Memo from Nicaragua.
From: Paul De La Garza.
Re: Investors re-evaluate this once war-ravaged country, and the outlook is favorable
Before the Sandinista revolution in 1979 that propelled Daniel Ortega and his Marxist regime to power, the Saballos family owned and operated a McDonald’s restaurant here in the nation’s capital.
Before too long, though, Nicaragua fell into havoc as the U.S. and the former Soviet Union engaged in a bloody power struggle during the Cold War. Scores of businesses pulled out; among them was Ivan Saballos’ McDonald’s.
Jose Nieves, McDonald’s regional business manager for Latin America and the Caribbean, said Saballos had no choice.
“The situation, because of the war, safety concerns, the inability of being able to operate the business in a normal fashion, made him decide to close down the business,” Nieves said Tuesday in a telephone interview from El Salvador.
That was then.
Come mid-July, McDonald’s returns to Managua, thanks once again to a member of the Saballos family. This time, the franchise holder is Ivan Saballos’ daughter, Ivania Saballos.
The restaurant’s opening is no small event in Nicaragua, the hemisphere’s second-poorest country after Haiti with a per capita annual income of $436.
Not only does it symbolize the triumph of capitalism here, but it underscores the confidence investors–domestic and international–once again have in Nicaragua, a nation of 4.6 million people.
Eight years after peace accords were signed, resulting in the ouster of the Sandinistas and the introduction of democracy, a rejuvenated economy is turning heads around the world. Last year, the economy grew 5 percent, its strongest showing since 1981–and the highest rate in Central America–and estimates for this year call for growth rates of between 5 percent and 7 percent.
The export sector, agriculture and construction led the robust expansion.
Investors are optimistic, and you can see it in the construction boom that has swept Managua, as hotels, including Holiday Inn, sprout throughout the city to accommodate business people, and in businesses such as Burger King and TGI Friday’s. In addition, Schaumburg, Ill.-based Motorola and Bell South have developed cellular-telephone systems in the country.
“The business climate is definitely very positive,” Nieves said. “The government has been very cooperative in our plans to re-establish ourselves in the market.”
The Ortega-led Sandinistas toppled dictator Anastasio Somoza in 1979. The 1980s saw eight years of civil war between the Sandinistas and the U.S.-backed contra rebels, claiming 30,000 lives and costing $14 billion in damage.
By the time democratic elections were held in 1990, Nicaragua’s economy, squeezed by a U.S. embargo and the Sandinista policy of insulating the economy from capitalism, was in shambles, with a $12 billion foreign debt and inflation at a staggering 33,000 percent.
More Top Picks Water Jugs
The nation’s foreign debt now stands at $6 billion, and last year, inflation was 7.3 percent, according to figures from the Central Bank.
With an estimated half of the nation’s work force unemployed, Nicaragua still has some distance to go. But economists say that the administration of President Arnoldo Aleman is on the right track, modernizing the economy and opening it up to foreign trade and investment.
Economists cite several reasons for the turnaround.
First, they say, the economy was in such bad shape that it cannot help but grow.
Second, new laws have paved the way for foreign investment, and the government also is working to resolve thousands of cases involving land disputes.
Following the ouster of the Sandinistas, foreign aid poured into Nicaragua. Most important, analysts say, is that the Sandinistas are out.
“The country dug itself into a huge hole in the ’70s and ’80s,” a Western diplomat said, noting the country “was basically bankrupt.” “It’s been a long haul, but the country is getting its feet on the ground.”
The diplomat warns investors to carefully research any investment in Nicaragua, especially when buying land, because of disputes over land titles.
In a rare interview, Ortega insisted that Nicaragua was much better off during his reign, from 1979 through 1990. He called the construction spurt “an illusion,” and said that the economy was benefiting “a minority.”
“When we were in power, the poor got attention,” Ortega told the Tribune. “I think we have the element of credibility.”
Critics, however, charge Ortega with a case of sour grapes and point out that investors are pouring money into Nicaragua.
Private investment, for example, rose 44 percent in 1997, to $397 million from $276 million the previous year. Private bank assets rose 65 percent after adjusting for inflation. The stock exchange, in its fourth year of operation, traded $690 million worth of securities, compared with $376 million in 1996.
Gilberto Cuadra, the former president of the Superior Council of Private Enterprise and now head of an engineering consulting firm, said he was pleased with the bullish Nicaragua economy because his company was getting plenty of road work.
“Slowly, slowly, we’re recovering,” Cuadra said.
“The whole world knows we’re in difficult times, but the whole world knows we’re getting out of it.”