After growing 4.0% to 4.5% during the last five-year period, the Nicaraguan industrial sector forecasts a reduction to -0.5% for 2018. Even though, companies in the sector took all the precautions that contributed to keep them in operation.
Given the Government’s proposals to try to mitigate the economic effects of the political crisis with economic measures, industrialists demand political decisions.
“First, the political crisis should be resolved, all COSEP (The Private Enterprise Council) chambers have been emphasizing since five months ago. That’s why we are part of the Civic Alliance for Justice and Democracy—the dialogue than we yearn for should take place,” said Sergio Maltez, President of the Chamber of Industries of Nicaragua (CADIN), on the television program “Esta Noche” (Tonight).
“That is why we insist: the President should reconsider and sit down to think how not to take the country on the path to an economic debacle. An open political dialogue should be instituted, in which all the bases to provide stability to the country could be presented,” he added.
The problem is that the government seems to be betting on getting the society to surrender, and that the business sector will accept an economic dialogue in the terms that existed before April 18th, an option that Maltez considers “very difficult to occur.”
And, if it were to happen, “it would cause a complete collapse of the economy. Why was the country developing? Because there was confidence from investors, local businessmen…but this year, the companies in the free zone companies stopped investing 40 million dollars in expansions. In November the 2019 contracts have to be negotiated, but situations [of severe repression] like the one on Sunday make many investor nervous,” he said.
How to invest, if there is no trust?
This business leader was skeptical that the arrival in the country of an International Monetary Fund (IMF) mission could make true the expectations of the Daniel Ortega Government that this multilateral financial institution could somehow “bless” its economic plans.
If the Fund comes, but within a month we have the approval of the sanction laws from the United States Government (the Magnitsky Nica), what will the Fund do if they approve those laws? Would you want to continue to support a country while there is repression or will they reach an agreement (to stop the repression) to continue providing support? I do not believe that the Fund or any other organization would want to continue to support a country with so much political instability,” he stated.
In another test on the importance of trusting the system, Maltez said that “many of the industries, and companies in general, are preparing their 2019 budget in November. How can a budget be prepared when there is no political solution on how to solve the economic problem? It is very difficult, because there are many variables that you do not know where and how to solve?
“Companies and industries have been cutting costs, especially to keep jobs,” but when the government represses again as it did last Sunday in Managua, it makes the challenge and efforts greater, to which the set of new laws being proposed is added.
The industrialist refers to the proposed law that would create the governmental Nicaraguan Export and import Company (ENIMEX), regulations (such as the Financial Analysis Unit, UAF), or the communiqué that makes the Property Registry opaque, which by nature must be transparent.
“All those things frighten away investment. That is why we are trying to make the government reconsider. We need the President to realize that he has to reconsider, that we have to reach a political dialogue, or the economic situation will get much worse. We are talking about employment…and the acts of repression give the wrong signal to investors,” he emphasized.
The error of Enimex
The proposal to create a state company dedicated to export and import—and therefore, to exercise what fifteen organizations called “unfair competition” against them—worries the private sector, which does not see the relevance of creating such an entity.
Considering that Enimex has not yet been approved, those fifteen organizations sent a message to the government “to reconsider”, because we believe that there should not be an official control over exports,” explained Maltez.
Historical records indicate that at the end of the 1970s, Nicaragua exported around 1 billion dollars. Later, in 1990 exports amounted to about 200 million dollars, and now they are in the range of 5 billion dollars.
Obviously because of the crisis, that figure will have a big drop, because it is not easy to reach those numbers: it is a job that takes a lot of years of efforts, of many industries, and of many companies in the export sector,” Maltez reminded.
It is about making the supply chain work, which includes the producer, the processor, and the buyer. “Maintaining an external market is very laborious, because of the phytosanitary requirements that they imposed, or because of all the logistics necessary for the product to arrive on time. It is not about creating a company, and that’s it: it’s a relationship over many years,” he stated.
Regarding what Enimex can actually do, “the problem is that the proposed law is not so clear, but it leaves all possibilities open. Just with that it generates a lot of uncertainty,” he acknowledges.
As part of this value chain that I am talking about, of this supply chain, here hundreds of millions of dollars are financed so that the whole export system functions. I do not believe that a national or international bank would want to finance a company that does not give you security or the tradition of the product you have been receiving,” he said.
“Reading the considerations of the law, it says that it is to increase investment, employment, but on the contrary, it is not helping to promote those types of things. Our economy is dollarized. Producers prefer their payment in dollars, loans are made in dollars, so it is very delicate to play with that. Uncertainty should not be created, and much less at this moment, so the message being sent is hard to understand,” noted Maltez.
Crisis for all
Faced with the transportation problems and insecurity that came with the crisis, “many companies took measures especially in logistical aspects, working hours; contract arrangements had to be made with some employees, and some had to close temporarily,” recapped the President of Cadin.
After the protests declined in intensity, and while the business sector expected to perceive some glimpse of minimum tranquility that is needed to continue developing their business activity, “things like what happened on Sunday began to happen, which creates more uncertainty, especially among investors,” and that augurs that the economy will continue to fall.
The problem is that it is unknown for how long that will be. What is known is that by “2019 it is foreseeable that it will be more difficult for the industrial sector and for the entire country, because the crisis does not affect only the Cosep, but all employers, including Sandinista businessmen,” he said.
Instead of a political dialogue, the ruler seeks options to patch up the damages caused to the national economy, as when he says that he is in a process of reorganization of the “popular economy,” calling on the small and medium size enterprises, in contraposition to what was the dialogue held with business chambers before the crisis.
“So, who is he talking to? Because only us at Cadin have about 1,300 “pymes” (small and medium size companies), so that I do not know what is he referring to when he speaks of small and medium businesses. We as Cosep generate almost 100% of all exports in the country, and let us not even mention what we generate for the GDP. To ignore us is to self-deceive yourself,” says Maltez.
By detailing the economic damage, he explains that between 15,000 to 20,000 people that have lost their jobs (from manufacturing and agro-industry) were affiliated to the social security system, which results in a very difficult situation for families, and reveals the dimension of the crisis.
Coffee is an example of an area in which the loss of jobs and productivity is great. Maltez explained that in the last three months of the year, the coffee plantations require that fertilizer be applied so that it can developed for next year’s harvest, but many producers could not get the credit to buy it.
“That is a clear sign of a decline of almost 15 to 20% in next year’s production. All this uncertainty generates a lack of credit and investments. That is why we insist: the government must reconsider. The President must reconsider, that there must be a political dialogue; that there must be guidelines to be able to generate the trust we all seek to stabilize the country,” he repeated.