Policies Towards Foreign Direct Investment

The Government of Nicaragua actively seeks to attract foreign direct investment as one of its primary tools to generate economic growth and increase employment. Many of the investment incentives are designed to attract export-focused companies that require large amounts of unskilled or low-skilled labor.

The Government of Nicaragua emphasizes and encourages ongoing dialogue with investors through ProNicaragua and local Chambers of Commerce. ProNicaragua is the country’s investment and export promotion agency and helps facilitate foreign investment. The agency provides a range of services, including information packages, investment facilitation, and prospecting services to interested investors. It is a well-regarded institution and has been recognized by international organizations as among the most effective investment promotion agencies in the region. However, business leaders believe its authority has weakened over the past year. For more information, see http://www.pronicaragua.org .

ProNicaragua is actively promoting investments in the following sectors: food processing and packaging, textiles, apparel and sporting goods, automotive and ground transportation, environmental technologies, and services. Additional government incentives also exist in the mining and energy sectors. As part of a power generation expansion plan, the government announced a number of clean energy projects that will be open to foreign investment. However, the government controls a pricing band on electricity produced from renewable technologies which currently discourages renewable energy investment. All investment incentives and promotions are disseminated by ProNicaragua.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. Any individual or entity may make investments of any kind. In general, Nicaraguan law provides equal treatment for domestic and foreign investment. There are a few exceptions imposed by specific laws, such as the Border Law (2010/749), which prohibits foreigners from owning land in certain border areas. Domestic air transportation and television broadcasting also has certain limits on foreign ownership.

Nicaragua allows foreigners to be shareholders of local companies, but a company representative must be a national or a foreigner with legal residence in the country. Many companies satisfy this requirement by using their local legal counsel as a representative. Legal residency procedures for foreign investors can take up to three months and require in-person interviews in Managua.

The Government of Nicaragua does not formally screen, review, or approve foreign direct investments. However, President Daniel Ortega and the executive branch maintain de facto review authority over any foreign direct investment. This review process remains unclear and opaque.

Other Investment Policy Reviews

In the past three years, the Government of Nicaragua has not undergone any third-party investment policy reviews through multilateral organizations such as the Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Nicaragua does not have an online business registration system. At a minimum, a company must typically register with the national tax administration, social security administration, and local municipality. According to the Ministry of Industrial Development and Trade (MIFIC), the process to register a business takes a minimum of 13 days. Establishing a foreign-owned limited liability company (LLC) takes 42 days, and one of the legal representatives of the company must be a resident of Nicaragua. There is no regime allowing simplified business creation without a notary. MIFIC has established single window offices (Ventanilla Unica) in several cities in Nicaragua to assist with business registration.

Outward Investment

The Government of Nicaragua does not promote or incentivize outward investment and does not restrict domestic investors from investing abroad.

Nicaragua has signed and ratified bilateral investment treaties with Argentina, Chile, the Czech Republic, Denmark, Finland, France, Germany, Italy, the Netherlands, the Russian Federation, South Korea, Spain, Switzerland, and the United Kingdom. Nicaragua also has treaties with investment provisions with Canada, Mexico, Panama, Taiwan, and CAFTA-DR member states. Nicaragua does not have a bilateral income tax treaty with the United States or any other country.

In November 2016, Nicaragua and four other Central American countries signed a free trade agreement with South Korea. The agreement eliminates tariffs on about 95 percent of goods within ten years of implementation. The treaty has not yet entered into force.

Transparency of the Regulatory System

Investors regularly complain that regulatory authorities are arbitrary, negligent, or slow to apply existing laws, at times in an apparent effort to favor one competitor over another. Lack of a reliable means to resolve disputes with government administrative authorities or business associates quickly results in some disputes becoming intractable. The vast majority of companies in Nicaragua have little accounting and few adhere to internationally accepted accounting standards. The Government of Nicaragua does not have transparent policies to establish clear “rules of the game.”

Companies report that personal connections and affiliation with industry associations and chambers of commerce are critical to navigate the country’s regulatory system. These channels tend to disfavor smaller investors and businesses. Ultimate rule-making and regulatory authority resides in the executive branch. Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.

Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. However, not all information is published on official websites and the legislature is not required by law to give notice. Draft texts may be distributed directly to stakeholders the government deems impacted by the legislation. The ruling Sandinista party has a super majority in the National Assembly, and the legislative branch has little power to modify legislation proposed by the Executive. The Superior Council of Private Enterprise (COSEP) is the main private sector interlocutor with the Government of Nicaragua and generally has the opportunity to review and comment on draft legislation affecting investment and regulation matters.

Key regulatory actions are published in La Gaceta, the official journal of government actions in Nicaragua, including official summaries and the full text of all legislation. There are limited oversight or enforcement mechanisms to ensure the government follows administrative processes.

International Regulatory Considerations

All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. Nicaragua is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Nicaragua is a civil law country in which legislation is the primary source of law. The legislative process is found in Articles 140 to 143 of the Constitution. Difficulty in resolving commercial disputes, particularly the enforcement of contracts, remains one of the most serious drawbacks to investment in Nicaragua. The legal system is weak and cumbersome. Members of the judiciary, including those at senior levels, are widely believed to be corrupt and are subject to significant political pressure, especially from the executive branch. A commercial code and bankruptcy law exist, but both are outdated and rarely used. While regulations and enforcement actions are technically appealable through judicial review, these procedures are not viewed as reliable.

The Nicaraguan Chamber of Commerce and Services founded in 2008 its Mediation and Arbitration Center with from the U.S. Agency for International Development (USAID). However, only large companies use this type of service due to cost and unfamiliarity with mediation and arbitration.

Laws and Regulations on Foreign Direct Investment

CAFTA-DR entered into force on April 1, 2006, for the United States and Nicaragua. The CAFTA-DR Investment Chapter establishes a secure, predictable legal framework for U.S. investors in Central America and the Dominican Republic. The agreement provides six basic protections: (1) nondiscriminatory treatment relative to domestic investors and investors from third countries; (2) limits on performance requirements; (3) the free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a minimum standard of treatment in conformity with customary international law; and (6) the ability to hire key managerial personnel without regard to nationality. The full text of CAFTA-DR is available at http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text .

In addition to CAFTA-DR, Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment. The law allows for 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.) It also establishes the principle of national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.

In October 2016, the Government of Nicaragua passed a Public-Private Partnership Law (2016/935) that establishes a framework for collaboration with private companies in the design, construction, and management of public investments. The law further stipulates competitive and transparent bidding procedures for all public-private initiatives. The government hopes to attract private investment for several large infrastructure projects and water and sanitation investments through this initiative over the next five years, but the overall impact of the new law remains unclear.

MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at http://www.tramitesnicaragua.gob.ni . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures. The site is available only in Spanish.

Competition and Anti-Trust Laws

The Competition Promotion Law (2007/601) established the Institute for the Promotion of Competition (Procompetencia), to investigate and discipline businesses engaged in anticompetitive business practices, including price fixing, dividing territories, exclusive dealing, and product tying. Procompetencia does competent research but has no effective power. In October 2016, Procompetencia opened an investigation into price manipulation by four beef slaughterhouses after a formal complaint was filed by industry and consumer representatives. The investigation is ongoing and a ruling is expected by mid-2017.

Expropriation and Compensation

During the 1980’s, the Government of Nicaragua confiscated approximately 28,000 properties in Nicaragua. Owners were often not compensated even though the right to compensation is recognized by law. Since 1990, thousands of U.S. citizens filed claims against the government to have their property returned or receive compensation through the administrative process established to address these claims. Section 527 of the Foreign Relations Authorization Act in 1994 threatened meaningful foreign assistance funding restrictions in response to outstanding property claims. In August 2015, the last of these claims was resolved. However, the Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations which were not covered by this legislation. The Embassy raises concerns to the government about infringement of private property rights affecting U.S. citizens.

