Alberto Jose Guevara Obregon, Nicaragua's finance minister tells The Banker how government efforts to attract foreign direct investment to the relatively untapped energy sector are seen as crucial if the region is finally to shake itself out of poverty. Writer Silvia Pavoni

Nicaragua does not have the best reputation on the global markets. President Daniel Ortega has been trying to circumnavigate the country's law and seek re-election at the end of his term in 2011, while Iran's $1.5m investment to build a hospital in the country - which some see not as a humanitarian gesture but a politically charged move - and close ties with Venezuela have made observers nervous about the region's rule of law and political stability.

However, to the country's finance minister, such concerns appear non-existent. "There are opportunities for business in Nicaragua and clear rules for businesses here," says Alberto José Guevara Obregón. And a recent surge in foreign interest in his country would seem to support his view.

Growth prospects

While still limited, private sector investments in Nicaragua have grown in recent years. Since 2003, the country received $2.3bn in foreign direct investments (FDI) across various sectors and after the severe dip experienced in 2004 - when FDI went from $1.12bn in 2003 to $141m - investment flows are growing again, according to fDi Intelligence data.

The Nicaraguan investment promotion agency says there have already been three key energy and natural resources deals in 2010, including a $700m investment in the Tumarín hydroelectric dam - the largest project of its kind in the country - which will be developed by Brazilian energy firms Queiroz Galvao and Eletrobras. North American companies Ram Power, B2Gold, Amayo and Hemco have announced plans to invest a total of more than $300m in the energy and mining sectors over the next couple of years.

Private investments, particularly in renewable energy and natural resources, are crucial in helping pull the country out of poverty, says Mr Guevara, and he is adamant money will continue to flow into those sectors. "We want to be able to develop based on our own means, in line with our own resources. We want to enter bilateral or multilateral relations with other countries," says Mr Guevara. "Nicaragua is growing as a producer of energy. Energy investors will find great ease in developing their projects [here] and will find a nation with its arms open."

However, some investors will still need convincing. Besides the uncertainty surrounding Nicaragua's political situation, the country is also dependent on multilateral agencies' funds, the terms of which Mr Guevara does not always find suitable. "We have our own institutions and way of politics," he says. "We don't need intervention that would affect our natural way of doing things. Often international organisations impose conditions that are not the ones we want for our country." Tension with such agencies and an inability or unwillingness to meet lending conditions would aggravate the Nicaragua's growth prospects.

Due to the dependency on global community funding, external debt remains high, at 65% of gross domestic product. This is despite large debt forgiveness from the International Monetary Fund, the World Bank's initiative to support heavily indebted poor countries and the G8's multilateral debt-relief programme.

The financial sector is also seen as a weak point and developments in the mortgage market would benefit the country. Nicaragua's banking system is the smallest in Central America in terms of Tier 1 capital figures, total assets and pre-tax profits.

While reiterating the crucial role banks play in an economy, Mr Guevara highlights the fact that larger opportunities would come from a closer alignment with the national development plans.

"Banks mark the priority that economic sectors have," he says. "But banks need to be more proactive, more in line with the national development plans and not just focus on financing credit cards, stock exchange operations or other activities that are far beyond people's necessities."

Powering up

Vulnerable to commodity export prices, Nicaragua hopes a greater use of its land and water resources will contribute to economic growth, says Mr Guevara, who outlines the government's pledge to reduce dependency on oil and increase renewable energy production. While oil currently represents 80% of energy sources, the country is committed to bringing renewable energy sources to 90% of the country's consumption, using hydroelectric, biomass, geothermal and wind power ventures. The Inter-American Development Bank has agreed to support the government's renewable energy programme with a $500,000 pledge and other financiers are expected to participate.

Mr Guevara says that Nicaragua could significantly expand its current 1000 megawatts (MW) in energy output. "A further 5000MW [can be produced]. We are waiting for investors to come and take advantage of our natural resources," he says. "Energy is the future of our country and we can produce energy also for our neighbours in Guatemala, Honduras, Costa Rica and Panama."


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