NICARAGUA: CONE DENIM INAUGURATES MILL

UNCLAS SECTION 01 OF 02 MANAGUA 000628 SIPDIS SENSITIVE STATE PASS USTR E.O. 12958: N/A TAGS: ETRD ECON EINV PGOV NU SUBJECT: NICARAGUA: CONE DENIM INAUGURATES MILL REFS: A) MANAGUA 610, B) MANAGUA 579 Summary -------------- ¶1. (SBU) On April 22, 2008, U.S. textile manufacturer Cone Denim inaugurated a vertically integrated textile mill near Managua. The mill directly employees 850, and Cone Denim estimates that its investment creates an additional 15,000 to 20,000 indirect jobs. President Ortega told participants in the inauguration ceremony that he had assured Cone Denim executives during several visits to Managua in late 2006 that an FSLN government would respect Cone Denim's investment. On the other hand, he criticized so-called "fragile" investments such as that of departing Taiwanese apparel manufacturer Nein Hsing, but said that he could not turn them away. In the weeks following the inauguration, Ortega reverted to lambasting free trade and criticizing foreign investors for abusing and exploiting Nicaraguan labor. Lacking institutional assurances that Ortega's rhetoric will not affect their investments, foreign investors frequently seek personal assurances from Ortega that their investments are safe, a sign of the erosion in the investment climate here. $100 Mill Provides 850 Direct and 15,000 Indirect Jobs -------------- -------------- ¶2. (U) On April 22, 2008, Cone Denim, a division of International Textile Group (ITG),inaugurated a vertically integrated textile mill in Sandino City on the western outskirts of Managua. Construction of the building, the largest in Nicaragua at 56,000 square meters, began only a year ago on April 18, 2007. It features its own water treatment facility. Currently, the plant operates with electricity from the grid, but Operations Manager Steve Maggard reported that the company will install a 20 megawatt coal or bunker generator. The $100 million facility will use 48 million pounds of U.S. cotton a year to produce 28 million yards of denim fabric, serving customers throughout Central America that will take advantage of textile and apparel provision included in CAFTA-DR. ¶3. (U) The mill employs 850 workers directly, including a small expatriate workforce from Mexico and the United States. Cone Denim estimates that its investment creates an additional 15,000 to 20,000 indirect jobs. Operations Manager Steve Maggard reported that labor relations have been straightforward to date. The plant operates on a four-by-four labor schedule (that is, four, 11-hour workdays, with pay for 48 hours, followed by four days rest). Nicaragua's Labor Code officially recognizes only the standard 8 hour, six day a week schedule, but Cone Denim secured approval to use the four-by-four schedule in its investment agreement with the government. [Note: The Ministry of Labor is supporting labor leaders in a lawsuit pending in the Supreme Court to ban the four-by-four model. End note.] Ortega Welcomes Cone Denim, Criticizes "Fragile" Investment -------------- -------------- ¶4. (U) President Ortega told participants in the inauguration ceremony, including potential investors in apparel assembly operations, that he was proud to have an investment such as Cone Denim in Nicaragua. He recalled assuring ITG President and CEO Joseph Gorga, during several visits the executive made to Managua in late 2006, that an FSLN government would respect ITG's investment. Ortega spoke at length about the scale of Cone Denim's investment, noting the permanence of the structure, which includes large ventilation tunnels built into the foundation to absorb heat and improve air quality. ¶5. (U) In contrast with Cone Denim's investment, Ortega criticized so-called "fragile" or "fly-by-night" investments such as that of Taiwanese apparel manufacturer Nein Hsing, which is shuttering its operations in Nicaragua. Ortega, who had previously suggested that Nein Hsing withdraw from the country, softened his message to say that Nicaragua cannot turn down any investor, even fragile ones. [Note: Nein Hsing has operated in Nicaragua for 15 years and as recently as 2006 provided employment to 14,000 Nicaraguans. Ref B describes the reasons behind Nein Hsing's departure. End note.] Ambassador Highlights Investment Calculus -------------- ¶6. (U) Ambassador Trivelli spoke at the inauguration, highlighting the role of the private sector in generating jobs and reducing poverty. He portrayed Cone Denim's mill as an example of how profitable enterprise and sound environmental and labor standards go hand in hand. The Ambassador also suggested that investors look for more than cheap labor in deciding where to locate their operations -- among other factors, they look to the quality of infrastructure and institutional mechanisms that protect their investments. Assistant U.S. Trade Representative for the Americas Everett Eissenstat, who met with Trade Ministry and other officials during his visit to Managua (Ref B),also attended the Cone Denim inauguration and toured the facility with ITG President and CEO Joseph Gorga. Comment: Ortega's Blessing -------------- ¶7. (SBU) Ortega's muted criticism of Nein Hsing perhaps reflects his understanding that in attendance were several companies that Nicaragua's investment promotion agency ProNicaragua was courting to buy out the Taiwanese. At an event in Chontales the following day, Ortega quickly reverted to form, criticizing foreign investors for abusing and exploiting Nicaraguan labor. A week later at his food summit, Ortega lambasted free trade and blamed the current food crisis on the United States and wealthy nations of the world (Ref A). Lacking institutional assurances that Ortega's rhetoric will not affect their investments, foreign investors frequently seek personal assurances from Ortega that their investments are safe, as did Cone Denim on at least three separate occasions. This practice is a sign of the erosion in the investment climate here. TRIVELLI