NICARAGUA Country Profile by lme37917

VIEWS: 35 PAGES: 25

									              TECHCHANGE Nicaragua 2007 Background Reader


Ministry of Foreign Affairs of Denmark
Danida




NICARAGUA
Country Profile
Background Reader




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                 TECHCHANGE Nicaragua 2007 Background Reader


Contents



1. CENTRAL AMERICA ECONOMIC OVERVIEW
- The second largest market in Latin America

2. NICARAGUA IN BRIEF
- A small bridge to the world largest market

3. NICARAGUA - ICT Sub-Sector
- A growing opportunity for outsourcing

4. NICARAGUA - DAIRY Sub-Sector
- The second largest in Central America




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1. CENTRAL AMERICA ECONOMIC OVERVIEW- The second largest
market in Latin America


General Economic Indicators
Further to a decade of relative vigorous economic development during the 1990’s, GDP growth in Central
America has averaged some 4.2% over the 2003-2005 period. This is an improvement on the period 2000-
2002, but falls short of the recent overall performance of the Latin American region due to the structure of
natural resource endowments and the current world market situation. Central America’s imports and
exports of goods expanded in 2003/2005, as did the transfer of private capital to the region, primarily
made up of remittances from migrants, which exceed foreign direct investment in Central America.

The export sector has grown in recent years, especially in the light of expansion of the “maquila” industry
(assembly plants), especially in Costa Rica. This industry however is losing importance compared to the
key role it had in the nineties.

Central American Common Market (CACM)

The Central American Market is the second largest in Latin America only surpassed by Mexico,
according to the US governmental Export Portal.1 Furthermore due to the Central America Common Market
Free Trade agreement, the market is open to a business based in any of the constituent countries.

The CACM is the longest standing and most extensive Free Trade area in Latin America, and thus has a
long history of easing trade between the countries. Economic integration has been ongoing since the
1960s. Currently, the Central American economic integration includes Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua as parties to the 1993 Guatemala Protocol. Panama has signed this Protocol, but
is not party to the economic integration subsystem.

The process of economic integration has recently been boosted by a plan of action, which includes several
normative aspects to be added to the current Free Trade arrangements. Most important is the
harmonization of customs duties and customs codes, which are supposed to lead to a formal customs
union for Central America.

Main External Markets
The United States remains Central America’s main trading partner (45% of total imports and exports in
2005) while Central American intra-regional trade accounted for 27% of the total exports and 13% of the
total imports in 2003. Although there has been some degree of diversification in the region’s exports,
traditional products such as coffee, bananas and sugar still constitute a large proportion, particularly to
Europe. The intra-regional market and trade with the USA will be significantly intensified under the Free
Trade Agreement DR-CAFTA. The agreement has been ratified and is in effect in the USA and all Central
American countries except Costa Rica.

The EU accounted for 9% of total imports and exports in 2005, and the CA share of total EU imports and
exports is rather limited (close to 0.3% in 2005). A Free Trade Agreement with the European Union is
currently being negotiated with a provisional date for reaching an agreement set for the end of 2008.

Labor market
In spite of income distribution in Central America being marked by strong national and regional variation,
human development indicators have increased in all countries except the richest, Costa Rica. The average
wage varies greatly in the region, from around US$2.00/hour in Costa Rica to US$0.70 in Nicaragua,
according to 2004 statistics.

There are also great variations in Labor Market Risk in the Central American Countries. This year the
Economist Intelligence Unit assessed that Honduras was the riskiest country with a rating of 84. The other

1   http://www.export.gov/fta/CAFTA/index.asp?dName=CAFTA
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Central American countries rated around 60, and Nicaragua and Honduras got a 50 and 36 rating
respectively.

As for productivity Costa Rica and Nicaragua also top the charts, with Guatemala and Honduras coming in
third and fourth. The productivity indicator measures the quality of the workforce in terms of absenteeism,
education etc.




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                        TECHCHANGE Nicaragua 2007 Background Reader

2. NICARAGUA IN BRIEF- A small bridge to the world largest market


General Information

         Population: 5,700,000, with 3.1% annual growth rate.
         Economically Active Population: 2,200,000
         Bilingual portion of the EAP: 8% - 10% (estimate)
         Territory Size: 130,688 square kilometers (Central America’s largest country, the size of NY
         State)
         Borders: North: Honduras; South: Costa Rica; East: Atlantic Ocean; West: Pacific Ocean.
         Official Language: Spanish. English is also an official language on the Caribbean Coast.
         Government: Democratic Republic
         Currency: Cordoba (1 US $= 18.62 C$)
         Time Zone: GMT - 6:00. CST in U.S.,Mexico and Central America.

Political situation
Over the past 17 years, Nicaragua has had a stable, multi-party democracy, and ratified Free Trade
Agreements with major markets such as the United States, its Central American neighbours, the
Dominican Republic (DR-CAFTA), Taiwan and Mexico, among others. The country has had free democratic
elections since 1989 and has made significant progress towards strengthening its democratic institutions.

