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Is Nicaragua’s economic growth reaching the poor?

News Analysis. 

Most Nicaraguans are happy with the Sandinista government’s management of the economy and remain hopeful that their own economic situations will improve in the near future, according to a recent poll by M&R Consultants. 

More than 43% of Nicaraguans say their family’s economic situation has improved over the past year, and 63% think this year will be better than last, according to the survey, which last December polled 1,600 people in face-to-face questioning across the country. 

More than 88% approve of the government’s ongoing dialogue with big business, and nearly six out of 10 people surveyed think that alliance is aimed at improving the wellbeing and prosperity of the country. 

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While the favorable polling numbers might seem counterintuitive in one of the hemisphere’s poorest countries, a distressed democracy where the opposition accuses the government of restoring dictatorship and corroding rule of law, public opinion is consistent with macroeconomic data showing an economy that’s overachieving in many areas. 

According to a government report released earlier this month, foreign direct investment in Nicaragua’s economy has grown by an eyebrow-raising 431% since President Daniel Ortega returned to power in 2007. While the total dollar numbers are still small by most economies’ standards, foreign investment in Nicaragua is growing faster than any other country in Central America, according to the Sandinistas’ report. 

Foreign investment in Nicaragua grew 16.8% in 2013, to close at $1.5 billion for the year, according to preliminary numbers released this month. Those numbers are not quite as eye-popping as the 33% investment growth registered in 2012, or the 91% growth rate in 2011, but double-digit growth is double-digit growth.  

The record levels of investment growth are already changing the economy in several ways. Investment in renewable energy technology helped Nicaragua, for the first time in its history, to produce most of its own energy from renewable sources last year. In 2013, 52% of Nicaragua’s energy came from home-generated wind, geothermal, hydroelectric and biomass sources. Seven years ago, nearly 80% of Nicaragua’s energy came from oil. 

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Nicaragua’s goal, which has changed several times over the past few years, is to generate 90% of its energy from renewable sources by 2020, according to the government’s latest statements. (The Sandinistas’ previous goal was to generate 94% renewable energy by 2016, but whatever– the achievement is remarkable either way.) 

Free trade zones rising 

Nicaragua’s free-trade zones have also benefited greatly from increases in foreign direct investment. Of the nearly $4.9 billion of foreign money invested in Nicaragua since 2007, some $736 million — mostly from U.S. and South Korean companies — has gone into free-trade zones, according to the government. 

Despite the global economic recession of late aughts, Nicaragua still added 26 new free-trade companies and more than 14,600 new jobs over the past seven years. There are now more than 103,000 Nicaraguans working in free trade zones, according to the government. 

Free-trade zone exports have increased 123% since 2007, and grew more than 10% last year to $2.1 billion. 

What will the future bring? 

The future of foreign direct investment and economic growth in Nicaragua appears slightly less certain than the government asserts. 

The Sandinistas’ have hitched their economic wagon to the Great Interoceanic Canal project, claiming the dubious project will give Nicaragua the third-fastest growing economy in the world over the next three years, peaking at an astronomical 15% growth rate in 2015. The problem is, talk of a canal project is not enough for generate that kind of growth; time will tell — perhaps as soon as this year — whether the project is for real. 

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The pre-canal growth projections for this year are slightly more modest. The Central Banks says Nicaragua’s economy could grow between 4.5-5% this year, but admits they could miss the mark because of falling coffee prices that are expected to translated into losses around $160 million in exports this year, according to La Prensa. 

The World Bank projects Nicaragua’s economy will grow 4.2% this year. 

Many Nicaraguans, though generally optimistic about future growth, are also feeling the pinch. The percentage of Nicaraguans whose primary concern is poverty nearly doubled in the second half of last year, from 13% to 24.5%, according to the M&R Consultants poll. 

When asked to identify the principal problem facing the country, nearly 80% of Nicaraguans identified one of three issues related to their socio-economic wellbeing: Unemployment (35.9%); Poverty (24.5%); and High Cost of Public Services (18.4%). 

Those three polling numbers at the top of Nicaraguans’ worry list are just as revealing of the country’s economic situation as the government’s cheerful investment data. The survey numbers suggest that a large percentage of Nicaraguans may be heartened by the country’s economic progress, but haven’t yet managed to shake themselves free from the icy grip of poverty and unemployment. 

Equally telling is the M&R polling question that shows nearly 57% of Nicaraguans are willing to emigrate in search of a better life. That number has actually increased slightly — after several dips and bounces — since Ortega returned to power seven years ago. 

For a government that claims to subscribe to the distributive theories of socialism, the challenge — seven years into Sandinista rule — is still one of distribution. Investment and the economy are growing. But if that growth does’t trickle down fast enough to relieve people of the stresses caused by poverty, unemployment and the rising cost of living, the economic optimism of even the most hopeful Nicaraguans will dim.

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