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. �0A; ¶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