A Dynamic Economy
Sustained Economic Growth
"We have been able to watch Nicaragua grow day by day. I can see great changes coming."
-Chul Ho Kim, General Manager, ISTMO Textil.
As a result of years of economic liberalization, and the implementation of policies intended to stimulate national and foreign investment, Nicaragua is now one of the most dynamic economies in Central America, due in large part to a substantial increase in private investment and exports. In 2006, Nicaragua experienced a 18% increase in Foreign Direct Investment.
Nicaragua's stable inflation rate along with a proven track record of fiscal discipline, has allowed the country to obtain the forgiveness of over 80% of its foreign debt from the world’s rich economies and multilateral institutions.
As in other Latin American countries, there is a relationship between inflation and adjustments to the exchange rate with respect to the US dollar. For this reason the Central Bank has established a "crawling peg" exchange rate regime whereby small adjustments are planned in the national currency exchange rate against the US dollar. For 2006, the "crawl" with respect to the US dollar was established at 5%. This assures a high level of currency stability, while at the same time maintaining the country’s export competitiveness.
Historical Inflation Rate vs. Devaluation (Graph)
Growth in Exports and Foreign Direct Investment
In 2006, Nicaragua increased its Foreign Direct Investment inflows by over 18%, from US$238 to US$282 Millions and grew its total exports by over 27%. According to a recent report by International Development Systems Inc. (IDS), Nicaragua was second only to China in terms of growth in garment exports to the United States in 2006. Overall, exports from in this sector have increased by almost 44% between 2004 and late 2006.
This significant increase in foreign investment and exports growth bears witness to the great advantages offered by Nicaragua to foreign investors, i.e. its strategic geographic location, a favorable investment climate, highly competitive costs, and a productive labor force. Furthermore, on-going reforms of the judicial system and administrative procedures are expected to continue to improve the business climate and help attract increasing amounts of foreign investment into Nicaragua.
Total Exports 2000 – 2006
Dynamic Sectors of the Economy
Export Processing Zones: National and foreign investors alike have taken advantage of the exceptional conditions offered by Nicaragua under the Free Zone (Export Processing Zone) regime for textile manufacturing, apparel, auto parts, and medical product assembly operations, among others.
Since approval of the Free-trade Zones Law in the early 1990s, this sector has shown strong growth, from five companies operating in 1992 to an estimated 110 by 2006.
There currently are 33 industrial parks, most of which provide services to businesses in the textile and apparel sector. Overall, exports from these companies have increased by almost 460% between 1998 and 2006. In 2006 alone, they grew by over 33%.
Tourism: Since the Tourism Incentive Law was passed, this sector has become a significant factor in the Nicaraguan economy. Approximately 300 projects have benefited from this law. This has allowed for absorbing the annual 16% increase in visitors. Income from tourism has risen more than 300% over the past ten years and the sector captured US$ 184 million in 2005.
Agriculture, fisheries and forestry: this sector represented 18% of Nicaragua’s GDP in 2006. Agricultural activities registered a 16% growth rate, particularly in exports of coffee, sugar cane, sesame seed, bananas, peanuts and shrimp. This sector employed more than 36%of the economically active population.
Construction and mining: the construction sector grew by 18.4% despite a rise in raw material metal prices. This growth resulted essentially from the various public infrastructure projects.
Services: A fast-growing segment of the services industry is the Contact Center and BPO industry, an export-oriented segment which has discovered Nicaragua as an ideal location due to its labor availability, cost structure, and telecom infrastructure. Last year this industry grew by aproximately 40%.
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A Dynamic Economy