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Sector Profile
The sustained increase in Foreign Direct Investment (FDI) inflows in Nicaragua, even at challenging times for the global economy, demonstrates this Central American nation is the right decision to invest. In 2008, Nicaragua received US$626.1 million in FDI, 64 percent over 2007.
Given its strategic location and generous investment incentives, Nicaragua has established itself as one of the Western Hemisphere's most attractive platforms for manufacturing operations, whose exports reach the largest markets in the world.
During 2008, Nicaragua's Textile and Apparel industry's exports amounted to US$934.4 million, with shipments (volume measured in square meter equivalents, SMEs) up by 15.79 percent with respect to 2007. This makes Nicaragua the only country in the region to have obtained a double-digit growth rate in apparel exports by volume, as the following graph depicts:
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Graph: US imports from its major apparel suppliers during 2008.
Source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce, February 2009.
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Between 2001 and 2008, Nicaragua’s Textile and Apparel industry experienced:
Nicaragua has become a key player in the global Textile and Apparel industry due to the presence of decisive factors that influence a company’s profitability. These factors include:
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High productivity, coupled with the most competitive labor costs in the region
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Speed to market à Speed to profit
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Significant improvements in the nation’s infrastructure and business environment
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The implementation of DR-CAFTA and its benefits
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Generous investment incentives
World-renowned international brands have found in Nicaragua ideal elements to place garment production in the country; these brands include Polo Ralph Lauren, Liz Claiborne, Wrangler, Lee Jeans, Levi's, Docker's, Cintas, Dickies, Hanes, Under Armour, among others.
Apparel companies operating in Nicaragua also service major retail chains, such as: Target, JCPenney, Wal-Mart, Kohl's and GAP, all of which require a Swift delivery of quality goods so as to reduce inventory costs.
Nicaragua has the most diversified garment production in the DR-CAFTA region, including the production of shapewear, knit tops and bottoms (casual wear and sportswear), workwear, denim & twill garments, and underwear.
Besides apparel manufacturing operations, the Textile & Apparel value chain is complemented with twill fabric dyeing and finishing operations, industrial laundries, as well as companies specialized in embroidery, labeling, screen printing, and manufacturing of packing materials.
Let us arrange a personalized agenda for your visit to Nicaragua that suits your business needs. We invite you to discover why Nicaragua is The Right Move for your Business!
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Investment Opportunities
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Vertically-integrated production of natural and synthetic knit fabrics.
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Manufacturing of T-Shirts and all kinds of knitwear, made with natural and synthetic fabrics.
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Manufacturing of Men’s Wool Coats.
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Jeans and twill garments.
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Screen printing and embroidery services.
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Production of boxers, brassieres, pajamas, woven shirts, shorts and baby wear, among other types of garments.
Why Nicaragua?
Nicaragua has the most competitive labor cost structure in the region, as the following graph depicts:
Source: PRONicaragua, 2009, based on official information disclosed by the Central American countries'
Central Banks and Ministries of Labor.
This benchmark shows fully-loaded market wages for manufacturing and assembly operations in Central America. Fringe benefits in Nicaragua include: social security, holidays and vacation leave, severance, Christmas bonus and contribution to INATEC, the National Training Institute. Companies find that cost-saving benefits along with qualified, productive human resources, do make a difference in their businesses' competitiveness.
Nicaragua offers significant tax benefits under the Free Zone Regime for companies seeking to establish export-oriented operations. These benefits are effective for a period of 10 years, and can be extended for an additional five-year period:
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100 percent Income Tax exemption (Impuesto sobre la Renta, IR)
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100 percent exemption on import taxes for machinery, equipment and intermediate goods, as well as transportation or support services
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100 percent Value Added Tax (VAT) exemption
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100 percent capital gains and Property Tax exemption (Impuesto sobre Bienes Inmuebles, IBI)
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100 percent exemption on dividends and free repatriation of capital
Nicaragua is the ideal export platform as it enjoys free trade agreements with major trading partners around the world.
