Investment Opportunities in Nicaragua
Investment Opportunities in Nicaragua
Nicaragua is a rising star in the global market. Over the past few years, the country has been experiencing unprecedented growth in many sectors, such as textiles, services, tourism and agribusiness. The government recognizes the value of foreign investment in furthering the country’s socioeconomic growth, and therefore offers many incentives to invest in Nicaragua.
The Economic Picture
Nicaragua has experienced sustained economic growth in recent years. In 2012, Foreign Direct Investment(FDI) inflows accounted for $1,284 million dollars (US), which represents a growth of 33% from the previous year. The FDI as a percentage of the total Nicaraguan GDP was 12.2%, which is well above the average of 5% for Central America.
The Foreign Investment Promotion Law (344) is the main legislation governing foreign investments in the country. This law guarantees the equal treatment of foreign and domestic investors. No restrictions are imposed on converting foreign currency in Nicaragua or transferring funds. All capital and profits can similarly be repatriated to a company’s home country without any restrictions. In terms of ownership, the law protects the right of foreign investors to own property in Nicaragua, and also protects any brands, patents and intellectual property rights.
One of the most attractive reasons for companies to invest in Nicaragua are the fiscal incentives offered by the government. These include many tax breaks which vary by sector, but most include a 100% tax-free incentive for the first ten years of investment on VAT, income tax and more. If the investment in Nicaragua continues beyond these first ten years, the tax-free incentives can often be extended for a further decade.
Free Trade Agreements
Nicaragua has also signed free trade agreements with many countries, including the United States, Mexico, Panama, Taiwan, the Dominican Republic and Chile. An Association Agreement with the European Union came into effect on August 1, 2013. These free trade agreements lift the customs duty on the import and export of many goods and give Nicaragua preferential access to markets serving more than 1.5 billion people worldwide.
The Labor Force
Nicaragua is characterized by its hardworking and capable labor force, which is known for having a fast learning curve and low rate of absenteeism and attrition. The Nicaraguan workforce is comprised of 2.99 million people, of which, according to figures released by the Central Bank of Nicaragua in 2011, approximately 6% are unemployed and nearly half are underemployed. This means there is a vast potential labor pool available, especially for labor-intensive industries.
This country has the most competitive cost structure in the Central American region, with a average US$1dollar per hour. This means that employing workers in Nicaragua can strengthen your company’s global competitiveness by significantly reducing human capital costs. The Tripartite Agreement, signed between the private sector, government and unions, has established the minimum wage for the next three years for manufacturing operations, which allows companies to plan ahead and project their labor costs for 2014-2017.
Nicaragua’s workforce is also very young and qualified. 77% of the workforce is under the age of 39. Many Nicaraguans are bilingual and have completed a university degree in fields such as business administration, engineering and IT. At the moment, Nicaragua is experiencing a phenomenon of “reverse brain drain”, in which many qualified professionals are returning to their native country from overseas and enriching the Nicaraguan job market with the intercultural experience and business skills they acquired abroad.
Labor Market Risk
According to the 2012 Labor Market Risk Report published by the Economist Intelligence Unit, Nicaragua exhibited the second lowest labor market risk in the region. The factors examined in making this ranking included union strength, labor disputes, wage restrictions as well as hiring and firing restrictions. In the 2013 World Bank’s Doing Business Report, Nicaragua ranked highest in Central America in terms of protecting investors, enforcing contracts and resolving insolvency.
Expats in Nicaragua will discover that the country is a safe place to live and work. The Economy Intelligence Unit ranked Nicaragua as the second safest in Central America and the third in Latin America. In making these rankings, such factors were considered such as level of armed conflict, demonstrations, organized crime and kidnappings.
Textiles and Light Manufacturing
Nicaragua is one of the world’s fastest-growing clothing export countries. As of the end of 2012, this export-based industry employed approximately 70,000 people working for 146 different companies. In addition to textiles, products for the automotive industry such as wire harnesses and high-end aftermarket products are the main light manufacturing exports.
