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.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Nicaraguan government seeks foreign direct investment to project normalcy and international support in a time when foreign investment has all but stopped following the government’s violent suppression of peaceful protests starting in April 2018. As traditional sources of foreign direct investment fled the ongoing political crisis, the government has increasingly pursued foreign investment from other countries such as Iran and China. Investment incentives target export-focused companies that require large amounts of unskilled or low-skilled labor.
In general, there are local laws and practices that harm foreign investors, but few that target foreign investors in particular. Investors should be aware that local connections with the government are vital to success. Investors have raised concerns that regulatory authorities act arbitrarily and often favor one competitor over another. Foreign investors report significant delays in receiving residency permits, requiring frequent travel out of the country to renew visas.
ProNicaragua, the country’s investment and export promotion agency, has all but halted its investment promotion activities. It has virtually no clients due to the ongoing political crisis. ProNicaragua, already heavily politicized, became more so after President Ortega installed his son, Laureano Ortega (who was designated for sanctions by the Office of Foreign Assets Control (OFAC)), as the organization’s primary public face. ProNicaragua formerly provided information packages, investment facilitation, and prospecting services to interested investors. For more information, see http://www.pronicaragua.org.
Personal connections and affiliation with industry associations and chambers of commerce are critical for foreigners investing in Nicaragua. Prior to the crisis, the Superior Council of Private Enterprise (COSEP) had functioned as the main private sector interlocutor with the government through a series of roundtable and regular meetings. These roundtables have ceased since the onset of Nicaragua’s 2018 crisis, as has collaboration between the government, private sector, and unions. Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.
The absence of commercial international flights—caused in part by the COVID-19 pandemic— significantly hinders international investment. Although a few commercial airlines are operating flights to and from Nicaragua, the government only permits those airlines to operate under charter flight regulations, including providing the government with full passenger manifests 36 hours before the arrival or departure of each flight. Currently there is only one non-stop flight per day between the United States and Nicaragua, with the exception of Saturday, when there are two non-stop flights to Miami.
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.
Investors should be cautious of the 2020 Foreign Agents Law—also commonly referred to as “Putin’s Law”—which places onerous reporting and registration burdens on all organizations receiving funds or direction from abroad. While the law purportedly exempts purely business entities, some companies have been required to register or end their social responsibility efforts to avoid scrutiny. The process to register as a foreign agent is overtly politicized, with the government outright refusing to register some entities for their perceived political leanings.
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 eighteen 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 requires all investments in the petroleum sector include one of Nicaragua’s state-owned enterprises as a partner. Similar requirements are in place for the mining sector as well.
The government 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 is not transparent.
Other Investment Policy Reviews
Nicaragua had a trade policy review with the WTO in 2021. The trade policy review did not resolve the many informal trade barriers faced by importers in Nicaragua.
The government is eager to draw more foreign investment to Nicaragua. Its business facilitation efforts focus primarily on one-on-one engagement with potential investors, rather than a systematic whole-of-government approach.
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. Investors should be aware the social security system is close to insolvency, having engaged in a series of “investments” over the past decade that funnel social security funds into the hands of Ortega insiders. The government has sought to close the shortfalls by increasing social security taxes and contributions. This has caused many workers to flee the social security system to the informal sector, which economists estimate hold between 70 and 90 percent of Nicaragua’s workers.
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 more time. 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.
2. Bilateral Investment Agreements and Taxation Treaties
Nicaragua has signed and ratified bilateral investment treaties with Argentina, Belgium, Chile, the Czech Republic, Denmark, Finland, France, Germany, Italy, Iran, Luxembourg, the Netherlands, the Russian Federation, Spain, Switzerland, and the United Kingdom. Nicaragua also has treaties with investment provisions with Chile, Mexico, Panama, Taiwan, South Korea, and CAFTA-DR member states as part of free trade agreements.
Nicaragua does not have a bilateral income tax treaty with the United States or any other country. Tax authorities increased audits of foreign investors in 2017. During the political crisis, these audits became more aggressive and threatening, including reports of seven different government entities conducting audits on the same day, increased scope of audits (e.g., requesting seven years of documents instead of the usual practice of two years), and increased fines. Companies that participated in work stoppages organized by opposition leaders reported audits immediately following the work stoppages.
