely.
In a country where delays are the norm, Ortega said the plant was built in “record time” at its sprawling grounds 15 kilometers north of Managua.
“This was constructed in the time we had planned, one year” said Alvaro Baltodano, a former guerrilla who now advises Ortega on investment in the free-trade zones.
In contrast, it’s been nine months since Venezuelan President Hugo Chávez laid the cornerstone to the construction of a $250 million oil refinery near Puerto Corinto Nicaragua as part of ALBA, Chavez’s alternative cooperation agreement with leftist Latin leaders. The daily La Prensa visited the site last week and found little progress made on what promises to be Central America’s biggest refinery, producing 150 barrels a day.
Though CAFTA started two years ago and has been in the making since 2003, Chávez’s trade alternative only came on the radar when Ortega took office last year.
Though the refinery plans have been slow in the making, some small Nicaraguan farmers are starting to see benefits from ALBA.
A group of campesinos has received lowinterest financing to buy nearly 100 Iranian tractors and agricultural fertilizer produced in Venezuela (NT, April 25).
Nicaraguan cattle farmers get advantageous prices when they sell to Venezuela – as much as double the market value, according to economist Francisco Mayorga. Nicaragua also receives Venezuelan oil under a preferential payment plan, and additional ALBA funding for road construction and other social projects (NT, April 18).
At the Cone Denim inauguration, Ortega came across as supportive of investment attracted by CAFTA, while at the same time calling for the strengthening of ALBA initiatives.
A major difference between the two is that ALBA is more than just a trade accord, since it involves financing and other cooperation initiatives (NT, April 25).
Mayorga, the former Central Bank president and free-trade champion, said ALBA and CAFTA aren’t necessarily conflicting trade accords.
“In economic terms, it doesn’t mean any tension for the time being. I do not envision that in the mid-term trade in the ALBA market will hurt free-trade with the United States. As long as everybody respects the rules of origin,” he said.
Economist Nestor Aveñdano agrees that ALBA and CAFTA can be compatible, but said aid and trade under ALBA need to be handled with less secrecy.
The lack of transparency under ALBA “provokes corruption and reduces economic development,” Aveñdano told The Nica Times.
Last week, a group of economists, including Aveñdano, publicly urged the National Assembly to mandate the Comptroller’s Office to expedite an audit of Venezuelan aid and to ask the Venezuelan government for Nicaragua’s balance. The Venezuelan aid hasn’t been included in the Nicaraguan budget, rather is being controlled separately without any third-party oversight.
An Asian Giant Pulls Out
Nien Hsing’s decision to withdraw from Nicaragua was for economic reasons, Ortega said.
“They say they’ll move operations to China or Vietnam, due to more favorable conditions,” he said.
Despite opposition from private sector leaders, the Sandinista government ordered a mandatory annual wage increase of 33% for 120,000 workers receiving minimum wage last year. The minimum wage as of February this year is an average $100 a month, according to a government Web site.
Christian Kuo, Nien Hsing’s administrative manager in Nicaragua, wouldn’t comment on the company’s pull out.
Nien Hsing’s free-trade zone Chentex plant has been the focus of an anti-sweatshop campaign in which U.S. legislators expressed concerns in 2001 over the company’s firing of Nicaraguan union leaders who were demanding better working conditions.
The Labor Ministry then ordered Nien Hsing to rehire workers after the firings.
Ortega said the government is in talks with another unidentified U.S. textile company to take over the Chentex plant once Nien Hsing leaves.
Cone Denim, for its part, is paying “just salaries,” Ortega said.
In a rare display of appreciation for the achievement of his predecessor Enrique Bolaños – who the Sandinista leader blames for many of the neoliberal policies in place today – Ortega thanked Bolaños, who was sitting in the audience of the inauguration, for “having the capacity to bring this investment to Nicaragua.”
When The Nica Times asked Bolaños whether the Ortega administration’s policies have been conducive to investment, Bolaños responded laconically, “This is a good start.”