Nicaragua Country Analysis

Introduction

The Republic of Nicaragua is the largest nation in Central America and shares its borders with Honduras and Costa Rica in the north and south respectively. The geographical orientation of the country separates the nation into three regions including the Pacific lowlands, Caribbean Lowlands and the central highlands. The demographic characteristics of the country are characterized by diverse ethnic groups comprising of the natives, Europeans, Asians and Africans. The most dominant language in the country is Spanish with a rich mix of diverse cultural traditions which has played an integral role in fostering cultural diversity in the country. Apart from cultural diversity, the country boasts of biological and ecological diversity, increasing the popularity of the country as a destination point. The main purpose of this paper is to conduct a country analysis on the Republic of Nicaragua.

Background of the country

The Pacific coast found in Nicaragua was initially occupied why the Spanish Colonies, who originated from Panama during the early sixteenth century. Nicaragua attained independence from the Spanish colony during 1821, after which the Republic of Nicaragua was established during 1823. During the first 5 decades of the 19^th century, the Caribbean cost was under the occupancy of the British, although they conceded the control of the costs in the following decades. There was a violent opposition in response to increasing cases of corruption and government manipulation, which helped in breeding a civil war that rocked the country during 1978 and helped in bringing the Marxist Sandinista guerilla to authority during 1979. During this period, the Republic of Nicaragua was involved in issuing assistance to the leftist rebels found in El Salvador; this resulted to the United States sponsoring the anti-Sandinista guerillas during the 1980s. The Sandinista President Daniel Ortega Saavedra lost a number of free and fair elections conducted during 1990, 1996 and 2001, although he was elected again during 2006. The municipal elections conducted during 2008 were flawed by significant irregularities, denoting the volatile political environment of the country. The civil war and Hurricane Mitch imposed devastating impacts on the country’s economy and its infrastructure, and they are being gradually reconstructed. The Ortega administration has reduced the strength of the democratic institutions in the country.

Political and legal system of the Republic of Nicaragua

The Republic of Nicaragua is classified as a constitutionally democratic state having executive, legislative and electoral branches in the organizational structure of the government. During 1995, there was a reform initiated by the executive and legislative arms of the government on the Sandinista Constitution established during 1987, the reforms aimed at offering extensive powers and ensure that the legislature was independent from political interference. The Supreme Court has the primary role of supervising the functioning of the judicial system and holds the responsibility for the country’s constitution.

The constitution of the Republic of Nicaragua has provisions for human rights, especially the freedom of speech, with concerns regarding the limitations of application of this right. The existing FSLN administration has constantly suppressed demonstrations and politicians aimed at opposing the government. Other freedoms outlined in the Nicaragua constitution include freedom of religion, movement, emigration and association. The constitution also allows international human rights watch groups to undertake their activities in the country without any form of opposition from the government.

International relations

International relations play an important role in determining how a country interacts with other nations, which in turn affects the volume of international trade. With regard to the international relations with the neighboring countries, the Republic of Nicaragua has had a turbulent relationship with Costa Rica mainly because of the navigational rights in the San Juan River. Recent developments have seen the Costa Rican administration aiming at the establishment of bilateral relationship with the country. With regard to the country’s relationship with Honduras, Nicaragua has had a maritime dispute with the country claiming approximately 30,000 square kilometers. Nicaragua also has territorial disputes with Columbia relating to the Archipelago de San Andres y Providencia found in the Caribbean. Territorial disputes with the neighboring countries have affected its international relations with the neighboring countries and ultimately its trade with the neighboring countries.

The Republic of Nicaragua also maintains its relationship with the international community through its involvement in various international organizations and treaties. The country is a member of Central American Security Commission, and has played a significant role in advocating for regional demilitarization and using peaceful means for settling disputes among the countries found in the region. During 1994, the republic of Nicaragua became a member of the Central American neighbors and signed the Alliance for Sustainable Development (CONCAUSA). The Central American Free Trade Agreement (CAFTA) with the United States and other nations found in the Central America including the Dominica Republic. In addition, the European Union entered an agreement with the states from Central America with the main objective of ensuring trade liberalization and removing the import tariffs. This opened up opportunities for Nicaragua to export its agricultural produce in foreign markets. The ratification of various international agreements was a significant milestone in facilitating economic recovery for the country due to the fact that it resulted to the liberalization of trade with its partners; this also helped in increasing the volumes of foreign direct investment in the country.

The country has also ratified its membership to a number of international organizations including the United Nations, World Bank, International Monetary Fund, World Trade Organization, World Health Organization, International Labor Organization, Organization o American States and Inter American Development Bank. Other international organizations that the country is a member include The Central American Bank for Economic Integration, Central American Regional Integration System, The ALBA, The Central American Common Market and the International Atomic Energy Commission.

