NICARAGUA: TOURISM SECTOR

UNCLAS MANAGUA 000341

SIPDIS

SIPDIS

STATE FOR WHA/CEN GSCHIFFER, MKOPOLOW, EB/IFD/OIA, L/CID,
WHA/EPSC

E.O. 12958: N/A
TAGS: EINV ECON ETRD USTR KIDE NU
SUBJECT: NICARAGUA: TOURISM SECTOR

REF: MANAGUA: 000327


1. (U) Summary: Statistics from the National Ports Company
(EPN) and the Institute of Tourism (INTUR) paint an
attractive picture of the tourism industry in Nicaragua.
Tourists spent 30% more in 2006 than they did in 2005, and
new investment in the sector totaled $60 million. The
election of Sandinista candidate Daniel Ortega as president
does not appear to have deterred investor interest yet, but
there are signs of investor concern as the new government
struggles to define its economic course. The new government
continues to view the tourist industry as a way to create
jobs, generate needed foreign exchange, and contribute to the
reduction of poverty. INTUR is considering proposing
investment incentives for the sector. Investor interest has
been piqued by a number of international publications that
promote the country's tourism potential, but often overlook
the challenges that exist. The country lacks infrastructure
and investors must contend with serious legal issues when it
comes to purchasing or leasing land. End Summary.

The Numbers Are Looking Better
--------------


2. (U) Statistics from the National Port Company (EPN) and
the Institute of Tourism (INTUR) paint an attractive picture
of the tourism industry in Nicaragua. Nearly 900,000
visitors entered Nicaragua in 2006, 14% of them as tourists.
The country's main attractions are beaches, colonial sites,
volcanoes, and lakes; popular activities ranged from surfing
to birdwatching. Of the 125,000 tourists, 14,112 arrived on
one of 34 major cruise ships that docked at the small Pacific
port of San Juan del Sur, and spent at least a day in the
country. International visitors average at least one night
in Nicaragua. INTUR is examining at strategies to extend the
average stay to 3-4 nights. From 2005 to 2006, the number of
tourists grew by 8.6%, helping to make tourism one of the
fastest growing and most important foreign currency earning
sectors in the economy. INTUR estimates that tourists spent
$239 million in 2006, up 30% from 2005. Tourism accounted
for more than 5,000 new direct and indirect jobs in 2006, and
contributed to the reduction of poverty in a number of
coastal and rural areas. Despite this relative success,
INTUR spent just $1.5 million on promoting tourism, the
lowest in Central America.



3. (U) Managua is the political and business capital of the
country, and hosts the country's only international airport.
For this reason, most travelers spend a night in Managua
before heading to the beaches. As the number of visitors to
Nicaragua has grown, so has Managua's ability to accommodate
them before they head off to their final destination. In the
past nine years, the number of hotel rooms in Managua has
more than doubled -- 300 luxury rooms were added in 2005
alone. Trendy dining spots and America-style restaurants
have sprung up throughout the city, largely clustered near
international hotels. To meet growing demand, Delta Airlines
has added direct daily flights from Atlanta and Los Angeles
to Managua. American, Continental, and TACA also provide
direct service to the United States. Managua has a number of
daily connecting regional flights to the TACA Airlines hub in
El Salvador and the COPA Airlines hub in Panama. Domestic
airlines La Costena and Atlantica serve the internal market
amidst frequent delays and cancellations caused by an aging
turbo-prop fleet.

Investment
--------------


4. (U) In 2006, new investment in tourism totaled $60
million, creating something of a mini boom. More than 80
construction projects (many smallscale) cover 430 acres of
beachfront property, most on the Pacific coast. U.S.
developers are responsible for the lion's share as they look
to Nicaragua to build high-end resort and retirement
communities at lower cost than they can in neighboring Costa
Rica. Developer presence has created a bit of a speculative
property market, as some individual investors look to buy a
beachfront lot or two for resale in a few years.


5. (U) Such investor interest has been piqued by a number of
international publications that promote the country's tourism
potential. International Living magazine touts the country
as a "best-kept retirement secret" and characterized the
country as "safe, stunning, and still affordable." A
December 2006 New York Times feature entitled "The
Rediscovery of Nicaragua" described the nation as "the next
Costa Rica," portraying the post-revolution scene as quiet,
beautiful, and culture-rich. National Geographic Explorer
magazine lauded Nicaragua as one of fifty "tours of a
lifetime." This type of (perhaps a tad too breathless) press
coverage has encouraged Americans to view Nicaragua as a
possible vacation destination or location for a
vacation/retirement home, but often overlook the challenges
that exist.

