Chapter 2 – Economy of Nicaragua
2.3. Foreign Trade
Nicaraguan coffee exports amounted to US$418 million in 2018 (see figure 4), which was reduced by about 18 percent from the previous year due to the decline of international coffee prices plus the effects of the domestic social and economic crisis, losing its top position in exports to the t-shirts exports. In 2019, the Nicaraguan coffee exports reached 340 million pounds, a slight reduction in comparison to the previous year, which was estimated to be more than US$400 million according to the Association of Coffee Exporters of Nicaragua (EXCAN), but pointed out that the international coffee prices have fallen.39
Figure 4. Coffee and T-shirts Exports to the world from 2015 to 2018
Source: World Bank. Available at: https://wits.worldbank.org/CountryProfile/en/Country/
NIC/Year/2015/Summary
The average export price of coffee was at 103 dollars per 100 pounds, and in 2019 dropped to 89 dollars per 100 pounds,40 while the production cost has risen to about 140
39 Coffee price drops below 98.53 dollars. El Nuevo Diario. Retrieved May 2020.
https://www.elnuevodiario.com.ni/economia/493880-cafetaleros-prcio-cafe-quintal/
40 Bolaños (2019). Nicaragua: Coffee Annual, p. 2.
2015 2016 2017 2018
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dollars. It is estimated that 300 million pounds will be exported in 2020, and that the exports of coffee are likely to be reduced by 12 percent as stated by the president of EXCAN, José Á ngel Buitrago.41 Therefore, the private sector is not optimistic about the economic outlook of agricultural exports. The international prices of important agricultural products such as beef, coffee, and sugar have fallen; hence, the government has to identify ways to reduce production costs of its highest export products to help offset the negative yields.
From October 2019 to mid-January 2020, 57 coffee processing plants in major coffee producing areas in Nicaragua produced about 150 million pounds of green coffee beans, which has reached 45 percent of the entire production season. In 2019, coffee exports reached US$460.2 million, based on the coffee harvesting season from October to December each year.
The Nicaraguan coffee farmers were challenged by the effects of disproportionate rainfall that affected the quality of coffee beans, and therefore, reducing the amount of coffee exports by the end of harvesting season.
Although Nicaragua has an extended history and experience in the production of coffee, the consumption level is not as prominent as its neighboring countries in Central America.
According to reports, the total domestic consumption of coffee was about 22.49 million pounds of which half of them were instant coffee and the other half roasted.42 The total coffee exports reached 341.34 million pounds (see table 6) during its harvesting season between the 2018 and 2019 period, where the U.S. imported more than half of its total exports amounting to 181.3 million pounds.
41 Nicaraguan Coffee will feel the ravages of the fiscal reform and the lack of financing this year. La Prensa, February 12, 2020. Retrieved May 2020. https://www.laprensa.com.ni/2020/02/12/economia/2640144-cafe-de- nicaragua-sentira-este-ano-los-estragos-de-la-reforma-fiscal-y-la-falta-de-financiamiento-esta-la-impresionante-caida-esperada-en-la-cosecha
42 Morin (2020). Nicaragua: Coffee Annual, Nicaragua, p. 2.
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Table 6. Coffee Exports by destination in pounds in harvesting season 2018/2019.
Partner Country Pounds
United States 181.30 million
Belgium 27.4 million
Germany 26.49 million
Italy 13.28 million
Spain 11.72 million
Canada 11.52 million
Sweden 6.68 million
United Kingdom 6.40 million
France 6.28 million
Mexico 5.11 million
Others 45.14 million
Total 341.34 million
Source: Center for Exports and Imports of Nicaragua.
Available at: apps.fas.usda.gov/newgainapi/api/Report/DownloadReportBy FileName?fileName=Coffee%20Annual_Managua_Nicaragua_05-15-2020
In 2019, Nicaraguan sugar production reached a total of 772,727 metric tons, of which one-third of the output was for domestic consumption. The sugar exports in 2019 amounted 569,254 metric tons, wherein the U.S. received 102,039 metric tons while Taiwan is second largest importer of Nicaraguan sugar with a volume of 100,539 metric tons (see table 7).43
Table 7. Sugar Exports by destination in metric tons in 2019.
Partner Country Metric Tons
United States 102,039
Taiwan 100,539
43 Nicaragua: Sugar Annual. Retrieved July 2020. https://www.fas.usda.gov/data/nicaragua-sugar-annual-4
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Ghana 61,943
Canada 61,600
South Korea 33,000
New Zeeland 30,250
Italy 25,861
Polonia 20,502
Puerto Rico 21,386
Others 112,134
Total 569,254
Source: Center for Exports and Imports of Nicaragua.
