Investors should be extremely cautious about investing in Nicaragua. The regime of President Ortega and Vice President Murillo continues to suspend constitutionally guaranteed civil rights, detain political prisoners, and disregard the rule of law, creating an unpredictable investment climate rife with reputational risk and arbitrary regulation.
President Ortega awarded himself a fourth consecutive term in November 2021 after arbitrarily jailing opposition figures, barring all credible opposition political parties from participating in elections, blocking legitimate international election observation efforts, and committing widespread electoral fraud. Through a sham judicial process, regime-controlled courts subsequently convicted more than 40 political prisoners – including all of those who aspired to run against Ortega as presidential candidates – on vague, spurious charges. The Ortega-Murillo regime has also targeted the independent media and journalists and in 2021 seized La Prensa, Nicaragua’s only print newspaper. Independent universities have faced invasive governmental investigations and extreme budget cuts, causing 14 university closures. The regime-controlled National Assembly subsequently took control of six universities, leaving 30,000 students in limbo.
In 2020, the National Assembly approved six repressive laws that alarmed investors. Some of the most concerning include: a gag law that criminalizes political speech; a foreign agents law that requires organizations and individuals to report foreign assistance and prevents any person receiving foreign funding from running for office; and a consumer protection law that could prevent financial institutions from making independent decisions on whether to service financial clients, including OFAC-sanctioned entities. Tax authorities have seized properties following reportedly arbitrary tax bills and jailed individuals without due process until taxes were negotiated and paid. Arbitrary fines and customs inspections prejudice foreign companies that import products.
In response to the Ortega-Murillo regime’s deepening authoritarianism, almost all international financial institutions have stopped issuing new loans to Nicaragua, and external financing will fall sharply beyond 2022. The regime is publicly betting that a new economic partnership with the People’s Republic of China – following a break in diplomatic relations with Taiwan and establishment of ties with China in December 2021 – will provide fresh investment and financing to make up for its growing isolation.
Nicaragua’s economic forecast is uncertain and subject to downside risks. Independent economists predict Nicaragua’s economic growth will slow considerably to a rate of less than 3 percent in 2022. Growth in 2021 was unexpectedly high at more than 9 percent but followed three years of contractions from 2018 to 2020. Official estimates from the Nicaraguan Central Bank project growth between 4 and 5 percent in 2022. Inflation increased to 7 percent in 2021. The number of Nicaraguans insured through social security, a measure of the robustness of the formal economy, remains 6 percent below 2018 levels. After several years of very low activity, Nicaragua’s credit market began expanding in 2021. The uncertainty surrounding the government’s 2019 tax reforms – and multiple years of still-unresolved legal challenges – continue to pause companies’ plans for expansion or reinvestment.
Nicaragua’s economy still has significant potential for growth if investor confidence can be restored by strengthening institutions and improving the rule of law. Its assets include: ample natural resources; a well-developed agricultural sector; an organized and sophisticated private sector committed to a free economy; ready access to major shipping lanes; and a young, low-cost labor force that supports the manufacturing sector. The United States is Nicaragua’s largest trading partner – it is the source of roughly one quarter of Nicaragua’s imports, and the destination of approximately two-thirds of Nicaragua’s exports.
|TI Corruption Perceptions Index||2021||164 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||N/A||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||N/A||N/A||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD 1,850||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
It is virtually impossible to identify the number of companies that the Nicaraguan government owns or controls, because they are not subject to any regular audit or accounting measures and are not fully captured by the national budget or in other public documents. Beyond the official state-owned enterprises (SOE), which are not transparent or subject to oversight, the Ortega-Murillo regime uses a vast network of front men to control companies. State-controlled companies receive non-market-based advantages, including tax exemption benefits not granted to private actors. In some instances, these companies are given monopolies through implementing legislation. In other instances, the government uses formal and informal levers to advantage its businesses.
