I. COMMERCIAL OVERVIEW (EXECUTIVE SUMMARY) - OVERVIEW OF IMPORT MARKET Nicaragua remains an essentially agricultural country, and hence is dependent upon imports for provision of many manufactured, processed, and consumer items. High levels of imports over the past 15 years ($600- $850 million annually) were made possible largely by high levels of foreign assistance -- from the Eastern bloc during the 1980's and from U.S., European, and Asian donors, and the International Financial Institutions since 1990. With the election of President Chamorro in 1990, the foreign trade regime was significantly liberalized, and consumer imports surged due to pent-up demand. While that demand has cooled somewhat in 1994, Nicaragua remains a strong market for many types of U.S. products. In 1993, Nicaragua imported $150 million of U.S. goods, particularly agricultural products, machinery, and consumer items. - BRIEF SYNOPSIS OF COMMERCIAL ENVIRONMENT The Nicaraguan retail market is relatively small, with no truly large-scale department stores or other retail operations. We recommend that U.S. companies market their goods via a local agent or distributor; potential investors should consider taking on a Nicaraguan partner. - NICARAGUAN BUSINESS ATTITUDE TOWARDS THE U.S. President Chamorro and the top levels of the Nicaraguan government maintain a pro-foreign investment policy. U.S. goods are sought after by Nicaraguan consumers, who view the products as high quality. Many Nicaraguans have traveled to the U.S.; several hundred thousand moved to the U.S. during the Sandinista era. Consequently, the Nicaraguan market maintains a decided bias in favor of American products and lifestyle. - MAJOR BUSINESS OPPORTUNITIES Best prospects for U.S. sales include agricultural produce, franchising, agricultural machinery, food processing and packaging machinery, construction equipment, U.S. automobiles and spare parts, and telecommunications equipment. Investment opportunities exist in the fisheries, mining, timber, and non-traditional agricultural goods sectors. Several large infrastructure projects are under way, funded primarily by the International Financial Institutions, in the areas of electrical generation, roadbuilding, and water system construction. - MAJOR ROADBLOCKS TO DOING BUSINESS We would enumerate the major roadblocks as follows: - The continuing slow resolution of claims on properties confiscated during the Sandinista era (including some 1400 U.S. citizen properties) blunts interest in foreign investment. - Import tariffs and taxes are high on many items and often not assessed on CIF/bill of lading value, but on a reference price determined by Customs officials, at times much higher than the actual price paid by importers. - Nicaragua's intellectual property rights regime is outmoded. - Quality certification procedures for the importation of pharmaceuticals, while eased in recent months, can be burdensome. - Port and highway infrastructure is substandard. - Resolution of commercial and investment disputes in Nicaragua is unpredictable. The legal system is cumbersome, and the enforcement of judicial determinations is uncertain and often subject to political considerations. - NATURE OF LOCAL AND THIRD COUNTRY COMPETITION Since 1990, the makeup of Nicaragua's major funding partners has shifted dramatically away from dominance by the Eastern Bloc and Cuba to growing relationships with U.S., Western European, and Asian suppliers. Nicaragua's industrial sector is small, so local competition for processed and manufactured products is non-existent for many products. Nicaragua's Central American neighbors and Mexico are important competitors in the processed/canned food sector. Strong third country competition exists for wheat (France), rice (Vietnam), and cooking oils (Argentina). Japanese, Taiwanese, Korean, and Western European presence in the equipment and machinery markets (e.g., telecommunications equipment, computers, automobiles, construction and agricultural machinery) is notable. However, the U.S. share of the overall Nicaraguan import market has grown from virtually nil during the 1980's to 20.6 percent in 1993. We expect that number to expand steadily over the medium term.