These audits nearly always result in findings that additional taxes are owed. The new tax bills are often accompanied by fines equal to the amount of taxes purportedly owed. These fines appear to lack a legal basis. The government has seized private property and jailed individuals for failure to pay these tax bills and fines, often while legal proceedings are still ongoing. These tax issues have impacted U.S. companies or companies owned by U.S. citizens.
The government’s tax reforms passed on February 27, 2019, continues to prejudice importers and U.S. businesses. The tax reforms tripled the alternative minimum tax rate from 1 to 3 percent for companies earning more than five million dollars in gross annual revenue, and it doubled (to 2 percent) the tax for businesses with incomes between $1.9 and five million dollars in gross revenue. The law also increased the selective consumption tax for many items. The selective consumption tax disadvantages importers because customs authorities charge the tax on imported goods at the border based on erroneous valuations that can triple the declared value of the goods. Domestic producers only pay the selective consumption tax at the actual point of sale. The government promised revisions to the reform after an observation period of 90 days, but as of April 2021—more than two years after the reform was implement—still has not proposed revisions. The reforms, combined with increases in employer contributions to social security, have narrowed profit margins and increased consumer prices.
Several large companies, including some U.S. companies and franchises, are involved in tax disputes with the government. The government is assessing income taxes based on gross revenue rather than net profit as provided by law. This new tax calculation imposed by the government could force the closure of these companies.
3. Legal Regime
Transparency of the Regulatory System
The government does not have 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. In fact, the Ortega regime maintains direct control over various sectors of the economy to enrich its inner circle. Ortega also controls the judicial system and there is no expectation of fair and objective rulings. 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 bring enforcement actions. These actions are widely perceived to be controlled by the executive branch and are neither objective nor transparent.
NGOs and private sector associations do not manage informal regulatory processes. There have not been recent regulatory or enforcement reforms.
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. The national banking authority officially requires loans to be submitted using IFRS standards.
Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. Drafts are commonly not published on official websites or available to the public. The legislature is not required by law to give notice. The executive branch proposes most investment legislation; the Sandinista party has a supermajority in the National Assembly and seldom modifies such legislation.
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. 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. There is no accountability or oversight.
International Regulatory Considerations
All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. However, authorities willingly flout the national regulatory system, and investors claim that some customs practices 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 progress remains beset with bureaucratic inefficiency, corruption, and lack of transparency. Nicaragua is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade of draft technical regulations.
In 2020 the government passed amendments to the “Consumer Protection Law” to treat financial services as a basic good and forbid commercial banks operating in Nicaragua from refusing financial services without a reason recognized in Nicaraguan law. If implemented, this provision could threaten commercial banks’ capacity to enforce international anti-money laundering compliance measure, avoid criminal or suspicious transactions, or meet their contractual or other legal obligations to implement international sanctions laws.
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. 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, especially from the executive branch. 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.
Laws and Regulations on Foreign Direct Investment
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 ostensibly 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.
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.
MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at http://www.tramitesnicaragua.gob.ni, which includes detailed information on 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.
Competition and Antitrust Laws
The Institute for the Promotion of Competition (Procompetencia) investigates and disciplines businesses engaged in anticompetitive business practices but has no effective power. The Ortega regime controls decisions regarding competition.
Expropriation and Compensation
There is a long history of expropriations in Nicaragua and existing cases of the government expropriating property regardless of legal basis. As a result, considerable uncertainty remains in securing property rights (see Protection of Property Rights).
During the ongoing crisis, multiple landowners reported land invasions by government-affiliated actors. Landowners were sometimes able to resolve these invasions through government connections or bribes. In instances where the government actually claimed legal right to the land, offers of compensation—if any—are calculated on cadastral value, which vastly underestimates the actual value of the land. Ortega declared on numerous occasions that the government would not act to evict those who had illegally taken possession of private property.
There is generally no credible due process for land expropriations. Conflicting land title claims are abundant and judicial appeal in these cases is very challenging. Since 2018, the government has used proxies and its control over the judicial and executive branches to use land seizures to punish opposition actors and enrich government insiders. In 2020, the government increased seizures of property based on coercive tax bills.