The government owns and operates the National Sewer and Water Company (ENACAL), National Port Authority (EPN), National Lottery, and National Electricity Transmission Company (ENATREL). Private sector investment is not permitted in these sectors. In sectors where competition is allowed, the government owns and operates the Nicaraguan Insurance Institute (INISER), Nicaraguan Electricity Company (ENEL), Las Mercedes Industrial Park, Nicaraguan Food Staple Company (ENABAS), Nicaraguan Post Office, International Airport Authority (EAAI), Nicaraguan Mining Company (ENIMINAS), and Nicaraguan Petroleum Company (Petronic).
Many of Nicaragua’s SOEs and quasi-SOEs were established using ALBANISA, now OFAC sanctioned. The Ortega-Murillo regime used ALBANISA funds to purchase television and radio stations, hotels, cattle ranches, power plants, and pharmaceutical laboratories. ALBANISA’s large presence in the Nicaraguan economy and its ties to the government disadvantage companies trying to compete in industries dominated by ALBANISA or government-managed entities. In 2020, the government nationalized Nicaragua’s main electricity distributor Disnorte-Dissur, which was previously owned by ALBANISA.
In 2020, following the OFAC designation of state-owned petroleum distributor Distribuidor Nicaraguense de Petroleo (DNP), the government created four new entities: the Nicaraguan Gas Company (ENIGAS); the Nicaraguan Company to Store and Distribute Hydrocarbons (ENIPLANH); the Nicaraguan Company for Hydrocarbon Exploration (ENIH); and the Nicaraguan Company to Import, Transport, and Commercialize Hydrocarbons (ENICOM).
Through the Nicaraguan Social Security Institute (INSS), the government owns a pharmaceutical manufacturing company, and other companies and real estate holdings. The Military Institute of Social Security (IPSM), a state pension fund for the Nicaraguan military, controls companies in the construction, manufacturing, and services sectors. In January 2022, OFAC sanctioned three members of the IPSM board of directors.
8. Responsible Business Conduct
Many large businesses have active Responsible Business Conduct (RBC) programs that include improvements to the workplace environment, business ethics, and community development initiatives. Prominent business groups such as CCSN and the Nicaraguan Union for Corporate Social Responsibility (UniRSE) are working to create more awareness of corporate social responsibility. Nicaragua’s Foreign Agents Law has forced many businesses to curtail or end their corporate social responsibility operations to avoid the burdensome and intrusive registration process.
The government does not factor RBC policies or practices into its procurement decisions, nor does it explicitly encourage RBC principles. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights. There are no domestic transparency measures requiring the disclosure of payments made to governments. Nicaragua is not a signatory to the Montreux Document on Private Military and Security Companies or a participant in the International Code of Conduct for Private Security Service Providers’ Association.
Nicaragua has a legal framework criminalizing corruption, but there is no expectation that the framework will be enforced. A general state of permissiveness, lack of strong institutions, ineffective system of checks and balances, and the Ortega-Murillo regime’s complete control of government institutions, create conditions for rampant corruption. The judicial system remained particularly susceptible to bribes, manipulation, and political influence. Businesses reported that corruption is an obstacle to investment, particularly in government procurement, licensing, and customs and taxation.
The government does not require private companies to establish internal controls. However, Nicaraguan banks have robust compliance and monitoring programs that detect corruption. Multiple government officials and government-controlled entities have been sanctioned for corruption.
Nicaragua ratified the United Nations Convention against Corruption (UNCAC) in 2006 and the Inter-American Convention Against Corruption in 1999. It is not party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.
10. Political and Security Environment
The regime of President Daniel Ortega and his wife and Vice President Rosario Murillo dominates Nicaragua’s highly centralized, authoritarian political system. Ortega is serving in his fourth consecutive term as president following rigged elections in November 2021. The regime’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich Ortega and his inner circle. Political risk remains high, and the future of the country’s political institutions remains uncertain.
