COUNTRYAAH, Nicaragua's political history has been of great
importance to the country's economy and business and the
country's economic situation has been clearly the casualties
of the unstable political situation that has characterized
the country. Nicaragua is Central America's poorest country
and the second poorest country in the Western Hemisphere,
Economic stagnation and persistent poverty
Under the Somoza regime from 1936 to 1979, the country
had economic growth, but the economy was strongly
characterized by corruption and nepotism. After the 1979
revolution, a time of great unrest followed, and civil war
and trade boycott hit the country's economy hard. During the
Sandinist regime, the economy was to some extent
nationalized, including a land reform with a high degree of
expropriation. After the Sandinists relinquished power in
1990, the economy was restructured, and increasing
privatization was seen. Beyond the nineties, there was also
the emergence of labor-intensive industry around the big
cities. After Daniel Ortegas takeover of power in 2007
changed the economy less than what the capitalists had
feared. Ortega, despite a clear anti-neoliberal rhetoric,
continued the elite-friendly economic policy of the
neoliberal presidents before him, and continued to work with
institutions such as the IMF, the World Bank and CAFTA (the
Central American Free Trade Agreement).
Agriculture and primary industries
Nicaragua's business has traditionally been associated
with primary industries, and land and land rights have been
the traditional basis for wealth and economic differences.
The large fortunes of the upper class stem largely from the
export of agricultural products such as coffee, cotton, beef
and sugar. One third of the workforce works in agriculture,
forestry and fishing, and produces about one fifth of the
total national budget.
Agriculture in Nicaragua has to a large extent been
subject to external factors that farmers themselves cannot
control. Fluctuations in export prices, natural disasters,
environmental factors such as land depletion and water
shortages, war actions and political decisions have been
factors that farmers have had to deal with and which have
had a major impact on their everyday lives.
The tobacco, coffee and beef produced in Nicaragua is
known for keeping high quality. For local consumption,
mainly rice, beans, corn, bananas, sugar and sorghum are
About 35,100 square miles of land are productive forests,
and the largest rainforest areas in Central America are
located here. In the past, large quantities of Caribbean
pine, Pinus caribaea, mahogany and cedar were
exported. The autonomous regions of the Caribbean have
considerable potential for timber extraction.
Fishing represents the second largest export industry,
and is particularly important on the Caribbean coast. The
catch has been concentrated around lobster and shrimp. The
fishing fleet is in poor condition and the country lacks a
coast guard. Overfishing and uncontrolled activities by
foreign fishing boats represent a significant threat.
Mining, energy and industry
In the northeast of the country, significant quantities
of gold, silver, copper and zinc were previously mined.
Nicaragua was in the 1940s the world's sixth largest
producer of gold. Today, the mines are barely operational,
but gold washing is common.
Energy is primarily produced from imported petroleum.
Fossil energy used in thermal power plants accounts for
around 70 percent of the country's electricity generation.
Otherwise, renewable energy is used such as hydropower,
geothermal energy and biomass, each of which accounts for
around ten per cent of the power generation. Natural gas is
found on the Pacific coast.
The industry was tried to develop under the Somoza regime
in the 1950s and 1960s, but much of the infrastructure was
destroyed by the earthquake in 1972 and the bombing in
1978-79. Dependence on technology from the United States led
to technical problems during the trade boycott, and the
transition to Eastern European technology in the 1980s
caused similar problems in the 1990s. The country has only
one petroleum refinery, at Managua.
Beyond the nineties, there was a rise in the
labor-intensive industry, close to the big cities. These
factories, which are called maquiladoras, mainly
produce textiles. This industry is largely based on foreign
ownership and tax exemptions, and despite creating many jobs
has had little impact on the country's economy.
The country's production of cigars and rooms is of high
quality, and regularly claims in international quality
Nicaragua has for a long time been characterized by a
large emigration, and this is becoming increasingly
important for the country's economy. There are an increasing
number of foreign Nicaraguans (especially in the United
States, Costa Rica and Spain) and many of them send money
home. In 2018, over one billion dollars were sent to
Nicaragua as so-called referrals, which is equivalent to
11.5 percent of GDP and it is said that Nicaragua's most
important export is now the country's labor.
