Economy of Nicaragua

Last updated

Economy of Nicaragua
Managuani.jpg
Currency1 cordoba = 0.0418 US dollar
Calendar year
Trade organizations
DR-CAFTA
Statistics
GDP Decrease2.svg $13.258 billion (nominal, 2018 est.) [1]
Decrease2.svg $35.733 billion (PPP, 2018 est.) [1]
GDP rank 130th (nominal, 2018)
GDP growth
4.7% (2016) 4.9% (2017)
−3.8% (2018e) −0.5% (2019f) [2] [3]
GDP per capita
Decrease2.svg $2,108 (nominal, 2018 est.) [1]
Decrease2.svg $5,682 (PPP, 2018 est.) [1]
GDP per capita rank
135th (nominal, 2017)
GDP by sector
agriculture: 15.5%
industry: 24.4%
services: 60% (2017 est.) [3]
5.142% (2019f est.) [1]
4.965% (2018) [1]
3.851% (2017) [1]
Population below poverty line
29.6% (2015 est.) [3]
46.2 high (2014, World Bank) [4]
Labor force
3.046 million (2017 est.) [3]
Labor force by occupation
agriculture: 31%
industry: 18%
services: 50% (2011 est.) [3]
UnemploymentIncrease Negative.svg 6.4% (2017 est.); underemployment was 46.5% in 2008 [3]
Main industries
food processing, chemicals, machinery and metal products, knit and woven apparel, petroleum refining and distribution, beverages, footwear, wood, electric wire harness manufacturing, mining
127th (2017) [5]
External
ExportsIncrease2.svg $3.819 billion (2017 est.) [3]
Export goods
coffee, beef, gold, sugar, peanuts, shrimp and lobster, tobacco, cigars, automobile wiring harnesses, textiles, apparel
Main export partners
Flag of the United States.svg  United States 44.2%
Flag of El Salvador.svg  El Salvador 6.4%
Flag of Venezuela.svg  Venezuela 5.5%
Flag of Costa Rica.svg  Costa Rica 5.5% (2017) [3]
ImportsIncrease2.svg $6.613 billion (2017 est.) [3]
Import goods
consumer goods, machinery and equipment, raw materials, petroleum products
Main import partners
Flag of the United States.svg  United States 20.8%
Flag of the People's Republic of China.svg  China 14.3%
Flag of Mexico.svg  Mexico 11.1%
Flag of Costa Rica.svg  Costa Rica 7.9%
Flag of Guatemala.svg  Guatemala 7%
Flag of El Salvador.svg  El Salvador 5.6% (2017) [3]
Flag of Brazil.svg  Brazil 3% (2018)
FDI stock
Steady2.svg N/A
Steady2.svg Abroad: N/A
Increase2.svg −$694 million (2017 est.) [3]
Increase Negative.svg $11.31 billion (31 December 2017 est.) [3]
Public finances
Increase Negative.svg 33.3% of GDP (2017 est.) [3] [note 1]
−2% (of GDP) (2017 est.) [3]
Revenues3.871 billion (2017 est.) [3]
Expenses4.15 billion (2017 est.) [3]
Foreign reserves
Increase2.svg $2.758 billion (31 December 2017 est.) [3]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

Nicaragua's economy is focused primarily on the agricultural sector. It is the least developed country in Central America, and the second poorest in the Americas by nominal GDP. In recent years, under the administrations of Daniel Ortega, the Nicaraguan economy has expanded somewhat, following the global recession of 2009, when the country's economy actually contracted by 1.5%, due to decreased export demand in the US and Central American markets, lower commodity prices for key agricultural exports, and low remittance growth. The economy saw 4.5% growth in 2010 thanks to a recovery in export demand and growth in its tourism industry. [6] Nicaragua's economy continues to post growth, with preliminary indicators showing the Nicaraguan economy growing an additional 5% in 2011. [7] Consumer Price inflation have also curtailed since 2008, when Nicaragua's inflation rate hovered at 19.82%. [8] In 2009 and 2010, the country posted lower inflation rates, 3.68% and 5.45%, respectively. [8] Remittances are a major source of income, equivalent to 15% of the country's GDP, which originate primarily from Costa Rica, the United States, and European Union member states. Approximately one million Nicaraguans contribute to the remittance sector of the economy.

