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Sector Profile
Given its strategic location, productive labor force, attractive investment opportunities, and generous fiscal incentives, Nicaragua has positioned itself as one of the most dynamic platforms in the Western Hemisphere's for manufacturing operations, whose exports reach the largest markets in the world.
Nicaragua's Textile & Apparel industry is indeed an important development engine for the national economy, as it employed more than 50,000 people by the end of 2009 and, during the same year, exported 308.3 million square meter equivalents (SMEs), valued at US$893.3 million. Notwithstanding the negative repercussions of the international financial crisis on American apparel imports, Nicaragua's performance was by far the most resilient in the region.
The following graph depicts Nicaragua's Textile & Apparel exports between the years 2000 and 2009.
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Note: Figures are in million US$ and million SMEs.
Source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce, April 2010.
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During the past five years, Nicaragua's Textile and Apparel industry has experienced:
Nicaragua showed the best regional performance in apparel export operations during the challenging year of 2009. The following graphs portray percent changes for 2009 exports vs. 2008 exports from the top U.S. apparel suppliers:
Note: U.S. apparel imports from the entire world during 2009, by volume, were -6.07 percent versus year 2008.
Source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce, April 2010.
Note: U.S. apparel imports from the entire world during 2009, by value, were -11.83 percent versus year 2008.
Source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce, April 2010.
Nicaragua has become an important player in the global Textile and Apparel industry. By the end of 2009, Nicaragua became the 14th largest apparel exporter to the United States. Investors find in Nicaragua key factors conducive to their companies' profitability, these include:
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High productivity, coupled with the most competitive labor costs in the region
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Speed to market leading to speed to profit
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Significant improvements in the nation’s infrastructure and business climate
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The implementation of DR-CAFTA and its benefits
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Generous investment incentives
World-renowned brands have found in Nicaragua the ideal conditions to place garment production in the country; these brands include Polo Ralph Lauren, Liz Claiborne, Patagonia, North Face, 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 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 packaging materials.
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Investment Opportunities
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Vertically-integrated production of natural and synthetic knit fabrics.
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Yarn manufacturing for woven apparel.
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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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Trims, 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.
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Why Nicaragua?
Competitive Cost Structure
Nicaragua has the most competitive labor cost structure in the region, as the following graph shows:
Source: PRONicaragua, 2010, based on official information disclosed by the Central American countries' Central Banks and Ministries of Labor.
For Mexico, official information from the Comité Nacional de Salario Mínimo (CONASAMI, National Commission on Minimum Wage) for the country's three different economic zones.
This benchmark shows fully-loaded market wages for manufacturing and assembly operations in Central America. Fringe benefits in Nicaragua amount to 46 percent of total compensation and include: social security, holidays and vacation leave, severance, Christmas bonus and contribution to the National Training Institute (INATEC, for its acronym in Spanish).
Companies find that cost-saving benefits along with qualified, productive human resources, make a difference in their businesses' competitiveness.
Attractive Fiscal Incentives
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:
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100 percent Income tax exemption
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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
Preferential Access to Important Markets
Nicaragua is the ideal export platform as it enjoys free trade agreements with major trading partners around the world.
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United States, Dominican Republic and Central America Free Trade Agreement (DR-CAFTA).
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Free Trade Agreements with Mexico, Taiwan and Panama and the European Union.
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Partial Preferential Agreements with Colombia and Venezuela.
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Generalized System of Preference with Canada, Japan, and Norway.
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Central American Common Market (CACM) and Central American Harmonization of Customs.
With the purpose of expanding and energizing even more its export horizons, Nicaragua recently signed 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.
Specific Trade Benefits under DR-CAFTA
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 up to one million square meter equivalents (SMEs) of Men's Wool Coats free of duties to the United States, 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 does not 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 allows 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.
The same occurs on the opposite way: raw materials originating in the United States 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 terms to potentially double this cap over time.
Speed to Market - Speed to Profit
Nicaragua's strategic location, combined with 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.
Due to Nicaragua's proximity to the United States, ships reach Southern U.S. ports within three to five days. Additionally, it takes 2.5 hours of flying time to Miami and Houston and there are eight daily direct flights to main U.S. airports.
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Testimonials/Quotes
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
Please take a moment and see for yourself what other investors have to say about their experience in Nicaragua.
Contacts in PRONicaragua
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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