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Nicaragua risk: Infrastructure risk(RiskWire Via Thomson Dialog NewsEdge)COUNTRY BRIEFING FROM THE ECONOMIST INTELLIGENCE UNIT RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC56C56Infrastructure riskE81E81Note: E=most risky; 100=most risky.SUMMARY Nicaragua's geographical location makes it prone to extreme weather conditions. The damage inflicted by weather is exacerbated by poor land management and building standards. Consequently business operations tend to be seriously interrupted following major storms. Since the rail network was closed in 1994, domestic transport is almost entirely by road. The road network was severely damaged by Hurricane Mitch in 1998 but progress has been made in restoring it. Bottlenecks remain, however, which hold up goods and personnel transport. With US$180m in fresh loans from the IDB obtained in April 2003, the Bolanos administration has started an extensive trunk road construction programme. The Empresa Nicaraguense de Telecomunicaciones (Enitel, state-owned telecommunications company) is now privately owned. This is expected to lead to greater investment in the telecoms network, which is expensive and unreliable. SCENARIOS Inadequate road network continues to hamper business operations (Moderate Risk) Domestic transport relies almost entirely on the road network, which was severely damaged by Hurricane Mitch in 1998. Although progress has been made in restoring road links, bottlenecks remain, delaying the transport of both goods and personnel. Given the need to rein in public spending to meet fiscal targets--only 18% of the roads were budgeted for maintenance in 2001--road investment was in doubt until April 2003 when the government obtained US$180m from the IDB in fresh funds to expand its network of trunk roads. Even so, it will probably take some years before a substantial improvement is noticeable and in the meantime businesses should assume that transport will at times be circuitous and unreliable. Road and sea transport routes are disrupted by extreme weather (High Risk) Nicaragua's location subjects it to a variety of extreme weather conditions, including hurricanes, droughts, earthquakes and volcanic eruptions. Poor land management and building standards mean that infrastructure suffers severely at times of extreme weather. Consequently, business operations can be severely disrupted. Companies should make plans for operating in the aftermath of extreme conditions. BACKGROUND (Background material is updated twice yearly. Last update: November 9th, 2005) Natural Resources and the Environment Nicaragua has a variety of tropical ecosystems ranging from tropical rainforest on the Atlantic coast to dry tropics on the Pacific coast. Owing to the offshore confluence of tectonic plates and six active volcanoes, Nicaragua is highly vulnerable to natural disasters, earthquakes, flooding and hurricanes. Conditions in the mountainous regions in the centre and north of the country are fresher and wetter. The country has two large freshwater lakes, the Lago de Nicaragua and the Lago de Managua. Both of them are contaminated. The continental shelf off the Atlantic coast is a rich source of fish, lobster and shrimp, and both the Atlantic and Pacific coasts have underfished reserves of grouper, tuna, clams and mackerel. Commercial shrimp farming has also flourished in estuaries along the Pacific Coast. According to official sources, there are 37,880 hectares (ha) suitable for shrimp farming. However, overexploitation is depleting the Atlantic lobster beds. Forest reserves are fairly abundant compared with the rest of Central America. The main commercially viable species are mahogany, cedar, pine, rosewood and oak. Official sources put the forested area, including rainforest under official conservation, at 4.8m ha in 1992. Protected areas covered 2.2m ha. The two largest nature reserves are Bosawas on the north Atlantic coast and Si-a-Paz near the border with Costa Rica. Both are subject to encroachment by illegal settlers. Deforestation is a serious problem, resulting in soil erosion, the decay of watersheds and aquifers, and an increasing tendency towards drought. Transport and Communications Internal transport relies almost entirely on the road network. The railway network was closed in 1994 after falling into disrepair. According to the Ministry of Transport Nicaragua's motor vehicle fleet reached 255,989 at the end of 2002, up from 201,859 in 