MANAGUA – The recovery of the global economy and the timely launch of several mega-projects in Nicaragua could help offset next year’s traditional election-year investment slump, according to the optimistic predictions of investment-promotion group ProNicaragua.
Historically, when Latin American countries enter an election cycle, the investment climate chills as investors close their checkbooks and wait to see who gets elected. In countries such as Nicaragua, where the candidates propose radically different economic models, the electoral chill can turn into freezing, blustery cold front.
But Javier Chamorro, executive director of ProNicaragua, doesn’t think that will happen in Nicaragua next year, despite an electoral contest that’s shaping up to be ugly.
“Investment is usually reduced in election years, but in this specific case the effect will be less than what we’ve normally seen,” Chamorro told The Nica Times.
Chamorro said he thinks the international economic recovery, which is driving the vivacious growth in Nicaraguan exports, plus a series of mega projects in areas of tourism and energy production, will continue to propel the economy forward through a contentious political cycle.
“There are a series of existing companies here that are expanding their operations to close the breach between their capacity for production and the demand in the global market,” Chamorro said. “Many companies decreased their productive capabilities during the economic crisis last year. And now exports are growing again because there is a greater market demand, so businesses must reinvest in their own productive capacities to meet that growing demand.”
That trend can already be seen in the textile and apparel sector, which is starting to reinvest and reactivate production in Nicaragua after slumping dramatically over the past two years. In 2008, there were some 88,000 Nicaraguans employed in the free-trade zones, a number that dipped below 70,000 last year as purchase orders dried up and companies laid off workers.
This year, as the industry recovers, Nicaragua’s free-trade zones have added some 15,000 new jobs, bringing the total back up to around 85,000. By next year, Nicaragua expects to surpass its old record of 88,000 factory jobs, Chamorro said.
Other export-driven sectors are reporting similar expansion plans to keep up with increasing demand, Chamorro said.
But the biggest boost will come from new investments – a series of mega-projects in tourism and energy.
Nicaraguan business tycoon Carlos Pellas this month announced his company is moving forward on a $250 million tourism investment project known as Guacalito de la Isla, which promises to be a premier destination on Nicaragua’s Pacific coast.
Meanwhile, the $600 million Tumarín hydroelectric project will headline $1 billion in committed investment in renewable energy sources over the next four years. And that amount could be much higher if other companies conducting feasibility studies in the energy sector decide to invest here.
“Nicaragua will see a minimum of $1 billion in investment in the energy sector in the next four years – and that’s just in confirmed projects,” Chamorro said. “There are also eight or 10 additional companies conducting feasibility studies on other hydroelectric projects in different sectors of the country, as well as three businesses studying geothermal projects and two companies studying investment in wind farms.”
Nicaragua’s economy, despite being one of the smallest in the hemisphere, has demonstrated a remarkable capacity to attract direct foreign investment in diverse sectors and from a wide variety of sources, he said.
Over the past two years, Nicaragua has ranked third in Latin America (behind Chile and Panama) for attracting the highest percentage of foreign direct investment as related to the country’s Gross Domestic Product.
“We have one of the smallest economies on the continent, but in recent years we have been characterized as being one of the most dynamic in terms of attracting investment,” Chamorro said. “While the volumes of investment aren’t staggering, they are very important relative to the size of our economy.”
Relative, however, is still the operative word. For example, in 2008 – Nicaragua’s best investment-performance year to date – the country attracted only $626 million in foreign direct investment, compared to Costa Rica’s $2 billion. Still, in global terms, Nicaragua last year moved out of last place in Central America by attracting more foreign investment than El Salvador, which has a much larger economy.
“We are starting to be a destination for investment, positioning ourselves with bigger economies in the region,” Chamorro said.
Overall, Chamorro said, Nicaragua has attracted more investment in the past three years under President Daniel Ortega than it did during the previous five years of President Enrique Bolaños’ administration. And while much of the new investment has come from Venezuela, there has also been an important diversification of origins of funding.
Germany, Holland and Russia are all investing millions of dollars in Nicaragua’s productive sectors for the first time, and Brazil, which is backing the $600 million Tumarín hydroelectric project, is about to become the single largest investor in Nicaragua over the next four years.
In total, there are now 33 countries investing in Nicaragua, up from 28 three years ago, according to ProNicaragua.
The areas of investment are also starting to diversify, though the big four sectors – telecom, energy, tourism and free-trade zones – continue to dominate, with a combined 76 percent of all foreign investment here.
Though Nicaragua is expected to finish this year at around $500 million in direct foreign investment, it will still fall short of its 2008 investment record.
However, if the current growth trends continue, Nicaragua could once again reach or surpass its 2008 record next year.
And considering 2011 is a presidential election year, that growth would be a double record for Nicaragua.