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Daniel Ortega continues to butt heads with big investors in Nicaragua. This week Ortega’s Sandinista government slapped a lien on the country’s only all inclusive hotel. The Spanish owned Hotel Barcelo Montelimar considered by many as the finest hotel in Nicaragua, says it’s being “harassed” by the Nicaraguan government.
The government claims the owners owe back taxes and that the 1993 purchase price of 3 million dollars for the luxury hotel was “ridiculous.” They may have a point, albeit sour grapes. According the hotel’s web site, “The Barcelo Montelimar Beach Resort and Casino, a five-star Nicaraguan jewel is nestled amid the lush tropical rainforests on the glittering coast of the Pacific Ocean. This magnificent beachfront resort in Playa Montelimar boasts four kilometers of sandy shoreline, 293 guest accommodations, and the largest swimming pool in South America.” Sounds like someone got a killer deal.
The point being made in this week’s headlines is that the sanctity of Nicaragua’s “rule of law” and “judicial security” are being exposed by the government’s actions. On the investor’s side I can see their point. The owners of the hotel bought the property in 1993 when the country was still reeling from the Sandinista/Contra conflict. Back then, only those with a long-term vision and the deep pockets to back it up would even consider investing in Nicaragua’s unripe fruit. Consequently they bought at the right time and most likely weathered years of negative cash flow. Now that the hotel is presumably prosperous and Ortega is desperate for public approval and money he feels justified to challenge the legality of the Barcelo deal.
The Hotel Barcelo’s legal representation are scheduled to appear at a hearing this week at the National Assembly’s Tourist Commission. The results of this meeting and the subsequent decisions made by the government in the case could be a telling factor how other investors in Nicaragua should view the permanence of their speculation.
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.
Investing in Nicaragua sometimes means more than just spending money on its real estate. Perhaps the most well known travel writer Arthur Frommer wrote in a recent post that travelers to poor countries like Nicaragua should think about why prices there are so cheap.
Frommer quotes in his post,
“In a devastating article appearing in the current edition of The New York Review of Books (June 12, 2008), Stephen Kinzer points out (in “Life Under the Ortegas,”) that 80% of the Nicaraguan population “subsist on less than two dollars a day.” Twenty-seven percent of the population “is undernourished.”
Kinzer also notes that,
“Nicaragua is among the safest and cheapest places in Central America, and a booming tourist enclave has already emerged around the beach town of San Juan Del Sur. Some entrepreneurs also dream of creating retirement communities to attract middle-class retirees from the United States.”
It’s only natural that when travelers plan a trip, they will try and maximize their vacation experience for as little money as possible. The same principle applies for investing. Therefore, it comes as no surprise that because Nicaragua is comparably poorer, they can offer tropical vacations (or investment opportunities) for less than their regional neighbors. But do these bargains come at the cost of exploiting the Nicaraguan people?
Frommers’ post ends with the question,
“As we lie on the beach and bask in the sun and click our fingers so the waiter will bring another drink, should we travelers pay some thought to the dreadful conditions that brought about our vacation pleasure?”
So what is Frommer saying? Is he suggesting that tourist and investors should pay more and go somewhere else? I don’t think so, but here’s where I have a problem with his post. Clearly, Frommer is suggesting that tourists and investors should think about the “dreadful conditions” that are raised in Kinzer’s article. But thinking about something and doing something are two different things.
My criticism about Frommer’s post is, that as one of the world’s most experienced travelers, he offers no suggestions how to make things better. We’re being called on to “think” about it. Where are the tips for tourists and investors to do their part to make a difference? Thinking is good - doing is better.
I have argued in this blog more than once, that part of what makes Nicaragua an exciting place to invest or vacation in, is the country’s room for growth. For the investor, part of that growth involves responding to the needs of the country on a local level. The term invest, means “to put money to use” and “to furnish with power.” Return on investment happens as a result of growth. So, yes, tourists go to Nicaragua and spend your money, investors you too!
Like Arthur Frommer, I agree that it is important for the visitor and the investor to think about how poor the country is, while you are there. And, here is a list of great non-profits that are helping to improve the living conditions for Nicaraguans in need. Invest in Nicaragua: invest too in its people.
- Mercy Corp
- World Vision
- Wisconsin/Nicaragua, Partners of the Americas Inc.
- Project Concern
- CRS Catholic Relief Service
Invest in Nicaragua by letting me know of any other organizations to add to this list.
There is a lot to consider right now when it comes to investing in Nicaragua. This week’s news out of Nicaragua regarding Daniel Ortega’s alleged involvement with the Armed Revolutionary Forces of Columbia (Farc) is disturbing, considering his past association with violence. As a reminder, Farc is considered by the United States and the European Union as an international terrorist group. The full story could cause investors to pause when considering the political stability of Nicaragua’s current administration and its relationship with the United States and Europe.