Some U.S. citizens report difficulties exercising property rights due to lack of government action, such as failure by local authorities to remove illegal occupants or long unexplained delays in government authorities’ performing basic duties such as cadastral surveys or issuance of documents needed by property owners. U.S. citizens have also encountered challenges executing and enforcing final court orders. The U.S. Government received reports of excessive government action, such as U.S. citizens having been subjected to false accusations as part of efforts to take their properties, including threats to incarcerate those who do not voluntarily surrender property. The U.S. Government continues to advocate that the government resolve all outstanding property claims and improve its overall investment and business climate. U.S. citizens who wish to report an expropriation or confiscation of their property by government authorities may contact ManaguaPropOffice@state.gov.

In June 2013, the Government of Nicaragua granted a 100-year concession to Hong Kong Nicaragua Canal Development Investment Company Limited (HKND) to seek funds to build a canal through Nicaragua. This concession included a law that allows the Canal Authority to expropriate any land needed for canal purposes, including land and property outside the proposed canal route. The Nicaraguan law that grants the canal concession states that property owners will be paid at “cadastral value,” which U.S. investors fear will be below fair market value and in violation of the Government of Nicaragua’s obligations under CAFTA-DR. The U.S. Embassy in Managua has repeatedly reminded government officials of Nicaragua’s obligation under CAFTA-DR Investment Chapter to pay prompt, adequate, and effective compensation when expropriating property for a public purpose as well as the need for an open and transparent process for the Canal design and development.

Dispute Settlement

ICSID Convention and New York Convention

Nicaragua is a member of the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). The Government of Nicaraguasigned the 1958 New York Convention on the recognition and enforcement of foreign arbitration awards in 2003. There is no specific domestic legislation providing for enforcement under the 1958 New York Convention or for the enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

CAFTA-DR establishes an investor-state dispute settlement mechanism. An investor who believes the government has breached a substantive obligation under CAFTA-DR or that the government has breached an investment agreement may request binding international arbitration in a forum defined by the Investment Chapter in the Agreement. To date, there have been no claims by U.S. investors under this agreement.

International Commercial Arbitration and Foreign Courts

The Mediation and Arbitration Law (2005/540) establishes the legal framework for alternative dispute resolution. The Nicaraguan Chamber of Commerce and Services founded Nicaragua’s Mediation and Arbitration Center. Arbitration clauses should be included in business contracts, but legal experts are uncertain whether local courts would enforce awards resulting from international or local proceedings.

Enforcement of court orders is frequently subject to non-judicial considerations. Courts routinely grant injunctions (“amparos”) to protect citizen rights by enjoining official investigatory and enforcement actions indefinitely. Foreign investors are at a disadvantage in disputes against nationals with political or personal connections. Misuse of the criminal justice system sometimes results in individuals being charged with crimes arising out of civil disputes, often to pressure the accused into accepting a civil settlement.

Dispute resolution is even more difficult in the Northern and Southern Caribbean Autonomous Regions, where most of the country’s fishery, timber, and mineral resources are located. These large regions, which share a Caribbean history and culture, comprise more than one-third of Nicaragua’s land mass. The division of authority between the central government and regional authorities is complex and ambiguous. Local officials may act without effective central government oversight.

Bankruptcy Regulations

Although bankruptcy provisions are included in the Civil and Commercial Codes, there is no tradition or culture of bankruptcy in Nicaragua. More often than not, companies simply choose to close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving their creditors unprotected. For their part, creditors typically avoid a judicial procedure fraught with uncertainty and instead attempt to collect as much as they can directly from the debtor, or they simply give up on any potential claims they may have. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization. They do not provide for an equitable treatment of creditors, to the detriment of creditors located in foreign jurisdictions.

Investment Incentives

The Social Housing Construction Law (2009/ 677) provides incentives for the construction of housing units 36–60m² in size with construction costs less than USD 30,000 per unit. Developers are exempt from paying local taxes on the construction, purchase of materials, equipment or tools. Additional tax breaks are also available.

The Hydroelectric Promotion Law (amended 2005/531) and the Law to Promote Renewable Resource Electricity Generation (2005/532) provide incentives to invest in electricity generation, including duty free imports of capital goods and income and property tax exemptions. Regulatory concerns limit investment despite these incentives (see Transparency of the Regulatory System). In particular, private investment in hydroelectric dams is banned from the Asturias, Apanas, and Río Viejo Rivers, and the approval of the National Assembly is required for projects larger than 30 megawatts on all other rivers.