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). It signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards in 2003. There is no specific domestic legislation providing for enforcement under the ICSID Convention or 1958 New York 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. There have only been two official claims or disputes by U.S. investors under CAFTA-DR, the most recent in April 2021. Both cases are still pending before the ICSID. Many U.S. investors reported customs and other procedures that they allege are not compliant with Nicaragua’s obligations under CAFTA-DR. Businesses operating in Nicaragua say the investor-state dispute settlement mechanism does not represent a viable means of due process to enforce CAFTA-DR obligations due to the high expense and likelihood of becoming a political target. Many companies facing Nicaragua’s noncompliance with CAFTA-DR simply pay the fines or increased taxes.
Embassy Managua is unaware of any instances of local courts recognizing and enforcing arbitral awards issued against the government. Given the judiciary’s lack of independence and vulnerability to political pressure, it is unlikely the courts would recognize such a judgment.
Investors should be aware that the government can take adverse action against them at any given time with limited basis or recourse. However, it does not appear that foreign investors have been targeted due to nationality.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution (ADR) is not common, and many Nicaraguans companies are unfamiliar with the practice. The Mediation and Arbitration Law (2005/540) is based on the UNCITRAL model law and established the legal framework for ADR. The Nicaraguan Chamber of Commerce and Services (CCSN) founded Nicaragua’s Mediation and Arbitration Center. CCSN conducts trainings and other events to promote the value of ADR and encourage its use. Arbitration clauses are included in some business contracts, but their enforceability has not been tested in Nicaraguan courts.
The Embassy is unaware of any local courts that have enforced foreign arbitral awards. In general, enforcement of court orders is frequently subject to non-judicial considerations. The Embassy is unaware of any recent domestic decisions involving investment disputes with state-owned entities (SOE).
Bankruptcy provisions are included in the Civil and Commercial Codes, but there is no tradition or culture of bankruptcy in Nicaragua. Companies simply close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving creditors unprotected. Creditors typically attempt to collect as much as they can directly from the debtor to avoid an uncertain judicial process or give up on any potential claims. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization and do not provide equitable treatment of creditors.
4. Industrial Policies
The Social Housing Construction Law (2009/ 677) provides incentives for the construction of housing units 36–60m2 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 income and property tax exemptions. Regulatory concerns limit investment despite these incentives (see Transparency of the Regulatory System). The National Assembly is required for all projects larger than 30 megawatts.
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).
The government has at times issued sweeping tax incentives to promote one-time large investments, including a large foreign-owned power plant in 2020.
Nicaragua does not have a practice of issuing guarantees for foreign direct investment. It has jointly financed some infrastructure projects in the past. Nicaragua mandates joint ventures with government agencies in the energy sector.
Foreign Trade Zones/Free Ports/Trade Facilitation
Nicaragua’s Free Trade Zone (FTZ) has historically been a key driver of the Nicaraguan economy. Reduced demand in the United States due to the COVID-19 pandemic caused FTZ exports to fall 15 percent in 2020 and companies to suspend workers. However, by the beginning of 2021 employment had returned almost to 2019 levels (123,000 employees). The FTZ formerly enjoyed a good relationship with the government. During the crisis, however, investors report fewer interactions with the FTZ Commission, which regulates the FTZ. Due to political uncertainty, many FTZ investors delayed capital investments, while some have moved production lines and operations to other countries.
The Free Zones Incentive Law (Decree 46-91 and amendments) and Law 917 – Free Zone Export Law passed in 2015 (including Decree 12-2016) grants FTZ companies: 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. The majority of FTZ companies are foreign investors.
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. The Nicaraguan Labor Code does not explicitly mention mandated local employment for senior management and boards of directors.
Visas and work permit procedures are not excessively onerous for foreign investors and their employees, but 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. The Embassy has received reports of government officials reviewing social media posts to justify refusing entry. Residency permit applications can take 18 months or longer to receive final approval. In 2020 some foreign nationals reported the government refused to renew their residency permits.
The government does not impose performance requirements, conditions on permission to invest, or force foreign investors to use domestic content in goods or technology. Nicaraguan tax and customs incentives apply equally to foreign and domestic investors.