On the bright side, for investors whom are aware of the tremendous investment potential in Nicaragua and have not yet made the decision to buy, these headline merely extend the window to get involved at earlier prices. Existing developments need to have a stable political backdrop to sell their product and ongoing negative headlines out of Managua are not helping. This could give the investor a stronger playing hand at the negotiating table.
Whether you are already invested or are taking a wait-and-see stance, Nicaragua is still an investor darling at this point due to its substantial underdeveloped potential. Compared to its regional neighbors, real estate investments in Nicaragua may require a more long-term vision, but the potential is still worth the due diligence.
Ethanol as Biofuel
Today’s production of corn in the US destined to become ethanol accounts for over 25 percent of the traditional food/feed crop. That shift over the last two years has caused a dangerous increase in the price of corn, negatively impacting the growing but still fragile economy in Nicaragua.
Food As Fuel
Since corn is now seen an alternative fuel source, the agricultural commodity is now economically linked to the price of crude oil.
- Barrel price in 2006 - $66.00
- Barrel price today - $129.00
- Projected year end price - $200.00
- Bushel of Corn in 2006 - $2.00
- Bushel of Corn Today - $6.00
- Projected year end price - $8.62
Due in part to the negative economic impact from U.S. subsidized corn imports and recent soaring prices in gasoline, Nicaragua is facing some serious food shortage problems.
How does this effect the poor in Nicaragua? There are two results that are predictable, the first is social unrest. The World Bank estimates 33 countries face social unrest because of soaring food and energy prices. As Bob Marley once sang, “A hungry mob is an angry mob.”
The other expected consequence is increased emigration to the U.S.. According to a report today on China Radio International,
- “63.3 percent of Nicaraguans are inclined to seek jobs in other countries, up from 55.5 percent at the end of 2007…”
- Of those intending to seek jobs abroad, 44.5 percent prefer the United States.
- About 42 percent of respondents said the main reason for seeking jobs abroad was the lack of jobs domestically, while 23.6 percent cited poverty as the cause and 17.1 percent said the rise in food prices was triggering the exodus.
Food that should feed people is being converted to satiate the worlds hunger for gasoline, that’s just wrong.
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World-Wide Food Crisis
Most headlines out of Nicaragua this week are regarding the food crisis. There are many reasons why there is a world-wide food crisis right now, and they are mostly political – but I won’t open that can of worms in this post. Memo to self: must remember this blog is about investment. The subject does remind me of a comment I heard recently. It went, “politics is about two things – the first is money, and…I can’t remember the second.”
Food Crisis In Nicaragua
I feel strongly that investing in foreign real estate ties an investor to that land in ways other than those that are self-serving. Fundamentally, that tie involves an ability to respond to the needs of the people on that land. That response-ability is an insurance that the investment made, like the people of that country will prosper. One won’t happen without the other. Investment supports people, people make investments grow, and in Nicaragua, both have a lot of room to grow.
Food Crisis Action Plan
One way you can insure that your investment in Nicaraguan real estate stays healthy, is to do your part and insure the people of Nicaragua stay healthy too. Here’s a short list of quality organizations to contact.
If you are considering investing in real estate in Nicaragua consider the “Community RE Fund Program” set up by Coldwell Banker in Nicaragua. According to their web site, “The REfund model encourages every participant in a real estate transaction to contribute funds at the time of closing. Investing that creates value in society and the environment while at the same time being financially profitable.” (read more)
Affiliated with the RE Fund program in Nicaragua, Dos Manos is a collection of non-profit organizations that focuses on children’s needs and education.
Unlike politics, investing in a country is about more than just one thing, today’s headlines make it easy to remember what it is. Do what you can to help with the food crisis in Nicaragua.
Ortega and the Opposition Media
Recent headlines in Nicaragua suggest there are rising tensions between Daniel Ortega and the “opposition” media due to upcoming regional elections. It is interesting that the party that lost the last election in Nicaragua is called the opposition. If that term were to be used to describe the Democratic Party in the U.S. over the last 8 years, the label would be considered a pejorative because it suggests opposites, like good and evil. Opposition, implies that there is no possibility of reconciliation. Which leads to the question, what party would benefit the most by embracing an unyielding stance.
Nicaragua and Foreign Investment
The opposition media represents Nicaragua’s conservative contingency of well entrenched business and landowners to whom economic change means competition. It’s not surprising that the conservative aristocracy of Nicaragua are skeptical of Ortega’s moves to organize campesinos and his stated commitment to open the country to foreign investment. However, as reported in a recent blog, Nicaragua’s export sector grew 16.5 per cent to $1.26 billion over taking remittances and foreign aid as the country’s primary economic driver in 2007. In fact, CAFTA driven agricultural productivity is expected to exceed $2 billion by 2010. To foreign investors and the populace of Nicaragua these are encouraging statistics. For the opposition the stats may represent something different - a business model that is too inclusive. Incidentally, until 2007, remittance money from the U.S. was the largest source of income for many wealthy business owners in Nicaragua.
