II. LEADING TRADE PROSPECTS FOR U.S. BUSINESS - BEST PROSPECTS, PRODUCTS, AND SERVICES FOR U.S. EXPORTERS - AGRICULTURAL SECTOR Best prospects for U.S. agricultural exports are: - Wheat - Rice - Tallow - Vegetable Oil - Poultry and livestock genetics - Planting seeds The best prospects for U.S. agricultural exports to Nicaragua are found primarily in the bulk commodities of wheat, rice, and tallow. Nicaragua is expected to remain an important importer of these products. Poultry genetics (primarily hatching eggs) also provide good export commodities as the poultry industry is expected to continue to expand. Prospects are also bright for livestock genetics. Vegetable oil provides some opportunities as Nicaragua is a major importer (here U.S. price competitiveness is crucial). Increased sales of planting seeds are also a possibility as the agricultural sector seeks to improve yields in order to boost profitability and expand non-traditional exports. Depending upon future local production and other export competition, U.S. sales opportunities may occur for soybean meal and yellow corn for feed. Demand exists for various high value products which are imported by several supermarket chains and other importers (frozen poultry meat, fresh fruits, condiments, canned fruits and vegetables). Wheat: U.S. exports of wheat to Nicaragua totalled a record $10.5 million in 1993. Total Nicaraguan wheat imports in 1993/1994 are estimated at 95,000 MT, of which all but 6,000 MT are expected from the U.S. (with the balance from France). U.S. 93/94 exports are comprised of about 36,000 MT of PL- 480 Title III donations and 53,000 MT of commercial sales under the EEP (Export Enhancement Program). Three private mills import wheat into Nicaragua and reportedly are satisfied with U.S. quality. The EEP program in 93/94 resulted in a higher U.S. share of the Nicaraguan market despite highly subsidized E.U. prices. Nicaragua imports primarily spring wheat, but also imports small quantities of soft wheat (and on occasion, hard red). Rice: U.S. milled rice exports in CY93 totalled $5.3 million (near 1991's record level). Imports in 1993 from all sources totalled about 40,000 MT of which 20,000 MT came from the U.S. Two private sector rice importers make most large imports, and the GON (ENABAS) makes emergency purchases as needed. U.S. exports of milled rice (20 percent broken) are usually in 50 kg bags (which are then repackaged locally into smaller bags), but small quantities of retail-size rice are also exported directly. Nicaragua is expected to continue to import 25-35,000 MT of rice annually over the next few years. Cheaper sales from Vietnam sharply cut U.S. sales in the second half of 1993 and first half of 1994, but an April 1994 ban on Asian grain imports due to phytosanitary concerns is expected to bolster U.S. sales prospects. Tallow: U.S. exports of tallow were valued at $3.6 million in 1993. Nicaragua produces only about 2,000-3,000 MT of tallow and normally consumes about 20,000 MT. The U.S. supplies almost all of Nicaragua's tallow imports, largely through PL-480 donations. Three tallow importers process the tallow into soap. In FY94, about 15,000 MT of U.S. tallow may be donated under PL-480 Title III. Vegetable Oil: U.S. exports of vegetable oil were valued at $4.8 million in 1993. This included shipments of 5,300 MT of cottonseed oil (CSO) and 4,000 MT of soybean oil (mostly crude). U.S. CSO exports were made under COAP (Cottonseed Oil Assistance Program) in 1993, but U.S. soy oil donations ended in 1992. Nicaragua imported an estimated 33,500 MT of vegetable oil in 1993, with Argentine soy oil representing about half of this amount. Imports of vegetable oil in 1994 are estimated near 1993's level. Despite growing soybean oil production, vegetable oil imports are expected to remain stable. Competition from other suppliers (based on price) will be the key factor affecting U.S. exports. In 1994 through May, 1,500 MT of CSO has been sold to Nicaragua under COAP. Poultry and Livestock Genetics: U.S. exports of hatching eggs to Nicaragua reached a record $2.1 million in 1993. The U.S. also exported baby breeding chicks for broilers valued at $125,000 in 1993. Nicaraguan poultry meat output in 1993 grew about 35 percent and further, although smaller, gains, are expected in 1994. The growing poultry meat industry (as an inexpensive protein source), high quality U.S. genetics, and adequate incubator space have led to increased poultry genetics imports, mostly from the U.S. U.S. technical assistance