Envío Digital
Central American University - UCA  
  Number 201 | Abril 1998



Is Being the Granary of Central America a Good Thing?

The government is committing a strategic error, is tripping up once again, in concentrating all its effort in the rural sector in order to develop exclusively agriculture and livestock raising. The cities and the countryside of Nicaragua are full of small industrial enterprises, which offer a more secure and promising path towards development.

Mario Davide Parrilli

IN HIS PRESIDENTIAL CAMPAIGN, ARNOLDO ALEMÁN REPEATEDLY PROMISED THAT HE would make Nicaragua "Central America's granary" again. Nicaragua's return to the country it was over twenty years ago became the development dream.

Once in power, Alemán continued to talk about that dream, and the Ministry of Agriculture (MAG) has not let up its emphasis on the agricultural orientation of the Liberal government's economic policy. The new official policy document "Preparing for the Next Millennium" and public statements by some high-level government officials all accentuate a determination to make the primary sector the foundation of Nicaragua's economic and social development in the coming years, with grain production as its centerpiece.

A broader notion of development integrating all economic sectors—agriculture, industry and service—in a way that could benefit all Nicaraguans in a circular fashion does not show up in the design of this project. There is also little consideration of the successful development experiences of other countries around the world.

Dusting off a Theory

For the last 15 years in Latin America and the last 8 or so in Nicaragua, the international financial institutions and credit-giving governments have determined economic policy: trade liberalization and promotion of both traditional and nontraditional agricultural exports. Why agriculture? Because it can be produced without huge public investment, generates currency rapidly and allows the state to make punctual payment on the foreign debt.

To justify this policy theoretically, neoliberal academic circles are dusting off the famous "comparative advantage theory" of Heckscher and Ohlin (1934), which was totally eclipsed after World War II by Keynes' theory of indispensable public investment for the reconstruction of Europe. The theory of comparative advantage states that for every country to achieve greater growth, it should promote the economic sectors that are comparatively richer in their initial endowment of productive factors. If the country's wealth is land, then promote the agricultural sector; if it is capital, then industry. Between any one sector and another, concentrate on the one that already has advantages.

The theory is based on the hypothesis that, in a context of liberalized markets, a country with relatively more productive factors in a given sector or subsector should specialize in that production to guarantee its maximum capacity to buy the goods it does not produce. Specialization will increase the country's productive capacity and progressively reduce production costs, thus increasing the competitive edge of its specific production.

Simplistic and static adoption of this theory reinforces unequal trade between nations. Germany and the United States will continue to specialize in their comparative advantages of production with high added value, while Nicaragua and the sub-Saharan African countries go on producing beans, corn and tropical fruits. Since the comparative advantage theory has these theoretical and practical limits, it is probable that personal and political interests are behind its narrow application in Nicaragua's case, designating the country as the granary of Central America.

Nicaragua's Place in the World

To make this "dream" into a reality, the MAG has pledged to guarantee government policy's pro-agricultural skew. Taxes will be maintained on agricultural consumer goods—which have little or no processing—but will be eliminated on imported capital goods and inputs for agricultural and agro-industrial production. The exchange rate on the dollar will be allowed to depreciate in real terms to facilitate exports. And credit to the agricultural sector will be increased.

What effect will these measures have? They will mean that Nicaragua will never be able to enter markets other than those it is already involved in: agricultural products markets. In the world of Central American integration and of trade with Mexico, Nicaragua's place will be the same as always. The goal does not appear to be a balanced exchange between countries, as there is among the European Union nations, such that Nicaragua would also export goods and services from its secondary and tertiary sectors. It rather appears to be that Nicaragua limit itself to exporting primary goods and continue importing secondary and tertiary goods, which, given their costly nature, would maintain the acute trade deficit. Thus the current unequal exchanges would be maintained: Costa Rica will export industrial machinery to us, and Nicaragua will export cattle and beans to the Costa Ricans. Mexico will export shoes to us and Nicaragua will export lumber and corn to the Mexicans.

Nicaragua will never get out of its poverty as long as efforts are concentrated only on agricultural development, because the productive and trade dynamics of the other sectors—industry, services, commerce—grow much more intensely. To explain this, structuralists Prebisch and Singer designed another theory—also 50 years ago—that of deteriorating terms of exchange. Exchanging a hundred-pound sack of beans for "a hundred pounds" of computers, they said, becomes progressively negative as time goes by, because growth in the price of beans is not comparable to growth in the price of a computer. In addition, productivity grows more rapidly in the industrial sector than in the agricultural sector, which increases the inequality of the exchange.

How Others Developed

The countries that have moved from underdevelopment to some level of development have not done so by applying policies based on the theory of comparative advantages. They have been doing it with public and private investments, subsidized or with preferential credit lines. The Marshall Plan in Europe and a similar program in Japan are the clearest examples.

The economic history of Northern countries and of some Southern countries which have had some success with the same development tactics as the North, demonstrates that they have invested heavily in sectors where they did not have comparative advantages. Tables 1 and 2 demonstrate the results of productively reorienting the economies of some Latin American and Southeast Asian countries. All of these countries now have primary GDP levels that do not exceed 10-15%, while in Nicaragua the agricultural GDP exceeds 30%.

UNDP statistics indicate that countries which have been reducing their percentage of primary GDP and increasing the secondary and tertiary portions of their GDP are among the top 60 countries in the world in terms of the quality of life of their populations.