In 2020, the government passed the “Special Cybercrime” law, which requires telecom providers to retain one year’s worth of data for all users, and to provide that data to the government when asked. Nicaragua does not impose measures that prevent or unduly impede freely transmitting customer or other business-related data outside the country.
5. Protection of Property Rights
Property rights and enforcement are notoriously unreliable in Nicaragua. The government regularly fails to enforce court decisions with respect to 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 the upheaval starting on April 18, 2018, members of the ruling Sandinista National Liberation Front (FSLN) party illegally took over privately owned lands, with implicit and explicit support by municipal and national government officials. Some land seizures were politically targeted and directed against individuals considered independent or against the ruling party. Under Ortega’s first government in the 1980s, the expropriation of 28,000 properties in Nicaragua from both Nicaraguans and foreign investors 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, and in 2019 the Supreme Court modified the property registry rules to prohibit most from accessing these records. Mortgages and liens exist, but the recording system is not reliable.
Investors should conduct extensive due diligence and extreme caution before investing in real property. Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of prime properties, in particular in tourist areas. Judges and municipal authorities are known to collude with such individuals, and a cottage industry supplies false titles and other documents to those who scheme to steal land. In the Autonomous Caribbean Region, communal land cannot be legally purchased, although individuals sell communal land and lawyers and notaries will knowingly extend the apparent correct paperwork, only to have property buyers be stripped of their property by communal authorities.
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 are government-backed.
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 international intellectual property standards. While the written 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.
On March 24, 2020, the National Assembly approved two reforms to Law 1024 on the intellectual property registry and Patent Law. Members of the National Assembly’s Economic Commission emphasized updates to the fees for registering copyrights and patents, leading observers to assume the reforms are focused on continuing to raise funds to run the government amidst the ongoing political crisis.
Nicaragua does not publicly report on seizures of counterfeit goods and is not listed in the U.S. Trade Representative’s 2021 Special 301 Report or its 2020 Review of Notorious Markets for Piracy and Counterfeiting.
For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
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 traffics primarily in government bonds but also sells some corporate debt to institutional investors. In 2019 and 2020 this market has traded less than only 10 percent of the volume from before the political-economic crisis. The Superintendent of Banks and Other Financial Institutions (SIBOIF) supervises this fledgling market.
New policies 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 BCN reserves the right to arbitrarily deny these requests.
To shore up liquidity, banks have sharply restricted lending, increased interest rates, and implemented stricter collateral standards. The overall size and depth of Nicaragua’s financial markets and portfolio positions are very limited.
Money and Banking System
While the banking system has grown and developed in the past two decades, Nicaragua remains underbanked relative to other countries in the region. Only 19 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. One-third of Nicaraguans continue to save their money in their home or other location while 49 percent have no savings. Nicaragua also has one of the lowest mobile banking rates in Central America.
After the sociopolitical crisis sharply slashed the National Financial System in 2018, the banking sector recovered slightly in 2019 and 2020. Liquidity ratios dipped 6 percent year-on-year to 41 percent (six percent less than 2019 levels) suggesting a credit portfolio recovery. However, the overall credit portfolio continued to contract, registering a $271 million reduction compared to 2019. The ratio of non-performing loans to banking sector assets reached 17 percent, five percent higher than 2019. The banking sector remains fragile and vulnerable to sociopolitical uncertainty.
The banking industry remains conservative and highly concentrated, with four banks (BANPRO, LAFISE Bancentro, BAC, and FICOHSA) constituting 77 percent of the country’s market share. The crisis sparked large withdrawals of deposits from the banking system. Those withdrawals have stabilized but total assets still lag pre-crisis levels—as of December 2020, the financial system had total assets worth $4.3 billion, a 10 percent increase over 2019 ($3.9 billion) but 22 percent lower than in March 2018 ($5.5 billion).
On April 17, 2019, the Department of Treasury designated BANCORP—a subsidiary of ALBA de Nicaragua (ALBANISA), a joint venture between the State-owned oil companies of Nicaragua (49%) and Venezuela (51%)—for money laundering and corruption. On April 22, BANCORP presented its dissolution to SIBOIF. BANCORP’s closure was secretive and outside the legal framework that governs financial institutions in Nicaragua.
