Invest in Nicaragua, A Safe Bet
- 24 February 2021
Published by International Investor Magazine
With a proven strategy that includes a market-oriented, business-friendly economy, integrated into the global commercial and financial markets, Nicaragua has become a place for all-comers to invest.
Nicaragua is one of Central America’s highest growing economies of the last decade, but most importantly, one of the steadiest. In the last ten years the country’s GDP averages a growth rate of 3.3 percent per year. This has been fueled by stable FDI inflows, which have diversified increasingly in terms of source countries, doubling from 34 countries in 2007 to 68 in 2019.
As a result, the country’s total exports increased 5 percent in 2019. One of the reasons for this positive performance is that, according to the World Bank, Nicaragua has the lowest export management costs in Central America, which makes it a very attractive country for export-oriented companies.
Diversifying the key industries
Nicaragua is traditionally recognized as an agribusiness location but has been evolving and developing to embrace new industries, as evidenced by its 2019 top five export products: textile and apparel, automotive harnesses, bovine meat, coffee, and gold.
The country’s light manufacturing industry has become an important economic engine and one of the most dynamic sectors, contributing 45 percent of the country's total exports. Additionally, the manufacturing of goods has evolved and diversified its processes, becoming gradually more sophisticated. Particularly, Nicaragua’s automotive components industry has grown to become the main exporter of automotive harnesses in Central America, and provider for brands such as FORD, GMC, BMW, VOLKSWAGEN, CHRYSLER.
In addition, the advantages Nicaragua offers to agribusiness companies are unquestionable. The combination of fertile soil available at competitive prices, the favorable climate conditions and the abundance of hydric resources, provide the perfect scenario for the establishment of an impressive variety of agricultural production investments. Nicaraguan coffee is traded in over 50 markets worldwide, the country has been officially acknowledged as a fine and flavor cocoa producer by the International Cocoa Organization (ICCO), it is the main cigar exporter in Central America, the largest producer of livestock and beef in Central America and the fourth largest exporter of shellfish to Europe in Latin America (#1 in Central America).
Nicaragua has also become an attractive destination for the outsourcing services industry, offering even more specialized and higher value-added services. The country's outsourcing industry currently has over 45 companies operating and providing BPO, ITO and KPO services. This growing industry employs over 10,000 people.
Nicaragua’s Free Zone system
Nicaragua offers attractive fiscal incentives through its Industrial Free Zones for Export Law (917) that can reduce the operating costs for companies interested in establishing export-oriented operations of either goods or services. The tax incentives granted by this law include 100 percent exemption from payment of Income Tax (IR) during the first ten years of operation, as well as exemption from custom duties and other taxes such as municipal taxes and sales taxes, among others.
The Free Zones have played a crucial role in the economic development of Nicaragua, in terms of the country’s industrialization and job creation. In 2020, there were 222 companies operating under this system in Nicaragua, which generate 118 thousand jobs and export almost US$2 billion in total, 30 percent of the country’s total exports. The main sectors that this system houses are agribusiness, automotive harnesses, outsourcing services, tobacco, and textile and apparel.
This system has been exceptionally successful and groundbreaking thanks to the “Tripartite Alliance” between business owners, the government and labor unions. When the global economic downturn hit in 2008-9, Nicaragua’s Free Zone community turned to an innovative approach to deal with the crisis. Representatives from the government, the business owners, and the labor unions met, worked out and signed a Tripartite Agreement designed to give the business sector increased predictability as to wage increases and give the labor sector more assurance of continued employment, wage stability, and access to social benefits. The original Tripartite Agreement was so successful that it has now been extended three times, and the process has become semi-institutionalized as the “Tripartite Alliance”.
The spirit of success of the original Agreement caused Nicaragua to become the only Central American country to officially join the “Better Work” labor program jointly promoted by the International Labor Organization (ILO) and U.S. Department of Labor. The Better Work Program has helped propel the successful Tripartite Agreements that has been so important in boosting recent Free Zone growth and stability.
Doing business in Nicaragua
The government of Nicaragua recognizes the importance of foreign direct investment as a key element of the country’s growing economy, which is why it strives to continue making the country a great investment destination for investors, by providing a series of fundamental guarantees through the Foreign Investment Promotion Law (344), bilateral agreements for the reciprocal protection of investments, and the Mediation and Arbitration Law (540), as well as fiscal incentives to different sectors.
Additionally, the country’s privileged location, with proximity to North, Central and South America, combined with the commercial relations Nicaragua maintains with most countries of the world, make it an ideal export platform for export to the largest markets in the world.
Moreover, Nicaragua was recognized by the World Economic Forum for the progress made in the development of its infrastructure, coming in ahead of Costa Rica, Guatemala, Honduras, and El Salvador and ranked with the sixth best roads in all Latin America.
Furthermore, Nicaragua’s young and dynamic workforce is known for being flexible and highly productive, with a good work ethic, great capacity for fast learning, and low rates of absenteeism and turn over. These qualities have positioned Nicaragua as one of the most competitive and productive countries in the region in terms of human capital.
Free and confidential support for investors
PRONicaragua is the Official Investment Promotion Agency of the Government of Nicaragua, operating as an economic development program since 2002. Throughout the years, the Agency has become a key player in the implementation of a national strategy with the dual purpose of reducing poverty and fostering Nicaragua’s sustainable development. The agency thus represents an agent of change in society, as it promotes Nicaragua as a safe and strategic target for foreign investment. Because of its high-quality standards and implementation of world-class investment promotion best practices, the agency has earned a series of recognitions from prestigious international institutions related to the subject.