Nicaragua

Executive Summary

Investors should be extremely cautious about investing in Nicaragua under President Daniel Ortega’s authoritarian government. Almost three years have passed since the 2018 political-economic crisis left over 300 peaceful protesters killed, 2,000 protestors injured, and over 100,000 Nicaraguans displaced and seeking asylum outside of Nicaragua. The Ortega regime 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. Presidential elections are scheduled for November 2021. Failure to restore civil liberties and guarantee free and fair elections could spark renewed unrest and lead to the further isolation of the Ortega regime.

According to the International Monetary Fund, Nicaragua’s economy contracted 3.8 percent in 2018, 5.8 percent in 2019, and an estimated 3.5 percent in 2020. The World Bank expects the economy to grow 0.9 percent in 2021 as it recovers from the COVID-19 pandemic, less than the 2.5-3.5 percent forecast by the Nicaraguan Central Bank.

In 2020, the Ortega–controlled National Assembly approved six additional repressive laws that should alarm investors. Some of the most concerning laws 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 sanctioned entities. Tax authorities have seized properties following reportedly arbitrary tax bills and jailed individuals without due process until taxes were negotiated and paid. Furthermore, arbitrary fines and customs inspections prejudice foreign companies that import products.

The COVID-19 global pandemic impacted Nicaragua’s economy, upsetting tourism and investment. The government’s attempts to conceal the scope of the pandemic, including the number of new cases and deaths, may have hurt consumer and investor confidence. Inflation increased another 3 percent after rising 6.1 percent in 2019, and the number of Nicaraguans insured through social security, a measure of the robustness of the formal economy, fell 19 percent since March 2018. These conditions pose significant challenges for doing business in Nicaragua. Credit largely disappeared in early 2019 before starting to return later in the year and in 2020. The government’s 2019 tax reforms continue to hurt business profit margins and raise consumer prices. Most international organizations ended their assistance to the government due to human rights concerns, with the exception of some humanitarian assistance related to the COVID-19 pandemic and Hurricanes Eta and Iota.

Nicaragua’s economy still has significant potential for growth if institutional and rule of law challenges can be overcome and investor confidence can be restored. Its assets include: ample natural resources; a well-developed agricultural sector; a highly 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 a vibrant 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.