GlobeSt.com: Why is CAFTA so important?

Pereira: We are creating a free-trade zone from the US through Mexico down all the way to Costa Rica. This is an important step toward the creation of free trade area of the Americas, at least that's the way the countries that are pro-trade look at it. CAFTA is probably the most important free-trade agreement to come around since NAFTA because it includes six countries. From our perspective, this agreement does not include Mexico or Canada. From a US perspective it extends NAFTA down through Central America and the Dominican Republic.

GlobeSt.com: So Nicaragua does not have a free-trade agreement with Mexico or Canada?

Pereira: We have a separate free-trade agreement with Mexico and we're in the process of negotiating one with Canada. It will happen at different moments.

GlobeSt.com: Will this eventually extend down to South America as well?

Pereira: People who believe in free trade are hopeful that the Americas as a region, as a continent, will be able to achieve one free trade agreement. That will be a process that will take some time. There's some push back from a few countries, but from the US perspective, and even from the Central American perspective, we need to move forward with the countries that are willing and eager to have free trade.

GlobeSt.com: Are you hoping to extend free trade to Europe and Asia?

Pereira: We're in the middle of negotiations right now for a free-trade agreement with Taiwan; we're starting the process of negotiations with Europe, although that's still in the very early stages. We believe the most important free-trade agreement for us is with the North American market because we have proximity that nobody can take away from us. At first there was reluctance from some industry groups in the US, but I think there's a growing momentum in favor of CAFTA in the US right now. People realize that, at least in the US, they can't turn their backs on Central America.

GlobeSt.com: Are there any agreements with the US in place now?

Pereira: The Caribbean Basin Initiative, which was extended to the Caribbean Basin Trade Partnership Act, was the US' way of saying to the Caribbean that we are strategically important, and they gave us unilateral trade preferences that allow us to export a lot of goods that are manufactured here duty free. However, it's a one way preference that the US can take away at any time. It's not as aggressive as a free-trade agreement in terms of opening up markets. CAFTA is a step forward because it is a bilateral agreement that is much more solid than a gift from the US to the region.

GlobeSt.com: Did those agreements open up business within Nicaragua?

Pereira: After the CBI and the CBTPA we had huge growth, particularly in textile manufacturing. It helped us grow our manufacturing base where now, after Mexico and China, Central America is one of the top three exporters of textiles and apparel to the US. It allowed us, also, to take US raw materials, manufacture here and ship the goods back to the US. It helped us grow business in other areas, but by far the largest impact was the huge growth in what is today billions of dollars of exports in apparel to the US.

GlobeSt.com: Are you now looking to grow other businesses, aside from manufacturing?

Pereira: Obviously manufacturing is critical for us, but we're also involved in back-office operations or, as we call it, business-process outsourcing. We have an increasingly educated population; we have very strong cultural links to the US and a lot of English speakers in our region who are able to provide back-office services to US companies. We want to follow the Indian model in terms of bringing companies to Central America that will provide high value-added services to US companies. And third, maybe most important, we're also interested in developing our tourism sector and things such as retirement communities, resorts and boutique hotels. We think Central America, in terms of the tourism product, can compete with Mexico. GlobeSt.com: How do you plan to do that? Pereira: We're promoting aggressive new financing mechanisms to promote investment in tourism and we're also putting together new incentive laws for people retiring in the region. With our proximity to the US, the fact that we have English-speaking people and we understand the US culture it's easy for us to attract retirees to the region. There's a great opportunity to develop Central America and Nicaragua as a strong alternative and complement to Mexico. It's two and a half hours from Houston and Miami to fly to Managua. We're right next door.

GlobeSt.com: What are the advantages to doing business in Central America, or Nicaragua specifically?

Pereira: The big picture is that we have this proximity to the US. The quality of the surroundings and the price of property are also pulling people to Nicaragua. Plus, we have aggressive tax incentives. The tourism incentive law basically allows you to work income-tax free here for 10 years. It allows you to bring everything from hotel beds to construction materials without any duties. We're also developing a tax-increment financing mechanism so that you can come to Nicaragua and take advantage of bonds that will be paid with future tax revenues that your hotel, for example, will produce.

GlobeSt.com: On the other side of the coin, what are the difficulties?

Pereira: The difficulties of any trailblazer you will find here. You don't have the infrastructure you find in the US; you may not have the specialized skills in the population. On the other hand, being an undiscovered destination provides an enormous upside to investors who know how to invest in new destinations and how to develop creative projects in emerging markets. There are risks but there are also rewards, which we're seeing in Costa Rica. People went to Costa Rica 15 years ago and were able to buy property at extremely low prices to develop resorts. If you have the ability to take on a little bit of risk, the upside potential is huge.

GlobeSt.com: Won't the infrastructure and the specialized skills follow the development?

Pereira: They don't have a choice. As investment comes in, people here will have an incentive and be trained. That's not to say we don't have people with skills, but we definitely need to work on our specialized skills and our infrastructure. You would be surprised of the level of infrastructure you will find in Nicaragua, specifically. We have high-quality roads, but when you go into the more remote areas you will find less infrastructure. It's all a process of development.

Instant Insights /

Juan Carlos Pereira Of ProNicaragua

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