How to choose the right operational strategy to face the growing economic crisis in Nicaragua
Article 3 minute read

How to choose the right operational strategy to face the growing economic crisis in Nicaragua

23 July 2018

As businesses and industry in Nicaragua battle for survival in an economy that is virtually paralysed, one option for company directors is to consider partnering with a third party for business support services.

Not only does this provide an objective line of support at a critical time, it also enables a supply of skills and expertise to examine ways to cut costs and operate more efficiently.

Since April, there have been widespread and often violent demonstrations against the government of President Daniel Ortega, and the political, social, and economic environment in the country has been hard hit as a result. Tourism, the textile industry, construction sector and agriculture, have been the backbone of the Nicaraguan economy, but are now in meltdown.

According to statistics from the National Chamber of Tourism of Nicaragua (Canatur), in April, the month in which the crisis began, there was a year-on-year decrease of 16% in the number of visitors that entered Nicaragua by air, falling from 60,116 to 50,450.  And the following month, in May, there was a 40% decrease compared with last year’s figures.

For the textile industry, the economic crisis, political unrest and civil disturbances have forced nearly 70% of SMEs in the textile and clothing industry to suspend their operations over the past three months. The Chamber of Industries of Nicaragua (Cadin) reports that 30% of small and medium size textile and clothing companies that are producing are doing so at 25% of their capacity. The situation in this sector has led to the temporary suspension of eight out of ten workers.

And in agriculture, there is increasing incidence of properties and farming estates being invaded by protesters and groups keen to ‘land grab’ for security, crippling agricultural production. The union of agricultural producers reports that many private farms have been taken over by criminals.

Talks between civic leaders and President Ortega have so far failed to resolve the crisis, and the signs of economic struggle are clear to see. Banks are closing branches temporarily for security and bank deposits have slipped by over 10% since the crisis began, leading the Central Bank to recently receive USD 50 million from the Central American Bank for Economic Integration to support liquidity. Fitch has downgraded Nicaragua to ‘B’ and says the outlook is negative.

For a business entity in Nicaragua to survive, it is essential to cut costs and overheads as far as possible, to streamline operations and reduce debt. Financial institutions in Nicaragua have started to record increases in the number of clients that are in default of their loans. To ease the situation, the Superintendency of Banks and Other Financial Institutions and the National Microfinance Commission recently approved some temporary rules so that financial entities can modify the original conditions of the loans. The President of the Central Bank of Nicaragua has reiterated that the expectation of economic growth of 1.0 percent and inflation in 7.0 percent for the year 2018 is maintained.

At times like these, working with a trusted third party proves a sound strategic choice to help weather the country’s economic crisis. Partnering with a global business services provider, such as TMF Group, will help to deliver the best-possible business strategy to maintain operations.

Moreover, TMF Group operates in more than 125 offices in over 83 jurisdictions and employs more than 7,000 qualified accountants, lawyers, corporate secretaries, HR, and other professionals. Local knowledge and global reach delivers unbeatable expertise and a wealth of experience to help support domestic and international companies in difficult times.

TMF Group

TMF Group has been supporting businesses in Nicaragua for many years. Our full range of services there includes Accounting and Tax Services, Consultancy solutions, Corporate Secretarial services, Governance services, HR and Payroll services, and International Corporate Structuring. To find out how TMF Nicaragua can help you become more efficient, reduce costs and continue to operate, more effectively, talk to us.

Written by

Xilot Mejia

Accounting and Tax Regional Manager, Mid-America

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