VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #1990/01 2542257
ZNR UUUUU ZZH
R 112257Z SEP 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 7521
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS MANAGUA 001990 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CEN, WHA/EPSC, AND EB/TPP 
COMMERCE FOR ITA/OLA MSIEGELMAN, JGEHR 
SAN JOSE FOR JMCCARTHY 
PLEASE PASS TO USAID AND USTR 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR EINV ECIN ECON NU
SUBJECT: CAFTA SUCCESS STORIES: "NICARAGUA'S ON TOP" 
 
REF: MANAGUA 12958 
 
¶1. (U) Trade statistics and investor interest support the 
view that CAFTA-DR is having an immediate and positive 
effect on the Nicaraguan economy since coming into effect 
on April 1.  Dramatic increases in exports have been 
logged, though one has to take the seasonal nature of 
agriculture into account in the case of Nicaragua.  Most 
successes fall into two categories: agricultural products 
and apparel.  ProNicaragua reports that investor interest 
is very strong.  The ability of Nicaragua to quickly take 
advantage of CAFTA created opportunities is in large due to 
the effort of the Nicaraguan government and industry to 
improve the business climate in the country.  Indeed, a 
recent World Bank study moved Nicaragua up five places, on 
top of its CAFTA neighbors with a ranking of 67, in terms 
of doing business.  In the future, the government will need 
to find ways in which Nicaragua can diversify its export 
base to take even greater advantage of free trade.  End 
Summary. 
 
Export Performance 
------------------ 
 
¶2. (U) Trade statistics and investor interest support the 
view that CAFTA-DR is having an immediate and positive 
effect on the Nicaraguan economy since coming into effect 
on April 1.  U.S. exports to Nicaragua in the second 
quarter 2006 exceeded first quarter exports by 10%.  From a 
year-on-year perspective, U.S. exports to Nicaragua in the 
second quarter 2006 exceeded exports in second quarter 2005 
by 14.2%.  In addition, post can report that Nicaraguans 
are showing increasing interest in U.S. products, as 
reflected by an additional 20-25 commercial inquiries a 
month, many related to food and agricultural products. 
 
¶3. (U) Dramatic increases have also been logged on the 
Nicaraguan side, though one has to take into account the 
seasonal nature of agricultural exports.  While exports to 
the United States during the second quarter 2006 fell 8% 
from first quarter exports, this decline is traditional. 
The truth of the matter is that second quarter exports to 
the United States were 28.9% more than during same period 
in 2005.  Exports for the first seven months of 2006 
exceeded those in 2005 by 24%. 
 
¶4. (U) Most of the increase in exports to the United States 
fall into two categories: agricultural products and 
apparel.  In particular, Nicaraguan sugar producers quickly 
took advantage of additional U.S. tariff rate quota (TRQ) 
under CAFTA.  NicaraguaQs TRQ doubled, from 22,114 MT in 
2005 to 44,114 MT in 2006.  Nicaraguan producers look 
forward to the TRQ increasing 2% a year over the next 15 
years.  New on the trade horizon was watermelon, which 
nearly quadrupled from $243,000 in first quarter 2006 to 
$1,022,000 in second quarter 2006, after the tariff dropped 
from 17% to 0% under CAFTA.  Similarly, the value of cigars 
exported to the U.S. nearly doubled from $468,000 to 
$808,000, after CAFTA eliminated the $1.89 per kilogram 
tariff. 
 
¶5. (U) NicaExport, the Nicaraguan export promotion agency, 
reports increasing U.S. supermarket interest in Nicaraguan 
agricultural products, especially ethnic and organic 
foods.  After a recent buyersQ mission to the country, 
Fiesta Supermarkets of Texas and Grand Mart Supermarkets of 
Washington, D.C. are now import Nicaraguan cheese, meat, 
beans, cream, ice cream, and vegetables (e.g., malanga and 
quisquisque) to the serve the Hispanic market in the United 
States.  The visit benefited local companies such as 
Lactosam, a cheese company in Jinotega and Nuevo Carnica, a 
meat company in Leon, both of which are now exporting to 
the United States for the first time.  Smaller companies 
and farmerQs cooperatives are also benefiting.  APROTRUNG, 
an association of farmers that grow roots and tubers in 
Nueva Guinea on the Atlantic coast, is exporting malanga 
and other products to the United States for the first 
time.  The Associacion Pueblo de Ayuda en Accion is 
exporting six types of oriental vegetables, including okra 
and bitter melon, to the United States. 
 
¶6. (U) Equally important have been exports from the textile 
and apparel sector.  While second quarter 2006 textile and 
apparel exports to the United States were level with first 
quarter exports, second quarter exports were 12% more than 
the same period in 2005.  The important point here is that, 
even in the face of increased competition from China after 
the expiration of the Agreement on Textiles and Clothing, 
Nicaragua has been able to maintain its level of exports to 
the United States.  In NicaraguaQs favor is proximity to 
the large U.S. market and the most inexpensive labor in 
Central America.  NicaraguaQs textile and apparel 
industries are also benefiting from having ratified CAFTA 
more quickly than most of its neighbors, and for not having 
been tied to existing regional supply chains that were 
disrupted until all supplying countries had ratified 
CAFTA. 
 
¶7. (U) While Nicaragua still ranks below its neighbors when 
it comes to textile and apparel exports, this may not be 
the case going forward.  U.S. and other foreign investors 
are queuing up to take advantage of CAFTA and what 
Nicaragua has to offer.  Cupid Foundations recently 
invested $3.2 million more in their assembly plant, adding 
800 jobs.  Anvil Knitwear invested $6 million in an 
assembly plant in Carazo, creating 1,500 jobs.  ITG Coen 
Denim recently broke ground on a $100 million textile plant 
in Managua, promising to create 750 new jobs.  Taiwanese 
and Korean investors are also expanding investments here. 
While Nicaragua appears to be poised for more growth in 
this sector, the government will need to find ways for 
Nicaragua to diversify its export base so that the country 
can take even greater advantage of CAFTA over the medium 
term. 
 
Investor Interest 
----------------- 
 
¶8. (U) ProNicaragua, the governmentQs investment agency, 
confirms that thirteen companies have invested or announced 
investments in Nicaragua since CAFTA-DR entered into 
force.  These investors could bring $240 million in 
additional capital to the country and create 13,350 new 
jobs.  The agency reports that another eleven companies are 
looking at investing up to $200 million in projects that 
could create an additional 11,600 permanent jobs.  While 
textiles and apparel leads the list, some investors are 
also looking at building plants to manufacture footwear and 
medical products.  In addition, WalMart recently purchased 
a 51% stake in La Colonia, the largest high-end supermarket 
chain in Managua.  (Note: WalMart already owns a majority 
stake in the mid-range La Union supermarket and low-end 
Pali supermarket chains.) 
 
Conclusion 
---------- 
 
¶9. (U) Starting from a lower base, the increases in CAFTA 
stimulated exports may be more dramatic in the beginning 
for Nicaragua than some of its Central American neighbors. 
However, the ability of Nicaragua to better take advantage 
of CAFTA created trade opportunities is also due to the 
effort of the Nicaraguan government and industry to improve 
the countryQs business climate.  Indeed, a recent World 
Bank study moved Nicaragua up five places, on top of its 
CAFTA neighbors with a ranking of 67, in terms of doing 
business (El Salvador ranks 71 while the others rank in the 
100's).  Taking some pride in the accomplishment, La Prensa 
trumpeted this year's ranking in an upper right front page 
headline: QNicaragua on Top. 
TRIVELLI