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The legal market in Nicaragua has traditionally been and remains a small one, especially in terms of financial and corporate work. Of the handful of firms involved in transactional law, most of them see each other as counterparties in the country's major transactions quite often....

The legal market in Nicaragua has traditionally been and remains a small one, especially in terms of financial and corporate work. Of the handful of firms involved in transactional law, most of them see each other as counterparties in the country's major transactions quite often. A few of the firms are local, but there has been an increasing incursion of regional networks and alliances into the market in recent years.

Another point to bear in mind is that there are distinct cultures in Nicaragua on the country's Pacific and Caribbean coasts. The Pacific side is largely peopled with descendants of Spanish settlers or Spanish-speaking mestizos, while the Caribbean coast is populated with many more indigenous peoples who speak different languages, along with remnants of English settlements. The difference may not be striking, but it can make a difference when bringing the two together in a deal.

The only piece of significant legislation, a penal code updating the criminal definition of terrorism finance and money laundering, took effect in June of this year. The code was primarily intended to bring Nicaragua in line with international standards for money laundering investigations, but the code also created the Financial Analysis Unit (UAF). The updated code gave the government expanded powers of investigation, causing some backlash due to the perception that those powers could possibly be used for persecution or political espionage.

CONTEXT AND TRENDS For financial firms in Nicaragua, it was "business as usual" in the country in 2011 and the first part of 2012 and business, in this case, was relatively good. One lawyer says, "Nicaragua has a good perspective this year and an expectation for the economy to grow by around 4%....

For financial firms in Nicaragua, it was "business as usual" in the country in 2011 and the first part of 2012 and business, in this case, was relatively good. One lawyer says, "Nicaragua has a good perspective this year and an expectation for the economy to grow by around 4%. We're in a better position this year than last year and last year was a record year for foreign investment, so we're headed in the right direction." For a country that still has definite security issues and struggles with poverty, the economic outlook for Nicaragua has been reasonably positive in recent years and continues to be so for 2012.

The construction and mining sectors are largely responsible for Nicaragua's economic growth and for much of the inbound investment. Due to some of the political difficulties in recent decades and a somewhat depressed economic history, real estate is cheaper in Nicaragua than in some other Central American countries and many of the natural resources are under-developed or untouched. These conditions have created the perfect atmosphere for growing industries like tourism and forestry, both of which are integrally related to the rise in construction.

Affordable real estate and undeveloped territory combined with never-before-seen precious metals prices have also made Nicaragua a prime destination for investments in mineral extraction. According to the Nicaraguan Chamber of Mines (CAMINIC), the country exported $364 million in gold in 2011, a 60% increase from 2010. "We continue to attract new mining clients," offered one partner. "This year alone we set up three new exploration companies and assisted them in obtaining exploration concessions. Even established mining companies are investing more in exploration and in exploitation of existing claims. Gold and silver exports reached an all-time high last year in both price and volume."

President Daniel Ortega has also been surprisingly good for private business despite association with the socialist Sandinista party. Ortega had the foresight to effect a Constitutional change in 2009 during his second Presidential term allowing Nicaraguan presidents to serve a third term. As luck would have it, he won the November 2011 election in a landslide, more than doubling the votes of the second place finisher as he coasted into his third stint in office.

Under Ortega's watch, Nicaragua joined other Central and South American countries in the socialist-leaning Bolivarian Alliance. He maintains ties with Venezuela's Hugo Chávez, a fact that makes some investors nervous, but most attorneys and clients indicate that they don't have the impression that Nicaragua will adopt any of Venezuela's more radical policies. The two countries are trade partners, however, and Nicaragua receives subsidised oil through the alliance.

A recent trend that continues in 2012 is the push to update Nicaragua's energy grid. Specifically, projects are underway to make better and more frequent use of renewable energy sources: "As recently as five years ago up to 95% of power generation in Nicaragua was done in thermic plants - basically burning oil," states a partner. "Now we have a hydroelectric plant and there is a geothermic project underway to get energy from the volcanoes here. Now only about 65% of the country's power comes from thermic generators and the rest from environmentally friendly methods. The goal is to get down to 25% of energy from oil-burning sources in the next few years."

There is also a push to update the Social Security system in Nicaragua, which could affect the investing climate through the pension funds. As one lawyer puts it, "The main problem is that the Social Security system here is bankrupt. The government is looking to raise the retirement age from 55 to 60, to increase individual contributions and to have more control where the money is invested. Right now, the pension funds don't invest much in the country or abroad, they just have the money in banks."

Viewed in concert, these indicators reinforce the picture of a Nicaraguan economy that, if not a world-beater, is certainly holding its own in Central America and beyond. "The legal framework is there, the investors want to come, and we have the resources," says another attorney. "If all of those things continue to be true, I don't see why we can't continue going this way for many years."

MAJOR LEGISLATION CHANGES

Nicaraguan penal code amendment establishing UAF
In effect as of June 2012