The recent election of the former Sandinista-leader Daniel Ortega has not significantly changed this
strategy, and democracy continues to be stable. The government continues to implement sound and
prudent financial policies, and have recently released a “zero-hunger” plan, in an attempt to remedy the
large amount of people living in extreme poverty

Although it has experienced a continual positive development, Nicaragua still faces some challenges in the
legal-political environment. Institutional weakness is still an issue, hampering the legal system and the
registration of property. Furthermore there is internal political mistrust, which in many cases leads to
favouritism.

Macro economic overview

The economic indicators are generally positive. There has been a moderate and controlled growth in the
GDP for at least a decade, with approximately 4% increase in 2006. The inflation rate is fixed to the dollar,
and has been since 1993. It is currently fixed at a 5% “crawling peg” depreciation per year, which in 2006
meant a real inflation rate of 9,45%.

Nicaragua's stable inflation rate along with a proven track record of fiscal discipline, has allowed the
country to obtain the forgiveness of over 80% of its foreign debt from the world’s rich economies and
multilateral institutions, while increasing GDP growth rates, foreign investments and tourism.

Coffee and meat are the main exports of Nicaragua, with the service sector emerging in the domestic
economy. The main sectors of the Nicaraguan economy are: Agriculture (17% of GDP): Corn, coffee,
sugar, meat, rice, beans, bananas, beef, dairy. Industry (24% of GDP): Processed food, beverages,
textiles, petroleum, and metal products. Services (52% of GDP): Banking, wholesale and retail distribution,
telecommunications, and energy.

Strategic location
Nicaragua is located in the heart of the Americas: it is located at the centre of the Central American
isthmus that forms a land bridge between North and South America. It is bordered on its eastern and
western shores by the Atlantic and Pacific oceans, respectively; to the north lies Honduras, and to the
south Costa Rica.



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Travel time is only two hours and thirty minutes by air and three days by sea from the United States. This
facilitates access to the world’s largest market. Its location and cost structure also positions Nicaragua as a
viable export platform for the important markets of Mexico, Central and South America.

Security and infrastructure
Nicaragua is a very safe country: it boasts the lowest crime rate in Central America and among the lowest
in the Western Hemisphere. Furthermore the capital Managua is one of the safest capitals in Latin
America.

Managua furthermore doesn’t have the infrastructural problems seen in some of the larger capitals in the
region, such as Mexico City or Guatemala City. Peak hour traffic in Managua is still quite light in
comparison to any major city, and getting to any destination within Managua usually takes less than 30
minutes.

However Nicaragua is currently experiencing a power shortage, which means that electricity is routinely
turned off for a few hours in different parts of the city on a rotational basis. This problem will conceivably
be solved within the next few years, but is a factor that should be considered. All major shopping centres,
supermarkets, restaurants etc. have their own diesel driven generator for when the power is cut.

Labour market in Nicaragua
The majority of Nicaragua's population is young. Of the total population (5.2 million) 70% are under 30
years of age. The country’s labour force is made up of 2.2 million people, and it is highly productive, while
low in cost (please refer to the Central American section for statistics).

The country has a rich pool of available bilingual professionals trained abroad. An estimated 10% of the
economically active population speaks English. There also exists a broad base of workers for labour-
intensive industries.

Nicaraguan business climate
Doing Business 2007, published by the World Bank Group, ranked Nicaragua as the easiest location in
which to start a business in the Central American region. The report measures different sets of business
environment indicators: starting a business, hiring and firing workers, enforcing contracts, getting credit,
closing a business, registering property and protecting investors. In this report, the World Bank ranks
Nicaragua number one in Central America in Ease of Doing Business.


Exporting from Nicaragua
Businesses based in Nicaragua have excellent terms for exporting. They have free access not only to the
two biggest markets in Latin America (the Central American and the Mexican) but also the United States
and Taiwan. Furthermore they are part of the General Preferences programme from the European Union,
and are looking to sign a Free Trade Agreement by 2008.




Conclusion: Investing in Nicaragua

Considering the favourable business climate and favourable structural indicators in the labour market,
Nicaragua has become a sound choice for getting a foothold in the American markets, to the north as well
as the south. There is a focus on attracting investment from the government, and foreign investors and
business-owners have the same rights and opportunities as locals. That said Nicaragua is a developing
country and emerging economy, with the advantages and disadvantages this entails.




