5.2.5.- Nicaragua

Nicaragua is the country in Central America showing the biggest contrasts. Land is available and cheap, although there is a lack of secure land tenure, as more than one-third of all landholders lack registered land titles. Labour is also available and the cheapest of all Central America and Nicaragua has more trade agreements than any other country. Safety is, according to the indicators, better than in other countries in the region although it has decreased substantially in the 2008 Doing Business indicator from the World Bank.

The main roads and communication systems in the principle areas are very acceptable and a range of foreign programs are available to stimulate economic growth. Nicaragua seems the place to be. Unfortunately, to get products out of the country is a serious problem. From a logistic point of view it is quite possible, but costs are substantially higher than from neighbouring countries which do have harbours. On the other hand electricity is an uncertain factor and expensive.

But the main reasons for the lack of export oriented crops and the limited foreign investment in the agricultural sector are politics and legal problems with property rights. It is impossible to predict for anyone where Nicaragua will be one year from now. And that makes investments or any other kind of commercial activities, risky. As a result of mentioned uncertainty, prices of real estate are dropping and land is for sale against low prices. Not the place to be for investors looking for secure and stable profits but paradise for those having venture capital at their disposal. Besides that, it is unlikely that properties which are to be obtained in a legal way will face legal problems after they have been acquired. So for some, now is the time to do business in Nicaragua. Rationalism is maybe not the best advisor in Nicaragua 2007 because it is next to impossible to rationalise the actual situation and to draw up the expectations for the (near) future.

One thing is for sure. If a Dutch company is willing to play the Nicaraguan card, he can become the owner of interesting properties for rather limited investments. On top of that, innovative projects to be set up with local entities aimed at improving social and environmental aspects are likely to be granted PSOM funds which can contribute 50% of the total initial investment except for the land. In this chapter, a scenario will be worked out defining a possible PSOM project.

Nicaragua as a country has great opportunities as soon as it has good access to the Caribbean Sea. This logistic aspect should have top priority for the national government and for (international) organizations aiming at economic sustainable development in Nicaragua. Without a harbour, Nicaragua will remain having substantial higher transport costs. Transport costs put (too much) pressure on the (obvious) production of commodities. Therefore, the lower costs in Nicaragua simply do not always justify the higher costs for transport. Besides that, it makes exports of Nicaragua vulnerable taking into consideration the actual political situation. Any conflict with a neighbouring country could create severe problems for exporting companies using sea freight.

Assuming that it will take a while before access to the Caribbean harbour will become reality, it can be recommended that Nicaragua focuses on products which require a lot of man power and have relatively high value. This leads to the conclusion that many commodities are less interesting in Nicaragua which is a contradiction with the actual strengths of the country as such. Specialties which require a lot of labour are meeting with the actual strengths of the country. However, specialties require knowledge and investments, two issues which need to come from abroad. Nicaragua finds itself in a difficult position. Regaining the confidence of foreign investors will most likely be the key to success.

5.2.5.1.- Vegetable or ornamental seed production

Actual situation
Nicaragua has, as described in the previous paragraph, strengths which could be used for the set up for a new sector like the production of vegetable or ornamental seeds. Many types of seeds require a certain climate which can be found in Nicaragua and besides favourable climatologic conditions, man power is of great importance. A location could be identified where there is no other production of crops that could infect the seed production field. Seeds have high value and are not perishable.

Future scenario
Due to its low costs and favourable conditions as described above, Nicaragua can develop to be a major producer of horticultural seeds. Labour is a major cost component for seed production and both available as well as affordable. The three major limiting factors in Nicaragua, political stability, infrastructure for export (small quantities per air freight) and electricity, are all less relevant for seed production.
Seed companies require large quantities of unskilled labour but also middle management. It is likely that educated personnel (Nicaraguans) will be found in Costa Rica where large numbers of Nicaraguans are employed in similar companies.
A Dutch seed company, looking for a production site to be used as ‘back up’ for their actual production sites, can find rather good opportunities in Nicaragua. It is recommendable to first pay a visit to Nicaragua and to get acquainted with existing local companies and potential partners for a strategic alliance. In case a partner can be found, the PSOM program would be a very logical step to be taken. The project will be innovative and will have, due to the internal situation of Nicaragua, a high risk component. A lot of labour will be required to set up the project and make it work which also contributes to a PSOM proposal including the fact the most of this labour is likely to be female.