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
The Nicaraguan government seeks foreign direct investment to project normalcy and signal international support. As traditional sources of foreign direct investment have declined amid the ongoing political crisis, the government has increasingly pursued investment from ideologically friendly countries such as Iran, Russia, and China. Investment incentives target export-focused companies that require large amounts of unskilled or low-skilled labor.
Local laws and practices generally do not treat foreign and domestic investors differently. Foreign investors report significant delays in receiving residency permits, requiring frequent travel out of the country to renew visas.
ProNicaragua is the country’s official investment and export promotion agency. The agency is highly politicized and run by the President’s and Vice President’s OFAC-sanctioned son Laureano Ortega. ProNicaragua provides information packages, investment facilitation, and prospecting services to interested investors.
Personal connections and affiliation with influential industry associations and chambers of commerce are critical for foreigners investing in Nicaragua. Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.
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.
Investors should be cautious of the 2020 Foreign Agents Law. While the law targets NGOs and exempts business entities, some companies have been required to register or end their social responsibility efforts. The law requires anyone receiving funding from foreign sources to register with the Ministry of the Interior and provide monthly, detailed accounts of how funds are intended to be used. The government used the law to strip 48 NGOs of their legal status as of April 2022.
Nicaragua allows foreigners to be shareholders of local companies, but the company representative must be a Nicaraguan citizen 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 18 months and require in-person interviews in Managua.
The government can limit foreign ownership for national security or public health reasons under the Foreign Investment Law. The government generally requires all investments in the petroleum and mining sectors to include one of Nicaragua’s state-owned enterprises as a partner. Investments in the mining sector have similar requirements.
The government does not formally screen, review, or approve foreign direct investments. However, in practice, President Ortega and Vice President Murillo maintain de facto review authority over any foreign direct investment. This review process is not transparent.
The WTO conducted a trade policy review of Nicaragua in 2021. The review noted that Nicaragua’s trade policy had remained largely unchanged since the previous review in 2012.
While the Government of Nicaragua is eager to attract foreign investment, it lacks a systematic business facilitation effort and instead relies on one-on-one engagement with potential investors.
Nicaragua does not have an online business registration system. Companies must typically register with the national tax administration, social security administration, and local municipality to ensure the government can collect taxes. Those registers are typically not available to the public.
According to the Ministry of Growth, Industry, and Trade (MIFIC), the process to register a business takes a minimum of 14 days. In practice, registration usually takes much longer. Establishing a foreign-owned limited liability company takes eight procedures and 42 days.
Nicaragua does not promote or incentivize outward investment and does not restrict domestic investors from investing abroad.
3. Legal Regime
The Nicaraguan government does not use transparent policies to establish clear “rules of the game.” Legal, regulatory, and accounting systems exist but implementation is opaque. The government does not foster competition on a non-discriminatory basis. The Ortega-Murillo regime maintains direct control over various sectors of the economy to enrich loyalists. 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.
The executive branch retains ultimate rule-making and regulatory authority. In practice, the relevant government agency is empowered to levy fines directly. In some instances, the prosecutor’s office may also enforce regulations. These actions are widely perceived to be controlled by the executive branch and are neither objective nor transparent. There have not been recent regulatory or enforcement reforms.
Prior to 2018, leading business chambers managed some informal regulatory processes. Leading business chambers filled policy voids left by inadequate government institutions and procedures, meeting with influential government officials to resolve common business issues. This model largely collapsed, however, as business chambers wanted to avoid the reputational risks of making ad hoc deals with the increasingly authoritarian Ortega-Murillo regime. There are currently few options to resolve commercial issues with the government.
There is no accountancy law in Nicaragua. International accounting standards are not a focus for most of the economy, but major businesses typically use IFRS standards or U.S. GAAP standards. The national banking authority officially requires loans to be submitted using IFRS standards.
There is no legal requirement to disclose environmental, social, or governance indicators.
Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. In practice, drafts are typically not published on official websites or made available to the public. The legislature is not required by law to give notice. The executive branch proposes most investment legislation, and the regime-controlled National Assembly rarely makes modifications. Nicaragua publishes regulatory actions in La Gaceta, the official journal of government actions, including official summaries and the full text of all legislation. La Gaceta is available online.
There are no effective oversight or enforcement mechanisms to ensure the government follows administrative processes.