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       NICARAGUA - ICT Sub-Sector- An opportunity for outsourcing IT
       services
ICT BASIC DATA 2007                                              ESTIMATED

Main Circuit/Cell / 100 persons                              3.00

Fixed Lines+Celular/100 persons                              49.00 (2007)*

Fixed Lines                                                  227.098

Celular/Mobile phone accounts                                2,500,000* (2007)

Celular 3G / 100 persons                                     45.00*

Public Telephones / 100 persons                              3

Digitalization (Network)                                     99,3%

Cable TV / 100 habitantes                                    10*
Tariff Celular - 1 Min International /Local                  0.22 $US

Tariff Local – 3 Minutes                                     0.08 $US

Tariff Long distance National 3 Min                          0.30 $US

Tariff Long distance US – 3 Min                              0.66 $US

       source: TELCOR regulation authority



       Nicaragua’s IT Investment Climate


          Nicaragua has made a high priority of attracting more foreign investment and building a supportive
          environment for existing investment. Government accomplishments in this respect during the last year
          have included successful negotiation with the IMF program that required a significant reduction in the
          budget deficit and provided new resources and debt relief; opening a "one-stop shop" for foreign
          investors in the Ministry of Development, Industry, and Trade (MIFIC), the consolidation of the
          Investment Promotion Agency, ProNicaragua; and completion of the full privatization of the previously
          state-owned telephone company.

          In the ICT sector Nicaragua offers unique strategic advantages by virtue of its low-cost, but skilled and
          customer-oriented labour force, wide availability of bilingual professionals (English and Spanish), a
          neutral Spanish accent, generous tax and other government incentives, and a modern and cost-
          effective telecommunications infrastructure. It is important to highlight that Nicaragua has more than
          2,000km of fibre optic cable installed, connecting the main regions of the country with the submarine
          cable ARCOS 1, and also through the Central American Satellite Network Operational Centre (NOC)
          located in Managua.
           Nicaragua has more than 2.5 Million cellular users most of them in 3G Networks. Nicaragua has more
          than 44 Universities with ICT careers offering a good base for a better qualify human capital.

          During the last decade, Nicaragua has privatized a significant number of its public utilities and disposed
          of more than 350 government-owned enterprises. Major privatizations have included the Electric
          Utilities, Telecommunications, and other key sectors. As a result, competition has triggered a general
          fall in prices in parts of the services sector and the modernization of production. A good example of
          such free market openness is the mobile telecommunications and Internet Services sectors. Currently,
          two providers (including Spanish-based Telefonica, and Mexican-based América Móvil) are competing to

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capture Nicaragua’s mobile telecom market, and over 6 ISP´s (Internet Service Providers) are
competing for business in the Internet access market.

Nicaragua’s Foreign Investment Law provides: a) equal treatment of foreign and domestic investment;
b) eliminates restrictions in which foreign capital can enter the country, and c) recognizes the foreign
investor's right to own and use property without limitation, and in the case of a declaration of eminent
domain, to receive proper indemnification. The law makes no distinction between acquisition, merger,
takeover, or green-field investment. There are no restrictions in Nicaragua on converting or transferring
funds associated with investments. Many transactions are freely and fully conducted in U.S. dollars.
Remittances of investment capital, earnings, loan repayments and lease repayments are freely allowed
through the private foreign exchange market operated by local financial institutions.

On-going reforms of the judicial system and administrative procedures are expected to continue to
improve the business climate and help attract increasing amounts of foreign investment into Nicaragua.

Recent progress in transparency and openness of laws and regulations concerning the business sector
has also contributed to an increased flow of foreign investment. According to the UN’s Economic
Conference on Latin America (ECLAC/CEPAL) in 2004, Foreign Direct Investment to Nicaragua
grew by 30%, from $201 million to $261 million. Private investment flows have been primarily in
light manufacturing, tourism, construction, telecommunications, energy, aquaculture and services. In
2003, Nicaragua captured more FDI than neighbouring countries such as Honduras, Guatemala and El
Salvador.2
Foreign investors in Nicaragua are not required to purchase goods from local sources or to export a
specified percentage of output, nor is their access to foreign exchange limited in proportion to their
exports. Foreign investors are generally not required to transfer specific technologies, share ownership,
meet geographical limitations, reduce their foreign ownership share over time or meet other
performance criteria as a condition for establishing, maintaining, or expanding their investment, or for
access to tax and investment incentives. Investors are also not required to disclose proprietary
information to the government as part of the regulatory approval process.

Nicaragua is a member of the Central American Agreement for the Protection of Industrial Property,
and there is full protection under the law for intellectual property, including patents, trademarks and
brand names. Nicaragua is also a member of the World Trade Organization and therefore adheres to
the Agreements on the Trade Related Aspects of the Rights of Intellectual Property.

Nicaragua's banking policies enable the free flow of financial resources to the private sector. Options to
obtain credit include commercial and industrial loans, various types of credit lines, factoring, leasing,
and bonded warehousing.

Nicaragua has signed and ratified bilateral investment agreements with Denmark, Mexico, Spain,
Taiwan, the United Kingdom, the Netherlands, Korea, Ecuador and the Dominican Republic.