to the poultry industry, under the Emerging Democracies Program, has benefitted the poultry industry (broiler and layer) and U.S. genetic sales. Some opportunities exist for exports of semen for cattle and live cattle, depending on price and credit options (U.S. export sales totalled only $23,000 in 1993, but larger semen exports and some live cattle sales are expected in 1994). Planting Seeds: U.S. exports to Nicaragua were valued at $564,000 in 1993, primarily sorghum seed. Nicaragua plans to increase yields of basic grains (like sorghum) and is increasing planted area of some oilseeds (soybeans, peanuts). Nicaragua is also increasing planted area of different non- traditional fruits and vegetables (e.g., melons and onions) which may provide U.S. seed export opportunities. - COMMERCIAL AND INDUSTRIAL SECTOR Best prospects for U.S. commercial and industrial exports are: - Franchising - Agricultural Machinery - Food Processing and Packaging Machinery - Construction Equipment - U.S. Automobiles and Spare Parts - Telecommunications equipment Nicaragua lags substantially behind its Central American neighbors in the availability of U.S. franchises, despite having a significant percentage of the population which has studied or resided in the U.S. Capital equipment is antiquated and badly in need of modernization. U.S. automobiles remain popular and there is often a scarcity of new parts. TELCOR (the telephone utility) is due to be privatized in the fall of 1994; demand for telecommunications equipment will be strong over the medium term. Franchising: Two U.S. pizza franchises and two rental car franchises presently operate in Nicaragua. There is limited competition from third- country sources. As the Nicaraguan economy grows, we expect increasing demand for franchise services across-the-board. For the immediate future, fast food outlets and business service operations are in greatest demand. General legal requirements concerning franchises are contained in the Commercial Code and Foreign Investment Law. There is no specific regulatory framework. Agricultural Machinery: Agricultural production accounts for 20 percent of Nicaragua's GDP. It is a growing sector, and the Government of Nicaragua, as well as the international donor community, is placing great emphasis on agricultural reactivation. In general, Nicaraguan agricultural machinery is outdated and in poor repair. There has been no significant investment in Western technology since the mid-70's. Europe and Brazil offer limited competition in this sector. There is no local production. Food Processing and Packaging Machinery: Food and beverage industries account for 65 percent of Nicaragua's manufacturing output, which totalled approximately $300 million in 1993. The industry is in great need of processing and packaging equipment, especially as it becomes more export-oriented and adjusts to international standards. The best prospects are: fruit extraction machinery, milk processing machinery, and peanut processing equipment. There is no local production in this sector. Construction Equipment: Construction contributed $41 million to Nicaragua's 1993 GDP, or approximately 2 percent of total GDP. As the Nicaraguan economy expands, this sector should be one of the fastest growing. The government estimates that investment in construction will grow 3 percent in 1994, and acquisition of construction machinery and equipment will increase by 6.5 percent. The greatest need is for equipment for road construction and housing. Italy, Spain, and Japan offer competition for U.S. firms. There is no local production. U.S. Automobile Dealers and Spare Parts: Many U.S. vehicles were imported into Nicaragua when families returned from exile following President Chamorro's victory in 1990. There is considerable demand for servicing and parts for these vehicles as well as for new U.S. automobiles. Most spare parts are presently brought in by family or friends from the U.S. At present, there is a GM distributor in Managua which sells the following Chevrolet vehicles: Corsica, Cavalier, Chevy S- 10, and Blazer. There is a Ford distributorship as well, though it has no Ford vehicles in stock; sales are by individual order only. There is a particular need for heavy and light U.S. trucks and sport utility vehicles. Telecommunications Equipment: With the privatization of the telephone utility set for the fall of 1994, demand for telecommunications equipment should be strong over the medium term, as the new investors strive to upgrade the country's system.