VZCZCXRO2197
PP RUEHLMC
DE RUEHMU #0324/01 0861255
ZNR UUUUU ZZH
P 271255Z MAR 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 3945
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 02 MANAGUA 000324 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
SOUTHCOM FOR POLAD, J2, J3 AND J5 
 
E.O.  12958: N/A 
TAGS: EINV ETRD ECON NU
SUBJECT: NICARAGUA: TEXTILE AND APPAREL SECTOR SUFFERS MAJOR BLOWS 
 
REFS: A) 08 MANAGUA 1213; B) 08 MANAGUA 900; C) 08 MANAGUA 628 
 
Summary 
------- 

¶1. (U) Cone Denim announced on March 25 that the company would 
shutter its denim plant in Nicaragua indefinitely.  A company 
executive reasoned that the supply chain for denim had not fully 
developed in Central America and, therefore, was unable to weather 
the decline in demand that has resulted from ongoing economic 
difficulties in the United States.  In a meeting with other Central 
American leaders, President Ortega criticized CAFTA-DR and 
suggesting that President Obama should bail out companies in 
Nicaragua along with those in the United States.  In addition to 850 
jobs lost at Cone Denim in 2009, industry sources have reported that 
apparel manufacturers laid off 21,350 Nicaraguans during 2008.  End 
summary. 
 
Lack of Demand Forces Cone Denim to Close 
----------------------------------------- 

¶2. (SBU) Steve Maggard, Operations Manager for Cone Denim - 
Nicaragua, told the CDA on March 25 that the company would shutter 
its denim plant in Nicaragua indefinitely.  Maggard said executives 
had decided to close the facility because the demand for denim 
clothing in the United States had fallen sharply.  As recently as 
October 2008, the new plant had grown its orders to run at 75% 
capacity, more or less the break even point.  Since, orders have 
fallen precipitously. 
 
¶3. (SBU) For Cone Denim, the fatal blow for its operations in 
Nicaragua came in February when jeans manufacturer VF closed three 
facilities in Honduras.  According to Maggard, sales to VF in 
Honduras accounted for 75% of total production.  In all, demand for 
denim in Central America had fallen by 40%.  The company has cut its 
workforce in other countries where it operates, but the facility in 
Nicaragua was the only one that executives had decided to shutter 
completely.  Maggard reasoned that the supply chain for denim had 
not fully developed in Central America and, therefore, unable to 
weather the decline in demand that has resulted from ongoing 
economic difficulties in the United States. 
 
¶4. (SBU) Maggard said most of the facility's 850 workers would be 
laid off during the next two weeks, but a few would stay on for a 
several months to mothball and later maintain equipment.  Maggard 
reported the company is taking steps to protect its investment -- at 
a cost of $100,000 a month -- because plans are to reopen when 
market conditions improve, which he hoped would be the case in 12 to 
18 months.  The company is committed to treating its employees 
fairly and staying on good terms with the government.  Maggard said 
he and other executives planned to meet with Presidential Delegate 
for Export Promotion General (Ret.) Alvaro Baltodano to emphasize 
that point.  He told the CDA that he has already established a 
channel of communication with the Labor Ministry to ensure that 
severance and other benefits are being paid according to the law. 
 
Ortega: Cone Denim Closure Points to CAFTA-DR Failure 
--------------------------------------------- -------- 

¶5. (U) President Ortega, who helped inaugurate the Cone Denim Plant 
less than a year ago (Ref C), told other Central American presidents 
at a summit of the Central American Integration System (SICA) on 
March 25 that several apparel manufacturers had shut down in 
Nicaragua last year as a result of economic difficulties.  Ortega 
continued, "Now a U.S. company called Cone Denim, has been forced to 
suspend operations; at first they said it would only be for two 
weeks, now they are saying a whole year."  These investments, he 
concluded, were supposed to demonstrate the benefits of CAFTA-DR, 
but instead they prove Central America should not be dependent on 
only one market.  He explained, "For years we have relied on the 
United States as our main trading partner, only because they are the 
largest economy; but now we have seen that they too are vulnerable 
to economic crisis." 
 