International Companies in Nicaragua

Wal-Mart (US), General Electric GE (US), CitiCorp (US), IBM/GBM (US), EXXON (US), Cargill (US), DHL
(US), Pricemart (US), TELEFONICA (SP), America Movil (Mex), Globalstar (US), AMNET (US), MERSK
Logistics (DK), UPS (US), Press 2-T26 (DK), Pentaphone (US), ALMORI (US), Connect (US), AXA
YAZAKI (Jp), XEROX (US), UNION FENOSA (Sp), are all among a large group of established companies
operating in Nicaragua.




2
    Source: www.eclac.org



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   IT Business Process Outsourcing and Contact Centers in Nicaragua

   With its competitive telecommunication services, US near-shore location, competitive and young
   bilingual labour force, and foreign investment incentives, Nicaragua provides an attractive option for
   Business Process Outsourcing and Contact Center operations.

   Nicaragua’s growing service industry has been complemented by an open, dynamic telecommunications
   sector with participation of several international companies. Nicaragua offers both voice and data
   connectivity via two independent marine fiber optic cables (Arcos and MAYA) to the Network Access
   Point (NAP) in Florida, USA. Nicaragua also offers intra-city data networks and a Metropolitan Area
   Fiber Optic Network in the capital, Managua.

   Export Processing Zone Incentives

   As of December 2005, 93 firms (43 Asian, 24 U.S., 13 Nicaraguan, 11 other Latin American and 2
   European) were operating under the export processing zone (EPZ) regime, primarily manufacturing
   apparel, but also wire harnesses and auto parts, cigars, cardboard boxes, shoes, and furniture, as well
   as three companies offering export services. The state-owned Las Mercedes Industrial EPZ, the
   country's largest, is located near Managua's international airport. Additionally, there are thirteen private
   EPZs in locations around the country. EPZ firms exported $600 million in 2004, $440 million in 2003, up
   from $322 million in 2002 and $296 million in 2001. By December of 2005, there were approximately
   66,500 jobs at the various EPZs, up from 46,000 in 2003 and 37,000 in 2001. They are a major source
   of employment growth.

   Export processing zone benefits can be extended to contact center and BPO operations. Under this
   incentive regime, companies are exempted 100% from tax and have 100% exemptions from duty
   payments on imports of capital goods, as long as they export their products or services. Foreign
   owned enterprises have the same investment opportunities in these zones as the national companies.

   LABOR FORCE FOR BPO AND CONTACT CENTERS

Quantity and Quality of Available Labor Force

   For BPO and Contact Center activities, the general labor force profile is between the ages of 18-35,
   minimum high school education, trainability in processes and computer systems and for international
   call center applications, various levels of verbal English language experience.

   Using the Economically Active Population base between the ages of 18 – 34 with the appropriate
   education level and corresponding skill set, it is estimated that Nicaragua has a minimum of 180,880
   candidates that match the basic skill set required for certain Business Process Outsourcing activities.

                        Educational Level Among Economically Active Population
                    Educational Level                    EAP #                EAP (18-34)
                High School Completed                   152,000                 85,120
                Technical Education                      38,000                 21,280
                University                              133,000                 74,480
                Total                                   323,000                180,880

   Source: Official Data presented by INEC( Nacional Institute of Census and Surveys) in the “Balance de
   la Fuerza Laboral de Trabajo a Nivel Nacional” and “Población por Sexo y Area de Residencia según
   Departamentos, Grupos de Edades, y Edades Simples”.




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Estimated Labor Costs

   Listed below are estimated labor costs for contact center personnel. Salaries will vary based upon a
   variety of factors including the type of services offered, labor demand, personnel turnover rates and
   employer supplemental benefits.


Estimated Contact Center Monthly Salaries in US $

                                                 Bilingual        Spanish
                            Description         Monthly (US      Monthly (US
                                                     $)              $)
                        CSR                        $395             $250
                        Supervisor                 $600             $400

   Note: The list above represents estimated salaries for qualified reps, and does not include social
   charges or commissions . See below for details on social charges.


Employer Social Benefits Payments

   Listed below are employer social benefits payments as a percentage of employee monthly salary.

   Employer Social Benefits Payments
                   % of Employee Salary
           Description                       %
   Social Security                        15.00%
   National Training Institute            2.00%
   Aguinaldo (13th Month)                 8.33%
   Severance Pay                          8.33%
   Vacation                               8.33%
   Legal Holidays                          3.65%
   Total                                  45.64%


Labour Period Profile

   As presented below, Nicaragua offers significant flexibility in its labour laws for BPO services. An
   employer may establish specific and variable work shifts based on agreement with the employee. An
   employer may establish pre-defined vacation schedules for employees reflecting their business
   requirements. An employee may be hired for either a defined or undefined length of time. An
   employer may terminate employment of an employee with or without cause, subject to payment of
   outstanding social benefits.

