San José, Costa Rica, since 1956

2011 could be record year for investment

MANAGUA – Election years are traditionally tough on Latin American economies, as investors tie a knot in their purse strings and wait to see who gets elected and what that will mean for the country’s business climate.

In polarized countries such as Nicaragua, where the two main political currents ostensibly represent radically different choices between free-market capitalism and socialism, electoral cycles can be downright crippling to investment and economic growth.

But after four years of President Daniel Ortega’s government, which has implemented a Sandinista-style capitalist model with a socialist window dressing, the “Red Scare” is over, according to Javier Chamorro, executive director of ProNicaragua, the country’s official investment-promotion agency.

“In all previous elections, the discourse of the political parties on the right was, ‘Careful, here come the Sandinistas. And if the Sandinistas win, the Nicaraguan economy will be ruined and there will be an economic blockade against the country’,” Chamorro told The Nica Times in an interview.

When the Sandinistas were out of power, Chamorro said, the opposition campaigned against Ortega as if he were the free-market bogyman who was hell-bent on implementing a communist regime to destroy the country. But after four years in government, in which many in Nicaragua’s private sector have made record profits, the old communist-fear tactic sounds a bit tinny, he said.

“Who is going to believe them now if they say that there will be an embargo and property confiscations if Ortega wins?” Chamorro said.

The “socialism” that the Sandinista government professes, Chamorro said, is hardly textbook Marxism. Instead, he said, Sandinista “socialism” operates in a free-market context to  “generate more wealth in the country to distribute it better to the poorest sectors of society.”

Despite the loud billboards proclaiming Ortega’s intent to “continue changing Nicaragua” towards a socialist model, the Ortega government’s macroeconomic and budget policies so far have been called “conservative” even by right-wing analysts.

Labels aside, Chamorro says Ortega’s economic policies have been defined by “macroeconomic stability, financial austerity, good budget management, opening to new markets, and proactively seeking new trade and tourism.”

He notes the Ortega administration has signed four trade agreements over the past four years, and has maintained solid relations with the International Monetary Fund – an international lending organization not known for its endorsement of socialist regimes.

So to claim that Ortega, who’s seeking reelection this year despite the constitutional ban against his candidacy (see separate story), plans to suddenly implement radical economic changes in his next term as president is a bit disingenuous,  Chamorro said.        

“If the government wanted to take a different economic path, they would have done so already,” the investment-promoter said. “Why would they wait until the sixth year of government to do that? They would have done it in the first year.”

While an increase of political violence and street protests is a strong possibility this year, investors can rest assured that there won’t be any dramatic changes to the economy next year. In fact, Chamorro predicts, Nicaragua could – for the first time ever – experience economic growth during an election year.

 ProNicaragua estimates that investment here could reach a near historic high of $600 million in 2011, up from $500 million last year. The three top-grossing sectors for investment will be energy, which is projected to draw $200 million this year, telecom ($100 million) and free-trade zones ($100), according to the investment-promotion agency.

“It is not going to be a traditional electoral year due to the fruits of the good work that this government has been doing,” Chamorro predicts. “Because the government has worked so well over the past four years, for the first time ever we are going to have an election year with record levels of investment in the economy.”

Diversification is Key

A key to what Chamorro claims is Sandinista success in managing the economy – which, by early Central Bank estimates surpassed all expectations by growing more than 4 percent in 2010 – is diversification, both in products and trade partners.

In addition to strengthening commercial and investment ties with traditional economic partners, such as the U.S., Mexico and Central America, the Ortega government has also sought new relations with emerging markets, such as Venezuela, Brazil and Russia.

The Sandinista government has also worked hard to strike a balance between its traditional relations with Taiwan and its emerging commercial interests in China (see separate story, below).

This year, the government plans to start an aggressive new campaign to form new relations with India, which until recently was viewed as a offshore competition for Central America for back-office outsourcing.

“India is not competition [for us] at this point; they are at a level of product- and service-development that is much more advanced. So we think that we can be a compliment to that market,” Chamorro said.

Nicaragua, he said, could even outsource some of India’s outsourcing. “We could be the press-two-for-Spanish option,” he joked.

“China is more in vogue for the past 10 years, but people aren’t talking as much about India as they should be,” he said, adding that India’s enormous and growing population could be a good market for Nicaraguan agricultural products.

In addition to finding new markets and investment partners, Nicaragua is also seeking to expand its export offering this year.

The government is also moving forward on plans to open two Brazilian-funded shoe factories, creating 2,400 jobs, build two frozen-vegetable processing and packaging plants and start a new ornamental flower and plant industry for export to the U.S.

The government is also in negotiations to reopen the $100 million Cone Denim textile factory, which would create 700 direct jobs and 5,000 to 10,000 indirect jobs, according to ProNicaragua’s estimates.

While Nicaragua’s increasing economic diversification helped get it through the world economic crisis of the past two years, Chamorro hopes it can also help get the country through the potential political crisis of this year’s election.

“Diversification in electoral year is key,” he said.

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