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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.
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.
