The light manufacturing industry is one of the most dynamic sectors of Nicaragua’s economy. The industry has grown significantly and has become a leader in job creation and exports. According to figures from Nicaragua's Free Zones Comission (CNZF, for its acronym in Spanish), in 2012 the manufacturing sector employed over 10.6 percent of the labor force in the country's free zone sector. Additionally, the sector accounted for 20.9 percent of the country’s free zones exports.
Nicaragua is an ideal platform for export-oriented manufacturing and assembly operations looking to gain a competitive edge in today’s global market. The country provides significant qualitative and quantitative advantages as an offshore manufacturing location. Chief among Nicaragua’s competitive advantages are its high levels of personal safety and social stability, generous fiscal incentives, ample availability of a young and skilled workforce, competitive labor costs, and a strong legal framework for investment. Additionally, its strategic geographic location at the center of the Americas and preferential access to the world’s most important markets, have made Nicaragua an ideal exporting platform.
As of 2012, there are 146 companies operate under the Free Zones Regime. Among the most prominent companies in the industry you will find: Among the most prominent companies in the industry you will find: Arnecom (Yazaki) and Dräxlmaier, two auto-wire harness manufacturers and Stainless Ride, which designs and manufactures stainless steel products and other metals used in luxury motorcycles. All of these companies have found ideal conditions in Nicaragua to develop their operations.
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Among the sub-sectors with the most potential within the Light Manufacturing Industry you will find:
- Wire Harness
- High-end aftermarket products
Offshore manufacturing has increased in recent years as automobile manufacturers persist in the need to reduce their operational costs. As a result, companies continue to build low cost supply chains around the world. To companies already established in the country, Nicaragua has proven to be successful in filling the expectations of this industry by providing a competitive cost structure, availability of qualified labor force and proximity to exporting markets, among other benefits.
The labor pool has shown to have a fast learning curve which has contributed to companies’ growth in exports. With exception to the decrease in 2006 and 2009 due to a reduction in demand for Ford and GM manufactured automobiles, the following graph demonstrates the tremendous growth of the automotive industry in Nicaragua.
Auto-wire harness exports: Growth 20% in 2012 vs 2011
Source: National Free Zone Commission (CNZF, for its acronym in Spanish)
Companies established in Nicaragua, including manufacturers in harnesses, auto electronics and aftermarket products comply with ISO quality control certification. Companies operating in Nicaragua manufacture for clients such as DaimlerChrysler, Ford, General Motors, BMW, Volkswagen and Harley Davidson motorcycles.
Strategic Location and Preferential Market Access
Nicaragua, located in the center of the Americas, is an excellent location to manufacture products that require speed and proximity to the market. Its strategic location, only a two and a half hour flight from major United States hubs, allows for ease of travel for business executives and a shipping response of only three to five days to southern U.S. ports
Source: PRONicaragua, based on information from the National Port Authority (Empresa Portuaria Nacional, EPN), Maersk, NYK Logistics and ALPAC.
In an effort to become a true export platform, Nicaragua has negotiated free trade agreements with major trading partners around the world.
The main trade agreements that are currently in force are:
- The United States, Dominican Republic and Central America Free Trade Agreement (DR-CAFTA)
- Free Trade Agreements with Mexico and Taiwan
- Preferential Access Agreements with Panama, Colombia and Venezuela
- Generalized System of Preference with Canada, Japan, Norway and the European Union
- Central American Common Market (CACM)
With the purpose of further increase its exports and expand its market access, Nicaragua negotiated a free trade agreement (Association Agreement) with the European Union, which will provide preferential access to one of the largest and most solid trade blocs in the world for a wider base of products made in Nicaragua. Because of the importance of this treaty, the goal is to have it effective by the first semester in 2012.
Furthermore, Nicaragua, as part of a regional effort, is also negotiating access to the Caribbean Community (CARICOM) and the Southern Common Market (MERCOSUR, Mercado Común del Sur) to strengthen its position as the ideal export platform for North and South America.
Attractive Investment Incentives
Nicaragua offers significant tax incentives under the Free Zones Regime for companies that are looking to establish export oriented operations, including the following:
100% income tax exemption.
100% exemption on import taxes for machinery, equipment, and intermediate goods as well as transportation or support services for the free zone.