Labor Period Profile

              Description                      Amount
Legal Holidays in Year                             10
Vacations in a Year                            4 weeks
Weekly Work Schedule Hours (Day)                   48
Weekly Work Schedule Hours (Mixed)                 45
Weekly Work Schedule Hours (Night)                 42
Daily Work Schedule Duration (D/M/N)          08 / 07 / 06
Alternative Work Schedules Possible               Yes


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Labour Force Stability

      Nicaragua’s workforce is known for its flexibility, high productivity, good work habits and a capacity to
      learn quickly when properly trained. In existing Call Centers in Nicaragua, most of which serve the
      domestic market, turnover is estimated at less than 1% per month. As for productivity Costa Rica and
      Nicaragua also top the charts, with Guatemala and Honduras coming in third and fourth. The
      productivity indicator measures the quality of the workforce in terms of absenteeism, education,
      learning curve, dependability, etc.
      There is an estimate of about 20,000+ graduates in ICT engineering and related fields in Nicaragua
      (2006)3



Organized Labour Status

      Under the constitution of Nicaragua, every citizen enjoys the freedom to join or form a labor union.
      However, union membership is not mandatory and is not a prerequisite for getting any particular job.
      Nicaraguan firms have had good working relationships with labor unions in recent years, and there
      have not been any serious cases of union-organized work stoppages or disruptions in Export Free
      Zones in the last five years.

      Under the present Labour Code, workers may strike only after they have exhausted other methods of
      dispute resolution, including mediation by the Ministry of Labor. If these requirements are not fulfilled,
      the strike is considered illegal, in which case the employer has the right to dismiss any employee that
      does not return to work. Union membership has been declining in recent years, and the power of
      unions has decreased accordingly.

University Education.

      Nicaragua has forty-four universities that offer bachelor’s and masters degrees in a variety of
      disciplines. There are more than 95,000 students currently enrolled in advanced education programs:
      approximately 65,000 in public universities and 30,000 in private universities.

Language Skills.

      Nicaragua offers highly qualified language education in English, French, Italian and German. At the
      university level there are two US Universities (courses taught in English) with campuses in the Managua
      and San Marcos area together with a variety of language institutes that teach English and other
      lenguages.

      ProNicaragua estimates that approximately 10% of the Economically Active Population speaks English.
      A large database of verified English speakers is currently available for qualified investors.

     The “language” factor has been fundamental for the success of the call centre sector in Nicaragua.
     Besides, the advantage of offering bilingual human resource (English/Spanish), Nicaraguans’ Spanish is
     characterized by a neutral accent, opening up the possibility of answering calls from many different
     Spanish speaking countries.

TELECOMMUNICATIONS

Bandwidth Capacity




3   eNicaragua www.enicaragua.org.ni


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                        TECHCHANGE Nicaragua 2007 Background Reader

   Nicaragua provides high quality, redundant fibre telecommunications connections via three
   international submarine fibre optic cables systems. For practical purposes, there is no limit as to the
   bandwidth capacity.

   These systems are:

            •    MAYA 1 – via Costa Rica to Florida (USA), Mexico, Guatemala, Panama, Colombia, Puerto
                 Rico, Grand Cayman and Jamaica.
            •    ARCOS 1 – via 2 cable links in the Atlantic Coast (Bluefields, & Bilwi Nicaragua) to Florida
                 (USA), Central America and Caribbean.
            •    There are private connections to the Emergia cable system.
            •    GLOBALSTAR - CA Satellite NAP - (Nicaragua)

Telecommunications Market

   The telecommunications market is completely privatized ensuring selection of service providers, high
   quality of services at competitive rates. Major international providers include: TELEFONICA (Sp),
   PCS(Mex), Enitel/America Móvil (Mex), Amnet (US), GLOBALSTAR (US), Grupo ESTESA, BIZNET,
   among others. There are a variety of services available such as transfer of high-speed data,
   metropolitan fiber optic networks (Managua), international private lines, broadband Internet (including
   Cable, DSL, Radio SS, dedicated fibre optic, WAP, VSAT) VoIP and 800-numbers. In addition,
   Nicaragua has four major Internet Service Providers offering transport solutions to the U.S.
   (CABLENET, IDEAY, IBW, TURBONET)


Cost Structure

   With multiple telecommunication carriers in Nicaragua, there is a highly competitive environment of
   services and prices. International circuits (T1, E1 or fractional) generally vary according to the levels of
   service guaranty, destination country, “last mile” connection and length of service commitment. (E1
   clear channel o shared channel can cost between US$400 to 3,500 depending on the QoS). It is
   expected with the continued growth of the Nicaragua domestic (Internet) and international demand for
   telecommunications services that rates will decline 30-40% in the next two years (a 512K for domestic
   use cost about US$49). Please contact ProNicaragua (email: callcenters@pronicaragua.org) for current
   rates.




