LatinFinance - May/June 2016 - 41

"They have become excellent executors
in public services," says IDB representative
Melo of the government.
Foreign direct investment (FDI) has become a strong force in the economy, growing 21% annually between 2007 and 2014.
FDI totaled 6% of GDP in recent years,
close to double the volume in Nicaragua's
Central American neighbors. In 2014, FDI
covered 90% of the current account deficit,
Moody's points out. The US is the biggest
source of FDI, and investment from Nicaragua's socialist ally Venezuela makes up only
12% of the total.
Given the needs for big projects and
jobs, the government wants to keep FDI
coming. That's where Lazard can help.

Assets for sale

Recent FDI in Nicaragua
Company

Type

Grupo Lala

Milk products

Cargill

Food production & distribution

Cemex

Cement plant

SuKarne

Meat products

Hyatt Place

Hotel

Walmart

Retail

Pricemart

Retail

Source: PRONicaragua

The firm's contract with the central bank
is ongoing, and its final phase consists in
advising the government on how to deal
with international visibility stemming from
its ratings, says Lazard's Lalo.
Nicaragua is not expected to use its ratings to approach global credit markets in
the short term. For now, the country plans
to focus on drawing more foreign investment into the renewable energy, mining
and tourism sectors, and into assembly
operations in duty-free export zones,
Comandante Arce tells LatinFinance.
Comandante Arce coordinates with the
Supreme Council of Private Enterprise
(COSEP), the federation that represents
large-scale businesses, and with, a council
of micro, small, and medium businesses
(CONIMIPYME).
"We believe it is vital to continue the dialogue with private business, workers and
government, for each group to develop and
present new proposals that will energize
development of our country," Arce tells
LatinFinance.
The consultation process "aims to create
confidence in the domestic and foreign pri-

vate sectors by making them participants in
the design of public policy and committing
them to those policies," says Chamorro of
PRONicaragua.
A consensus was achieved on recent fiscal reforms through a line-by-line negotiation with COSEP on each tax, he says.
COSEP did not reply to requests for an
interview, but observers attest to the merits
of the talks with government. "They can
agree or disagree, but they have the dialogue, you can always feel there are tangible
and intangible results of this dialogue," says
the IDB's Melo.
Fitch calls the consultations "a pragmatic
political strategy". The dialogue "explains
the high levels of FDI," says Ariane OrtizBollin, an analyst
with the sovereign
risk group of
Moody's.
Size (Sm)
The public50
private discus50
sions will remain
a fixture of eco30
nomic policy20.4
making, analysts
20
predict. Elections
17
are scheduled for
15
November, and
Ortega is expected
to win a fourth
term. "Policy
continuity is the scenario, the base case
is Ortega wins comfortably," says Erich
Arispe, a director with Fitch Ratings.
Nicaragua maintains good relations with
the IMF, which is considered a "trusted
advisor" by Nicaraguan officials. The fund
works closely with the administration,
providing policy advice and technical
assistance, says Gerardo Peraza, a senior
CARLOS MELO, IDB

"THERE IS A LOT
OF ROOM TO GROW
THROUGH
PRODUCTIVITY NOW
WITH TECHNOLOGY
THAT'S IN THE
MARKET. FOREIGN
INVESTMENT DOESN'T
NEED TO BRING
IN MAGIC"

economist and mission chief for Nicaragua
with the IMF.
Security is a plus factor for investors in
Nicaragua where crime rates are lower than
in neighboring Central American countries,
and this is noted in the ratings.
The country boasts low costs for labor
and land, and improving productivity is
attainable. "There is a lot of room to grow
through productivity now with technology
that's in the market, foreign investment
doesn't need to bring in magic," says the
IDB's Melo.
Trade agreements give exports from
Nicaragua preferential access to markets in
the US, Mexico, Central America, and Chile.
Negotiations are underway with Ecuador,
Peru, and South Korea.
"The policy is to open to trade, for the
last decade we have been negotiating very
aggressively so that investors see Nicaragua
as an export platform," says PRONicaragua's
Chamorro.
PRONicaragua seeks investments in
energy, light manufacturing and assembly,
agribusiness, and outsourcing of professional services, says Chamorro. Textiles,
footwear, and autoparts for export are
produced in duty-free zones where some
100,000 Nicaraguans work in labor-intensive jobs.
Agribusiness currently revolves around
commodities. The country wants to develop more processing industries and move
up the value chain. Nicaragua is beginning
to outsource services in web and digital
design and legal and financial analysis, and
hopes to expand this nascent sector, says
Chamorro.
Sizeable investments have come in
recently from Cemex, the giant Mexican
cement producer, Walmart, and large Mexican food producers Lala and SuKarne.
To meet development needs, Nicaragua
is considering public-private partnerships.
"The government is studying a law for PPP
structures that responds to Nicaraguan
conditions and in this way would allow the
development of large projects to benefit
Nicaraguans," Arce tells LatinFinance.
Those credit ratings will come in handy
for drawing investors to PPPs. "Having a rating will help develop PPPs involving private
sector investment and multilateral sector
funding," says Lalo of Lazard.
On the face of it, the Sandinistas and Wall
Street make an odd couple. However, for
the immediate future they seem destined to
work hand-in-hand in a potentially beneficial relationship for the nation. LF

May/June 2016 - L ATINFINA NCE.COM 41

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