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Nicaraguan Economy
A press release issued on June 23, by the International Monetary Fund says Nicaragua’s economy is currently stable, however, “there are growing challenges from a deteriorating global outlook, notably rising prices of oil and other commodities.”
During a 12 day mission to review progress of the Poverty Reduction and Growth Facility Arrangement (PRGF), mission lead Luis Cubeddu met with government authorities and several other groups.
The press release states, “There has also been significant progress in the implementation of the structural reform agenda” Presumably referring to a new law approved by the National Assembly deterring the illegal consumption of electricity.
Various other subjects were discussed and Cubeddu states that talks will continue, “…to resolve outstanding isssues.” When resolved, “documents for completion of the first review under the PRGF arrangement will be presented to the IMF Board for its consideration.”
Ortega’s willingness to continue dialogue with the IMF may been seen as a small positive for Investors shaken by recent headlines out of Nicaragua. Considering Ortega’s developing dependence on Chavez and Ahmadinejad, two of the wackiest demagogues around, the IMF seems almost trustworthy.
World Bank & Nicaragua Water/Small Business Funding
The World Bank’s board of Directors announced last week that it had approved “a zero-interest credit for $20 million to support the government of Nicaragua to improve water and sanitation services in rural areas.” An additional $20 million in zero-interest credit will go “to enhance the competitiveness of micro, small, and medium enterprises (MSMEs) and the business climate that affects those firms.”
According to the World Bank Press Release on June 12, 2008, the money earmarked for the development of the water and sanitation infrastructure is focused on improving the access to water in rural and indigenous communities.
The other $20 million for the MSMEs will be “implemented over five years and improve the quality and affordability of services to MSMESs through four components:
- Improvements to the business and investment climate for MSMEs.
- Matching grants for MSMEs to support, inter alia innovations, environmental improvements, and forward and backward linkages.
- Innovative financial services such as a plot partial credit risk guarantee system for MSMEs in coordination with regulated financial institutions.
- Improve strategic, technical and coordination abilities of MIFIC in the field of competitiveness… The primary focus of the projects’ interventions will be on urban MSMEs.”
“Both $20 million zero-interest credits funded by the International Development Association have a reimbursement period of 40 years with a 10-year grace period.”
If the credits are appropriately applied, this is good news for rural communities and small and medium businesses in Nicaragua that desperately need infrastructure assistance.
This is also encouraging news for investors in Nicaragua that rely on the govenments’ involvement to create a stable and reliable economic environment.
With his domestic popularity in decline, President Daniel Ortega should welcome the news too, and view this as a vote of confidence from the World Bank and the international community to continue the policy of opening Nicaragua to direct investment.
Nicaragua Investment
Investing in real estate in Nicaragua at this point is speculative. No one is getting rich and probably won’t for a while. Today Nicaragua is more of a lifestyle investment, or an educated long term speculation. I say educated, because there are two solid facts, Baby Boomers are getting older, richer, and are buying second homes, and China, Russia, and India are producing a new and vacation eager middle class. Both groups are, and will continue to look for their best options in fulfilling their desires. Development in Nicaragua is and will continue to happen because there is a market for competitively priced real estate in one of the most beautiful destinations in the world, (see Costa Rica, Panama, Mexico).
Like I and others have written, because it is underdeveloped, Nicaragua’s potential is what makes it so attractive to investors. Its pristine Pacific Coast, the diving off of the Corn Islands on the Atlantic Coast, and its historical treasures Granada and Leon, are just a few of the highlights ready for growth in this beautiful and proud country. Geographically, it’s a short plane ride away from the U.S., and there is enough existing infrastructure to access these areas with little effort.
Recently, I have posted about headlines regarding Nicaragua’s political and economic situation cautioning investors to be aware of the tumultuous atmosphere there. I think it is important for potential investors to know what’s going on, that’s what this blog is about. For example recently I’ve written about the many social issues that threaten the stability of the country, their leader’s volatile history, and that he is currently courting allies that are polarizing to say the least. With that said, Ortega is trying to open up the country for investors with the abilities he has, and, there are many (including the press) in Nicaragua who would benefit from seeing Ortega fail.
There is no denying Nicaragua’s prices are attractive to investors. But If you’re looking to put your life-long savings in an ocean front condo and expect immediate rental income to cover the investment costs, you might look elsewhere for the short-term.
Nicaragua is ready for investment input if you have time, there is a vacuum waiting to be filled and it will happen. The only question, is investing in Nicaragua’s future right for you?
The Price of Oil
Francisco Aguirre, president of the National Assembly’s Economic, Production and Budget Committee, recently said “ Nicaragua could be heading for its worst economic depression in 70 years.” according to a recent article in the NicaTimes reported by Tim Rogers.
Citing terms such as, “grave, grim, tailspin, very, very critical, tragedy, and nightmare the article paints a portrait of Daniel Ortega as a president that is unwilling, or worse, unable to remedy Nicaragua’s growing economic decline.
Daniel Ortega and Iran
According to several sources, Daniel Ortega will be heading to Iran for meetings with President Mahmoud Ahmadinejad, to discuss debt forgiveness and Iran’s continued financial support. It is no surprise that Ortega’s developing alliance with Iran is prompting a “wait and see” attitude from the U.S. government and consequently sidelining investors’ confidence in Nicaraguan real estate.
Ortega and FARQ
Another dubious ally that Daniel Ortega seems to be cultivating is his association with FARQ, or, the Armed Revolutionary Forces of Columbia. Recent allegations that Ortega is sponsoring two terrorists and that he had supplied their guerrilla group with weapons, has many worried that Ortega’s past affiliations with the leftist violence is still an issue.