¶6. (U) The idea behind CAFTA was to attract investment, Ortega 
asserted.  He then asked rhetorically, "Who will make up for all the 
lost jobs now that companies in the United States are facing 
economic difficulties?"  According to Ortega, President Obama should 
not only bail out U.S. businesses, but also "lend support to 
Nicaragua and other countries affected by the closure of U.S. 
companies, leaving our small economies with unemployment." 
 
Apparel Manufacturers Shed 21,350 Jobs in 2008 
--------------------------------------------- - 

¶7. (SBU) The National Free Trade Zone Commission (CNZF) reported in 
February 2000 that employment in apparel operations fell from 66,730 
in December 2007 to 50,712 by the end of 2008, a decrease of 16,000 
jobs.  Alfredo Coronel, Executive Director of the CNZF, attributed 
the job losses mostly to the departure of Taiwanese apparel 
manufacturer Nien Hsing.  That company left in July 2008, 
eliminating 14,850 positions.  Coronel claims that the setback is 
only temporary, as Mexican jeans manufacturer C&C plans to ramp up 
operations and employ as many as 9,000 by the end of 2009. 
 
¶8. (SBU) Dean Garcia, Executive Director of the Nicaraguan 
Association of Apparel Manufacturers (ANITEC), reported that job 
losses were higher than the CNZF reported.  In addition to Nien 
Hsing's 14,850 jobs, he told econoff that the following apparel 
companies shuttered their operations in 2008: Koramsa, with 800 
jobs; Annic, with 1,200 jobs; and Sinonica, with 500 jobs.  In 
addition, several other apparel companies, while remaining in 
business, have shed another 4,000 jobs, for total losses of 21,350 
jobs. 
 
¶9. (SBU) Nicaraguan apparel exports to the United States fell from 
$968 million in 2007 to $934 million in 2008, mostly as a result of 
large declines in the last few months of 2008.  Scott Vaughn, 
President of (ANITEC) and co-owner of apparel manufacturer Rocedes, 
told econoff that those producers who have weathered the crisis to 
date will see stable sales in 2009.  Given uncertain demand, Vaughn 
claimed that buyers are unwilling to place orders with Asian 
manufacturers, which require three months lead time.  Instead, they 
are sourcing from Nicaragua, where the lead time is much shorter. 
Nonetheless, exports fell from $73 million in January 2008 to $57 
million in January 2009, a 22% decline. 
 
Competitiveness Issues 
---------------------- 

¶10. (SBU) Local textile and apparel producers face numerous 
challenges to remaining competitive suppliers.  Garcia reported that 
lately, as a result of pressure from General Baltodano, Customs 
Director Eddy Medrano has proven willing to negotiate on issues of 
importance to the apparel sector.  Officials have shown some 
flexibility on re-exports by streamlining paperwork and lowering 
fees.  They have also eased restrictions on local purchases that had 
made it difficult to source locally.  Finally, Customs has abandoned 
efforts to tax waste removed from a free trade zone (Ref B). 
 
¶11. (SBU) Ongoing minimum wage negations, by law required every six 
months, appear likely to produce a two-year schedule for wage 
increases in free trade zones (Septel).  As it stands, wages are 
slated to increase by 8% in 2009 and another 12% in 2010.  Garcia 
reported that manufacturers are content with this plan, especially 
after wages had increased by 60% during an 18 month span in 2007-08 
(Ref A). 
 
Comment 
------- 

¶12. (SBU) Cone Denim's closure is a blow to our efforts to tout 
CAFTA-DR's role in attracting investment in Nicaragua.  Nonetheless, 
CAFTA-DR has put Nicaragua in a better position to weather 
short-term economic difficulties by opening new markets for new 
products and strengthening existing industries and institutions. 
Cone Denim executives do seem genuine in their desire to reopen the 
plant as soon as possible; they make the point that they made a 
long-term commitment to Nicaragua and the region.  Meanwhile, Ortega 
is likely to cite the plant closure as "proof" that the current 
economic downturn, in fact, represents the beginning of the end of 
capitalism. 
 
SANDERS