Available at: apps.fas.usda.gov/newgainapi/api/Report/DownloadReportBy FileName?fileName=Sugar%20Annual_Managua_Nicaragua_04-15-2020
From January to August 2019, the cocoa production in Nicaragua reached US$58 million, a 48 percent increase from its previous year. The cocoa products of the nation ranked among the best in the world, and many international investors came to the country to invest in the production of cocoa. The Nicaraguan beef was also noticed since it was meat quality with low fat content, and is widely recognized by the international market, where large volume of exports to Taiwan has become one of the major imports of beef in the Taiwanese market. Beef export is the second largest agricultural export of Nicaragua, second only to coffee export.
Companies have the freedom to choose to where to set up their operations in Nicaragua. It may settle in the industrial parks under free zone areas or outside, where they are still able to enjoy the incentives of the free trade zone with the permission from the National Free Zone Commission (CNZF). There are several areas of free trade zone located in the capital city of Managua and its surroundings. The free zones are mainly found in its capital Managua, close to the airport and only a three hour drive away to reach the Pacific coast of Corinto. Other free zones are found in the larger cities like Chinandega and León, as well as in cities at the central
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region, Matagalpa and Jinotega, and in the city southwest close to the lake, in Rivas.44
In 2019, a preliminary data from the Central Bank of Nicaragua estimated the export value of the free trade zones was US$2.612 billion, an increase of 3.41 percent over 2018. The main exports were textiles, with an overall exports amounting to US$1.5 billion in 2018 (World Bank). The import value is US$7.35 billion, and the main items are crude oil, consumer products, machinery and equipment, etc. Compared to the previous year, where exports was US$4.92 billion and imports US$7.70 billion, accounting for more than 40 percent of its GDP for both years, further proving that Nicaragua is highly dependent on exports.
In terms of foreign trade, the United States is largest trading partner of Nicaragua. In 2018, the U.S. was Nicaragua‘s main trading partner, in which Nicaraguan exports to U.S. reached 61.1 percent and U.S. imports to Nicaragua were 27.8 percent (World Bank). According to the annual report released by the Central Bank of Nicaragua in 2018, the total value of exports was US$5.387 billion, including the US$2.87 billion made from free zones. The total value of imports reached US$6.629 billion, including US$1.799 billion from free trade zones.45
Moreover, the merchandise trade deficit of Nicaragua got to US$2.31 billion in 2018, an improvement from of a significant reduction by 24.2 percent compared to the trade deficit of US$3.05 billion in 2017. The BCN stated that the result was affected by lower demands for non-oil goods imports in Nicaragua, which dropped by 18.3 percent,46 and rather focused on imports of consumer goods and capital goods, as well as the dynamism observed in export volumes, specifically in the second half of the year. The industry sector of Nicaragua is
44 PRONicaragua (2019), Investor Guideline, p. 30.
http://pronicaragua.gob.ni/media/publications/Investor_Guideline_2019_D6yuVmj.pdf#page=50
45 Annual Report 2018. Central Bank of Nicaragua
https://www.bcn.gob.ni/publicaciones/periodicidad/anual/informe_anual/Informe%20Anual%202018.pdf
46 ibid.
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underdeveloped and many materials depend on imports, so it is still a challenge to improve the trade deficit in the short term.
Furthermore, exports increased to about US$53.8 million, a 2.5 percent compared to the previous year, which is driven by higher exports to the United States and Central America. In contrast, the exports to the European Union and Taiwan decreased by 7.0 and 25.4 percent.
According to the statistics provided by the Bureau of Foreign Trade of Taiwan,47 Nicaraguan exports to Taiwan reached a total of US$115.87 million, while importing about US$26.29 million. In 2019, Nicaraguan exports to Taiwan increased by 8.5 percent to US$125.65 million – due to increased exports of sugar (US$22.46 million; 99.2% increase), apparel and clothing (US$1.18 million; 56.79%), and tobacco (US$423.7 thousand; 443.8%); while imports faced a downtrend of US$20.25 million.