The Tourism Incentive Law (amended 2005/575) includes the following basic incentives for investments of USD 30,000 or more outside Managua and USD 100,000 or more within Managua: income tax exemption of 80 percent to 90 percent for up to 10 years; property tax exemption for up to 10 years; exoneration from import duties on vehicles; and value added tax exemption on the purchase of equipment and construction materials. The General Tourism Law (amended 2010/724) stipulates that hotel owners pay a tax of USD 0.50 per customer and two percent of the rental rate per room for tourism promotion. It also imposes anti-discrimination, public health, and environmental regulations on tourism-oriented businesses.

The Fishing and Fish Farming Law (2004/489) exempts gasoline used in fishing and fish farming from taxes. This law’s Article 111 was amended (2012/797) to allow individuals or companies to request a temporary permit to take advantage of unexploited or underexploited aquatic resources during closed season. Environmental regulations also apply (see Transparency of the Regulatory System).

The Special Law on Mining, Prospecting and Exploitation (2001/387) exempts mining concessionaires from import duties on capital inputs (see Transparency of the Regulatory System for additional information on the mining sector).

Foreign Trade Zones/Free Ports/Trade Facilitation

The National Free Trade Zone (FTZ) Commission, a government agency, regulates FTZ activities. As of 2016, 176 companies operate with FTZ status in Nicaragua and employ approximately 115,000 people. The Nicaraguan Customs Agency monitors all FTZ imports and exports. Most free zones are in Managua and approximately 40 percent belong to the textile and apparel sector.

The Tax Equity Law (amended 2009/712) allows firms to claim an income tax credit of 1.5 percent of the free-on-board (FOB) value of exports. The Law of Temporary Admission for Export Promotion (2001/382) exempts businesses from value-added tax (VAT) for the purchase of machinery, equipment, raw materials, and supplies if used in export processing. Businesses must export 25 percent of their production to take advantage of these tax benefits.

In addition to export incentives and duty free capital imports granted by the Tax Concertation Law and the Temporary Admission Law for Export Promotion, the Free Trade Zones for Industrial Exports Decree (1991/46 and amendments) provides a 10-year income tax exemption for Nicaragua and foreign investments in FTZs. The National Free Trade Zone Commission of Nicaragua (CNFZ) administers the FTZ regime. The CNFZ requires a deposit to guarantee that final salaries and other expenses be paid if a company goes out of business.

Performance and Data Localization Requirements

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.

Although visas and work permit procedures are not excessively onerous for foreign investors and their employees, Nicaraguan authorities have denied entry to or expelled foreigners, including U.S. government officials, NGO workers, academics, journalists, and others for reasons not clearly defined.

Foreign investors in Nicaragua are not required to purchase from local sources or to export a specific percentage of output, nor are their access to foreign exchange limited in proportion to their exports. Likewise, Nicaraguan tax and customs incentives apply equally to foreign and domestic investors.

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance.

Real Property

Many foreign investors in Nicaragua experience difficulties defending their property rights. The expropriation of 28,000 properties in Nicaragua from both Nicaraguans and foreign investors during the 1980s has resulted in a large number of claims and counter claims involving real estate. Property registries suffer from years of poor recordkeeping, making it difficult to establish a title history, although some improvements have ensued from World Bank-financed projects to modernize the land administration systems in certain regions. The Embassy recommends extensive due diligence and extreme caution before investing in property. Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of beachfront properties along the Pacific coast in the Departments of Carazo, Rivas, and Chinandega, as well as prime real estate in the cities of Managua, Granada, and Leon. Judges and municipal authorities have been known to collude with such individuals, and a cottage industry supplies false titles and other documents to those who scheme to steal land.

During the current administration, there are continued reports of land invasions. President Ortega declared on numerous occasions that the government will not act to evict those who have illegally taken possession of private property without discrimination for the nationality of the owner. Police often refuse to intervene in property invasion cases or assist in the enforcement of court orders to remove illegal occupants.