Demographics of the Republic of Nicaragua

The CIA World Fact book reports that the population of the Republic of Nicaragua comprises of 5,891,199 individuals. The population is made up of 69 percent mestizo, 17 percent white. 5 percent Amerindian, 9 percent of African Americans and other races, which is subject to fluctuation in accordance with the patterns of migration. 84 percent of the Nicaraguans reside in urban centers. The life expectancy of the Nicaraguans is about 71.5 years, with the infant mortality rate being 25.5, ranking it 91^st globally in terms of its mortality rates.

The expatriate community in the Republic of Nicaragua is gradually increasing with most of the people investing in business, while others have retired from other countries such as the United States and Canada. A significant population of the Nicaraguans resides in outside countries. The country has a population growth rate of about 1.8 percent. The age structure of the Nicaraguan population comprises of 31.7 percent of people between 0 and 14 years, 63.8 percent of people between 15 and 64 years and 405 years of individuals that are above 65 years of age. This denotes that the demographic trend of the country comprises of mostly the productive age. This is also due to the fact that the median age of the population is 22.9 years, implying that the country is not likely to suffer from the problems associated with aging in the population. The birth rate of the Republic of Nicaragua is estimated to be 19.46 births per 1,000 individuals while the death rate stands at 5.03 deaths per 1000 individuals. The net immigration rate of the country is -3.54 migrants per 1000 individuals. 57 percent of the population resides in urban centers with an estimated rate of urbanization at 2 percent annual between 2010 and 2015. It is arguably evident from the median age and the age structure that the population comprises of mostly productive individuals, who can make significant contributions to the workforce. In addition, the literacy rates for the total population are 67.5 percent.

The ethnic composition of the country comprises of 86 percent being either Mestizo or white, who are mostly found in the western region of Nicaragua. Blacks comprises of 9 percent of the population, who are mostly found in the Caribbean and Atlantic coast. The country is considered to have the largest African Diasporas in the continent. The Republic of Nicaragua has never witnessed cases associated mass immigrant waves. Before 1995, the number of immigrant populations has never exceeded 1 percent of the country’s total population. The 2005 official census reported that the immigrant population comprised of 1.2 percent and has increased by only 0.6 in one decade.

The Economy of the Republic of Nicaragua

The Republic of Nicaragua is the poorest nation in the Central America and ranks second in poverty from a global perspective. The country has prevalent unemployment rates and poverty. The United States Central America Free Trade Agreement has been functional in the country and has played an integral role in expansion of the export opportunities for most of its agricultural and manufactured commodities. Textiles and clothing contribute 60 percent of the country’s exports although the raising of the minimum wage adopted by President Ortega administration is likely to affect its comparative advantage in the textile industry. The Ortega administration laid emphasis on mixed business schemes, which are mostly owned by the governments of Nicaragua and Venezuela. This approach in conjunction with a weakening in the rule of law has the potential of imposing negative effects on the investment climate in the country for the domestic firms and foreign companies aiming at establishing investments in the country. The Republic of Nicaragua significantly depends on international assistance so as settle its internal and external debts. With the 2008 municipal elections characterized by fraud and irregularities, foreign donors have since stopped from providing the country with funding. The country also has an extended Credit Facility Program initiated by the International Monetary Fund which was issued with the principal objective of ensuring that the country attains its fiscal deficit target and foster transparency when using the off-budget loans and aid from Venezuela. During 2004, the country was a beneficiary of the USD 4.5 billion under the Heavily Indebted Poor Countries for reducing its foreign debt. Despite this, the country still faces significant problems associated high burdens of public debt. In addition, the country is adopting strategies for gradual recovery from the recent global economic crisis. It is estimated that the economic growth rate for the country to be 3 percent at the end of 2011.

The Gross Domestic product in terms of the purchasing power parity is USD 17.71 billion. The GDP in terms of the official exchange rate for the country is USD 6.551 billion while the GDP in terms of the real growth rate stands at 4.5 percent. The GDP per capita is estimated to be USD 3000. In terms of sector contributions, agriculture comprises of 18.5 percent of the GDP, services sector constituting 25.9 percent while the services comprises of 55.6 percent of the GDP. The labor force of the country comprises of 2.811 million, with the agriculture sector taking up 58 percent, industry sector taking 19 percent while the services sector taking up 53 percent of the labour force. The unemployment rate is 7.8 percent, with 48 percent of the population falling below the poverty line. The United Nations Development Program reports that approximately 79.9 percent of Nicaraguans live in less that USD 2 on a daily basis. The underemployed comprises of 46.5 percent of the population. Women comprise of a larger percentage of the poor people in the country. Undernourishment is also a significant problem in the United States; The FAO reports that approximately 27 percent of the Nicaraguans are undernourished. The Distribution of the household income basing on the Gini Index is 43.1 and investment comprising of 26.2 percent of the Gross Domestic Product. The country’s budget as of 2010 comprised of expenditures totaling USD 2.12 billion and the revenues being USD 2.156 billion, resulting a budget deficit of -0.6 percent of the Gross Domestic Product. The public debt on the other hand constitutes 63.6 percent of the GDP, with the rate of inflation being 5.5 percent and the Central Bank Discount rate being 3 percent as of December 2010. The prime lending rate for commercial banks is estimated to be 13.32 percent as of December 2010.