Table 8. Top Five Nicaraguan Export Products to Taiwan and Total Exports (in US$) corresponding to the first six months of 2019 versus 2020
Year
confectionery US$ 14,251,206 US$ 14,174,716 -0.54 %
Meat and edible meat offal US$ 11,373,367 US$ 12,514,693 10.04 % Coffee, tea, mate and spices US$ 2,294,964 US$ 3,281,515 42.99 %
Iron and steel US$ 4,218,709 US$ 2,322,221 - 44.95 %
Total Exports US$ 62,136,501 US$ 73,682,758 18.58 %
Source: Bureau of Foreign Trade. Available at: cus93.trade.gov.tw/FSCP020F/FSCP020F
47 Bureau of Foreign Trade. Statistics. https://cus93.trade.gov.tw/FSCP020F/FSCP020F
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The preliminary data in 2020, from January to June, however, indicated a positive trend in both exports and imports between Nicaragua and Taiwan (see table 8 and 9). For instance, in comparison to the data for the first six months, Nicaraguan exports to Taiwan reached a total of US$73.68 million – an 18.58 percent increase in comparison to the US$62.14 million in 2019.
The increased exports of fishery products by 47.18 percent, meat by 10.04 percent, and coffee by 42.99 percent (see table 8) demonstrates the increased fishery and agricultural harvesting levels in Nicaragua. The exports data also reflects the increased demand of fisheries and meat products, such as the Nicaraguan beef, and the Nicaraguan coffee in the Taiwanese market, which further expands on the economic relationship between Nicaragua and Taiwan.
Table 9. Top Five Nicaraguan Import Products to Taiwan and Total Imports (in US$) corresponding to the first six months of 2019 versus 2020
Year
Plastics and articles thereof US$ 965,620 US$ 1,076,934 11.53 % Knitted or crocheted fabrics US$ 270,252 US$ 1,030,304 281.24 % Nuclear reactors, boilers,
machinery and mechanical appliances; parts thereof
US$ 940,907 US$ 807,421 -14.19 %
Total Imports US$ 9,173,813 US$ 10,983,555 19.73 %
Source: Bureau of Foreign Trade. Available at: cus93.trade.gov.tw/FSCP020F/FSCP020F
On the other hand, Taiwanese imports to Nicaragua amounted to US$10.98 million in the first six months of 2020 – a growth of 19.7 percent in comparison to the US$9.17 million in
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2019 (see table 9). There is an upsurge in the imports of cereal by 299,942 percent a seen in the table below, suggesting an early need of food in Nicaragua amid the continuous social unrest of 2018 and negative effects of the COVID-19 in 2020 that may have affected the food production levels to provide for the domestic food consumption. The increased imports of plastics by 11.5 percent and knitted or crocheted fabrics by 281.2 percent indicate the greater demand of materials needed for the manufacturing companies at the industrial parks in Nicaragua.
In order to assist Nicaragua in alleviating poverty, the United States Agency for International Development (USAID), the Inter-American Development Bank (IADB), and Europe, Japan, and other developed countries on average provided economic and technical assistance to Nicaragua every year, becoming one of the major sources of earnings in foreign exchange for Nicaragua. Most importantly, the United States provided Nicaragua textile duty-free export quotas via TPL to ease the democratic development within the nation. Most products of bilateral trade are exempted from reduced or lower income taxes and enjoy zero tariff treatment. The average annual growth rate of textiles exported to the U.S. estimated to 9.4 percent between 2007 and 2014. However, since the previous extension of TPL was not guaranteed and has expired by the end of 2014, it threatened several manufacturers of the textile and garment industry in the free trade zones of Nicaragua. It was stated by ANITEC director Dean García that the loss of the preferential treatment would cause at least 30 percent or 33,000 jobs currently employed in the sector.48
Investment in outsourcing services is another proof of the increasing diversification of industries in the free trade zones of Nicaragua. According to the statistics of the official investment promotion agency of Nicaragua (PRONicaragua), the outsourcing sector in the
48 ANITEC. ―Nicaraguan Clothing Sector to Lose 33,000 Jobs If TPL Ends.‖ Fibre2Fashion, June 2014, www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=165019.
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free zones attracted investment from the United States, Canada, Europe, and Latin American countries from 2008 to 2018 has amounted more than US$97 million, establishing over 45 companies that employ more than 10,000 people.49 The service export value exceeds US$152.5 million, where 80 percent of the services are provided in English. On the whole, the textile and garment industry in the free trade zones of the country remains to be the main exporter, but the Nicaraguan government continues to actively strive for investment in key industries such as auto parts, footwear, disposable medical supplies, and outsourcing centers.