Nicaragua business climate sours after UCA confiscation

The systematic attack by the Ortega-Murillo regime against the business climate in Nicaragua constitutes a disincentive for national private investment, as well as the attraction of new foreign investments, say four businesspersons and economists who agreed to speak with CONFIDENCIAL, requesting anonymity.

As of 2022, the dictatorship accelerated the closure of over 3,200 non-profit organizations; in addition to 27 private universities -including the Central American University (UCA), the most emblematic case of all. They also confiscated assets of the Nicaraguan businessmen Mario Hurtado and Piero Coen.

“The country risk for investment has risen significantly,” said a finance expert, explaining that this risk materializes from the disrespect for the rule of law, or the politicization of the application of the law, in any area of society, especially business and private.

“If they [the dictators] perceive that someone is against their government and has a company, they look for a way to make life miserable so that they throw in the towel, sell it, or close it down,” he explained. A small businessperson in retail trade said that “what they do is fence you off so that you feel like you can’t take it anymore, and you decide to leave.”

“The private sector is shocked. They feel threatened, locked into a spirit of fear,” said an economist who noted the high risk of investing in Nicaragua given the climate of legal defenselessness, which means that no investment is safe. “Unless It is in conjunction with someone from the Government, although that does not even guarantee that they will not steal it if they like your company,” said the finance expert.

After the UCA, whose next?

The chain of blows against the private sector (its leadership, its chambers, companies, and businesspeople) culminated in the confiscation of the 63-year-old Central American University. It showed that anyone who has a business or property of any type, runs the simple risk of being expropriated without further ado.

The small businessman from the retail sector recalled that the day the UCA closed, a colleague called him to share the news, but also to express his concern that at a certain moment totalitarianism would not let them work. He said, “since they monopolize everything, it is not unreasonable to think that tomorrow they see that our business is quite lucrative, they take advantage of our effort and knowledge, and take us out of the market”, as they have already done with gas stations and hardware stores.

The feeling is that “if they did that with the UCA, which is an establishment dedicated to such a strategic issue as education, what won’t they do with any economic sector? If they did that with an institution of such prestige as the UCA, and they closed the Superior Council of Private Enterprise (Cosep), the message is that we are going towards full and shameless totalitarianism,” he said.

In his case, as a result of the expropriation of the UCA, he decided to stop buying from several suppliers and keep only one, the most trusted. He also decided to put more ice on his plans to open another store in a nearby municipality, because he feels that this is not the time to rent and remodel a store, stock it, hire staff, etc.

“The case of the UCA showed that anyone can fall, and that causes uncertainty, fear, anguish that at any moment they will expropriate anyone from the private sector,” he said, noting that their are sectors -such as mining- that seem not to be afraid. We see new investments in energy and mining, but nothing in livestock, agriculture, or retail trade, and those who are already inside are only maintaining their investments”, said the financial expert.

Entrepreneurs bet on being invisible

The Nicaraguan executive of a foreign company that trades with Nicaragua told CONFIDENCIAL that the management of the company for which he works put their relations with the country “on hold”. The decision at this moment is to “send a mission to see in situ what the real situation in Nicaragua is, and then decide what to do.”

The executive shared that, despite the irregular situation in the country, there is a competing company that is beginning to arrive in Nicaragua, “with all the caution in the world,” to try to place its products in that market. “Our exit would benefit them a lot, but it is not yet known what the company’s decision will be,” he said.

When trying to understand the thinking of businesspeople like these (or those from the mining and energy sector mentioned above), the economist explained that “there are still businesspeople who take the risk of investing, thinking that confiscation won’t happen to them if they don’t get involved in politics nor criticize the government”.

In contrast, he believes that the small, medium, or large national businesspeople who have a business in the country stay here, “because they have no other option but to do so, because they cannot go to start over in another country. So, they choose to take a risk here, close their mouth, and see how long it can hold up.” In the case of those who are shareholders, what they do is transfer them to a foreign company, hoping that this will give them greater protection against eventual confiscation, he explained.

This expert does not rule out that the next index rating that Nicaragua receives will be negative, because the business climate cannot be separated from democracy, with the certainty of how safe it is to do business in a country. In Nicaragua, the risk has been growing to a great extent in recent years.

When considering that the latest edition of Doing Business prepared by the World Bank placed Nicaragua in position 142, having Lebanon, Tanzania and Zimbabwe as ‘neighbors’, the economist voiced “under these circumstances, who is going to want to invest in Nicaragua: the Chinese, the Iranians, the North Koreans, the Venezuelans?

While admitting that there is a lot of movement in the markets, shopping malls, and restaurants, and a lot of traffic on the streets, “as if nothing was happening,” he recalls that Nicaragua’s problem is not economic (reserves are fine), and there is free convertibility of the currency. However, instead, uncertainty comes from the sociopolitical situation, expressed in “the fear of being arrested for saying what one thinks, or that they put you under audit to find  what you have never done,” he concluded.

This article was originally published in Spanish in Confidencial and translated by Havana Times.