Tag: investing in Nicaragua

 

The Challenges Of Banking In Nicaragua

A Deterrent To Some – An Opportunity For Others.

Nicaragua banking laws are always in flux and changes are common. This is due to the fact the Nicaragua banking system is dependent upon the USA banking systems providing clearing house and transaction forwarding services. Basically the US Federal Reserve dictates what Nicaraguan banks can and can not do. Although there are ongoing efforts to reduce this dependency, for the foreseeable future nothing is expected to change.

So what does this mean for an investor in Nicaragua real estate or an entrepreneur planning on doing business in the country?

Each case is different… However, a rule of thumb for all transactions is the need for a clear paper trail detailing where money is coming from, and where it is going to. Likewise, the purpose of the transaction has to be clearly spelled out. This is not a problem for retirees purchasing a home. Nor is it a problem for an investor purchasing a business. But for transactions that are not as simple as a straight out, single payment purchase, there can be some challenging hoops to jump through.

In most cases, someone buying a lot will agree on a price, transfer funds to a US bank escrow account or to a Nicaragua lawyer. When confirmation of funds are in hand the sale is completed. Then the purchaser’s lawyer then registers his or her lot. The challenge, if it’s going to manifest itself, will appear when the new property owner wishes to construct a home or other building on the property.

I’m not talking about red tape hurdles. They exist, but are dealt with in due course and are little more than a hindrance. The challenge can be in paying for the necessary architectural and survey work, the buying of building materials, and paying a contractor and/or subcontractors. Every transfer of funds over US$10,000 is flagged and must meet specific disclosure rules and regulations. A succession of transfers under US$10,000 is usually identified as suspicious and flagged as well. I strongly advise against trying this tactic as it will great further problems.

If possible, it is best to have a very exact construction estimate and transfer the entire amount at one time, placing it with a local bank or lawyer. Both have to adhere to the same requirements though, so only which option is more comfortable is the deciding factor. This transfer will require the same reams of documentation, but once the compliance department at whatever bank is receiving the funds is satisfied, the funds are made available. If for some reason a transaction is not deemed kosher, the transfer of funds is reversed and the cash returns to where ever it originated from.

The issue gets complicated for people buying a lot and intending to build as funds are available. A once popular investment strategy, it is now a lot of work to manage… even for Nicaraguans living and earning abroad, then applying their income to the construction of a home in Nicaragua.

The same situation can thwart an entrepreneur wanting to build up a business in Nicaragua. Actually, it has in the case of a client of mine. If a property is to be leased or purchased, that is one transaction. If money is needed to do renovations, alterations or construct premises, that is another transaction, perhaps numerous transactions. All will need to be reviewed by the transacting banks, both in the USA and in Nicaragua. My client had a tight deadline so abandon his efforts to develop a business in Nicaragua because of the difficulty the banking system presents. At least 30 full time jobs and millions in investment walked away with him.

The banking process obviously stymies money laundering, but it does more to stymie legal development. However, there are a couple of solutions…

The first solution is to have a foreign bank guarantee a domestic loan for their client, basically cosigning a locally managed line of credit. The investor can draw on the cash locally and the investor’s own bank abroad pays off the amount each month. Interest in Nicaragua runs between 9% and 25% per year, so paying debt off as quickly as possible is recommended… even if that means borrowing abroad to do so.

A second solution is something a client surprised me with. Through his credit card issuer he set up a massive line of credit, and instructed his bank to pay any amount off that came due. He took out significant cash withdrawals to pay contractors and suppliers, and used his credit card to buy locally any building supplies, fixtures, appliances and so on that were needed. The transaction fees were less than the international bank transfer fees, and he had no need to declare credit card purchases because each transaction was well documented. Large cash advances did require some documentation, but it was enough to bring in facturas (invoices) that had to be paid. The invoices were very detailed, included the local value added tax, known as IVA, and clearly identified the recipient of the funds. It was a very smooth, and virtually problem free process.

If you have a building project or business acquisition that you may require advice on, feel free to contact Nica Investments.

Manufacturing In Nicaragua

Nicaragua has been making the news in international media, heralded as one of the world’s best kept secrets as far as affordable tourist destinations are concerned. True, but Nicaragua may not remain a secret much longer because of its increasing popularity as a retirement destination, and as a developing economy, it’s attracting foreign investment in its manufacturing section. Nicaragua’s location in the heart of the Americas means the country is in the perfect position to be a highly competitive export platform to world markets.

Nicaragua has become a very attractive investment prospect for export manufacturers. Because of its high productivity rates, competitive labor costs, close proximity to major markets, significantly improved infrastructure, benefits of being a DR-CAFTA member, attractive investment incentives, and the country’s Interpol rating as Central America’s safest nation, Nicaragua is the place for foreign investment.

Nicaragua’s textile and apparel industry accounts for nearly 60% of total free zone exports. The industry generates US$1.4 billion in earnings and employs 70,000+ people. “Made in Nicaragua” apparel is sold in the USA by major retail chains such as Target, JC Penney, Wal-Mart, and Kohl’s. Likewise, renowned international brands like Adidas, GAP, Liz Claiborne, Wilson, Under Armour, Wrangler, Levi’s, Lee Jeans, Patagonia, North Face, Docker’s and Dickies all trust their brands to Nicaraguan manufacturers.