Public finances and debt obligations are not transparent, with little accountability or oversight. The Central Bank has increasingly refused to publish key economic data starting in 2018, including public finances and debt obligations. The Central Bank published limited data in 2020 as a condition of funding from the International Monetary Fund.
All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. However, authorities regularly flout national regulations, and investors claim that customs practices regularly violate CAFTA-DR provisions.
Nicaragua is a signatory to the Trade Facilitation Agreement and reported in July 2018 that it had implemented 81 percent of its commitments to date; however, Nicaragua’s trade facilitation is challenged by bureaucratic inefficiency, corruption, and lack of transparency. Nicaragua is a member of the WTO and generally notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.
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. However, implementation and enforcement of these laws is neither objective nor transparent. Contracts are ostensibly legally enforced through the judicial system, but extrajudicial factors are more likely to influence rulings than the facts at issue. The legal system is weak and cumbersome. Nicaragua has a Commercial Code, but it is outdated and rarely used. There are no specialized courts.
Members of the judiciary, including those at senior levels, are widely believed to be corrupt and subject to significant political pressure and direction from the executive branch, specifically the President and Vice President. The judicial process is neither competent, fair, nor reliable. Regulations and enforcement actions are technically subject to judicial review, but appeals procedures are neither transparent nor objective.
Nicaragua has laws that relate to foreign investment, but implementation, enforcement, and interpretation are subject to corruption and political pressure. 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 contains additional details.
Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment. It permits 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.) It also establishes national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.
The details applicable laws and regulations for trade and investment. It contains administrative procedures for investment and income generating operations such as the number of steps, contact information for relevant entities, required documents costs, processing time, and applicable laws. The site is available only in Spanish.
The mission of the Institute for the Promotion of Competition (Procompetencia) includes investigating and disciplining businesses engaged in anticompetitive practices. In practice, it has no effective power, and the Ortega-Murillo regime controls decisions regarding competition.
Nicaragua has a long history of government expropriation without due process. Considerable uncertainty remains in securing property rights (see Protection of Property Rights). Conflicting land title claims are abundant and judicial appeals are very challenging.
Since 2018, the government has cancelled the legal status of 118 NGOs, including 14 universities. The government seized six universities’ assets and is turning them into publicly administered and controlled institutions. In December 2021, the government broke diplomatic ties with Taiwan and officially recognized the People Republic of China (PRC). Subsequently, the government blocked Taiwan’s donation of its former Embassy, confiscated the property, and gave it to the PRC.
Multiple landowners have reported land invasions by government-affiliated actors since the political crisis began in 2018. Landowners were sometimes able to end these invasions through government connections or bribes. In instances where the government claimed legal right to the land, offers of compensation – if any – were calculated on cadastral value, a vast underestimate of market value. The Ortega-Murillo regime has stated on numerous occasions that it would not act to evict those who had illegally taken possession of private property.
In late 2020 and early 2021, the Government of Nicaragua disposed of real property seized from independent news outlets. The Government did not follow due process and transferred the facilities to the Ministry of Health to install health clinics.
Bankruptcy provisions are included in the Civil and Commercial Codes, but there is no tradition of bankruptcy in Nicaragua. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than the reorganization of debts and do not provide equitable treatment of creditors. Insolvent companies usually close without going through formal bankruptcy proceedings and set up a new entity. Creditors are effectively unprotected. Creditors typically attempt to collect as much as possible directly from the debtor to avoid an uncertain judicial process or abandon any potential claims.
4. Industrial Policies
Nicaragua has several investment incentives available to foreign investors. The government has also occasionally issued sweeping tax incentives to promote large one-time investments, such as for a foreign-owned power plant in 2020.
The Social Housing Construction Law (2009/677) provides incentives for the construction of housing units 36-60 m2 in size with construction costs less than $30,000 per unit. Developers are exempt from paying local taxes on the construction, purchase of materials, equipment, or tools.
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 exemptions for income and property taxes. Regulatory concerns limit investment despite these incentives (see Transparency of the Regulatory System). The National Assembly must approve all projects larger than 30 megawatts.
The law promoting renewable energy provides tax exemptions to investors in the renewable energy sector. The government has amended the law several times to extend the exemptions, most recently in September 2020. The law includes exemptions, each valid from two to five years, from the following taxes: import duty; value added tax; income tax; municipal tax; natural resources exploitation tax; and tax stamp.
