Nicaragua has not been a leading destination for foreign investment in recent years, but it is not for lack of trying. The country’s government has pushed through reforms that make it one of the most open and investor-friendly economies in Central America, and its slick and well-funded investment promotion agency, PRONicaragua, is aggressively campaigning to improve the country’s image and spread the word about investment opportunities.

When Sandinista candidate Daniel Ortega won the presidency in 2008, there were concerns that he would enact less business-friendly measures, but he has by and large won the confidence of the country’s industries and investors. Following his election he reportedly held a private meeting with Nicaragua’s business leaders to give assurances that them he wanted them to stay.

Advertisement

Economic challenge

The companies have indeed stayed and more are starting to trickle in, but Nicaragua still has a long way to go to truly get its economy moving and improve the lives of its citizens. The country is regularly ranked among the five poorest in the Western hemisphere, with nearly half of its population living in poverty. Its roads and infrastructure can make long-distance transportation difficult. Underemployment is estimated at close to 50%, and 78% of its population is under 39 years old. Your correspondent experienced multiple power outages on a visit there, thanks largely to an inefficient and expensive energy system.

As such, this is a likely explanation for why Nicaragua’s government has set ambitious targets with regards to renewable energy. By 2017, the government wants only 4% of its energy generation to come from hydrocarbons. The figure is currently at 64%. 

Environmental reasons aside, it is a sensible policy. With petroleum prices ever increasing, the pain at the pump and via utility bills affects the poor more significantly than the wealthy. The same burden is placed on businesses; one manager complained that he paid $225,000 per month in electric bills. While not a huge sum for a multinational corporation, it is significant for smaller businesses in a developing country. In addition, thanks to Nicaragua’s relatively small size and population, converting the country to renewables will not be as tough as converting an industrialised country with a population above 70 million.

Reachable targets

Alejandro Arguello, vice-president of corporate development at Polaris Energy Nicaragua, believes the goals the government has set are very reachable. He points out that when his company began its operations in Nicaragua, it produced 10 megawatts in 2005, and by next year it aims to produce 72 megawatts. With a country that only requires about 570 megawatts a year, he says that with more investment, the government's ambitions are achievable. Furthermore, Nicaragua’s potential in renewables is diverse. There are wind projects on the country’s Pacific coast and geothermal projects closer to the country’s active volcanoes. Mr Arguello’s company has to date invested $350m into Nicaragua.

Interestingly, the push for renewable energy development is widespread in Central America. Costa Rica is already 100% renewable, and there are currently plans for a grid that will connect the energy systems of Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. Called Siepac, the project is not entirely based on renewables, but they are certainly set to play a part. Proponents have claimed that the project, if successful, would attract significant FDI and the cost of energy in the region could decrease by as much as 20%.

Outsourcing success

Another area where Nicaragua has experienced growth and a sizeable amount of FDI is, somewhat surprisingly, in its business process outsourcing (BPO) industry. While the industry’s growth has been dominated by the India story, the trend of opening call centres in so called near-shore destinations has prompted many US companies to outsource these operations to Latin America.

Many Nicaraguans speak English with practically flawless American accents, thanks to solid education programmes, the fact that a large portion of the population has worked temporarily in the US, and the widespread availability of English-language television. With monthly salaries of as little as $400 per month, this has caught the attention of several firms. In addition, while this starting salary seems low, it goes a long way in a country like Nicaragua and these jobs have been some of the most sought after by university students and recent graduates.

One such BPO company is US firm Sitel, which has been active in Nicaragua since 2008 and has operations in 27 countries. Melvin Vance, senior vice-president of operations in Central America, cannot say enough good things about his company’s experience in the country. While he says there can be complications with paperwork and customs, he is pleased with the quality of the workforce and looks set to keep his operations in the country going for the long term.

The same is true of Accedo Technologies, another BPO firm that has recently launched in Nicaragua. From its shiny new offices, its director Alejandro Graham happily shows off his operations. Most importantly, his company has an intense training programme that improves future employees’ computer and English-language skills. Most of his workers are young and earn starting salaries of $500 per month.

Outsourcing is not just limited to the business process. With the country’s minimum wage at about $1.50 per hour, several textile companies have opened factories in Nicaragua. The factories themselves are gigantic and often located in recently established free zones. While the pay is less than at the call centres, job applicants line up outside these factories in the hopes of finding work.

Tourism potential

Then of course, there is tourism, which is perhaps the fastest growing industry in the country and one with immense potential. Between 2007 and 2010 the industry grew by an average rate of 8% according to Intur, Nicaragua's institute for tourism. The country’s tourism minister, Mario Salinas Pasos, says that the main thing holding Nicaragua’s tourism industry back is its image problem that he believes is unjustified. While this is the easiest explanation, it is a fair point. Nicaragua is frequently ranked among the safest of Central American countries. It has largely managed to avoid the problems with drugs and gang violence that have plagued nearby Honduras, El Salvador and Mexico.

Yet despite this relatively solid record on security in recent years, it remains one of the biggest concerns among those in the tourism industry. Raul Calvet, president of a tourism consultancy business in Managua, says that “absolutely” more needs to be done about security, and points out that some places, such as the blossoming tourist hotspot San Juan del Sur, are badly under-policed and ill-equipped to deal with a large influx of tourists. While he thinks that the government knows this is a problem, he believes there simply is not enough money to put more police on the ground.

Mr Pasos, however, stresses that the government is very concerned and has plans to address these issues. When asked what could be done if more police were not affordable, he spoke of social and educational programmes that could indirectly improve the situation.

But security aside, the government certainly has huge plans for the industry and believes a well-planned strategy will result in benefits for the rest of the country’s economy. To date, little of the industry’s growth has reached the rest of the population, but Mr Pasos pleads for time and patience. In the next 10 years the government is planning a huge marketing campaign and hopes to launch an airline that will connect Nicaragua with direct flights to Europe and the US. 

However, the government also recognises the importance of developing more than just the tourism sector and has certainly aimed to attract investment in its other sectors where it believes it has competitive advantages. The policies are in place, and the potential is certainly there, but perhaps Nicaragua’s main battle is with time. If it cannot manage to solve or at least improve the poverty problem within the next few years, Nicaragua could find itself more susceptible to the same problems that have affected its neighbours. For now, though, the country remains largely safe and has high hopes for its future.