National Investment Focus

   Nicaragua has recently designated Business Process Outsourcing and Contact Center services as a
   priority sector for foreign investment. IT light manufacture, software, and hosting/collocation facilities
   are also included.



INVESTMENT INCENTIVES FOR BUSINESS PROCESS OUTSOURCING (BPO)

Export Processing Zone Law

   The Ley de Zona Francas (Law of Export Free Zones) serves as the primary vehicle for extending fiscal
   benefits to foreign investors, including BPO and Contact Center providrers. This law specifically
   provides for:

            •    100% income tax exemption.
            •    Full capital gains and property tax exemption.


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                       TECHCHANGE Nicaragua 2007 Background Reader

           •    Full municipal and VAT tax exemption.
           •    Full exemption on import duty taxes, transport and support services for the free zone.
           •    Ability to operate as a stand-alone export free zone anywhere within Nicaragua or within
                an industrial park.
           •    Ability to export to the national market 22% of total services (exports subject to payment
                of local VAT and related taxes).
           •    All permits can be obtained in 4 to 6 weeks.
           •    According to the WTO, Nicaragua will be the only country allowed to offer tax holidays
                after 2008.


Export Processing Zone Approval Process

   Nicaragua’s Export Processing Zone commission regulates Nicaragua’s EPZ system and approves
   permits to enter into the EPZ system. The application fee to enter the EPZ system is $500. In addition,
   users must provide a $10,000 performance bond. Stand-alone EPZ users must also pay a monthly
   service charge of $0.50 per square meter. Applicants must also meet the minimum requirements as set
   forth in Decree 46-91 and its regulations. Once an EPZ application is approved, usually in 4-6 weeks,
   an operating permit is granted within eight business days.




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4. NICARAGUA - DAIRY Sub-Sector
- The second largest in Central America


Introduction: Cattle and dairy in Nicaragua
Dairy and meat products are among the strongest foreign currency generating sectors of the Nicaraguan
economy. Investing in the production of meat and dairy products in Nicaragua presents an interesting
business opportunity due to the countries growing exports market, abundant natural resources, and
lengthy history of cattle ranching and meat and dairy production. A conservative estimate approximates
that Nicaragua has over 2.7 million cattle units, this figure is expected to increase drastically in the
coming years, according to some reports it will double within the next few years. The cattle is largely
double purpose (both for the meat and dairy sector). If divided into categories the cattle for dairy
comprises between 50 and 66% of the entire cattle population.4

Furthermore Nicaragua has the largest amount of suitable farming land in Central America, with 3.6 million
hectares, of which less than 20% are currently under cultivation.

Statistics: Dairy production in Nicaragua
At present Nicaraguan dairy production is largely hampered by a lack of production facilities, which is,
however, being remedied gradually. According to statistics by the Agricultural Ministry, Nicaragua has five
highly industrialized plants for dairy production, 16 semi-industrialized plants and 45 smaller dairy
companies. The large part of the dairy sector in Nicaragua is comprised of microproducers, who are often
organized in cooperatives, where each microproducer/small farmer contributes to the cooperative.

It is estimated that there are more than 1,000 microproducers in Nicaragua. The large amount of
microproducers means, that the average amount of cows was 27,4 per farmer in 2001, producing
approximately 2,5 litres of milk per cow per day.5

Production of milk has on average increased by 5% per annum since 1999, with the estimated national
production increasing from 489 million litres in 1999 to 614 million litres in 2006. Of this production only a
small part is today processed in plants. The amount of pasteurised milk equates roughly to 10% of the
production as a whole, and only 2% of the national production is converted to powdered milk, for which
there is a large market in the Americas.6

The dairy sector is heavily under-industrialized and there is an interest from the sector as well as
government, in securing more facilities for processing, packaging etc. A 2004 study from the Nicaraguan
Institute of Agricultural Technology concluded, that especially lack of marketing strategy in regards to
packaging is impeding the success of the Nicaraguan products.

Statistics: Dairy in the Nicaraguan economy
The dairy sector in Nicaragua constitutes 6,4% of the total value of the agricultural sector, and 20,7% of
the cattle and livestock sector. Whilst the value of imports of dairy products has been stable for the last
ten years, oscillating between 20 and 10 million USD, the exports have increased rapidly since 2002.7

Especially the last few years has seen a dramatic increase in the value of the exportations, almost doubling
from the 32 million USD in 2005 to the 57,6 million USD in 2006, according to the March 2007 statistics of
the agricultural ministry. This has made Nicaragua the predominant exporter of dairy products in the


4 According to statistics by Ministry of Agriculture MAGFOR, and the 2004 report on the Nicaraguan dairy market by the
Nicaraguan Institute of Agricultural Technology
5 According to statistics from the national census on cattle in 2001 and 1994-1998. The estimates vary between 2,74 and

2,3
6 Tables on dairy production can be found in the appendix
7 Exact statistics on exports and imports can be found in the appendix.