2000. This included 83,168 cars, 84,310 light commercial vehicles (LCVs), 21,805 heavy trucks, and 13,488 buses and microbuses. It also included 28,973 motorcycles. The country is crossed from north to south by the Pan-American Highway, the main road link with other countries in Central America. Although improvements to major roads were made in the 1990s, secondary and rural roads remain in a poor state. Traffic congestion is a serious problem in Managua. The Pan-American Highway gives Nicaragua access to sea ports on the Atlantic Coast of the isthmus, principally Puerto Cortes in Honduras and Puerto Limon in Costa Rica. As paved roads linking the Pacific area to the Atlantic are still lacking, most of the countrys agricultural exports must be shipped through these ports at significant cost. Recent investments have rehabilitated the Pacific port of Corinto but it still cannot handle enough volume to attract major shipping lines to use it as a port of call. The countrys main international airport, Managua International Airport, handles most air-passenger traffic, which grew by over 50% between 1997 and 2002. The Atlantic coastal regions three airports are able to accommodate international cargo flights. Almost all installed telecommunications capacity uses digital technology, owing to investments since the opening up of the state telecoms company, the Empresa Nicaraguense de Telecomunicaciones (Enitel). Nevertheless, coverage of fixed telephony is still the lowest in Central America. In 2001 Honduras's Megatel bought a 40% stake in Enitel. This was followed in December 2003 by the sale of a 49% stake to Mexico's America Movil. A number of foreign companies operate in the market. US-based BellSouth International and Mexican-based Servicios de Telecommunicaciones (Sercom) operate in the cellular phone market, expanding coverage to over 255,000 subscribers by the end of 2002 and reducing charges by around 25%. Nicaragua has 11 privately-owned television stations, three daily newspapersLa Prensa, El Nuevo Diario and La Noticiaand 176 radio stations. A total of 20 Internet providers operate in Nicaragua, but private use of e-mail and the Internet remains lowwith about 20,000 subscribersowing to the high cost of the service relative to local incomes. Private suppliers now generate the majority of electric energy, with the Empresa Nicaraguense de Electricidad (Enel, the state-owned electricity company) playing a diminishing role as it undergoes privatisation. Nicaraguas generating capacity is around 586 megawatts (mw), with daily demand reaching up to 387 mw. A system of energy swapping with Panama and Honduras contributes slightly to consumption. Enel supplied 779 gigawatt hours (gwh) of power in 2002, a 24% drop on the total for 2001, while private plants boosted their output by 27%, to 1,841 gwh. This trend continued in the first half of 2003 when Enel supplied 50% less power and private companies raised their share of power supplied by 39%. During 1997-2002, electricity output grew by 3.6% per year, while consumption expanded by 4.3%. In the first half of 2003 output increased by 6.4% and consumption by 14.4%. Power blackouts, frequent during the Chamorro years, have declined. The shortfall between generation and consumption has been a result of a sharp drop in hydroelectric generation over the same period, and plummeting geothermal output from a plant at the Momotombo volcano. All of Enels distribution network was privatised in September 2000. Investments are under way to improve the distribution system, which loses nearly one-third of all power generated. After repeated delays, the first of six Enel generating plants was sold in early 2002. The sale of Enels two hydroelectric generating plants were part of the conditions set by the poverty reduction and growth facility (PRGF) agreement with the IMF in order to reach completion point under the heavily indebted poor countries (HIPC) initiative. However, given strong political opposition, the IMF and World Bank have had to soften the condition to the development of an acceptable plan for electric generation and distribution. Energy demand by type of user(a)20012002gwh% of totalgwh% of totalHousehold450.129.0426.928.8Commercial376.524.2378.125.5Industrial351.522.73 28.122.1Irrigation88.45.776.95.2Government77.05.079.25.3Street lighting40.12.636.82.5Water pumping170.510.9154.710.5Total1,554.0100.01,480.8100.0(a) Official estimates.Source: Banco Central de Nicaragua, Indicadores Economicos. |