Caribbean & Central America - February 2011 (ISSN 1741-4458)

In January 2011 the consumer price index fell by 0.15%, bringing the 12 month rate down to 8.02%, according to the central bank. The January figure bucks the regional trend and is considerably lower than the CPI rate for December 2010 (0.64%) and January 2010 (0.97%).

The central bank said that the CPI fell because of a decrease in the prices of foods and non-alcoholic drinks and recreation and entertainment which more than compensated for rises in fuel prices, utility prices and healthcare and rent prices.

In 2010 Nicaragua had an inflation rate of 9.23%. This was the highest in Central America. In 2009 the inflation rate was 0.9%, the lowest ever. In 2008 however, inflation was 13.8%.

The government is budgeting on a single figure inflation rate (and GDP growth of 4%) for 2011, an election year. The government expects exports and remittances to increase in 2011. It is also confident that tourism will increase this year. The government claims that GDP growth in 2010 was also 4%, though it maintains that it is not as interested in GDP numbers as whether this produced more jobs and helped to reduce poverty.

FDI: The government expects foreign direct investment to double this year to over US$1bn. In 2010 FDI increased by 15% to US$500m according to preliminary figures from the investment promotion agency, ProNicaragua.

The biggest single project is likely to be the US$250m Guacalito tourism project which is backed by the Grupo Pellas. The government expects that FDI will come to US$1.03bn in 2011. This is almost twice the US$600m forecast by ProNicaragua. ProNicaragua's executive director Jorge Chamorro explains the discrepancy as the result of the fact that ProNicaragua does not include projects financed under the Venezuela's regional initiative, Alianza Bolivariana para los Pueblos de Nuestra América (Alba) as FDI, while the government does. The government claims that Alba will finance at least 38% of the FDI in 2011.

The big Alba project is the El Supremo Sueño de Bolí­var oil refinery. Alba is also financing renewable energy, port infrastructure and forestry projects. The government is forecasting that US$363m will be invested in electricity projects this year. Another major Alba project is the new port at Bilwi, at a cost of US$22.5m. Alba is also investing US$18m in fishing and US$6m in a forestry project to help indigenous people process timber from trees which had been blown down by Hurricane Félix three years ago. César Zamora, general manager of AEI Energy and head of the US Chamber of Commerce in Nicaragua, (Amcham), said that this figure was optimistic, but noted that investors in the sector were more confident because the government had signed a deal with Gas Natural, a Spanish company, to build a distribution network.

Zamora added that it was still possible that the economy may have to face electricity shortages this year, despite the plethora of geo-thermal hydro and wind power projects under construction. The big two projects in the sector are Tumarí­n (hydro) and Eolo (wind). The private sector is more optimistic than the government about the potential for investment in free zones. The government expects investment of just US$60m in free zones, but Álvaro Baltodano, executive director of the Corporación Nacional de Zonas Francas (CNZF) reckons that investment could top US$600m and create 90,000 new jobs. He is especially bullish about the textile industry. This bullishness looks misplaced, given the rise in the international prices of wool and cotton.

• Remittances

Nicaragua's central bank (BCN) reported that remittances for 2010 reached US$823m, 7% up on 2009. In its monthly report for January, the BCN is forecasting a further 5.1% increase in remittances for 2011, most of which come from the US and Costa Rica.