Tropical Breeze or Hot Air
As a foreign investor, one has to differentiate between the upcoming media battle between the current administration and the opposition, and something that may be more sinister. The opposition (read losing party) uses its media for one purpose. Their goal is to needle, antagonize, undermine, say anything, and do everything in its power to discredit the Ortega administration regardless how effective his policies are. And many times that kind of media works, remember the wacko swift boat tactics used against John Kerry in the 2004 U.S. elections.
The conservative opposition party lost in the last election and they represent the old guard of Nicaraguan power. It’s no wonder they’re butting heads with the current administration who have taken some controversial measures to stifle the opposition’s media hyperbole. So how serious is Ortega’s reported media interference to those who are or are thinking about, or are investing in Nicaragua real estate? Most sources say that the rising tensions between the current administration and the conservative party will have no long term consequences. Ortega is too smart to impose any kind of real censorship on the media. It’s too risky for his credibility with the foreign investors. And the “opposition” can’t cry wolf too loud, after all, the country’s in better shape than it’s been in years.
Take Home
To Daniel Ortega - It is important for the government of Nicaragua to realize that the mere suggestion of controlling the media makes foreign investors nervous, especially during elections.
To Nicaragua’s Conservative party and its Media - It is important to realize that foreign investors, indeed nobody takes a dog that barks at the breeze seriously.
To Nicaragua’s Investors - a) It is important to keep an eye on these municipal elections and the issue of free speech. b) Remember that Nicaragua is fundamentally moving forward and there are still plenty of investments to be made.
There have been several stories written, and lots of blog action about the recent riots in Puerto Cabezas on Nicaragua’s Atlantic coast. The question of the motive for the government to cancel the election is valid and suggests that Ortega and Sandinista allies would lose the elections if they went forward.
Postponing elections due to hurricane damage seems random and could be an excuse to hold on to power in the region. But for what reason? How valuable is the northern Atlantic coast to the Ortega administration? Considering the recent go-ahead for oil exploration penned by the administration and MKJ Xploration, Puerto Cabeza could literally be the future well-head of revenue for the entire country. And that, makes it very valuable indeed.
Nicaragua’s right-wing opposition has “started to organize against what it claims is President Daniel Ortega’s similar [to Venezuela] intentions to consolidate power in this country” according to a recent Tim Roger’s article “Nicaraguan opposition resists Chavez’s expanding ‘revolution…’”
Rogers writes, “Mr. Ortega, an ally of Venezuela’s president, has promised to implement his own version of ‘direct democracy’…” Ortega’s direct democracy is defined as, the “sharing of power” through the implementation of “Councils of Citizen Power.” The opposition fears that these councils would subvert their local authority through a chain that starts at the neighborhood and progresses to municipal, regional and national institutions.
The term “Direct Democracy” brings to mind the Chicago political machine of the early 20th century that traded favors at the local level, for party loyalty at all levels. Comparing the disenfranchised immigrant population of turn-of-the-century Chicago and Nicaragua’s poorest populations’ struggle to survive, it seems an effective way of consolidating power. Nicaragua’s “Direct Democracy” is an experiment for Ortega’s battle to secure power. The question is will it work. Certainly, Chicago’s machine worked in the burgeoning neighborhoods of Chicago, and it ended up to be the dark side of democracy in the city’s proud legacy.
Development In Nicaragua: Civic Debates Mark Positive Sign
Development in Nicaragua is progressing rapidly, and, there are signs that reflect that growth. Yet, reservations about Daniel Ortega’s long term political ambition have led to trepidation for some investors looking at the future of Nicaragua. If you look closely at stories coming out of Managua, however, there are indicators that Ortega’s administration recognizes that a democratic approach is the ticket to economic gr.In a recent article, Jose Adan Silva writes about the conflict in Managua between the construction and real estate industry, and the future of the water supply. The article suggests that changes are on the horizon. Regardless which side you’re on, both sides are arguing for development.
Natural resource officials say that the 355 urban development projects that are under construction are excessively stressing the city’s water treatment infrastructure. City planners argue that, there needs to be a moratorium on building until suitable water treatment facilities are operating. The real estate and construction industry argue that, hundreds of millions of dollars and thousands of jobs are being infused into their city which is helping to buoy Managua out of poverty.
For the investor, the most positive note in Silva’s article comes from lawmaker, Agustin Anaya “an ally of the leftest governing Sandinista Front, who said, “the ban on housing construction is ‘healthy and commendable,’ but alternatives for the private investment projects affected by the measure should be explored.” Anaya goes on to say, “We should not be so drastic. Alternative solutions that seek to preserve water sources and that do not affect the country’s economic growth should be sought.”
Development in Nicaragua real estate, or Managua’s infrastructure, both sides have valid arguments. Each side believes their argument should be the priority. For the investor, both real estate and infrastructure have potential, because they are both signs that Nicaragua is moving in the right direction.