Tourism Bonds
--------------


6. (U) The Ortega government continues to view the industry
as a means to create jobs, generate needed foreign exchange,
and reduce poverty. INTUR is considering possible incentives
for the sector. In 2006, the Bolanos government proposed
creating tourism investment bonds (BIT) as an investment
incentive. The legislation proved to be controversial,
however, and the initiative was dropped after the
International Monetary Fund resident representative concluded
that the economic benefit did not warrant the cost (i.e.,
forgone tax revenues). More recently, INTUR promised to
rewrite the initiative and reintroduce it into the National
Assembly in 2007, with a commitment of support from Daniel
Ortega, barring Ministry of Finance objections. However, the
influential Managua daily "La Prensa" recently reported that
INTUR would likely opt to reform the existing Tourism
Incentive Law rather than continue to support BIT
legislation. In his meeting with the Ambassador, new
Executive Director of INTUR Mario Salinas seemed to confirm
this approach (septel).

Enter the Sandinistas
--------------


7. (U) The change in government does not appear to have
deterred investor interest in Nicaraguan tourism. Sandinista
Comandante Daniel Ortega "is president of a different
Nicaragua," from the one he governed in the 1980s, noted a
New York Times article. "There seems little chance that the
Sandinista victory will lead back to the chaos of the past."
Indeed, from Ortega's November 5th election victory until his
inauguration, very little seems to have changed for
developers on the Pacific coast and other key tourist areas.
Post is aware of no pullouts of major investors. Meetings
between investors and newly-elected administration officials
have gone fairly well. Vice President-elect Jaime Morales
Carazo, the public face to foreign investors of the
Sandinista government, predicted to local business owners in
San Juan del Sur, a popular and growing beach town, that
"tourism will be guaranteed a thriving future under the new
Sandinista government." He further assured investors that
1980s-style Sandinista land grabs were a thing of the past.
"Respect for private property is essential," Morales
declared, "to set the basis for the credibility and trust
that the country needs."


8. (U) Despite the assurances and rosy New York Times
outlook, there are signs that some investors are taking a
wait-and-see approach. Some have indicated that their
investors are anxious and others are receptive to suitable
purchase offers or other arrangements.

A Dearth of Roads and Other Challenges
--------------


9. (U) One of Nicaragua's greatest tourism development
challenges is the lack of good roads. Since 1999, investors
have been pushing for a Pacific coast highway to support the
development of coastal resort areas and Costa Rica as many
coastal areas are only accessible by off-road vehicles. In
2004, the GON announced plans to build such a road, only to
see the project scrapped two years later by the Ministry of
Transportation and Infrastructure (MTI). MTI alleged at the
time that the approximately US$120 million price tag could
not be justified, although investors scrambled gamely to
convince GON officials otherwise. Industry reps argued that
the highway project would lead to US$600 million in real
estate investment over the next 10 years. MTI agreed to
re-examine the project, but no concrete action was apparently
taken.


10. (U) The tourism industry must also contend with other
challenges. The country is sorely in need of all kinds of
infrastructure investment. Potholes pockmark city streets.
Public transportation is woefully inadequate. Sidewalks are
often nonexistent. Most parts of the country suffer power
outages on a daily basis. Many regions do not enjoy access
to potable water or water treatment facilities. Malaria and
dengue fever are endemic in certain areas. Managua has no
street signs and comprehensive maps of the country are
remarkably scarce. The government's ability to channel
investment to meet these challenges will determine the pace
of development for the tourism sector.

Land Disputes Still a Problem
--------------


11. (U) Investors must contend with serious legal issues when
it comes to purchasing or leasing land in Nicaragua.
Thorough due diligence must be performed to determine which
property law determines titling requirements and whether any
competing claims exist. Large developments may generate
unwelcome attention, as local interests may file false or
questionable claims to grab a piece of a pie. These disputes
can delay projects and be costly to resolve. Retaining
competent legal counsel from the very beginning is important.
Notwithstanding, serious property disputes are the exception
rather than the rule. The FSLN government has emphasized its
desire to resolve all still festering disputes arising from
the free-for-all property confiscations, and vowed to eschew
future land grabs.
TRIVELLI