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.
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.