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region, only surpassed by Costa Rica. There are currently 28 Nicaraguan companies that export to the
Central and North American markets.

The dairy sector has more positive effects on the Nicaraguan economy than just improving the trade
balance. The Agricultural ministry estimates that the sector generates 250.000 jobs directly, and over
1.000.000 indirectly. Some international companies in the Dairy Sector are: PARMALAT (IT), Nestle (Sw),
Dos Pinos (CR), among others.




Conclusion: Potential in the Nicaraguan dairy sector
Above statistics indicate a potential for further growth that is already gaining in momentum in the
Nicaraguan dairy sector. The free-trade agreement with the United States will give much easier access to
one of the main export markets, while the Central American market will remain a large recipient due to the
ease of commerce under the Central American Common Market.

Especially further industrialization is needed to fulfil this potential, along with a further institutionalisation.
The agricultural ministry is already working on registering and certifying the dairy companies, but much of
the milk is sold at low cost, because of lack of production facilities. Therefore the dairy sector presents a
solid business opportunity, for a business project aiming to qualitatively improve the dairy production. The
market is present and already there is a high demand for the products, furthermore the raw materials are
abundant.




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APPENDIX:

Section I: CENTRAL AMERICA
TABLE I: All of Central America has experienced stable economic growth in the latest decade, and is as
such an expanding market.




TABLE II: The Central American market is very attractive due to the liberal trade agreements under the
Central American Common Market. This can also be seen by the high percentage of intra-regional exports.




TABLE III: Labor statistics

                         Average Hourly Wage - Free Trade Zone Operators

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                       Source: The Economist Intelligence Unit, FINDE Honduras,
                       ProNicaragua,        PROESA,         INVESTINGUATEMALA,
                       PROEXPORT, CINDE & CNZF, for year 2004. Includes fringe
                       benefits, but excludes production premiums.




Because of its high company-loyalty among employees, a fast learning curve and low absenteeism, the
Nicaraguan labour force is becoming recognized as one of the most competitive and productive in the
region.




                                                      Labor Productivity Ranking




The Economist Intelligence Unit's Riskwire Report places Nicaragua in second place in Central America
with respect to labor market risk. Labour Market Risk is a measure of ten factors: Security; Political
stability; Government effectiveness; Legal & Regulatory; Macroeconomic; Foreign Trade & Payments;
Financial; Tax Policy; Labour Market; and Infrastructure.




                                                              Labor Market Risk




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Source: The Economist Intelligence Unit. 2/2007. Lower numbers indicate less risk.



Section II: NICARAGUA


TABLE I: ECONOMIC INDICATORS


                                                   Key Economic Facts
                       GDP                    US$ 5.1 billion
                       GDP growth             3.7% in 2006
                       Exports                US$ 2.0 Billion
                       Stable currency        5% “Crawling Peg” Devaluation vs. USD
                       FDI flows in 2006      US$ 282.3M
                       FDI increase           18.5% in 2006

Source: ProNicaragua




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TABLE II: DOING BUSINESS 2007


                                                            Ease of Doing Business
                                Country
                                                           (Rank out of 175 nations)
                         Nicaragua                                          67

                         El Salvador                                        71

                         Costa Rica                                         105

                         Honduras                                           111

                         Dominican Republic                                 117

                         Guatemala                                          118


WORLD BANK: DOING BUSINESS 2007




TABLE III: HUMAN RESOURCES

                 Population            National         Managua            León      Chinandega
                 Total                 5,142,098        1,000,996          281,670   290,619
                 Workforce             1,748,759        470,759            122,256   124,294
                 Employed              1,675,550        450,529            114,701   118,698
                 Unemployed            73,209           20,230             7,555     5,596


                 Population              Granada         Masaya            Estelí    Matagalpa
                 Total                   131,055         225,072           156,982   345,202
                 Workforce               55,843          11,991            73,166    152,272
                 Employed                53,137          108,707           70,696    146,457
                 Unemployed              2,706           3,284             2,470     5,815


Source: Nacional Institute of Census and Surveys (INEC) data presented in "Balance de la Fuerza de Trabajo a Nivel
Nacional" and "Balance de la Fuerza de Trabajo Urbano por Ciudad".


                                    Program and Region           Students Enrolled
                                    Primary Education            655,948
                                    Urban                        319,506
                                    Rural                        338,442
                                    Secondary Education          455,224
                                    Urban                        371,757
                                    Rural                        83,467


Source: National Census, November 2005




Literacy Rate



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According to the report of “El Dasarrollo Humano en Nicaragua 2003”, published by the United Nations
Development Program, the literacy rate in Nicaragua as of 2003 was 79.5% total and 92% for urban youth
(15-24 year-old). The table below gives the data for the literacy rate of each region in the country.