Amendments made in February 2022 to the Energy Stability law (2005/554) authorize tax exemptions for the import and purchase of any electric vehicle intended for public or private use.
The Tourism Incentive Law (amended 2005/575) includes the following incentives for investments of $30,000 or more outside Managua and $100,000 or more within Managua: income tax exemption of 80 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 Fishing and Fish Farming Law (2004/489) exempts gasoline used in fishing and fish farming from taxes. The Forestry Sector Law (2003/462) provides income, property, and municipal tax incentives for plantation investments and tax exemptions on importing wood processing machinery and equipment. 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).
Nicaragua does not have a practice of issuing guarantees for foreign direct investment. It has jointly financed some foreign infrastructure projects. Nicaraguan law mandates joint ventures with government agencies in the energy sector.
The Free Zones Incentive Law (Decree 46-91 and amendments) and the Free Zone Export Law passed in 2015 (including Decree 12-2016) grant free trade zone (FTZ) companies special tax treatment, including: a permanent exemption from all import duties and taxes for raw materials, equipment, and other materials necessary to operate the business, provided all products are exported; 100 percent income tax exemption for the first 10 years of operation, and 60 percent income tax exemption thereafter; and exemptions from all export, value added, consumption, municipal, transportation, and property transfer taxes. FTZ companies must pay a deposit to guarantee final salaries and other expenses if a company goes out of business. FTZ salaries are negotiated separately from other wage negotiations and are set for five-year periods. FTZ companies may employ foreign employees with the permission of the FTZ Commission. Foreign-owned firms have the same investment opportunities as local firms. The majority of FTZ companies are foreign owned, and most production is aimed at the U.S. market.
Nicaragua’s FTZs have historically been a key driver of the Nicaraguan economy. FTZ exports fell 15 percent in 2020 due to reduced demand caused by the pandemic. Exports rebounded in 2021, increasing 37 percent. Companies in the FTZ currently employ more than 131,000 workers, surpassing a previous 2019 high. Prior to the ongoing crisis, companies in the FTZ reported good relations with the government and frequent interaction with the FTZ Commission, which regulates the FTZ. Companies in the FTZ report few interactions with the government and less interference than companies operating outside the FTZs in the Nicaraguan economy.
The government does not impose performance requirements, conditions on permission to invest, or minimum levels of domestic content for foreign investors to use in goods or technology. Nicaraguan tax and customs incentives apply equally to foreign and domestic investors. Nicaragua does not impose measures that prevent or unduly impede freely transmitting customer or other business-related data outside the country.
Nicaraguan authorities may electronically monitor individuals’ activities. Under Nicaragua’s 2020 Cybercrimes Law, telecom providers must retain one year’s worth of data for all users. A local judge may issue an order, at the National Police or Prosecutor General’s request, to force internet providers to release specific information about an individual customer, as well as collect, extract, or record data about this customer, such as real time data traffic.
5. Protection of Property Rights
Property rights and enforcement are notoriously unreliable in Nicaragua. The government regularly fails to enforce court decisions on the seizure, restitution, or compensation of private property. Legal claims are subject to non-judicial considerations, and members of the judiciary, including those at senior levels, are widely believed to be corrupt or subject to political pressure. During ongoing crisis, Ortega-Murillo regime loyalists illegally took over privately owned lands, with implicit and explicit support from municipal and national government officials. Some land seizures were politically targeted and directed against the political opposition. Under the first Ortega-led government in the 1980s, the expropriation of 28,000 foreign-owned and Nicaraguan-owned properties created a significant number of real estate claims and counterclaims. Property registries suffer from years of poor recordkeeping, making it difficult to establish a title history. In 2019, the Supreme Court modified property registry rules to prohibit most access to these records. Mortgages and liens exist, but the recording system is not reliable.
Investors should conduct extensive due diligence and use extreme caution before investing in real property. Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of prime properties, particularly in tourist areas. Judges and municipal authorities are known to collude with such individuals, and a cottage industry supplies false titles and other documents. In the Autonomous Caribbean Regions, communal land cannot be legally purchased; however, a known scheme involves individuals selling communal land with apparently legal documentation before communal authorities strip buyers of their property.
Those interested in purchasing property in Nicaragua should seek experienced legal counsel early in the process. The Capital Markets Law (2006/587) provides a legal framework for securitization of movable and real property. There are no specific restrictions regarding foreign or non-resident investors aside from certain border and other properties considered important to national security.