Establishing an offshore manufacturing location in Nicaragua is very advantageous due to its proximity to the large US market. Exports can reach the United States within 2-3 hours by plane and 3-5 days by ship. This fast delivery time results in reduced inventory costs and increased profits. For the textile industry, it also means that companies can react to new fashion trends and clothing demands faster. The Free Zones Regime allows material to be imported and finished products to be exported duty-free.
Nicaragua also distinguishes itself as a prime location for labor-intensive operations as its labor costs are the most competitive in the Central American region. This sector continues to experience significant growth, making it a leader in job creation in Nicaragua.
Nicaragua is a growing tourist destination, which is no wonder, as the country is full of cultural richness and natural beauty. In 2012, the tourism industry enjoyed a growth of 11% in both the number of tourists which visited the country and the amount of revenue generated through tourism.
Incentives to invest in tourism in Nicaragua range from generous tax breaks to the competitive cost of property used in the development of tourism projects. The cost-benefits relationship gained through the combination of competitive human labor costs and excellent customer service skills also make Nicaragua ideal. See the Tourism Industry Incentives Law (306 law)
As more and more companies invest in Nicaragua, not only tourists on vacation, but also businesspeople are visiting Nicaragua. This has created the need for the construction of more hotels, especially in the capital city of Managua.
Global companies looking for a way to outsource their customer service department and reduce operational costs have come to the right place in Nicaragua. Currently, 25 companies in the contact center and business process outsourcing industry are taking advantage of the conditions available in Nicaragua. At the moment, the types of services which global companies have outsourced to Nicaragua include customer service, IT support, telemarketing, collections, business intelligence, software development and financial analysis.
As of 2012, 4,500 young and talented bilingual professionals were already employed in this sector. The high number of unemployed and underemployed young, bilingual workers in Nicaragua means that companies seeking to outsource here will have no problem finding qualified professionals.
Nicaragua’s labor code permits employees to work four different shifts, which means all time zones can be covered. In addition, the fact that Nicaragua is in the US Central Standard Time Zone means that timely services can be delivered to this large market. As a further incentive, Nicaragua’s modern and fully privatized telecommunications system provides companies with all necessary telephone and internet services.
Agribusiness, Fisheries and Forestry
The agribusiness, fishing and forestry industries are also promising sectors for investment in Nicaragua. In 2012, exports from these industries accounted for more than US$2,600 million, a growth of 18% from the previous year. The main exports include bovine meat, coffee, kidney beans, peanuts, bananas, sesame seeds, sugar, shrimp and lobster.
In addition to plantations which grow agro-export products, other areas ripe for investment include food processing and the production of biofuels. Many young people in Nicaragua have degrees in business management, agro-engineering, agribusiness and biology, making them ideal to fill middle and upper management positions in this sector. The favorable weather conditions and fertile soil in Nicaragua also make it a prime location for investments in this sector.
The final main sector for investment in Nicaragua is renewable energy. Companies operating in Nicaragua have only recently started to tap into the country’s vast potential in terms of hydroelectric energy, geothermal energy, wind energy and biomass. Nicaragua has an energy generation potential of more than 4,500 MW, but at the moment, the installed capacity for power generation is only around 1,100 MW. The Renewable Energy Incentives Law (532) provides many attractive tax breaks for those wishing to invest in this sector.
PRONicaragua is the country’s official investment promotion agency. It provides potential investors with support services throughout the investment process. These services include providing information on key investment opportunities, organizing site visits, assisting in the sourcing of real estate and facilitating the investment by providing contacts and referrals to the relevant government agencies.
Once you have made the decision to invest, the process of registering your company in Nicaragua can be fast tracked by using the services provided by the Investment One-Stop Shop, The Unique Office for Investment (Ventanilla Unica), a department within the Ministry of Development, Industry and Trade. This reduces the time it takes to register your company in Nicaragua to approximately 31 days.
Author and sources:
The “Investment opportunities in Nicaragua” theme was developed for ViaNica.com by InterNations editorial office in September 2013.
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