                            Literacy Rate of
        Region            population 10 year-
                             old and older
 Nicaragua                       79.5%
 Managua                         90.3%
 Urban Pacific Region            88.3%
 Rural Pacific Region            75.9%




TABLE IV. Gross Domestic Product

                                   Real GDP growth 1999-2005

  8.00%       7.40%
  7.00%

  6.00%                   5.50%
                                                                            5.10%
  5.00%
                                                                                        4.00%
  4.00%
                                       3.20%
  3.00%
                                                                2,3%
  2.00%
                                                   1.00%
  1.00%

  0.00%
               1999        2000        2001         2002        2003         2004        2005




SECTION III: ICT

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Map 1. Diagram Interconnections of Fibre Optics Backbone and Submarine
Cable ARCOS 1.




Map 2 . Central American diagram Interconnections of Fibre Optics
Backbone and Submarine Cable ARCOS 1.
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       Table I: IT Outsourcing Market 2007




       SECTION IV: DAIRY


       TABLE I: DAIRY PRODUCTION

       FLUID MILK (in thousands of gallons) (1 gallon=3,8 litres)       INDUSTRIAL PRODUCTION
                                                                           (thousand gallons)
        Pasteurizing        Other      Cattle     Estimated total
Year    plants            industries sector total   production    Pasteurized milk Powdered milk
1999           6,742.60       3,672.90  10,415.50      129,200.00          11,126.90      2,644.0
2000           7,137.10       3,782.40  10,919.50      136,600.00          13,087.60      4,177.0
2001           9,677.00       4,924.80  14,601.80      142,800.00          13,681.30      3,381.0
2002         13,288.30        3,179.10  16,467.40      139,200.00          12,764.10      3,514.0
2003         17,173.10        3,258.90  20,432.00      146,200.00          15,097.90      2,498.0
2004         17,241.40        4,172.90  21,414.30      149,400.00          15,511.30      2,634.0
2005         17,278.00        7,149.10  24,427.10      156,800.00          16,141.60      2,876.0
2006         18,441.40        8,058.30  26,499.70      162,100.00                N/A          N/A




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         TABLE II: EXPORT AND IMPORT OF DAIRY

          IMPORT                         EXPORT                       COMMERCIAL BALANCE
          Quantity                       Quantity                     Quantity
Year      (tonnes)        Value (USD)    (tonnes)       Value (USD)   (tonnes)      Value (USD)
     1998 11,1            16,5 mio.      9,7            17,9 mio.     (1,4)         1,4 mio
     1999 8,3             17,4 mio.      11,1           15,7 mio.     2,8           (1,7 mio)
     2000 11,0            20,7 mio       18,2           22,6 mio.     7,2           1,9 mio.
     2001 8,0             18,8 mio.      15,1           15,7 mio.     7,1           (3.1 mio.)
     2002 5,2             11,6 mio.      16,1           16,7 mio.     10,9          5,1 mio.
     2003 5,6             11,6 mio.      19,5           26,7 mio.     13,9          15,1 mio.
     2004 7,6             16,3 mio       21,8           31.4 mio.     14,1          15,0 mio.
     2005 5,5             11,7 mio.      19,5           32,3 mio.     14,0          20,6 mio.
     2006 6,5             15,5 mio.      27,9           57,7 mio.     21,4          42,1 mio.

         TABLE III: Local Market Prices of Pasteurized Milk per litre (US Dollars)

                                              Fluid
                                              Pasteurized
                                Year          Milk
                                       2000          0.29
                                       2001          0.33
                                       2002          0.37
                                       2003          0.42
                                       2004          0.44
                                       2005          0.45
                                       2006          0.50




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Bibliography and Sources:
ProNicaragua                                                  www.pronicaragua.org.ni

eNicaragua                                                     www.eNicaragua.org.ni

TELCOR                                                         www.telcor.gob.ni

CZF                                                           www.czf.gob.ni

UN´s Economic Conference on Latin America (ECLAC/CEPAL)       www.eclac.org

Development Gateway                                           www.developmentgateway.org

CACONIC                                                         www.caconic.org.ni

Chamber of Industries of Nicaragua                            www.cadin.org.ni

MIFIC                                                         www.mific.gob.ni

MAGFOR                                                         www.magfor.gob.ni

NICAEXPORT                                                     www.nicaexport.org.ni


AMCHAM, 2004. Doing Business in Nicaragua 2006-07. American Chamber of Commerce of Nicaragua.

Ernberg, Johan y Arce, Maria Edith 2002. “Tecnologías de la información y comunicación en Nicaragua”
ASDI/SIDA – Sweden

Comisión de Estrategia y Desarrollo TIC (D-TIC) ESTRATEGIA TIC 1.0 Nicaragua 2005

SIECA

ONUDI (UN)

CANISLAC




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