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The Investment Climate in Nicaragua According to the US

Nicaragua has emerged as a fast-paced growing economy in the Central American isthmus.

The US government has highlighted tax incentives and public-private sector dialogue, but warns that deficiencies in the rule of law, and extensive executive control can create significant challenges for those doing business in the country, particularly smaller foreign investors.

From the executive summary of the report “Investment Climate in Nicaragua 2017” by the US State Department:

The Government of Nicaragua is actively seeking to increase economic growth by supporting and promoting foreign investment. The government emphasizes its pragmatic management of the economy through a model of consensus and dialogue with private sector and labor representatives. A key draw for investors is Nicaragua’s relatively low-cost and young labor force, with approximately 75 percent of the country under 39 years old. Additionally, the country’s relative physical safety compares favorably with other countries in Central America. Nicaragua is a party to the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) and enjoys a strong trade relationship with the United States.

To attract investors, Nicaragua offers significant tax incentives in many industries, including mining and tourism. These include exemptions from import duties, property tax incentives, and income tax relief. The country has a well-established free trade zone regime with major foreign investments in textiles, auto harnesses, medical equipment, call centers, and back office services. The construction sector has also attracted significant investment, buoyed by major infrastructure and housing projects, as well as the telecommunications sector, which resulted in enhanced mobile phone and broadband coverage. The country’s investment promotion agency, ProNicaragua, is a well-regarded and effective facilitator for foreign investors. In October 2016, the Government of Nicaragua passed a Public-Private Partnership Law to facilitate infrastructure development.

Weak governmental institutions, deficiencies in the rule of law, and extensive executive control can create significant challenges for those doing business in Nicaragua, particularly smaller foreign investors. Many individuals and entities raise concerns about customs and tax operations in particular. The Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations and has raised concerns to the Government of Nicaragua about the infringement of private property rights affecting U.S. citizens.

Presidential elections held in 2016 further concentrated power, with an authoritarian executive branch exercising significant control over the legislative, judicial, and electoral functions. A bill was introduced in the U.S. Congress in April 2017 (H.R. 1918) which would prohibit the United States from supporting international financial institution loans to Nicaragua due to these shortcomings. Large-scale investors and firms with positive relations with the ruling party are advantaged in their dealings with government bureaucracy. There is a widespread perception that the judicial sector and police forces are politicized and are subject to external influence. Additionally, the important presence of state-owned enterprises and firms owned or controlled by government officials and members of the ruling party reduces transparency and can put foreign companies at a disadvantage.

The Government of Nicaragua is actively seeking to increase economic growth by supporting and promoting foreign investment. The government emphasizes its pragmatic management of the economy through a model of consensus and dialogue with private sector and labor representatives. A key draw for investors is Nicaragua’s relatively low-cost and young labor force, with approximately 75 percent of the country under 39 years old. Additionally, the country’s relative physical safety compares favorably with other countries in Central America. Nicaragua is a party to the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) and enjoys a strong trade relationship with the United States. To attract investors, Nicaragua offers significant tax incentives in many industries, including mining and tourism. These include exemptions from import duties, property tax incentives, and income tax relief. The country has a well-established free trade zone regime with major foreign investments in textiles, auto harnesses, medical equipment, call centers, and back office services. The construction sector has also attracted significant investment, buoyed by major infrastructure and housing projects, as well as the telecommunications sector, which resulted in enhanced mobile phone and broadband coverage. The country’s investment promotion agency, ProNicaragua, is a well-regarded and effective facilitator for foreign investors. In October 2016, the Government of Nicaragua passed a Public-Private Partnership Law to facilitate infrastructure development. Weak governmental institutions, deficiencies in the rule of law, and extensive executive control can create significant challenges for those doing business in Nicaragua, particularly smaller foreign investors. Many individuals and entities raise concerns about customs and tax operations in particular. The Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations and has raised concerns to the Government of Nicaragua about the infringement of private property rights affecting U.S. citizens. Presidential elections held in 2016 further concentrated power, with an authoritarian executive branch exercising significant control over the legislative, judicial, and electoral functions. A bill was introduced in the U.S. Congress in April 2017 (H.R. 1918) which would prohibit the United States from supporting international financial institution loans to Nicaragua due to these shortcomings. Large-scale investors and firms with positive relations with the ruling party are advantaged in their dealings with government bureaucracy. There is a widespread perception that the judicial sector and police forces are politicized and are subject to external influence. Additionally, the important presence of state-owned enterprises and firms owned or controlled by government officials and members of the ruling party reduces transparency and can put foreign companies at a disadvantage.

Read the full report.

Article originally appeared on Today Nicaragua and is republished here with permission.