Those interested in purchasing property in Nicaragua should seek experienced legal counsel very early in the process.

The Capital Markets Law (2006/587) provides a legal framework for securitization of movable and real property. The banking system is expanding its loan programs for housing purchases and car purchases, but there is currently only a limited secondary market for mortgages.

Intellectual Property Rights

Nicaragua established standards for the protection and enforcement of intellectual property rights (IPR) through CAFTA-DR implementing legislation consistent with U.S. and emerging international intellectual property standards. While the legal regime for protection of IPR in Nicaragua is adequate, enforcement has been limited. Piracy of optical media and trademark violations are common. The United States also has concerns about the implementation of Nicaragua’s patent obligations under CAFTA-DR, including the mechanism through which patent owners receive notice of submissions from third parties, how the public can access lists of protected patents, and the treatment of undisclosed test data. The country does not publicly report on seizures of counterfeit goods. Nicaragua is not listed in the Office of the U.S. Trade Representative’s Special 301 Report or the Notorious Market report.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Existing policies allow the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility. The Central Bank respects IMF Article VIII and does not impose any restrictions. Credit is allocated on market terms, and foreign investors are able to secure credit on the local market through a variety of credit instruments. The overall size and depth of the country’s financial markets and portfolio positions are very limited, however.

Money and Banking System

Among other services, local financial institutions offer commercial loans, credit lines, factoring, leasing, and bonded warehousing. The banking industry is highly concentrated, with three banks (BANPRO, Lafise BANCENTRO, and BAC) constituting 77 percent of the country’s market share. As of December 2016, the three banks had total assets worth USD 5.7 billion. BANCORP, a new bank owned by ALBANISA and with close ties to the Government of Nicaragua, began accepting deposits in 2015. Interest rates are relatively high compared with other countries in the region, and financial markets are shallow. The country’s banks have a limited number of correspondent banking relationships with U.S. banks.

The Foreign Investment Law allows foreign investors residing in the country to access local credit and local banks have no restriction in accepting property located abroad as collateral. However, many investors find lower cost financing and more product variety from offshore banks. Short-term government and Central Bank bonds, issued in Córdobas, dominate Nicaragua’s infant but growing capital market, and some limited stock issuances have become more prominent. Foreign banks have acquired a presence in Nicaragua through the purchase of local banks, many acting as second floor banks.

Foreigners are allowed to open bank accounts as long as they are legal residents in the country. Recent Central Bank data show that in 2016 the credit portfolio of Nicaraguan commercial banks grew 18 percent. The banking system’s loan portfolio totaled USD5.7 billion as of December 2016. Interest rates on loans denominated in Cordobas averaged 11.47 percent; loans denominated in U.S. dollars averaged 9.12 percent. Loans denominated in U.S. dollars accounted for 89 percent of loans and 76 percent of deposits.

The Superintendent of Banks and other Financial Institutions (SIBOIF) regulates banks, insurance companies, stock markets, and other financial intermediaries. SIBOIF requires that supervised entities provide audited financial statements, prepared according to international accounting standards, on a regular schedule. The Deposit Guarantee System Law (2005/551) established the Financial Institution Deposit Guarantee Fund (FOGADE) to guarantee bank deposits up to USD 10,000 per depositor, per institution. SIBOIF dependence on commercial banks limits its transparency and independence.

CAFTA-DR allows U.S. financial services companies to establish subsidiaries, joint ventures, or bank branches in Nicaragua. The agreement also allows cross-border trade in financial services. Nicaragua has ratified its commitments under the 1997 WTO Financial Services Agreement. These commitments cover most banking services, including the acceptance of deposits, lending, leasing, the issuing of guarantees, and foreign exchange transactions. However, they do not cover the management of assets or securities. Nicaragua allows foreign banks to operate as 100 percent-owned subsidiaries or as branches.

