Of Nicaragua’s estimated population of about 6 million, nearly half live in poverty. With its relatively high fertility rate, the only way the country can reduce poverty is with significantly faster economic growth. But the country has long lagged far behind its neighbors in terms of competitiveness. The Global Economic Forum's World Competitiveness Index placed Nicaragua 75th out of 80 countries ranked in 2002, citing the lack of export development, technological capacity, and private-sector development. Major obstacles in the business environment were limiting the ability of small and medium-sized businesses to get ahead.
The Competitiveness Learning and Innovation Project was designed to address these challenges by testing options for improving the business environment in Nicaragua. It piloted new business development services, especially through developing sectoral clusters—geographic concentrations of businesses and organizations in related industries. Such clusters allowed small and medium-sized businesses to gain access to crucial services, and influence policy and research to support their growth and ultimate success.
This project facilitated private-sector development in Nicaragua by dramatically simplifying business regulations and laws, strengthening government institutions, developing industry clusters, promoting exports, attracting foreign direct investment, and piloting sustainable business development services.
Highlights:
- The average number of days and procedures required to start a business fell from 71 days and 12 procedures in 2003 to 39 days and 6 procedures in 2006. At number 67 of 178 countries surveyed in the World Banks’ 2006 Doing Business report, Nicaragua now ranks highest among Central American countries and moved up from a position of 72 in 2005.
- Four industry clusters (tourism, coffee, dairy, and light manufacturing) met or surpassed growth targets of 10 percent.
- Tourist arrivals increased 17 percent in 2004 alone.
- Coffee production nearly doubled, from 1.10 million quintales in 2004-05 to 2.07 million quintales in 2005-06. Part of this growth was in high value premium and organic coffees, which increased 18 percent over the period.
- Dairy firm sales increased 12 percent and total dairy product exports grew 33 percent from 2003 to 2004.
- In light manufacturing, the maquila industry grew dramatically by 12.9 percent in 2004 alone.
- Employment grew by 38 percent in the tourism industry and by 67 percent in light manufacturing.
- Nicaragua’s Investment Promotion Agency (ProNicaragua) attracted US$137.7 million in foreign direct investment, leading to the creation of over 12,000 jobs between 2003 and 2005. Free Trade Zone exports reached $700 million in 2004.
Total project cost was US$5.95 million of which IDA contributed US$5.4 million and the Government US$550,000. IDA’s technical assistance brought global expertise to the creation of competition, free trade zone, and commercial registry laws—making it easier for firms to operate in Nicaragua and thereby create jobs and generate exports. IDA built capacity for Nicaragua's Export Promotion Agency (NicaExport) and ProNicaragua, drawing on the experience and assistance of MIGA. In addition, to support the cluster activities, IDA drew on the extensive experience of the IFC’s Foreign Investment Advisory Service (FIAS) with additional support from a Bank-Netherlands Partnership Program (BNPP) grant.
Despite improvements in Nicaragua’s competitiveness, the country still has a large unfinished agenda. Bureaucracy and some remaining challenging regulatory requirements prevent Nicaragua from taking full advantage of the benefits of global markets, including potential gains as a member of the new DR-CAFTA free-trade agreement. IDA continues to support this work through the recently approved $20 million Micro, Small and Medium Enterprise Development Project, in close coordination with the IFC. This project (i) decentralizes government services, (ii) provides matching grants to the micro, small and medium sized enterprises, and (iii) offers access to financial services through a pilot partial credit guarantee fund. This combination of services should enable firms to meet the requirements of regional markets and thus will create jobs, increase productivity, and promote exports.
RSS