Bobbin / January 1996
By Larry Luxner
The apparel assembly industry is so new to Nicaragua that the 60-page Country Commercial Guide to Nicaragua, published in June 1994 by the U.S. Embassy in Managua, barely mentions a word about it.
Yet some observers here say the development of a maquila industry is crucial if the impoverished nation -- still suffering the effects of a long civil war and even the 1972 earthquake that leveled Managua -- is to ever relinquish its economic dependence on traditional, and sometimes unreliable, exports such as coffee, sugar and bananas.
At present, the focus of Nicaragua's apparel sector is Las Mercedes Free Zone, located on the outskirts of Managua, on a 57-hectare plot of land next to Cesar Sandino International Airport. There, at least 8,000 employees working in 19 factories produce non-traditional exports -- 90% of them garments -- for export to the United States.
In 1994, the free zone's value-added exports came to $37 million, or about 10% of all Nicaraguan exports, up from $14.2 million only two years earlier. This year, Las Mercedes is aiming for a minimum $50 million worth of exports, according to the free zone's executive director, Sergio Zamora.
"Little by little, Nicaragua's image -- which had deteriorated because of the war -- is changing. Every American investor who comes here to explore is convinced that Nicaragua offers opportunities," Zamora said in a recent interview. "Four companies have signed contracts with us even before they had buildings, and three companies -- including Istmo, a subsidiary of Korea's Daewoo Group -- have doubled production with a year of starting here. This demonstrates the confidence they all have in Nicaragua."
The zone's two largest companies are both blue-jeans manufacturers and are both Taiwanese-owned: Nien Hsin Texile, which employs 1,300 people, and Chentex Garments, which has 600 workers but will rise to 1,500 over the next 12 months. A third company, China Unique Garments, will start operations in December. The presence of Taiwanese companies at the zone stems from Nicaragua's very close relations with staunchly anti-communist Taiwan since the electoral ouster of the Sandinistas in 1990.
In addition to the Far East companies is a locally owned firm, Confecciones de Nicaragua S.A., which contracts with Sara Lee Corp. to assemble women's underwear under the Hanes label. Previously, Sara Lee had been using another firm at the zone, Velcas S.A., but switched to Confecciones de Nicaragua last year following problems with Velcas. In the first seven months of this year, Confecciones' 300 employees produced 173,000 dozen pairs of Hanes underwear -- a figure expected to double next year when the plant expands by another 1,200 square meters.
One reason Sara Lee chose Nicaragua as the assembly site for Hanes underwear was the low average cost of labor -- which runs about 60 cents an hour including fringe benefits, compared to 90 cents an hour in Mexico and over $5 an hour in Puerto Rico.
Nicaragua's labor force, estimated at 1.16 million workers, is rural-based and largely unskilled. According to the U.S. Embassy, 37% of Nicaraguans are employed in agriculture, 17% in manufacturing and 46% in services. Unemployment is estimated at 23% and underemployment at 28%. Per-capita income is less than $400 a year; in the entire Western Hemisphere, only Haiti's is lower.
Yet while the Nicaraguan economy hasn't improved much in the last four years, incentives for investing there certainly have. Since 1991, the Chamorro administration has passed a variety of pro-business measures including a liberal foreign investment code and an export-promotion law. In addition, the free zone law makes companies operating in such zones eligible for exemptions on income tax, value-added tax, tariffs, export taxes and other fiscal measures.
Zamora says 85% of the zone's employees are women, and that their average salary is $125 a month not including so-called productivity incentives.
"We have worked very closely with investors, making sure that everything that can interrupt labor in this country won't affect the free zone," he said. "We have also tried to make workers feel at home in the zone. For example, we're building a day-care center for 150 children of employees, as well as 100 housing units near the zone's entrance to alleviate Managua's housing shortage."
While Las Mercedes is the only free zone in the country, a feasibility study is now underway to establish a second zone in Ciudad Sandino, a town of 50,000 on the main highway between Managua and León. Unlike Las Mercedes, which is 100% state-owned, the Ciudad Sandino zone would be funded totally from the private sector.