The Central Bank of Nicaragua (BCN) 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. The number of correspondent banking relationships with the United States shrank during the crisis as 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—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 accepting property located abroad as collateral.
Foreign Exchange and Remittances
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. However, as international sanctions target the Ortega regime’s corruption and money-laundering activities, investors should be aware that transactions with the Nicaraguan government may lead banks to reject related transactions. Transfers of funds over $10,000 requires additional paperwork and due diligence.
Local financial institutions freely exchange U.S. dollars and other foreign currencies, although there are reports that SIBOIF has taken steps to ensure more Nicaraguan Córdobas are in circulation to shore up the local currency. In October 2018, the BCN notified banks that in place of an on-line automated clearing house for foreign currency purchases, banks must now request such purchases in writing, 48 hours in advance, and provide the BCN with the names of savers who want to withdraw their foreign currency deposits, as well as the amount each individual requests.
The BCN adjusts the official exchange rate daily according to a crawling peg that devalues the Córdoba against the U.S. dollar at an annual rate. The devaluation rate remained stable at 5 percent from 2004 until October 28, 2019, when the BCN announced it would devalue the Córdoba by only three percent against the U.S. Dollar. On November 25, 2020, the BCN announced yet another downward adjustment in the official exchange rate, devaluing the Córdoba by another two percent. The official exchange rate as of December 31, 2020, was 34.82 Córdobas to one U.S. dollar. The daily exchange rate can be found on the BCN’s website.
There are no limitations on the inflow or outflow of funds for remittances or access to foreign exchange for remittances. However, some U.S. and local banks refuse to process any transfers abroad by government officials, agencies, or State-owned entities (SOE) due to the high risk of corruption and laundering.
Sovereign Wealth Funds
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, as they are not subject to any regular audit or accounting measures and are not fully captured by the national budget or other public documents. The Nicaraguan government uses a vast network of front men to control companies. Even the SOEs that the government officially owns are not transparent nor subject to oversight. Many of Nicaragua’s SOEs and quasi-SOEs were established using the now-OFAC-sanctioned ALBANISA. The Ortega family 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 put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage. On December 21, 2020, the government nationalized Nicaragua’s main electricity distributor Disnorte-Dissur, which was previously owned by ALBANISA (although this ownership was obscured through a presumed Spanish strawman company).
On January 28, 2019, OFAC designated PDVSA and as a result all assets and subsidiary companies of PDVSA operating in Nicaragua are subject to the same restrictions as those in Venezuela. This designation includes ALBANISA and its subsidiaries. For years, President Daniel Ortega and Vice President Rosario Murillo have engaged in corrupt deals via PDVSA that have pilfered the public resources of Nicaragua for private gain. U.S. persons should be cautious about doing business with Nicaraguan companies, which may be owned or controlled by OFAC-blocked entities such as ALBANISA.
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), the Nicaraguan Mining Company (ENIMINAS) and Nicaraguan Petroleum Company (Petronic). In February 2020, in the aftermath of the OFAC designation of state-owned petroleum distributor Distribuidor Nicaraguense de Petroleo (DNP), the government created overnight 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. Other companies have unclear ownership structures that likely include at least a minority ownership by the Nicaraguan government or its officials. There are few mechanisms to ensure the transparency and accountability of state business decisions. There is no comprehensive published list of SOEs.
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.
Nicaragua does not have an active privatization program; on the contrary, the government attempts to dominate as many sectors as possible to enrich the Ortega family and its inner circle.
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 for corporate social responsibility. The Foreign Agents Law has forced many businesses to curtail 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 explicitly encourage RBC principles. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights. There are no domestic transparency measures requiring the disclosure of payments made to governments. Nicaragua is not a signatory to the Montreux Document on Private Military and Security Companies or a participant in the International Code of Conduct for Private Security Service Providers’ Association.
Nicaragua has a developed legislative framework criminalizing acts of corruption, but the rampant corruption in Nicaragua begins at the top and pervades every element of government, including the national police, judiciary, customs authorities, and tax authorities. There is no expectation that the framework be enforced other than token cases to pretend compliance. A general state of permissiveness, lack of strong institutions, ineffective system of checks and balances, and the FSLN’s complete control of government institutions create conditions for corruption to thrive. The judicial system remained particularly susceptible to bribes, manipulation, and political influence. Companies reported that bribery of public officials, unlawful seizures, and arbitrary assessments by customs and tax authorities were common.