Given the state of the public records registry, it is not possible to determine what percentage of land does not have clear title. There is no defined government effort to resolve this. Squatters can obtain ownership of unoccupied property, particularly if they have government backing.
Nicaragua established standards for the protection and enforcement of intellectual property rights (IPR) through CAFTA-DR implementing legislation, which is consistent with U.S. and international IPR standards. Enforcement of IPR law is limited. Infringement on rights and theft – particularly media piracy and trademark violations – are common. The United States has expressed 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.
Nicaragua does not publicly report on seizures of counterfeit goods. Nicaragua is not listed in the U.S. Trade Representative’s Special 301 Report or its Review of Notorious Markets for Piracy and Counterfeiting.
6. Financial Sector
There are no restrictions on foreign portfolio investment. Nicaragua does not have its own equities market and there is no regulatory structure to facilitate publicly held companies. There is a small bond market that trades primarily in government bonds but also sells corporate debt to institutional investors. The Superintendent of Banks and Other Financial Institutions (SIBOIF) supervises the bond market. The overall size and depth of Nicaragua’s financial markets and portfolio positions are very limited.
Nicaragua has officially accepted the obligations of IMF Article VIII and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. New policies, however, threaten the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility. Banks must now request foreign currency purchases in writing, 48 hours in advance, and the Central Bank reserves the right to deny these requests.
While the banking system has grown and developed in the past two decades, Nicaragua remains underbanked relative to other countries in the region. Only 31 percent of Nicaraguans aged 15 or older have bank accounts, and only 8 percent have any savings in such accounts, approximately half the rate of other countries in the region according to World Bank data. Nicaragua also has one of the lowest mobile banking rates in Central America.
Following a sharp contraction in 2018, the banking sector recovered slightly in 2019 and 2020. In 2021, liquidity ratios continued high and stable at 45 percent and portfolios increased 5.5 percent. Despite expanded lending, banks remain cautious when granting new financing. The ratio of non-performing loans to banking sector assets was 15 percent in 2021. Despite improving indicators, the banking sector remains vulnerable to sociopolitical uncertainty. Since 2018, banks have reduced their branches from 612 to 445 across the country.
The banking industry remains conservative and highly concentrated, with four banks – Banpro, LAFISE, BAC, and Fichosa – controlling an estimated 77 percent of the country’s market. The 2018 crisis sparked large withdrawals of deposits from the banking system. Those withdrawals have stabilized, but total assets remain below pre-crisis levels. In 2021, the financial system had total assets worth $4.7 billion – a 9 percent increase over 2020’s $4.3 billion, but 14 percent lower than in March 2018’s $5.5 billion.
The Central Bank of Nicaragua was established in 1961 as the regulator of the monetary system with the sole right to issue the national currency, the córdoba. Foreign banks can open branches in Nicaragua. Since 2018, Nicaragua has lost several correspondent banking relationships. Wells Fargo Bank withdrew altogether, and Bank of America withdrew correspondent services from a local bank. Recent amendments to the Consumer Protection Law could force local banks to service suspicious account holders – including persons designated under international sanctions regimes – further jeopardizing correspondent banking relationships.
Foreigners can open bank accounts if they are legal residents in the country. The Foreign Investment Law allows foreign investors residing in the country to access local credit, and local banks have no restrictions on accepting property located abroad as collateral.
In 2019, the Department of Treasury’s OFAC designated Bancorp – a subsidiary of ALBANISA, a joint venture between the state-owned oil companies of Nicaragua and Venezuela – for money laundering and corruption. Bancorp submitted its dissolution to the Superintendency of Banks and Other Financial Institutions (SIBOIF), but the closure was secretive and outside the legal framework that governs financial institutions in Nicaragua. In 2021, OFAC designated two senior government officials overseeing the banking system. OFAC designated the President of the Central Bank for implementing Nicaragua’s consumer protection law that could obligate Nicaraguan financial institutions to facilitate sanctionable transactions. OFAC also designated the head of SIBOIF for forcing commercial banks to provide financial information on the regime’s political opponents.
Nicaragua does not have a sovereign wealth fund.
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.
Nicaragua does not have an active privatization program.
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.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
In June 2021, Nicaragua announced the creation of a national climate management system and guidelines for a national climate policy. However, the regulation contained few details and is still being developed. Nicaragua has not set a net-zero carbon emissions goal or outlined a long-term low-carbon strategy.
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