The Republic of Nicaragua is mostly an agricultural economy, with agriculture contributing approximately 60 percent of the total exports that produces an estimated USD 2.0 billion. Agrarian economy has been has been a notable element of the country’s history that has relied on exporting cash crops. Other sectors of the economy that are being expanded include tourism, banking and financial services sector and mining. In addition, the Republic of Nicaragua also depends on the remittances sent by its people living in other countries, which were estimated at USD 655.5 million during 2006. Agriculture is a significant element of the economy in all the regions in the country. For instance, in the pacific side, the most dominant commercial crops are coffee and cotton. During 1992, the country allocated relatively large sizes of land for coffee compared to other crops, which made it the leading export of Nicaragua when measured in value. The central highlands produce about two thirds of the coffee. Cotton is the second export earner for the country despite significant problems that are facing the industry. The center of Nicaragua’s economy is found in the pacific zone, which characterized by intense economic activities due to the railway and a number of networks. The government owns the rail system that is usually considered inefficient. In addition, transport facilities in other parts of the country are not adequate. For instance, there is no highway that links the country with the Caribbean coast. Other agricultural products in the country include sugarcane, bananas, soya beans, tobacco, dairy products and poultry. Industries in the economy include food processing, apparel, beverages and machinery. The estimate growth rate of industrial production in the country is 1.5 percent. The major export partners for the Republic of Nicaragua include the United States (58.2 percent), Canada (6.4 percent), Venezuela (4.2 percent) and El Salvador (7.7 percent). The import partners include the United States, Republic of China, Mexico, Guatemala, El Salvador and Costa Rica.

Tourism is also becoming an important industry in the economy of Nicaragua. During 2006, it was the second leading industry in the country. Tourism has witnessed enormous growth in the country during the recent years at growth rates of about 10-16 percent on an annual basis. The growth in tourism has also imposed positive impacts for other economic sectors especially the agricultural sector, finance sectors and the construction industry. On a yearly basis, approximately 60,000 United States citizens come to Nicaragua, who mainly comprise of business travelers, tourists and others who are visiting their relatives. The increased growth in the tourism sector in the country has contributed to an increase the in the levels of foreign direct investment in the country by approximately 79.1 percent.

During the civil war, most of the infrastructure in Nicaragua was destroyed, resulting to high rates of inflation during the 80s. The trade embargo adopted by the United States resulted to a further increase in the inflation rates to high rates of about 220 percent. Nicaragua is still in a recovery phase and is embarking on the implementation of further reforms aimed at enhancing profits and encouraging foreign investments. After the civil war, at least 350 state business firms have been subjected to privatization, which helped in reducing the inflation and the amount of foreign debt of the country. The World Bank ranks Nicaragua at the 62^nd best economy for establishing business enterprises and the second in the context of Central America. The economy of Nicaragua is considered as 67 percent free, characterized with trade and financial freedom and minimal government involvement in controlling the market. It is ranked 61^st in terms of level of freest economies in the globe.

Currency of the Republic of Nicaragua

The Republic of Nicaragua adopted the Córdoba as its national currency during 1912, during which its value was equal to the United States dollar. The Republic of Nicaragua is considered as the first country to completely replace the production of paper currency with the bank notes made from polymers during 2009 with the main objective of reducing the need for constant reprinting of the bank notes and address counterfeit currency. The polymer banknotes were also introduced to ensure that there was a hygienic currency although the previous paper bank notes are still used as a legal tender. Currency compatibility issues are not prevalent with the case of the Cordoba. Currency devaluations have been a significant problem in the Republic of Nicaragua, posing significant doubts on the capability of the government to have control over the economy. The currency devaluations can be argued to be a significant causation factor for the increasing rates of inflation during the 80s. The stability of its currency is continuing, especially with the proposals that are underway to convert the country’s currency to SUCRE, which is to be used by the members of the ALBA. This monetary union has the potential of steering economic growth in the Republic of Nicaragua through encouraging inter-regional trade. The ALBA monetary union can be compared to the European Union, which aims at ensuring economic development and integration of the member states.

Trade and Investment in the Republic of Nicaragua

Recent classifications have grouped Nicaragua as a middle income nation, resulting to the country no longer being beneficiaries of budget support from other developed countries such as the United Kingdom. There are strategies underway to ensure regional economic integration in the Central America under the CAFTA. This is an important milestone that the country can exploit to boost its export and import trade and foster foreign direct investment.

The manufacturing sector also makes significant contributions to the Gross Domestic Product compared to agriculture; the limitation is that it has employed relatively few people. Recent times have seen the expansion of the manufacturing sector to supply the internal market with beverages, textile and other commodities. This has helped in economic expansion beyond agriculture.

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