Four of the five most murderous countries in the world are found in the small isthmus that makes up Central America. Most of the countries located here are plagued by high youth unemployment, corruption and poverty. A potential Investor would think twice about taking on such a risky journey to any country located here.
But, as depressing as that may sound there is much to be optimistic about Central America and specifically Nicaragua. The region is benefiting from several trends that are going to boost economic growth and improve the quality of life for its people. Normally It would sound contrary to invest in a region which has so many problems, but for many it’s paid off. Many foreign companies Today, renowned international companies such as Kraft Foods, Cargill, Nestlé, Wal-Mart and Numar have successfully established operations in Nicaragua due to the advantages the country offers. In 2012, Nicaragua was highlighted as “a rising star” in terms of footwear production worldwide, by the Footwear Distributors and Retailers of America (FDRA).
Defining Central America
Firstly, a quick definition of Central America. The region is made up of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama and is home to around 41 million people. While Nicaragua is the largest country in area, of Central America, Guatemala has the largest population by country with more than 14 million people and they also have the most populated city in Central America, being Guatemala City.; the smallest is Belize with just 300,000 people, while the rest have between three million and seven million people each.
There are huge differences between the countries. For example, Panama City has a skyline to rival New York, while Nicaragua’s capital, Managua, would struggle to outshine most major cities. On the plus side, Nicaragua is one of the safest countries in the region, unlike Guatemala, Honduras, and El Salvador which have murder rates that could resemble war zones.
But despite these differences, when it comes to investments it’s still worth looking at the region as a whole. That’s because it’s so small and interconnected that all of the countries are being shaped by similar economic forces.
Why you Will Like it !
Most times when you read about Central America in the press, it’s normally because something bad has happened. The drug wars and fearsome-looking gang members – the ones with the tattoos all over their faces – generate plenty of negative headlines.
But away from the headlines the region is actually undergoing an economic transition. It is home to some of Latin America’s fastest growing economies and over the last few years, Central America has outperformed South America. That looks set to continue with the IMF expecting growth of more than 4% in both 2015 and 2016.
Most potential investors assume that Central American economies are still based around banana or coffee experts – and 15 years ago, they would have been right. Back in 2000, commodities still accounted for more than half of Central American exports, but since then, a transformation has taken place. Manufacturing is now the region’s economic mainstay, accounting for 75% of exports.
Central America is becoming a hub for the light manufacture of products destined for the US market. Its two main assets (draws) for investors are low labor costs and a great location close to the US. That’s helped it thrive despite competition from China. Without a doubt, Nicaragua is currently in a demographic sweet spot.
It might be a small region, but it has a young and growing population. The Nicaraguan workforce is young and dynamic, as 76 percent of the population is under the age of 39 and the labor force, comprised of 3.2 million people, is known to be flexible and highly productive, with good working habits and fast learning skills.That creates a growing labor force, which keeps wages competitive and gives industry room to expand.
Nicaragua is powering itself with renewables
Another factor that will help Central America is energy. Central America has amazing renewable energy resources, which can produce power far more cheaply than, say, an offshore wind turbine. As a result, there has been a ton of renewable energy projects across the region that have helped to wean it off the dependence on fluctuating oil prices. For example, Costa Rica now gets 100% of its power from renewable energy. In Guatemala, the figure is almost 70%, while in Nicaragua it is 50% and rising fast.
Having low and stable energy costs will boost Nicaragua’s competitive advantages as a manufacturing hub for the US market. But Central America is not just focused on the US. It recently signed a trade agreement with the EU, which will lead to a lot more Central America products ending up in European shops.
Nicaraguan producers of quality value-added goods, such as rum and cigars, should also see a European sales boost. Meanwhile, textile producers, who have built their business on selling to the US, will gain another 500 million tariff-free customers.
Finally, a huge infrastructure push across the region is improving connectivity between Central American countries and the wider world. For example, Nicaragua is building an inter-oceanic canal for an estimated $40bn, while Panama and Guatemala are spending $35bn and $8.4bn, respectively, on planned infrastructure projects. Here are some of the top reasons to invest in Nicaragua Now
- The Government of Nicaragua grants generous fiscal incentives to export-oriented sectors including free zones and other such as tourism, mining and forestry.
- Nicaragua offers one of the most competitive cost structures in the region, enabling companies to increase their competitiveness by reducing operation costs and adding greater value to their products or services.
- Guarantees for investment and business development have the highest rank, since they are contained in the Country’s Political Constitution.In Nicaragua the right to private property is protected by the Constitution in its Article 5, under “Principles of the Nicaraguan Nation.” Additionally, the Country’s Political Constitution establishes the legal guarantees for foreigners to hold the same rights as Nicaraguans, and also to acquire and own private property.
Nicaragua is not only a country with great business opportunities, but also a very nice place to live. It has an impressive natural beauty, pleasant climate, rich culture and above all, hospitable and joyful people that welcome visitors with open arms.
• Excerpts of this article were taken from The New World, MoneyWeek’s investment ideas and news from Asia and Latin America