Foreign Exchange and Remittances

Foreign Exchange

Nicaragua is a highly-dollarized economy. The Foreign Investment Law (2000/344) and the Banking, Nonbank Intermediary, and Financial Conglomerate Law (2005/561) allow investors to convert freely and transfer funds associated with an investment. CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. The Superintendent of Banks and other Financial Institutions (SIBOIF) monitors financial transactions for illicit activity, and the Financial Intelligence Unit (UAF) enforces anti-money laundering legislation. Transfers of funds over USD 10,000 requires additional paperwork and due diligence.

The official exchange rate is adjusted daily by the Nicaraguan Central Bank (BCN) according to a crawling peg that devalues the Cordoba against the U.S. dollar at an annual rate of five percent since 2004. The Central Bank has made no statements indicating they will change this policy. The official exchange rate as of December 31, 2016, was 29.32 Córdobas to one U.S. dollar. The daily exchange rate can be found on the Central Bank’s website . According to the BCN, the accumulated rate of inflation for 2016 was 3.13 percent.

Remittance Policies

The Foreign Investment Law (2000/344) allows foreign investors to transfer funds abroad, whether dividends, interest or principal on private foreign debt, as well as royalties, and from compensation payments for declarations of eminent domain. Foreign investors also enjoy foreign currency convertibility through the local banking system. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

President Ortega has used funds provided by Venezuela through the Bolivarian Alliance for the Americas (ALBA) to increase the role of the state and quasi-state actors in the economy. Through Petronic, Nicaragua’s state-owned oil company, the government owns a 49 percent share in ALBA de Nicaragua (ALBANISA), the company that imports and monetizes Venezuelan petroleum products through the ALBA Energy Agreement. President Ortega and the Sandinista Party (FSLN) have used ALBANISA funds to purchase television and radio stations, hotels, cattle ranches, electricity generation plants, and pharmaceutical laboratories. ALBANISA’s large presence in the Nicaraguan economy and its ties to the Government of Nicaragua government put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage.

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), the Nicaraguan Post Office, the International Airport Authority (EAAI), and the Nicaraguan Petroleum Company (Petronic). 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) also has a controlling interest in companies in the construction, manufacturing, and services sectors. Other companies have unclear ownership structures that likely include at least a minority ownership by the Government of Nicaragua or government officials.

Total assets of all SOEs in Nicaragua are unknown as not all SOEs have publicly available or audited accounts. There are few mechanisms to ensure the transparency and accountability of state business decisions. The U.S. Department of State’s Fiscal Transparency report cites the need for Nicaragua to improve reporting on allocation to and from state-owned enterprises. Nicaragua is not a signatory to the WTO Agreement on Government Procurement.

Privatization Program

Nicaragua does not have a privatization program.

Many large businesses have active Responsible Business Conduct (RBC) programs that include improvements to the workplace environment, business ethics, and community development initiatives. The Nicaraguan Union for Corporate Social Responsibility (UniRSE), which includes 102 companies, is working to create more awareness for CSR in Nicaragua. UniRSE organizes events and studies best practices throughout the region. Increasingly, both Nicaraguan and foreign businesses recognize that Corporate Social Responsibility (CSR) and RBC programs must go beyond compliance with environmental or labor law, but more work is needed in this area.

The Government of Nicaragua does not factor RBC policies or practices into its procurement decisions nor explicitly encourage generally accepted 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.

Public sector corruption remains a major challenge for U.S. firms operating in Nicaragua. Companies report that bribery of public officials, unlawful seizures, and arbitrary assessments by customs and tax authorities are common. Corruption is particularly prevalent within the judicial system. In a 2016 survey of 2,500 Nicaraguan companies, one-third of all respondents reported arbitrariness and illegal actions by government offices that regulate property rights and business establishment.

Nicaragua has a well-developed legislative framework criminalizing acts of corruption, but it is poorly and unevenly enforced. The Penal Code (amended 2007/641) and the Special Law on Bribery and Crimes Against International Trade and Foreign Investment (2006/581) define corruption offenses and establish sanctions. Offering or accepting a bribe is a criminal act punishable by a fine and a minimum three years in prison. Legislation similar to the U.S. Foreign Corrupt Practices Act makes bribery by a Nicaraguan company of a foreign official a criminal act punishable by a minimum five years in prison. The Attorney General and the Controller General share responsibility for investigating and prosecuting corruption cases. The anticorruption provisions of CAFTA-DR require each participating government to ensure under its domestic law that bribery in matters affecting trade and investment is treated as a criminal offense or subject to comparable penalties.