Nicaragua Country in Central America

Nicaragua, officially the Republic of Nicaragua, is the largest country in the Central American isthmus, bordered by Honduras to the northwest, the Caribbean to the east, Costa Rica to the south, and the Pacific Ocean to the southwest. Managua is the country's capital and largest city and is also the third-largest city in Central America, behind Tegucigalpa and Guatemala City. The multi-ethnic population of six million includes people of indigenous, European, African, and Asian heritage. The main language is Spanish. Indigenous tribes on the Mosquito Coast speak their own languages and English.

Daniel Ortega President of Nicaragua

José Daniel Ortega Saavedra is a Nicaraguan politician serving as President of Nicaragua since 2007; previously he was leader of Nicaragua from 1979 to 1990, first as Coordinator of the Junta of National Reconstruction (1979–1985) and then as President (1985–1990). A leader in the Sandinista National Liberation Front, his policies in government have seen the implementation of leftist reforms across Nicaragua.

Costa Rica Country in Central America

Costa Rica, officially the Republic of Costa Rica, is a country in Central America, bordered by Nicaragua to the north, the Caribbean Sea to the northeast, Panama to the southeast, the Pacific Ocean to the southwest, and Ecuador to the south of Cocos Island. It has a population of around 5 million in a land area of 51,060 square kilometers. An estimated 333,980 people live in the capital and largest city, San José with around 2 million people in the surrounding metropolitan area.

Contents

In early 2004, Nicaragua secured some $4.5 billion in foreign debt reduction under the International Monetary Fund and World Bank Heavily Indebted Poor Countries initiative. In April 2006, the US-Central America Free Trade Agreement went into effect, expanding export opportunities for Nicaragua's agricultural and manufactured goods. Textiles and apparel account for nearly 60% of Nicaragua's exports. In October 2007, the IMF approved an additional poverty reduction and growth facility program in support of the government's economic plans. Nicaragua relies on international economic assistance to meet internal- and external-debt financing obligations, although foreign donors curtailed this funding in response to widespread allegations of electoral fraud in Nicaragua's November 2008 elections.

International Monetary Fund International organisation

The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had SDR477 billion.

The World Bank is an international financial institution that provides loans to countries of the world for capital projects. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA). The World Bank is a component of the World Bank Group.

Economic history

Nicaragua's economy was devastated in the 1980s by the Contra War, which saw the destruction of much of the country's infrastructure. At the same time, the US staged an economic blockade from 1985 onward.

Contras U.S.-supported right-wing rebels of Nicaragua

The Contras were the various U.S.-backed and funded right-wing rebel groups that were active from 1979 to the early 1990s in opposition to the socialist Sandinista Junta of National Reconstruction Government in Nicaragua. Among the separate contra groups, the Nicaraguan Democratic Force (FDN) emerged as the largest by far. In 1987, virtually all contra organizations were united, at least nominally, into the Nicaraguan Resistance.

Infrastructure fundamental facilities and systems serving a country, city, or other areas

Infrastructure is the fundamental facilities and systems serving a country, city, or other area, including the services and facilities necessary for its economy to function. Infrastructure is composed of public and private physical improvements such as roads, bridges, tunnels, water supply, sewers, electrical grids, and telecommunications. In general, it has also been defined as "the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions".

Following the civil war, Nicaragua began free market reforms, privatizing more than 350 state companies and commencing a general trend of economic growth. Inflation has been reduced from 33,603% during the later years of the Sandinista period and 55,000% during the first year of the Chamorro government to more normal levels, averaging an annual rate of 9.5% over the 2000-2010 decade (based on World Bank figures).

In economics, a free market is a system in which the prices for goods and services are determined by the open market and by consumers. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority and from all forms of economic privilege, monopolies and artificial scarcities. Proponents of the concept of free market contrast it with a regulated market in which a government intervenes in supply and demand through various methods, such as tariffs, used to restrict trade and to protect the local economy. In an idealized free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

Privatization can mean different things including moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when a heavily regulated private company or industry becomes less regulated. Government functions and services may also be privatized; in this case, private entities are tasked with the implementation of government programs or performance of government services that had previously been the purview of state-run agencies. Some examples include revenue collection, law enforcement, and prison management.

