Nicaragua is strategically located in the heart of the Americas, right in the middle of Central America and bordered by the Caribbean Sea and Pacific Ocean.
When operating in Nicaragua, apparel and footwear manufacturers not only benefit from the country’s strategic location --which allows them to quickly respond to the U.S. and European markets-- but they also obtain sizeable savings resulting from the duty-free access the mentioned products receive in those regions. While traditional Asian manufacturers pay up to 37.5 percent import duties in the U.S., Nicaraguan footwear enjoys duty free access in the U.S. by virtue of the the Dominican Republic - Central America – US Free Trade Agreement (CAFTA-DR).
Yet, Nicaragua offers many more quantitative and qualitative advantages to industrial manufacturers, which have earned the country its position as the third fastest growing economy in all of Latin America in the last five years. In terms of labor, Nicaragua presents the most competitive labor cost structure in the region, with wages equivalent to US$1.19 an hour within the Free Zone System. Not only that, Nicaragua even offers predictability over a period of five years, up to year 2022 with defined minimum wage values for exporting Free Zone companies.
Moving towards industrialization
Although Nicaragua has a long tradition of artisan shoe production, with some 1,650 businesses producing 10 million pairs of shoes a year, the country is following the right steps towards an industrialized production model.
In 2011, Tecshoes, a leading Brazilian – capital footwear manufacturing company, decided to set up shop in Nicaragua, taking advantage of Nicaragua’s attractive Free Trade Zone incentives. The company currently manufactures for international brands such as Clarks (UK), Kate Spade, Michael Kors, Under Armour, and Flexi. To date, the company has more than doubled its initial production run.
CAFTA – DR benefits
Nicaragua largely exports such footwear items as: footwear with outer soles of rubber, plastic, leather or composition leather and uppers of leather, and sport shoes with textile uppers (which are within the 6403 category). All of these enter the US market free of duties. This is possible due to CAFTA benefits which represent a great advantage due to “single transformation” provision, which allows manufacturers to bring raw material from various origins, manufacture shoes in Nicaragua, and export them to the United States.
The FDRA recognized Nicaragua as a “rising star” in the world’s footwear industry, “the country is especially competitive for the production of women leather heels”, the study reads.
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