An ongoing sociopolitical crisis began in April 2018 when regime-controlled police violently crushed a peaceful student protest. The ensuing conflict killed more than 325 people, injured thousands, imprisoned hundreds of peaceful protestors, and exiled more than 100,000. The regime amended terrorism laws to include prodemocracy activities and used the legislature and justice system to characterize civil society actors as terrorists, assassins, and “coup-mongers.” The regime continues to hold 170 political prisoners – most suffering from a lack of adequate food and proper medical care. Prisoners were arrested for activities considered normal in a free society, including practicing independent journalism, working for civil society organizations, seeking to compete in elections, or publicly expressing an opinion contrary to the government. Excessive use of force, false imprisonment, and other harassment against opposition leaders – including many private sector leaders – is common. The regime-controlled Nicaraguan National Police maintains a heavy presence throughout Nicaragua, including randomized checkpoints.
In response to the Ortega-Murillo regime’s antidemocratic behavior and human rights abuses, the U.S. Department of State and U.S. Department of Treasury have imposed visa and financial restrictions on multiple government agencies and hundreds of individuals.
11. Labor Policies and Practices
Nicaragua’s labor market is highly informal. According to government statistics from third quarter 2021, 44 percent of the population is underemployed. These individuals operate in the informal sector, facing economic instability and lacking social security benefits. Independent economists estimate most underemployed people earn 25 to 50 percent of the minimum wage, which itself is not sufficient to afford the basic basket of goods. Social security provider INSS reported in December 2021 the number of enrolled employees remained 6 percent below pre-2018 levels. Independent think tanks estimate that 1.6 million people or 25 percent of the population lived below the poverty line in 2021.
Despite the absence of reliable government data, independent economists estimate unemployment at 5 percent. Official government estimates of 4 percent are skewed by the government’s definition of unemployment, which considers any individual who worked at least one hour in a month, regardless of remuneration, to be employed.
Nicaragua lacks skilled and technical labor. The government-run National Technological Institute (INATEC) regulates technical education and professional training in Nicaragua. Employers often import administrative or managerial employees from outside of the country, as permitted by law. Article 14 of the Nicaraguan Labor Code states that 90 percent of any company’s employees must be Nicaraguan. The Ministry of Labor may make exceptions when justified for technical reasons.
Minimum wages are low and, prior to 2018, revised through an inclusive dialogue process between the private sector, labor unions, and the government. Nicaragua’s minimum wages are reviewed yearly for nine sectors of the economy, while a tenth sector – free trade zones – reviews its minimum wage every five years. The most recent negotiations did not include COSEP, formerly the most influential independent business chamber and traditional private sector representative. This year APRODESNI, a newly created and regime-aligned alternative chamber, was the official private sector representative. In 2022, the minimum wages for all nine sectors were increased 7 percent. The next review for the free trade zone minimum wage will be in 2023 and will cover the period 2023-2027.
Nicaraguan labor law requires employers to pay at year-end the equivalent of an extra month’s salary. Upon termination of an employee, the employer must pay a month’s salary for each year worked, up to five months’ salary. There are no special laws or exemptions from regular labor laws, including in the free trade zones. The CAFTA-DR Labor Chapter establishes commitments to ensure effective labor law enforcement within the country and comply with commitments made to the International Labor Organization.
Nicaraguan law provides for the right of public and private sector workers, except for the military and police, to form and join independent unions of their choice without authorization and to bargain collectively. Workers can exercise this right in practice, but unions not affiliated with the regime face challenges. A collective bargaining agreement cannot exceed two years and is automatically renewed if neither party requests revision. Strikes are legal but rare due to the government’s control over unions. The Nicaraguan Ministry of Labor can receive labor complaints and emit enforceable resolutions in labor disputes. The Ministry can perform health and safety inspections and virtual and in-person labor inspections.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
Data not available.
14. Contact for More Information
U.S. Embassy Managua