Growth was slow (3%) in 2001 due to a combination of factors (a global recession, a series of bank failures, low coffee prices, and a drought), and in 2009 the economy actually contracted 1.5% in reaction to the 2008–2012 global recession). But even with the recessions, growth has averaged 3.4% between 2001 and 2011 (again, based on World Bank figures).

Global recession a recession that affects many countries around the world

A global recession is recession that affects many countries around the world—that is, a period of global economic slowdown or declining economic output.

Drought extended period when a region notes a deficiency in its water supply

A drought or drouth is a natural disaster of below-average precipitation in a given region, resulting in prolonged shortages in the water supply, whether atmospheric, surface water or ground water. A drought can last for months or years, or may be declared after as few as 15 days. It can have a substantial impact on the ecosystem and agriculture of the affected region and harm to the local economy. Annual dry seasons in the tropics significantly increase the chances of a drought developing and subsequent bush fires. Periods of heat can significantly worsen drought conditions by hastening evaporation of water vapour.

Economy

Unemployment is 6.4%. [9] Nicaragua suffers from persistent trade and budget deficits and a high debt-service burden, leaving it highly dependent on foreign assistance—which represented almost 25% of GDP in 2001.

One of the key engines of economic growth has been production for export. Although traditional products such as coffee, meat, and sugar continued to lead the list of Nicaraguan exports, the fastest growth is now in nontraditional exports: textile and apparel; gold; seafood; and new agricultural products such as peanuts, sesame, melons, and onions. In 2007, exports topped $1 billion US dollars for the first time in Nicaraguan history. [10]

Nicaragua is primarily an agricultural country, but construction, mining, fisheries, and general commerce also have been expanding during the last few years. Foreign private capital inflows topped $300 million in 1999 but, due to economic and political uncertainty, fell to less than $100 million in 2001. In the last 12 years, tourism has grown 394%, [11] the rapid growth has led it to become Nicaragua's second largest source of foreign capital. Less than three years ago, the nation’s tourism budget was U.S. $400,000; today, it is over $2 million. [11] Nicaragua's economy has also produced a construction boom, [12] the majority of which is in and around Managua.

Nicaragua faces a number of challenges in stimulating rapid economic growth. An International Monetary Fund (IMF) program is currently being followed, with the aim of attracting investment, creating jobs, and reducing poverty by opening the economy to foreign trade. This process was boosted in late 2000 when Nicaragua reached the decision point under the Heavily Indebted Poor Countries (HIPC) debt relief initiative. However, HIPC benefits were delayed because Nicaragua subsequently fell "off track" from its IMF program. The country also has been grappling with a string of bank failures that began in August 2000. Moreover, Nicaragua continues to lose international reserves due to its growing fiscal deficits.

The country is still a recovering economy and it continues to implement further reforms, on which aid from the IMF is conditional. In 2005, finance ministers of the leading eight industrialized nations (G8) agreed to forgive some of Nicaragua's foreign debt, as part of the HIPC program. According to the World Bank Nicaragua's GDP was around $4.9 US billion dollars. Recently, in March 2007, Poland and Nicaragua signed an agreement to write off $30.6 million which was borrowed by the Nicaraguan government in the 1980s. [13]

The U.S. is the country's largest trading partner, providing 25% of Nicaragua's imports and receiving about 60% of its exports. About 25 wholly or partly owned subsidiaries of U.S. companies operate in Nicaragua. The largest of those investments are in the energy, communications, manufacturing, fisheries, and shrimp farming sectors. Good opportunities exist for further investments in those same sectors, as well as in tourism, mining, franchising, and the distribution of imported consumer, manufacturing, and agricultural goods. There also are copper mines in northeastern Nicaragua.

Gross Domestic Product (GDP) in purchasing power parity (PPP) in 2012 was estimated at $20.04 billion USD, and GDP per capita in PPP at $3,300 USD, making Nicaragua the second poorest country in the Western Hemisphere. [14] The service sector is the largest component of GDP at 56.7%, followed by the industrial sector at 25.8%(2012). Agriculture represents 17.5% of GDP and it's the largest percentage in a Central American country. Nicaraguan labor force is estimated at 2.961 million of which 28% is occupied in agriculture, 19% in the industry sector and 53% in the service sector (2012).