Nicaragua ratified the United Nations Convention against Corruption (UNCAC) in 2006 and the Inter-American Convention Against Corruption in 1999. The country is not party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contraloria General de la Republica de Nicaragua (CGR) – Supreme Audit Institution
+505 2265-2072
www.cgr.gob.ni 

In 2016, political, economic, and social demonstrations occurred sporadically. Many demonstrations involved opposition to the proposed building of an interoceanic canal and demands for transparent elections. The motives for other demonstrations included workers/veterans rights, availability of public utilities, traffic and transportation concerns, and other national issues. Additionally, increased politically-motivated violence is reported in the Northern Departments of the country, and crime rates in the Mining Triangle and the Caribbean Coast remain significantly higher than in other parts of the country.

Most demonstrations begin peacefully, but the presence of counter-demonstrators, often directed by the government or police can lead to an escalation in tension and violence. Typically, protests in Managua take place at major intersections or rotundas, impeding traffic flows. Outside the capital, they often take place in the form of road/highway blockages. Protests included the use of gunfire, tear gas, fireworks, rock throwing, tire/vehicle burning, and road blocks.

The United States is deeply concerned by the flawed presidential and legislative electoral process in Nicaragua, which precluded the possibility of a free and fair election on November 6, 2016. In advance of the elections, the Government of Nicaragua sidelined opposition candidates for president, limited domestic observation at the polls and access to voting credentials, and took other actions to deny democratic space in the process. The decision by the government not to invite independent international electoral observers further degraded the legitimacy of the election. The U.S. government continues to press the Government of Nicaragua to uphold democratic practices including press freedom and respect for universal human rights in Nicaragua, consistent with our countries’ shared obligations under the Inter-American Democratic Charter.

While official unemployment rates are low (6.3 percent in 2015), 55 percent of the working population is underemployed and nearly three-quarters of all employment is in the informal economy. Nicaragua lacks skilled and technical labor and often employers import administrative or managerial employees from outside of the country. Recent studies show a particular need for technical level workers. The minimum wage is low and revised every six months through a dialogue process between the private sector, labor unions, and the government. As of 2017, the monthly minimum wage is between USD 122 and USD 273, depending on the industry.

Per Nicaraguan labor law, at year-end employers must pay an 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. Some business groups say this provides an incentive for workers to seek dismissal once they have completed five years with a firm. There are no special laws or exemptions from regular labor laws in the free trade zones.

The law provides for the right of all public and private sector workers, with the exception of those in the military and police, to form and join independent unions of their choice without prior authorization and to bargain collectively. Workers can exercise this right in practice, though unofficial roadblocks exist for unions not affiliated with the ruling party. The law provides the right to collective bargaining. A collective bargaining agreement cannot exceed two years and is automatically renewed if neither party requests its revision. Strikes are legal and the government generally does not interfere in private sector disputes. However, there are instances when the government has forcefully intervened in labor disputes and strikes.

For more information regarding labor conditions in Nicaragua, please see the annual Human Rights Report and the Department of Labor Child Labor report at https://www.state.gov/j/drl/rls/hrrpt/index.htm.

The U.S. Overseas Private Investment Corporation (OPIC) offers financing and insurance against political risk, expropriation, and inconvertibility to U.S. investments in Nicaragua. Nicaragua is a member of the World Bank’s Multilateral Investment Guarantee Agency.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Source: Central Bank of Nicaragua, Annual Report. Published annually March 31.
Table 3: Sources and Destination of FDI

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publically-available Government of Nicaragua sources.
Table 4: Sources of Portfolio Investment

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publically-available Government of Nicaragua sources.

Embassy Managua – Economic Section
Km 5½ Carretera Sur, Managua, Nicaragua
+505 2252-7100
ManaguaEcon@state.gov