Nicaragua's Free Zones: Pioneering into Global Competitiveness

    WASHINGTON, DC, August 16, 2013 /24-7PressRelease/ -- In 2010, the United States Secretary of Labor, Hilda Solis, announced the donation of US$2 million to support Latin America's first International Labor Organization's (ILO) Better Work program in Nicaragua, whose objective was to improve both compliance with labor standards and competitiveness in global supply chains. Solis commented that with this project, Nicaragua joined "the countries that accept what is considered a gold standard for the enforcement of labor rights in the textile and clothing sector".

Although this statement might have been surprising for some, Nicaragua's free zones sector already indicated a strong economic development over the past years, offering good labor practices and representing an important part of the U.S. apparel supply chain.

Why Nicaragua?
During the 2008-2012 period, the country's free zones exports reached an accumulated US$8,411 million, with a 17 percent compound annual growth rate during the period. In 2012 alone, exports reached a historic US$2,327 million, while the sector employed over 103,412 people this same year.

This vibrant industry also represents one of the country's top investment sectors. During the 2008-2011 period, foreign direct investment in the free zones sector totaled US$376 million. In 2012, FDI inflows in the sector reached a record US$135 million, representing 10 percent of total FDI inflows that year.

Also, various world-renowned international brands are produced by manufacturers in the country, including Under Armour, Liz Claiborne, Wilson, Wrangler, GAP, North Face, Lee Jeans, Cintas, Patagonia, Levi's, Docker's and Dickies, among others.

However, the industry's growth was not the sole reason for the ILO to turn its head to Nicaragua. One of the key factors that set the proper base for Better Work was the country's social cohesion. "Back in 2008, as a country, we knew we had to react to the international crisis and come up with mechanisms to ensure that the free zones sector maintained its momentum of growth," commented General Alvaro Baltodano, Presidential Delegate for Investments and Technical Secretary of the National Free Zones Commission.

One of the actions taken was the signing in 2009 of a labor agreement between the Government of Nicaragua, private sector representatives and labor unions that established salary increases in the free zones sector with the purpose of providing further stability to employees granting predictability to investors and increasing labor productivity within free zones companies. The agreement also included the creation of social programs to benefit employees, such as a fund for housing projects, the distribution of food packages and recreational and health programs.

Known as the Free Zones Minimum Wage Tripartite Agreement, its third edition was recently signed and sets annual salary increases of eight percent for the 2014-2017 period for employees working within the country's free zones sector. To date, Nicaragua is the only country in the region to have established such an agreement.

What's going on today?
The Better Work program's initial phase has allowed all parts to evaluate its progress and assess its areas for improvement. With this in mind, Better Work representatives recently held a forum for international brand buyers with presence in the country interested in strengthening their commitments with free zone companies in Nicaragua. This allowed establishing an open dialogue between the brand representatives, the free zones sector and the Better Work program representatives.

During the forum, the brands had the opportunity to meet with representatives of the Nicaraguan Association of the Textiles and Apparel Industry (ANITEC), Nicaragua's Superior Council of the Private Enterprise (COSEP), the National Free Zones Commission and representatives of different unions to discuss the industry's views on the Tripartite Agreement signed in early 2013.

"Better Work Nicaragua is covering one third of the companies on the apparel sector, and about half of the workforce. It stresses shared responsibility for ensuring good working conditions. In that sense, the level of social dialogue in Nicaragua is a great strength. Sure, there are challenges. The apparel industry is a globalized industry that operates under fast and mobile conditions that put pressure on both factory managers and workers to be more productive. Better Work is working with all partners here - government, employers and workers - to ensure that the industry can be competitive and guarantee high standards and good working conditions," commented Elena Arengo, Better Work Program Coordinator in Nicaragua.

In turn, with the objective of understanding the sector's development, the National Free Zones Commission along with the Paulo Freire University, conducted a survey among free zones workers in 2012. Among the main findings were that 92 percent of the workers indicated to be satisfied with their work shift. Additionally, due to the sector's additional benefits, rotation in free zones companies has been reduced by 4.3 percent monthly. Recommendations were also given in order to continue fostering the country's labor conditions.

Where is Nicaragua's free zones sector heading?
In recent years, Nicaragua has become a major player in the global apparel industry and it has a leading position in the production of various types of garments directed to the United States. During 2012, Nicaragua ranked among the 11th largest apparel supplying countries to the United States in terms of volume. Its progress as one of the fastest growing garment exporting countries is reflected in its remarkable compound annual growth rate, especially when compared with other countries in the DR-CAFTA region.

International companies successfully established have also decided to expand their operations in the country. A perfect example is Cupid, an apparel manufacturing company established in the country since 1995, which recently opened a second facility in Nicaragua. "If you think we've had success in the past and in the present, I can assure you the future will be even better. Our business has been growing this year in comparison with last year, but our expectations are to grow even faster than we've grown any year since we came to Nicaragua (1995)," stated David Welsch, President of Cupid.

And it seems that the country's textile and apparel sector is not the only one attracting international attention. According to Stratfor, a geopolitical intelligence firm that provides strategic analysis and forecasting, ranked Nicaragua as one of the "Post-China 16" countries that will lead the global low-end manufacturing and export-led model that defined China's dramatic three-decade rise.

For more information on Nicaragua's apparel sector, email us at [email protected].

PRONicaragua is the Nicaraguan Investment and Export Promotion Agency, established in 2002. It is a non-profit, public-private institution whose mission is to generate economic growth and job creation in Nicaragua by attracting high-quality foreign direct investment. The agency provides complimentary support services to qualified investors seeking investment opportunities in our country. For further information, please contact us at (505) 2270-6400 or http://pronicaragua.org.

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