Investment in Nicaragua has been in free fall for many years – social and political unrest has all but destroyed market confidence. President Daniel Ortega is ostensibly pro-investment. The problem, one of several, is that businesses cannot rely on the country’s justice system which is highly exposed to political interference. Mr Ortega’s position towards private investment is often muddled and conflicted. He has repeatedly claimed that private investment in the energy and telecommunications sectors has produced little in the way of meaningful investment and development. Hardly a climate conducive to foreign direct investment (“FDI”).
A former Mexican ambassador to Nicaragua and consultant to the Mexican Foreign Ministry for Central America explained, “From the more than USD 1 billion dollars we received in 2017-2018, today not a fifth of that amount is coming. That speaks of the marked political isolation and dwindling investor confidence in the country. The question is whether China, with the fronts opened by Taiwan and the Russian invasion of Ukraine, could emerge to help the Ortega regime.”
“From the more than USD 1 billion dollars we received in 2017-2018, today not a fifth of that amount is coming.”
A former Mexican ambassador to Nicaragua, Mexico
Nicaragua joined Beijing’s Belt & Road initiative in January – significant infrastructure investments are expected to be announced later in the year. For Managua, this couldn’t come at a better time. FDI in 2021 amounted to less than USD 1 billion, a fraction of that which flowed to its neighbours.
One of the few foreign firms with a significant presence in Nicaragua, Walmart, invested millions of dollars in the country between 2017-2019 but even the retail giant is starting to get jitters – the political climate and a stagnating economy has meant revenue projections have underperformed. The business is looking to focus on healthier regional alternatives.
Sectors such as the cotton maquila are receiving investment that comes from the US and Mexico, in addition to strengthening tourism through Nicaraguan natural reserves. “Many tourism projects were left stranded by the pandemic, the government hopes they will be reactivated, and that Ortega understands that jobs and development are needed,” the ambassador added.
Could natural resources opportunities cover the fiscal gap? A former Nicaraguan advisor to several business missions as well as a consultant to Mexican firms with investment in Central America explained, “Gold in Nicaragua has become something strategic and more so because of the global crisis. If certain currencies, especially those of countries like Russia, plan to return to the old gold-dollar standard, but with the rouble, Nicaraguan production could rise for Russia, and Washington knows that.”
“Gold in Nicaragua has become something strategic and more so because of the global crisis.”
A former advisor to several business missions, Nicaragua
Logistical challenges could hinder growth in the extractive sector, however. “A growing risk is the problem of logistics due to the poor situation of roads and ports in Nicaragua,” added the former ambassador. It was believed that the famous and much-touted alternative to the Panama Canal was going to help.
One sector where Nicaragua could feasibly see growth in FDI is ecotourism, especially in the Nicaraguan Caribbean. Nicaragua is currently seeking to compete with popular islands including Roatán in Honduras and the islands of San Andrés in Colombia. This month, there will be a ruling by the International Court of Justice on the maritime disputes between Managua and Bogotá on a string of islands between the two countries. If the court rules in Nicaragua’s favour, expect aggressive infrastructure development and tourist overtures – Mr Ortega can bank on few other sectors to plump up dwindling coffers.