New Masaya Industrial

Masaya Industrial Park – photo courtesy qcostarica.com

In a study titled “Benchmarking the of Nicaragua’s Apparel Industry”, conducted by O’Rourke Group Partners, it was found that Nicaragua is not only a competitive option for sourcing numerous apparel products in this hemisphere, but in some cases compares to China, Vietnam and Bangladesh.

Furthermore, Nicaragua offers some of the most competitive labor costs in the region, making it an ideal investment destination for labor-intensive operations.

Nicaragua has actively engaged in negotiations to enable the country to integrate into the global economy. As a result, Nicaragua has gained preferential access to key markets such as the USA, Mexico and Europe. Still, the country continues to seek opportunities to further assure its successful engagement in world trade.

Nicaragua is part of the Central American Common (MCCA) and has established free-trade agreements with Mexico, Dominican Republic, the United States, Panama, Chile, and the European Union. The country also benefits from the Generalized System of Preferences (GSP) with countries such as Canada, Norway, Russia, Switzerland and Japan, and has signed bilateral investment treaties with a number of countries to promote and protect investments. In total, Nicaragua has earned preferential access to a global market of over 1.5 billion people.

The population of Nicaragua is young overall, with 77% being under the age of 39. The country’s labor force is approximately 3.2 million and one of the most competitive and productive in the region. Nicaragua also has a large number of English speaking professionals who have been educated and trained abroad.

The Government of Nicaragua has focused its efforts on improving the country’s business climate. It has created an Advisory Board, whose responsibility is implementing policies, structures and programs for investment and export promotion with the purpose of fostering the country’s economic growth.

To learn more about opportunities available investing in Nicaragua’s manufacturing sector, contact Nica Investments.

Nicaragua Agriculture

Nicaragua Coffee Beans

Coffee is one of Nicaragua’s principle export crops.

Nicaragua’s economy is predominantly agricultural. Arable land is approximately 6,100,000 acres, or about 21% of the country’s total land area. The planting season for most crops begins in May, immediately before the rainy season. The harvest season begins in November and lasts through January.

The main agricultural exports are coffee, cotton, sugar, and bananas. Non-traditional export crops such as honeydew melons, cantaloupe, sesame seed, onions, baby corn, asparagus, artichokes, and cut flowers are seeing increased production. Sorghum, cacao, yucca, tobacco, plantains, as well as various fruits and vegetables are produced mainly for local markets.

The agriculture industry in Nicaragua is the country’s number one employer, employing approximately 45% of the national workforce. Unfortunately it is also a seasonal employer with the majority of workers only employed while planting and harvesting.

Agricultural Products

Coffee

Large-scale coffee growing began in Nicaragua in the 1850s. By 1870 coffee was Nicaragua’s principal export crop, and remained so for the next 100 years. Coffee grows only in the rich volcanic soil found on mountainous terrain, often making transportation of the crop to the market challenging. Road improvements throughout the country is helping to alleviate the transportation challenges, but many rural roads serving coffee plantations are still unpaved.

Production is centered in the northern part of the central highlands north and east of Estelí, and also in the hilly volcanic region around Jinotepe.

Cotton

Cotton was a latecomer to Nicaraguan agriculture, but quickly became the nation’s second largest export crop. Cotton became feasible as an export crop in the 1950s when pesticides were developed that permitted high yields in tropical climates. Cotton soon became the crop of choice for large landowners along the central Pacific coast.

Lack of credit for planting, depressed world cotton prices, and competition from Chile discouraged cotton production in the mid 1980s. Cotton production is still a significant export crop but nowhere near what it once was.

Bananas

Bananas, a native fruit of tropical Asia, were introduced to Nicaragua early in the colonial period. Small plots of the Gros Michel variety of banana were planted for export but political turmoil and transportation difficulties limited exports. Additionally, United States companies developed banana production in neighboring countries, so Nicaragua’s potential remained underdeveloped.

Politics and and outbreak of Panama disease in the 20th century kept banana production low. Panama disease is a fungus that kills the plant’s underground stem, virtually wiping out most of the banana plantations.

New plants of the Valery and Giant Cavendish variety were planted. Although Cavendish bananas yield three times the harvest of the older Gros Michel species, Cavendish bananas are more difficult to harvest and transport. They bruise easily and must be picked early and crated in the fields for transport.

Most banana production is in the Pacific lowlands, in an area extending north from Lago de Managua to the Golfo de Fonseca.

Sugar

Much of lowland Nicaragua has a climate conducive to growing sugarcane. Most sugarcane is processed into whitish centrifugal sugar, the raw sugar of international commerce. Some plants further process the sugarcane into refined granulated sugar.

Livestock

The first cattle were brought to Nicaragua by the Spanish in the 16th century. Drier areas on the western slopes of the central highlands were ideal for cattle raising, and by the mid-18th century, a wealthy elite whose riches were based on raising livestock, controlled León, Nicaragua’s colonial capital. In the late 20th century cattle raising was concentrated in the areas east of Lago de Managua.

Most beef animals are improved zebu strains. Smaller herds of dairy cattle, mostly Jersey, Guernsey, or Holstein breeds are found near population centers. A breed that is unique to Nicaragua is the La Reina. La Reina cattle possess genes that make them heat tolerant, a very useful breed in Nicaragua that are used for meat, dairy, and work purposes.

Other Crops

Tobacco and sesame are both produced for export. The first African palm oil plantations were established in the Caribbean lowlands and began production in 1990. Beans, corn, rice, and sorghum continue to be widely grown and consumed domestically.