The government does not require private companies to establish internal controls. However, Nicaraguan banks have robust compliance and monitoring programs that detect corruption and attempt to pierce the façade of front men seeking to process transactions for OFAC-sanctioned and other actors. 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.
Businesses reported that corruption is an obstacle to FDI, particularly in government procurement, licensing, and customs and taxation.
Resources to Report Corruption
Nicaragua’s supreme audit institution is the Contraloria General de la República de Nicaragua (CGR). The CGR can be reached at +505 2265-2072 and more information is available at its website www.cgr.gob.ni.
10. Political and Security Environment
President Daniel Ortega and his wife and Vice President Rosario Murillo dominate Nicaragua’s highly centralized, authoritarian political system. Ortega is serving in his third consecutive term as president after the Ortega-controlled Supreme Court ruled that a constitutional ban on the re-election of a sitting president was unenforceable. Ortega’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich him and his inner circle.
These abuses of power came to a head in April 2018 when Ortega’s security forces killed over 300 peaceful protesters. Government tactics included the use of live ammunition, snipers, fire as a weapon, and armed vigilante forces. Protesters built makeshift roadblocks and confronted the national police (NNP) and parapolice with rocks and homemade mortars. The ensuing conflict left over 325 dead, thousands injured, and more than 100,000 exiled in neighboring countries. Hundreds were illegally detained and tortured. Beginning in August 2018, the Ortega government instituted a policy of “exile, jail, or death” for anyone perceived as regime opponents. It 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. Political risk has increased dramatically as a result, and the future of the country’s political institutions remains very uncertain.
The NNP presence is ubiquitous throughout Nicaragua, including with randomized checkpoints. Excessive use of force, false imprisonment, and other harassment against opposition leaders—including many private sector leaders—is common. On March 5, 2020, the United States sanctioned the NNP for its human rights abuses against the people of Nicaragua.
Widespread dissatisfaction with Ortega’s authoritarian rule continues. Elections are scheduled for November 2021, and Ortega plans to compete for a fourth consecutive presidential term, raising doubts whether the Ortega regime will permit elections that are free and fair. The Department of State’s Bureau of Consular Affairs advises that travelers reconsider travel to Nicaragua due to limited healthcare availability and arbitrary enforcement of laws.
11. Labor Policies and Practices
Despite the absence of reliable government data, think tank FUNIDES estimates unemployment rose from 5.5 percent in 2019 to 6.2 percent in 2020 according to the government’s definition, which considers any individual who worked at least one hour in a month, regardless of remuneration, to be employed. FUNIDES’ estimate exceeds government estimates of 5.4 percent unemployment, virtually unchanged from 2019 despite the COVID-19 pandemic. These numbers are difficult to ascertain with three-quarters of all employment in the informal economy. According to INSS, as of December 2020 the number of enrolled employees had fallen by 19 percent (173,000 employees) from March 2018 for a total of 723,000 enrolled employees. FUNIDES estimates that 30 percent (2 million people) of the population lived below the poverty line in 2020.
Nicaragua lacks skilled and technical labor. Employers often import administrative or managerial employees from outside of the country, as permitted by law. However, there has also been a recent trend of multinational companies promoting Nicaraguan employees to regional positions, and success by tech-focused out-sourcing companies. The minimum wage is low and was historically revised every six months through a dialogue process between the private sector, labor unions, and the government. However, since the onset of the crisis, the government has not invited the private sector to participate in these discussions.
Nicaraguan labor law requires employers to pay at year-end 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. 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, though unofficial roadblocks exist for unions not affiliated with the Sandinista party. A collective bargaining agreement cannot exceed two years and is automatically renewed if neither party requests revision. Before the socio-political crisis, strikes were legal but rare due to the government’s control over unions. In the months following the beginning of the political crisis April 2018, the private sector organized four work stoppages in protest of human rights abuses.
Businesses reported government harassment and increased audits following participation in pro-democracy work stoppages, and a few participating businesses saw their operating licenses revoked.