CAFTA and ALBA
In October 2005, the parliament in Managua passed the CAFTA treaty, which came into force in 2006, with 49 votes to 37. After only one year of negotiations, the agreement with the USA and the other Central American states to create a free trade area CAFTA based on the NAFTA model (free trade agreement between Mexico, USA and Canada) was concluded. At the end of 2004, the Dominican Republic was integrated into the agreement.
CAFTA does not only stand for the removal of tariffs, import taxes and other barriers to trade. CAFTA legally safeguards the business of multinational corporations and threatens all areas of production in Nicaragua that are not internationally competitive, in particular agricultural production for the domestic market. CAFTA aims to further privatize profitable sectors of the economy and will also allow access to public procurement. In the dispute about the privatization of public goods (water, electricity, health, education), CAFTA, for example, makes international tenders for services mandatory. The consequences of such a surge in globalization must have given rise to considerable concern.
The fundamental criticism was not long in coming. The magazine Envío published, for example, assessments from a Nicaraguan perspective. Nevertheless, the public protests in Nicaragua largely failed to materialize, in contrast to neighboring Costa Rica, where a broad protest movement forced a referendum to be held (2007) and almost prevented joining CAFTA. In Nicaragua it was noticeable that the FSLN was holding back on this issue. The Sandinista MPs (then in the opposition) did not vote for the treaty, but by abstaining they made it possible to pass it indirectly. President Ortega continued this reluctance after he took office. The ongoing implementation of CAFTA is neither hindered nor commented on.
In contrast, ALBA, the declared alternative to CAFTA, dominated the headlines for a long time. ALBA is a “Bolivarian Alliance” that was founded in 2005 by Venezuela and Cuba and which Bolivia, Nicaragua, Honduras and Ecuador joined at the time. In addition, some Caribbean countries joined, which with the “Petrocaribe Project” got the chance to stabilize their energy supply with cheap oil supplies from Venezuela. The ALBA alliance also combines political and social goals with economic cooperation and would like to set in motion an ” alternative integration model ” for all of Latin America. She wants to “connect not just markets, but people”. In each case there were far-reaching hopes connected with ALBA, which have only been realized to a small extent. This is due to the drop in oil prices and the economic crisis in Venezuela since 2014.
In December 2019, the presidents of the member states met for the ALBA summit in Cuba. Ecuador and Bolivia have since left the alliance because they no longer support the front line against the USA and the course of the governments in Venezuela and Nicaragua towards the opposition in their countries. At the Cuba summit, the statesmen present reaffirmed their well-known assessment of the situation: They condemned the coup against the government in Bolivia, the “imperialist attacks” by the USA against Venezuela, the US embargo against Cuba and the “attempts at destabilization” in Nicaragua, one of countries in Central America according to internetsailors. New initiatives to revive ALBA were discussed, but the real question today is whether ALBA will survive the Venezuela crisis at all.
Free trade zones (“Maquila”)
The sector of world market factories in Nicaragua (so-called “maquilas”) has experienced dynamic development. In 2018, 225 companies were active in special industrial parks, employing 116,000 people, and providing goods and services exported to the value of 2.87 billion US $ (2017: 2.64 billion US $). The value of exports from maquila thus exceeded regular national exports for the fourth time in 2018. 51% women work in the factories that are located in Nicaragua (over 60% in the greater Managua area) but not part of the national customs area. The Alemán and Bolaños governments have relied on maquila production for many years and created ideal conditions for the clothing industry from Asia and the USA. The dynamic continued to be massively promoted under Ortega’s presidency. It mainly produces textiles for the US market; Gradually, car accessories (for the industry in Mexico), tobacco, fish products and cardboard were added.
The sector is characterized by a minimal tax burden, dictatorial work regimes and cheap wages. Although the government does not generate any tax revenue from the production or export of goods, it does benefit indirectly from the increasing number of jobs and the wages of the workers. The state Corporación de Zonas Francas de Nicaragua is responsible for the functioning of the free trade zones and for tax and labor law issues.
The maquilas survived the crisis years of the protest movement in 2018 and 2019 well and, with the bubbling remesas, were one of the central pillars of the prevailing economic model. But that suddenly changed in spring 2020 with the outbreak of the corona crisis and the decline in demand in the textile industry in the USA. Nationwide chains had to close their clothing and sports stores there, and imports from the Central American maquila fell suddenly. Textile exporters in Nicaragua were able to sell 28.5% less in the first half of 2020 compared to the same period in the previous year, and sales and profits suffered accordingly. According to the economist Néstor Avendano from COPADES, the export value of maquila production will decrease from 3 to 2 billion US $ this year. Some factories were able to switch production to full face masks, for which there was great demand. The production of auto accessories was not as affected as clothing. But the slump in the workforce was dramatic. An August survey found that 35,000 workers had to stay at home for months without pay. Of these, 26,000 were temporarily able to return to the factory, but 9,000 have been laid off for good.