• United States, Dominican Republic and Central America Free Trade Agreement (DR-CAFTA)
• Free Trade Agreements with Mexico, Taiwan and Panama
• Partial Preferential Agreements with Colombia and Venezuela
• Generalized System of Preference with Canada, Japan, and the European Union
• Central American Common Market (CACM)
With the purpose of expanding and energizing even more its export horizons, Nicaragua is negotiating a free trade agreement with the European Union, which will allow access to one of the largest and most solid trade blocs in the world.
DR-CAFTA has contributed to eliminate duties for most of Central America's exports to the United States and helps to integrate the Central American economies into a single trading block. DR-CAFTA's general rule of origin for apparel articles is "Yarn-Forward," meaning duty-free benefits apply when cut and sew operations take place in Nicaragua, using regional yarn and fabric. Nonetheless, Nicaragua enjoys special rules of origin:
Tariff Preference Levels (TPL) for Wool:
This benefit allows the Nicaraguan Apparel industry to export free of duties to the United States up to 100 million square meter equivalents (SMEs) of garments made of non-originating cotton, man-made fibers or wool. The TPL benefit has been in effect since 2006 and will be valid until December 31, 2014.
Regarding wool, Nicaragua can export free of duties to the United States up to one million square meter equivalents (SMEs) of Men's Wool Coats, with fabric proceeding from any country in the world. These garments have higher value and complexity and their production will further diversify Nicaragua's ample apparel offer.
Short Supply List
DR-CAFTA's Textile and Apparel provisions include a list of specific yarns and fabrics deemed to be "not available in commercial quantities in a timely manner" in the Treaty's signatory countries, or in other words, in "short supply" from DR-CAFTA region mills. Provided the outer shell of a garment is cut and sewn in Nicaragua using these specific yarns and fabrics, it may enter the United States duty-free. There are no limits or quotas for exports applying the Short Supply rule and its duty-free benefit doesn't expire in time.
Single Transformation
This provision grants duty-free benefits in the United States for specific types of garments, with the flexibility to use fabric of any origin as long as the products are cut (knit to shape) and sewn in the DR-CAFTA region.
This represents a great opportunity for woven boxer shorts, brassieres, woven pajamas and nightwear, babywear, women's cotton coats, among others. Single transformation trade is unlimited and the benefit does not expire in time.
Cummulation with Mexico and the United States
This mechanism permits the use of Mexican raw materials in the production of woven apparel in any DR-CAFTA country; the advantage consists in exporting these woven garments to the United States duty-free, qualifying as DR-CAFTA products. It occurs the same on the opposite way: raw materials originating in the United may be used in the production of woven garments in the DR-CAFTA region, which may then be exported to Mexico duty-free.
Although the original agreement establishes a trade cap of 100 million SMEs per year to qualify for cumulation benefits, the agreement also includes language to potentially double this cap over time.
Nicaragua’s strategic location, combined with customs efficiency and a productive labor force, allows companies to deliver production to the United States as fast as 50 days (average), since the day the program starts until it is shipped out of the Free Zone area. Short lead times satisfy customers’ expectations, improving their inventory control and replenishment activities.
Source: PRONicaragua, based on information from the National Port Authority (Empresa Portuaria Nacional, EPN), Maersk, NYK Logistics and ALPAC, 2008.
In addition, due to Nicaragua’s proximity to the United States, ships reach Southern U.S. ports within 3 – 5 days.
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Testimonials/Quotes
Please take a moment and see for yourself what other investors have to say about their experience in Nicaragua.
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Mr. Anthony Corsano, President & CEO of Anvil Knitwear, mentioned in an interview to a local newspaper that “Nicaragua’s excellent labor and its ability to deliver production orders in a timely manner, combined with the country’s adequate production cost structure, make Anvil’s investment in Nicaragua a profitable operation.”
- El Nuevo Diario, February 2, 2008.
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Contacts in PRONicaragua
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