Caribbean & Central America - March 2022

On 10 February, Nicaragua’s government led by President Daniel Ortega announced plans for closer cooperation with Russia’s state atomic energy corporation Rosatom on energy, medical, and nuclear projects. This comes amid other signs of Nicaragua’s burgeoning cooperation with Moscow as the US and its partners continue to isolate Managua following the November 2021 general election which produced a victory for Ortega but was widely condemned as a sham.

Nicaragua’s First Lady and Vice President Rosario Murillo said the Rosatom projects are part of a joint commission for economic exchange and could involve investments in renewable energy, the use of nuclear technology in cancer treatment, and nuclear isotopes to combat agricultural pests. It also includes training projects and support for Nicaragua’s national atomic energy commission. Rosatom officials visited Nicaragua to plan the projects, meeting with counterparts from the ministries of energy & mines, finance and health, as well as the social security institute and the Nicaraguan agricultural technology institute. The announcement was also followed by the visit of Russia’s deputy prime minister, Yury Borisov, on 17 February, with the aim of improving trade and economic cooperation, his office said.

These are the latest signs of deepening ties between Managua and Moscow. Russia was one of only a few countries to recognise Ortega’s re-election, and in January Russia’s Foreign Minister Sergei Lavrov said the country would reinforce “strategic cooperation” with Nicaragua, as well as Venezuela and Cuba. The relationship has strengthened both times Ortega has been in power, from 1979-1990 and 2007-present, and in the last 15 years Russia has sold or donated military equipment, vaccines, buses, wheat, flour, and vehicles to Nicaragua.

Trade between the two nations grew in 2021, with Nicaraguan exports up 208% compared to 2020. However, they started from a low base of US$6.2m, increasing to US$13.0m. This represents an increase from 0.21% of Nicaragua’s total exports in 2020 to 0.36% of total exports in 2021, which were worth a total US$3.5bn. The most significant exports to Russia were peanuts (US$8.6m) and coffee (US$4.2m). Guillermo Jacoby, president of the Nicaraguan association of producers and exporters (Apen), told local investigative media Confidencial in an article published 28 February that it won’t be easy to increase the value of exports to the Russian market, citing a lack of experience in the market and a steep learning curve.

These numbers are fairly insignificant for the Nicaraguan economy, but Ortega is increasingly reliant on a small group of political allies as many countries reject his re-election and his crackdown on opponents. Nicaragua also stands to be affected by sanctions imposed on Russia by the US and its allies following Moscow’s invasion of Ukraine on 24 February, according to Juan González, senior director for the Western Hemisphere at the US National Security Council. In a 25 February interview with US state-owned radio broadcaster Voice of America, he said “Nicaragua will feel that pressure”, adding that the sanctions have been designed to affect those countries with economic relations with Russia.

Mounting pressure from the US comes at a bad time for the Nicaraguan economy, with public debt approaching unsustainable levels, according to a report published on 17 February by Guatemala-based thinktank Central American institute of fiscal studies (Icefi). Total public debt sits at 47.8% of GDP taking into account the central government and state companies according to Icefi, above the 40% sustainability threshold cited by the think tank. However, including central bank debt pushes that figure to 62%, said Icefi. The think tank adds that, if its projections come to pass, debt levels will reach 65% in 2022. This is a cause for concern at a time when poverty levels have been on the rise (see sidebar).

In its report, Icefi called on Nicaraguan authorities to improve transparency around public finances, and it urged the government to work towards political stability and resolve tensions with the opposition. This would send “positive messages” to investors and facilitate increased productivity in the short term, it added.

Nicaragua’s growing isolation due to the deterioration in the human rights and democracy situation has left the country more reliant than ever on relationships with powers outside of the US and its allies. With Russia suffering intense sanctions due to its invasion of Ukraine, its ability to support the Ortega government will likely be limited, or at least a much lower priority. With that in mind, Nicaragua may come to rely more heavily on China. While trade with Beijing remains small in real terms, Ortega may stand to benefit more from Chinese investment.

• Boosting ties with China

Nicaragua has also made moves to deepen ties with China, after re-establishing relations in December 2021 with Beijing [EB-22-01]. Last year, Nicaraguan exports to China grew 11.9% compared to 2020, reaching US$11.5m. This represents just 0.32% of total exports for the year. While China is a massive market, there is a lack of knowledge among Nicaraguan firms about what Chinese customers want, Jacoby told Confidencial in an article published on 28 February. However, a series of agreements signed between the two national governments in January could lead to phytosanitary agreements that boost exports of coffee and fruit, as well as Chinese investment in infrastructure.

• Poverty

In 2020, 52.7% of the Nicaraguan population lived below the poverty line, and 22.8% lived in extreme poverty, said Icefi. In addition, around half of all households reported less income in 2021 than prior to the coronavirus (Covid-19) pandemic, added the think tank.