Nicaragua’s Food Crisis
Anti-Hunger demonstrations are capturing the headlines as reportedly over a thousand took part in the rally calling for a comprehensive program to deal with Nicaragua’s growing food shortage problem. On Sunday June 1st, participants in Matagalpa marched to bring attention to issue that has been worsened by the recent skyrocketing price of fuel.
Ortega’s Antagonism
Understandably Daniel Ortega is a polarizing figure. Animosity between the Sandinistas and other more conservative parties has been gaining traction since his election. However, Ortega must realize that his actions are not solely alienating the opposition, they now also threaten international investors pouring millions of dollars in to the country. Recent statements made by Ortega have only served to escalate the tension between these groups. Referring to western financial aid, Ortega recently rebuked, “the colonialist mentality” of countries that offer “conditional aid. There is no doubt that “loans” from the IMF and the World Bank and their Structural Adjustment Programs have hurt Nicaragua’s growth in the past. It is also arguably not constructive for Ortega to alienate foreign investors who are helping to develop Nicaragua’s principal future market, tourism.
U.S. Economy - A Sinking Ship?
The first day of May is celebrated by many around the world as the day to acknowledge laborers and their contribution to the economy. Unfortunately, there’s not much to celebrate when it comes to economic news in the U.S. These three headlines sum up the news for the first day of May 2008.
NEW YORK (Reuters) - U.S. companies’ planned layoffs jumped 68 percent in April from the prior month to the highest since September 2006, pointing to further deterioration in the labor market, a report showed on Thursday.
AP Economics - The number of newly laid off workers filing claims for unemployment benefits soared last week. The economy is expected to lose 70,000 jobs, the fourth straight month of job losses.
NuWire Investor - America Losing Faith in Economy: Confidence Hits 5-Year Low.
I don’t know about you, but I’m really needing some good news right about now. I mean C’MON! It’s Spring time for crying out loud. I thought April showers brought May flowers. It looks like April’s bad news has turned into an economic down pour that is not letting up any time soon. Well, if I’m going to get wet, I might as well be in the sunshine.
Hey - I know, lets take a look at some economic news from Nicaragua.
- Nicaragua sees Foreign Direct Investment Up.
- In 2007 Nicaragua’s export sector grew 16.5 per cent to $1.26 billion.
- Exports overtake remittances and foreign aid as economic drivers.
- CAFTA driving agricultural productivity, expected to exceed $2 billion by 2010
- Great Opportunity for Smart Real Estate Buyers
- Real Estate and Business Opportunities
May Day might just be the time to see what opportunities are waiting to blossom for you in Nicaragua.
Nicaragua Real Estate
Why invest in Nicaragua real estate, especially now? Here in the U.S. gas prices are crowding four dollars a gallon, the housing market is stalled in many key areas, and fear of a prolonged recession is becoming a reality. The US economy is definitely rattled. In a recent New Yorker article by Ian Buruma titled After America the author puts into words the fears on a lot of investors’ minds, he writes regarding this year’s meeting of world leaders in Davos, Switzerland,
“The first time I visited this august assemblage, around the turn of the century, the received opinion was that the United States was so far ahead of the rest of the world that no one could ever catch up. This year in Davos, America’s fall was on everyone’s lips.”
What “fall” means is up for speculation. However, it could be that now is the perfect time for US investors to seek investments that have future global potential for growth. While real estate investment in the U.S. is a can of worms, real estate investment in Nicaragua is continuing to grow. In a recent post, Mike Cobb, CEO of Gran Pacifica and Barry Dufresne, President of Stealth Financial Services on their Nicaraguan real estate investment new letter write,
“Although the flow from the US has slowed down considerably, investments from other nations in the region, Europe and Asia continue to be strong and new ventures are springing up around the country.”
The development of millions of new middle class wage earners in countries such as India, China, and Russia, is and will create immense amounts of disposable income. Some of this new income will be earmarked for tropical vacations. Many investors see the potential of Nicaragua’s pristine coasts as poised to become major new tropical tourist destinations. Now is not the time for savvy U.S. investors to get caught up in domestic fear by thinking inside the box, perhaps it’s time to think about investing outside the country, in Nicaragua.
Agriculture Driving Nicaragua’s Exports
Just as small businesses are the engine that drive the U.S. economy, it’s no surprise that small businesses are leading Nicaragua’s economic recovery. Recently, Blake Schmidt writing for the Nica Times interviewed Fransisco Mayorga one of the architects of Nicaragua’s transition economy. The article points out that the economy of Nicaragua is shifting from remittances and foreign aid, to one that is export based. And, those exports are coming from small agricultural businesses.
Nica Numbers
- In 2007 Nicaragua’s export sector grew 16.5 per cent to $1.26 billion.
- Exports overtake remittances and foreign aid as economic drivers.
- CAFTA driving agricultural productivity, expected to exceed $2 billion by 2010
“Power-Sharing Cooperatives”
President Ortega’s policy to “organize Nicaragua’s poorest campesinos into agricultural cooperatives - [is] a move that he [Mayorga] says will help small producers get their share of the country’s booming export sector.” Mayorga says about Ortega, “They want to promote a model in which cooperatives and corporations coexist and compete.” Not unlike the Grange Movement in the late 1800s rural U.S., (which led farmers to demand stable prices and fair wages for their efforts) Ortega is implementing a more organized system of production in rural Nicaragua. These cooperatives will help small businesses compete with corporations that often times return little to the local economy. In the near-term, these cooperative will help increase profits for small and medium-sized businesses which will help circulate more money in their regions.
It’s not a stretch to see that more profit and better organization at the local level will make Nicaragua more powerful competitor with its neighbors, not only with its exports and its economy, but also with the strength of its democracy. And for the investor interested in Nicaragua, that’s big news.
Check out this week’s news about Nicaraguan Coffee exports.