100% exemption on municipal taxes.
100% value added tax (VAT) exemption.
100% capital gains and property tax exemption.
Unrestricted repatriation of capital.
Private industrial park developers who build and manage industrial parks can also apply for the benefits granted under the Free Zone Regime.
A snapshot of the Free Zone Regime in Nicaragua by the end of 2012:
Total Exports: US$2,327 million (46.5 percent of the country’s total exports).
Number of employees: 103,412
Largest sectors within the Free Zone Regime: Apparel Industry, Automotive Wire Harness, Agribusiness.
The Most Competitive Labor Costs in the Region
Nicaragua offers the most competitive labor costs in the region, which makes the country a prime location for labor-intensive operations. The following graph shows a comparison of market wages in the region for manufacturing and assembly operations.
Regional Fully-Loaded Labor Cost Benchmark for the Manufacturing Industry
Reflects minimum wages in the free zone sector.
Source: Ministry of Labor of each country, 2013
Companies find that cost-savings along with productive human resources make a difference in their businesses' competitiveness.
Tripartite Agreement on Minimum Wage
The Government of Nicaragua, the Private Sector and Workers –with the purpose of further supporting the growth of companies within the Free Zone Regime– reached an important consensus to define specific increase rates on minimum wage for the next three years:
- Year 2014-2107: yearly increase of 8% in Córdobas
This decision provides certainty for Free Zone companies as they are able to project labor costs for the period between 2014 through 2017. This is an unprecedented accomplishment in the whole region that shows Nicaragua’s openness for investment and reflects the country’s favorable business climate.
Availability of Qualified and Competitive Human Resources
Nicaragua has a young and dynamic population, with 77 percent of it under the age of 39. Nicaragua's labor force 2.9 million is known for being flexible and highly productive, with good working habits and the capacity to learn quickly.
Nicaragua offers universities and institutions needed to train professionals:
- 1 U.S. accredited English language university
- 5 bilingual university programs
- 5 bilingual high schools
National University System: 55 universities approved by the National Council of Universities, with more than 134,000 currently enrolled students.
Graduated Engineers by Specialization
Source: PRONicaragua Survey, 2012.
Arnecom was born in 1987 and manufactures and sells automotive harnesses. As part of its expansion plans in the continent, Arnecom came to Nicaragua and began operations in 2002 with 400 employees in the city of Leon because of the wide availability of human.
The success that Arnecom has found has enabled it to offer products of the highest quality to world-renowned companies of the automotive industry and make significant expansions in the country that go far beyond the original projections, increasing its production lines, number of employees and even building new plants.
At present, Arnecom is 100 percent Japanese owned and has 24 plants in Latin America, of which 5 are located in the northwestern region of Nicaragua, 4 in Leon and one in El Viejo, which together employ more than 7,500 people. The company has been certified with ISO 9000-1 and ISO 14000-1, and also received the Excellence in Cleaner Production Award in 2007 from the Government of Nicaragua. According to studies by the National Commission of Free Zones, the company has an annual economic spill in the northwest of 16 million cordobas (US$842,105), which benefit more than 145 thousand people indirectly. View testimonial
Dräxlmaier, a german automotive corporation, established a new auto wire harness facility in the department of Masaya, Nicaragua. The company started operations in 2009 and has invested over US$20 million and has generated 800 new jobs during its first phase, and will generate up to 2,000 once the project is fully implemented.
Draexlmaier currently has more than 30,000 employees located in 49 plants in 18 countries on 4 continents. The company manufactures automotive harnesses for prestigious clients such as BMW, Mercedes-Benz, Volkswagen, Audi, GM, Porsche, Jaguar, Toyota and Bugatti. Draexlmaier is one of the few suppliers in the automotive industry that has the experience and knowledge in automotive electronics, interiors, upholstery, plastics, tools and logistics. "The new plant in Nicaragua will not be an investment for short term success. We have gained excellent projects which require us to increase the capacity we have in the region, and this drew our way to Nicaragua. Initially we saw the need to learn more about the country and its people, and with the government's support we've laid the groundwork for intensive training programs for our future Nicaraguan associates, as well as to develop a transfer of knowledge," said Stefan Bude.
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