Foreign trade and economic impact
The United States was formerly the most important trading
partner. This relationship became very strained under the
Sandinist government, and the United States introduced a
trade boycott in 1985. The Sandinist government sought to
distribute trade equally between North America, Europe,
Japan and the Comecon countries. Trade with the Soviet Union
and the other Comecon countries increased in the 1980s, but
this slowed dramatically from 1990, the same year that the
United States lifted the trade boycott and left a strong
mark on trade. Japan, Taiwan, the Nordic countries and the
EU also increased their trade with Nicaragua after 1990.
In 1990, Nicaragua was characterized by civil war and
trade blockade, and the country was heavily indebted. This
debt burden was an important reason why Nicaragua had to
undergo the structural adjustment programs required by
organizations such as the IMF and the World Bank. In short,
the structural adjustment programs imply that countries must
introduce market economics. They must be open to
international investment, cut public spending and subsidies
and not least get a balance in foreign trade. The IMF and
the World Bank surrendered debt after one could show
adjustments. Nicaraguans returning from exile in the United
States also contributed positively to the economy and led to
greater confidence in US trade.
From the late 1990s, several players cleared Nicaragua's
foreign debt, and the World Bank and the IMF established the
HIPC initiative and began deleting debt to poor debt-heavy
countries. Several national states, including Norway,
followed up with similar initiatives.
After Ortega's election victory in 2006, Venezuela was
given a very important role for Nicaragua's economy.
Political similarities between Ortega and Hugo Chávez was
the basis for major bilateral trade and assistance
agreements. The countries formalized these agreements
through the ALBA cooperation, which essentially meant that
Venezuela's oil and oil money was used to fund social
programs and public investment in Nicaragua. Social programs
such as poverty reduction have been very popular especially
in the Nicaraguan countryside and in the poor parts of
cities, but ALBA cooperation has also been frequently
criticized for lack of transparency and coordination between
the state and politicians' economy. The death of Hugo Chávez
and the collapse of Venezuela's economy had a major negative
effect on Nicaragua's economic situation.
Transport and Communications
There are approximately 14,500 kilometers of roads,
including Nicaragua's part of the Pan-American Highway. With
the exception of this and the main roads between Managua and
the major cities, the road standard is low. The railroad was
closed down in 1993, but there is a shorter private rail
line in Chinandega for shipping bananas to the port city of
Corinto. The most important ports are located on the Pacific
Ocean, of which Corinto is the only one with modern deep
water ports. Puerto Sandino is the oil port. Managua has the
country's only international airport, and communication with
the partially unscathed lowland towards the Caribbean is
largely conducted by air.
Nicaragua is considering building a channel to link the
Atlantic to the Pacific, which President Daniel Ortega has
claimed will give Nicaragua a "financial independence".
Researchers have raised concerns about environmental impact,
but the government has maintained that the channel will be
positive for the country by creating new jobs and boosting
economic growth. The project was scheduled to begin
construction in December 2014, but the Nicaragua Canal has
not yet been started.
Nicaragua was a popular tourist destination in the 1960s
and 1970s, but the revolution and the civil war put a brutal
end to this. Towards the end of the 1990s, the tourism
industry again began to make positive contributions to the
economy. As Nicaragua began to build a reputation for
stability, low crime, low prices and high hospitality,
tourists began to travel to the country again. The tourist
stream was first characterized by backpackers and surfers,
but as the infrastructure and reputation as a tourist
destination was built up so that visitors began to leave
more and more money. There are most tourists in the areas
along the Pacific coast.
Nicaragua experienced solid economic growth from around
2010 to 2018 and had annual GDP growth of about five
percent. This economic growth had a sudden stop in 2018 when
the country was hit by extensive riots.
Riot and political violence
In April 2018, tens of thousands of protesters gathered
in the streets protesting the government's change in
national insurance. These protests were answered with
violence from the government and more than 400 people were
killed by the police and by paramilitary groups linked to
the government. These riots have also had a major impact on
the economy. Tens of thousands of Nicaraguan emigrated and
the tourism industry got a big bang.