Foreign direct investment in Nicaragua, which reached a record high $270 million in 2004, has grown at a breakneck speed over the last four years; a growth rate that dwarfs that of any other Central American country.
Statistics from the Latin American Economic Commission (CEPAL) show Nicaragua’s foreign-direct investment has grown by more than 60% since 2001, compared to Honduras (+10%), Costa Rica (+2.6%), El Salvador (-44%) and Guatemala (-77%).
The investment has come in all forms: from free trade zones to geothermal energy production to tourism. Foreign investment is only expected to increase as Nicaragua prepares to enter into recently ratified U.S.-Central American Free Trade Agreement (CAFTA).
Foreign investment has helped to elevate Nicaragua to the ranks of Central America’s fasting growing economy in 2004 (4.2%). Nicaragua’s economy has shown consistent and steady growth every month since September 2002, according to government statistics.
The trend appears likely to continue, following several important votes of confidence for the investment sector last year.
In July, the U.S.-government affiliated Overseas Private Investment Cooperation gave Nicaragua its first seal of approval in over two decades, when it singed a bilateral agreement to streamline procedures for U.S. companies seeking private loans or political risk insurance here.
The World Bank and International Monetary Fund (IMF), in their annual report Doing Business in 2005, qualified Nicaragua as one of seven Latin American countries to notably improve its investment climate to become more competitive. In 2004, the report noted, Nicaragua reduced the average time it takes to receive business license from 71 to 45 days. The 2006 report ranked Nicaragua the best in Central America and the third overall in Latin America for "ease of doing business."
Nicaragua is also taking steps to improve legislation to protect investors, such as the Ley de Carrera Judicial (a bill aimed to de politicize the country’s Sandinista controlled court system), and new bill that will provide arbitration measures to commercial investors.
Confidence in Nicaragua’s banking sector has also improved exponentially in the last three years.
Since the pro-business government of President Enrique Bolaños took power in January of 2002, no banks have folded and bank deposits have increased by nearly 35%, jumping from $1.3 billion to $1.9 billion at the start of 2005.
The real-estate market in Nicaragua is a potential goldmine. Even though prices have jumped in recent years in popular hotspots such as Granada, the Nicaraguan real- estate market is an elevator that is still on the second floor of a 10-story building.
But buyers beware! Pitfalls abound.
The real-estate market here is unique in that Nicaragua is a country that not so long ago was ruled by the revolutionary FSLN government, which seized numerous properties from wealthy landowners – albeit mostly from the notoriously corrupt, U.S.-backed Somoza dynasty that ruled the country as a fiefdom for 40 years until 1979. Many properties were also seized from legal owners – both foreign and national. Most cases have since been resolved, but many claimants are still fighting. The U.S. embassy alone is still working to resolve 762 registered U.S. citizen claims.
Twenty five years after the revolution, the end-result of the land seizers by the Sandinista government is a legal quagmire whereby many properties have tricky and unconvincing land title histories. An estimated 20% of rural properties and 10% of urban properties still have contested land titles, meaning unknowing buyers could potentially purchase said property from its un rightful owner.
The bottom line is it is important for first time buyers to find a seasoned real-estate firm (of which there are many) before attempting to purchase property. Purchasing land from “sold by owner” offerings could potentially result in a nightmare.
But if done properly, purchasing real estate in Nicaragua can result in a windfall investment. And U.S. title insurance is available from First American Title. |
