Nicaragua - Market OverviewNicaragua - Market Overview
- With a gross domestic product (GDP) of $13.1 billion and a per capita income of $2,082 in 2018, Nicaragua is the second-poorest country in the Western Hemisphere. Despite consistent growth from 2013-2017, following an economic crisis that began in 2018, 41% of Nicaraguans live in poverty (i.e., on less than $2.20 per day per person). The rural poverty rate is 56%. Seventy percent of all workers earn a living in the informal sector.
- The Central Bank of Nicaragua (BCN) stated that in 2018, foreign investment inflows fell to $359.9 million, a 53.5 percent decrease from the $771.9 million attracted in 2017. FDI in 2019 is expected to remain low. Investments inflows had been particularly significant in the energy, industrial, communications, and commercial sectors. FDI from the United States accounted for 20 percent of the FDI from 1991 to 2015. Local wages are low by regional standards, and together with tax incentives for several economic sectors, are considered key in attracting foreign direct investments. These incentives, however, have been severely undermined by the ongoing violence, property seizures, and economic uncertainty.
- The United States is Nicaragua's largest trading partner, the source of roughly a quarter of Nicaragua's imports and the destination for approximately two-thirds of its exports (including free trade zone exports). U.S. exports to Nicaragua totaled $1.6 billion in 2018, including computer and electronic products, textiles and fabric, food and kindred products, and machinery. Nicaraguan exports to the United States were $3.6 billion in 2018, including knit apparel and accessories, electrical machinery, woven apparel, precious stones and agricultural products. Other important trading partners for Nicaragua include El Salvador, Costa Rica, Mexico, Venezuela, and the European Union.
- On April 1, 2006, the United States - Central America - Dominican Republic Free Trade Agreement (CAFTA-DR) entered into force for the United States and Nicaragua. 100% of U.S. exports of consumer and industrial goods now enter Nicaragua duty-free. Tariffs on most U.S. agricultural products will be phased out by 2024, with all tariffs eliminated by 2026.
- International isolation (including sanctions) and the loss of support from international financial institutions due to the unresolved political crisis compounds existing fiscal challenges resulting in an unsustainable fiscal deficit and unserviceable deficits in the social security system. Measures to contain the twin deficits come at the cost of higher taxes, deferring investment and hurting consumption. Tax revenues are declining and the government struggles to find financing.
- Nicaraguan consumers are familiar with U.S. products and brands, which are viewed favorably for high quality.
- The crisis is having long-term negative impact on the economy. All industries that rely on confidence (e.g., tourism, banking, construction) sharply reversed the growth trend of past years, resulting in an estimated 3.8% contraction in 2018 and an expected contraction of 7.1% for 2019.
- Nicaragua’s slow-but-steady economic recovery from 1994 until 2018 demonstrates the potential for sustained growth when supported by macroeconomic stability and reforms that lend certainty to private sector investment, as well as expansionary government spending on investment and social services.
- The political crisis of 2018 sparked a renewed commitment to democracy among the Nicaraguan people, propelling groups including students, rural farmers, mothers, and other demographics that have not historically been politically active into leadership roles. The FSLN, however, has not engaged with these groups in a meaningful way resulting in the potential for continued political instability.
- The Sandinista National Liberation Front (FSLN) has consolidated power at the expense of democratic institutions and checks and balances. The FSLN holds a supermajority in the National Assembly, which allows it to pass legislation or amend the constitution without opposition support. It also controls the Supreme Court, the Controller’s Office, the Prosecutor’s Office (Public Ministry), the electoral commission, the police, and it has politicized the military.
Nicaragua Trade Development and Promotion