Agriculture and food production

Food and agriculture
ProductWorld rank1
Coffee, green4
Beans, Dry17
Groundnuts in Shell30
Indigenous cattle meat30
Plantains32
Sesame Seed32
Sugar Cane32
Pineapples33
Castor Beans37
Cocoa beans41
Cassava48
Oranges49
Soybeans50
1Source: FAO (2005) Major Food and Agricultural Commodities and Producers

Coffee became Nicaragua's principal crop in the 1870s, a position it still held in 1992 despite the growing importance of other crops. Cotton gained importance in the late 1940s, and in 1992 was the second biggest export earner. In the early 20th century, Nicaraguan governments were reluctant to give concessions to the large United States banana companies, and bananas never attained the level of prominence in Nicaragua that they reached in Nicaragua's Central American neighbors; bananas were grown in the country, however, and were generally the third largest export earner in the post-World War II period. Beef and animal byproducts, the most important agricultural export for the three centuries before the coffee boom of the late 19th century, were still important commodities in 1992.

From the end of World War II to the early 1960s, the growth and diversification of the agricultural sector drove the nation's economic expansion. From the early 1960s until the increased fighting in 1977 caused by the Sandinista revolution, agriculture remained a robust and significant part of the economy, although its growth slowed somewhat in comparison with the previous postwar decades. Statistics for the next fifteen years, however, show stagnation and then a drop in agricultural production.

The agricultural sector declined precipitously in the 1980s. Until the late 1970s, Nicaragua's agricultural export system generated 40 percent of the country's GDP, 60 percent of national employment, and 80 percent of foreign exchange earnings. Throughout the 1980s, the Contras destroyed or disrupted coffee harvests as well as other key income-generating crops. Private industry stopped investing in agriculture because of uncertain returns. Land was taken out of production of export crops to expand plantings of basic grain. Many coffee plants succumbed to disease.

In 1989, the fifth successive year of decline, farm production declined by roughly 7 percent in comparison with the previous year. Production of basic grains fell as a result of Hurricane Joan in 1988 and a drought in 1989. By 1990 agricultural exports had declined to less than half the level of 1978. The only bright spot was the production of nontraditional export crops such as sesame, tobacco, and African palm oil.

Services

The service sector was estimated to account for 56.8% of the country's GDP, and employs 52% of the active population. [14] This section includes transportation, commerce, warehousing, restaurant and hotels, arts and entertainment, health, education, financial and banking services, telecommunications as well as public administration and defense.

Tourism in Nicaragua is one of the most important industries in the country. It is the second largest source of foreign exchange for the country and is predicted to become the first largest industry in 2007. [15] The growth in tourism has positively affected the agricultural, commercial, finance, and construction industries as well.

Current economic outlook

Nicaragua has transformed itself into one of the safest and fastest-growing countries in North America. A stable, multi-party democracy, Nicaragua has ratified Free Trade Agreements with major markets such as the United States, the Dominican Republic (DR-CAFTA), Taiwan and Mexico, among others. As evidence of continuous efforts in improving the business climate, Nicaragua has been ranked favorably in a variety of independent evaluations.

The 2011 Doing Business Report, published by The World Bank Group, a report that benchmarks various indicators of the investment climate in 183 nations, ranked Nicaragua as the top location in Central America in starting a business, investor protection, and closing a business. Additionally, the country improved in the following categories: ease of doing business, registering property, paying taxes, trading across borders and enforcing contracts.

