Sector Profile

In recent years, multinationals in the light manufacturing and assembly sector have discovered Nicaragua’s productive labor force, strategic location, competitive cost structure, and positive investment climate.

Important suppliers for multinational corporations such as General Motors and Ford have already established successful operations in Nicaragua, benefiting directly from the value of our competitive costs, proximity to key markets, modern communication technology and skilled technical labor force.

Companies such as Arnecom, a member of the Yazaki Group, have experienced Nicaragua’s unique competitive advantages: in just three years, they have grown their operations from 450 to 5,000 employees. Other companies in the medical products field have also established in the country, proving that the Nicaraguan manufacturing sector is on the verge of a revolution.

Competitive Cost Structure and Incentives

Labor Costs

• The most competitive salaries in the region

Average Hourly Wage - Free Trade Zone Operators

Source: The Economist Intelligence Unit, FINDE Honduras, ProNicaragua, PROESA, INVESTINGUATEMALA, PROEXPORT, CINDE & CNZF, for year 2004. Includes fringe benefits, but excludes production premiums.

• The only country in the America's with operating costs comparable to China's.
• Delivery time to the United States is three times faster from Nicaragua than from China
• Reduction of inventory costs due to Nicaragua's proximity
• All permits can be obtained in less than six week

Companies can achieve cost savings of up to 45% by operating in Nicaragua versus leading locations in the region

Source: El Salvador Chamber of Commerce and Costs Study of China (China Labor Watch) published in The Wall Street Journal, March 8, 2005.

Free Trade Zone Incentives Law

In 1991, the Government of Nicaragua approved a series of laws aimed at supporting the Export Processing Zones.  These laws are currently being modified to provide even more benefits to the companies governed by this program, however they currently provide:

• Total tax exemption on income and property taxes
• Total exemption on municipal taxes
• Total exemption on taxes for machinery, equipment and raw material, and on transport and support services for the Free Trade Zones
• Total tax exemption on value added tax
• All permits can be obtained in less than six week

According to the rules of the World Trade Organization (WTO), Nicaragua will be one of the few countries able to offer fiscal incentives granted to exporters by the free trade zone laws after 2008.

Quick Response

Nicaragua’s strategic location, with access to both the Pacific and Atlantic Oceans, allows rapid access to North and South America. Our proximity to the United States makes Nicaragua an ideal location for quick response manufacturing, allowing apparel companies to supply product to their customers in-season or for replenishment orders.

• 2.5 hours flying time to Miami and Houston
• 8 daily direct flights to main U.S. airports
• 3 – 5 days by ship to Southern U.S. ports

Market Access

Nicaragua has signed a broad array of commercial and free trade agreements with the most important markets in the world that allow companies that operate in Nicaragua to locate in Nicaragua in order to establish a cost-effective export platform for key markets such as the U.S., Mexico and Europe.

Current Trade Agreements

• UNITED STATES Free Trade Agreement between Central America, the Dominican Republic and the United States of America.
• MEXICO Free Trade Agreement between the Government of the Republic of Nicaragua and the Government of the United Mexican States.
• PANAMA Free Trade Agreement and Preferential Exchange between the Republics of Nicaragua and Panama.
• EUROPE General System of Preferences (GSP) allows preferential access to the European Union and Japan.
• Central American Common Market

The Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) with the United States of America. 

Nicaragua, along with the four other Central American nations and the Dominican Republic, signed a free trade agreement with the U.S.  This agreement eliminates duties for most Central American exports to the U.S. and helps integrate the Central American economies into a single trading block.

Under this treaty, Nicaragua enjoys unique market access and tariff preference levels for the textile and apparel industry:

• Tariff Preference Levels (TPL): Up to 100 million square meters equivalents (SME) of fabric coming from any part of the world may be used to assemble garments in Nicaragua that will enjoy tariff-free access to the U.S. (TPLs were granted for a limited period of time).

• Rule of Origin: A yarn-forward rule is applied to garments manufactured in the region, which means that the fabric used to manufacture the garment must be knitted or weaved using regional yarn.

• Special Rules of Origin:
  Wool: Wool garments made with regional fabric will enter the United States duty free.
  Knit fabric and yarn: Yarn Forward
  Nylon garments: The fabric may come from any country of origin and enjoy access duty free.
  For men's underwear, nightwear and some women's intimate apparel, the rule of "single transformation" is applied such that it suffices for the product to be cut or sewn in the region to enjoy duty-free access.

Free Trade Agreement with Mexico and the Dominican Republic

Nicaragua has signed Free Trade Agreements with Mexico and the Dominican Republic that permit duty-free trade for certain key products.

Generalized System of Preferences (GSP)

The Generalized System of Preferences, (GSP), originates with a global effort by industrialized countries to grant market access to developing countries. The GSP is a unilateral benefitial tariff granted to imports from developing countries.  Nicaragua benefits from the GSP with Japan, and the European Union.

Central American Common Market (CACM)

Nicaragua, Honduras, El Salvador, and Guatemala, have signed an agreement to integrate their economies in order to achieve greater competitiveness in the global marketplace.  The union has created a common customs territory among the countries that will result in the free movement of all products, regardless of their origin, and the elimination of customs requirements between the countries.