Data

The following table shows the main economic indicators in 1990–2017. [16]

Year1990199520002005200620072008200920102011201220132014201520162017
GDP in $
(PPP)
7.92 Bln.9.91 Bln.14.94 Bln.18.07 Bln.19.33 Bln.20.85 Bln.21.99 Bln.21.43 Bln.22.65 Bln.24.58 Bln.26.65 Bln.28.42 Bln.30.31 Bln.32.12 Bln.34.07 Bln.36.28 Bln.
GDP per capita in $
(PPP)
...2,1492,7393,3583,5473,7763,9313,7823,9474,2314,5354,7795,0415,2825,5405,849
GDP growth
(real)
−0.1 %5.9 %4.1 %4.3 %3.8 %5.1 %3.4 %−3.3 %4.4 %6.3 %6.5 %4.9 %4.8 %4.9 %4.7 %4.9 %
Inflation
(in Percent)
3,004.1 %11.1 %11.5 %9.6 %9.1 %11.1 %19.8 %3.7 %5.5 %8.1 %7.2 %7.1 %6.0 %4.0 %3.5 %3.9 %
Unemployment rate
(in Percent)
15.5 %16.9 %9.8 %5.6 %5.3 %5.0 %6.2 %7.0 %8.0 %7.5 %6.8 %5.3 %5.6 %6.0 %6.2 %6.1 %
Government debt
(Percentage of GDP)
......95 %67 %51 %31 %26 %29 %30 %29 %28 %29 %29 %29 %31 %34 %

Other statistics

Household income or consumption by percentage share:lowest 10%: 1.4%; highest 10%: 41.8 (2005)

Industrial production growth rate: 2.4% (2005)

Electricity - production: 2.778 billion kWh (2006)

Electricity - production by source:fossil fuel: 53.43%; hydro: 35.34%; nuclear: 0%; other: 11.23% (1998). A large number of wind turbines have been installed along the SW shore of Lake Nicaragua since, and some geothermal plants have been constructed as well. As of 2013, the breakdown was: fossil fuel: 50%; wind power: 15%; geothermal: 16%, hydropower: 12%, biomass power: 7%. [17]

Electricity - consumption: 2.929 billion kWh (2006)

Electricity - exports: 69.34 million kWh (2006)

Electricity - imports: 0 kWh (2006)

Agriculture - products: coffee, bananas, sugarcane, cotton, rice, corn, tobacco, sesame, soya, beans; beef, veal, pork, poultry, dairy products; shrimp, lobsters

Exports - commodities: coffee, beef, shrimp and lobster, cotton, tobacco, peanuts, sugar, bananas; gold

Imports - commodities: consumer goods, machinery and equipment, raw materials, petroleum products

Currency: 1 gold Cordoba (C$) = 100 centavos

Exchange rates: gold Córdoba (C$) per US$1 – 17.582 (2006), 16.733 (2005), 15.937 (2004), 15.105 (2003), 14.251 (2002)

Price inflation:

See also

Notes

  1. official data; data cover general government debt and include debt instruments issued (or owned) by Government entities other than the treasury; the data include treasury debt held by foreign entities, as well as intragovernmental debt; intragovernmental debt consists of treasury borrowings from surpluses in the social funds, such as retirement, medical care, and unemployment, debt instruments for the social funds are not sold at public auctions; Nicaragua rebased its GDP figures in 2012, which reduced the figures for debt as a percentage of GDP

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  7. http://en.centralamericadata.com/en/article/data/Nicaraguan_Economy_Grows_by_5 Nicaraguan Economy Grows by 5 Percent
  8. 1 2 http://www.indexmundi.com/nicaragua/inflation_rate_(consumer_prices).html Nicaragua Inflation Rates via Consumer Price Index, IndexMundi
  9. https://knoema.com/atlas/Nicaragua/Unemployment-rate
  10. Monstersandcritics.com Archived 29 September 2007 at the Wayback Machine Close scrutiny after President Ortega's first 100 days
  11. 1 2 Rcalvet.com Archived 30 September 2007 at the Wayback Machine Government Gets Tough on Environmental Scofflaws
  12. CostaRicaPages.com Archived 7 April 2007 at the Wayback Machine Nicaragua Information
  13. english.people.com.cn Poland forgives nearly 31 million dollars of debt owed by Nicaragua
  14. 1 2 CIA - The World Factbook - Nicaragua
  15. Canal2tv.com Archived 17 July 2007 at the Wayback Machine Turismo en Nicaragua: aportes y desafios parte I
  16. "Report for Selected Countries and Subjects" . Retrieved 8 September 2018.
  17. Renewables Readiness Assessment: Nicaragua
  18. 1 2 https://www.reuters.com/article/economicNews/idUSN0930941520090110