Nicaragua Is Now More Urban than Rural

Economic history always links industry with urban settings. Cities are the privileged center for industrial development given the concentration of workers and infrastructure in urban areas.

All statistics and important studies show that Nicaragua is much less rural than people generally think: 66% of Nicaragua's population is urban and 25-30% of it lives in Managua. Does it make sense to continue giving privileges to the rural sphere for Nicaragua's development? In recent years, the urban population has grown at an annual rate of 4.1%. Is there any real possibility of stopping this process?
It is often heard that poverty in Nicaragua is fundamentally a rural reality. But the population that has urbanized in these last decades lacks basic services and jobs. It is very likely that the number of poor people trying to survive in the cities is now greater than in the rural areas. Urban poverty is a very serious problem demanding urgent measures if integral development of Nicaraguan society is to be achieved.

In this context, the Liberal government is committing a strategic error in the rural sector when it promotes development by dealing only with the agricultural sector. Nicaragua's rural development should also mean stimulating a series of activities that don't yet exist in rural zones, but could: agroindustry, trade, traditional services such as transport, and advanced services like finance, telecommunications, etc. The presence of all these activities in rural zones would stimulate agricultural activities and make them more fluid and stable.

Nicaragua's economic policy has traditionally been geared to promoting and defending the interests of oligopolic groups. In the 1970s, when cotton was still king in Nicaragua, the cotton growers had developed agro-export systems that were the equivalent of the coffee growers' production and export systems today. These are closed oligopolies, sufficient unto themselves, not very interested in changing anything. For example, the coffee growers show no interest in developing the roasting industry.

The only solid agroindustry in Nicaragua is what these oligopolic sectors control. It doesn't have to be this way. With agroindustrial capacity, financial services, transport, energy and communications, the rural zones could facilitate economic activities, which would create markets where currently there are none.

How much agricultural production would develop if transport companies were continuously present throughout the rural areas, able to immediately carry products to processing plants? How much development would there be if more such plants existed to transform and conserve agricultural products? The case of milk and its derivatives is the most obvious.

Small Enterprise: Clothes that Fit

World development has gone through different phases: from the gathering economy to the agricultural economy, from trade through two waves of industrialization, until arriving, now, at the development of the advanced service sector. Today, the volume of financial exchanges that cross the entire world, mainly by computer, is ten times greater than the exchange of real products.

While this is happening, Nicaragua has remained stagnant in the agricultural economy. The government plans to stagnate it even more by promoting the myth that the country can experience development and can compete with other, more advanced nations by once again becoming Central America's granary.

Certainly, no country can dream of a development for which it has no real pretext. Nicaragua should seek a viable and realistic path beginning with its current development. It should find an outfit cut to its measure. It would be absurd if Nicaragua today tried to make an advanced tertiary sector the foundation of its growth. But it is also absurd to think that the country is predestined to grow only by developing its agricultural sector, its mythical "grainbasket."

Virtually all of Nicaragua's economic activities today—agroindustry, transport and its relative financial activity—are in fact still based on agricultural production. With that as a starting point, thinking should take the next steps, contemplating the intensive development of industrial transformation activities that generate added value and hard currency. There is a base to build on here: the many small processing companies that already exist and could contribute to forging a realistic path for national economic development.

In such a small country, with not much more than four million people, the total of nearly ten thousand small and micro manufacturing enterprises, each of which provides 1-5 jobs, becomes significant. It is a reality that deserves adequate evaluation. Thousands of workers find employment in these industries, some of which are in rural zones. Why not promote a national policy that would value this presence, this "endowment"—as Heckscher and Ohlin would call it? Why not help it respond to the national and international demand for necessary goods—shoes, clothing, furniture, paper, etc.—which otherwise must be imported, stimulating a supply with roots in important artisan traditions?

Job creation is one of the biggest reasons for supporting small businesses: they provide more jobs than the large and medium-sized agroindustrial plants, which are capital intensive. The envied development of Taiwan, that "Asian Tiger" so often praised by the Nicaraguan government, went through a phase such as this.

A Polarized and Atomized Space

Although some organizations are currently working to develop small enterprises, they are still barely competitive. The government has negotiated some foreign resources for them from the Inter-American Development Bank, Taiwan, Holland, Norway, Switzerland, but so little that it appears to have no faith in this economic sector. Between 1991 and 1996, the National Program to Support Microenterprise (PAMIC), which was created during the Chamorro administration, only negotiated $7.5 million for microenterprises, as a foreign donation. The government as such invested nothing in microenterprises.
To this limitation must be added the individualism and fragmentation that exists in the sector. As evidence of the ideological polarization affecting all of Nicaragua, PAMIC does not appear to be collaborating with the National Chamber of Support to Small Industry (CONAPI), which was created during the Sandinista administration. The other organizations that work with small enterprise—foreign development agencies, ONUDI, the Bolivar Program, UNIPYME, APYME, UAM, Nitlapán, Chispa, Fama and all the alternative financial credit entities—also suffer from the myopia of closing ourselves off in small activities with our small artisan groups.

Each of these institutions works in some sphere to promote small enterprise—trade, credit, technical assistance, etc.—but lacks the capacity to develop an integral plan to strengthen the entire sector. All of these "dispersed energies" would have to unite in order to organize a national "structural adjustment" for the development of small industries, and from there, all national industry. Without this option, medium- and long-term development will only be a dream.

Why not "Invade" Mexico?

Nicaragua cannot afford to waste more resources or time. Many Nicaraguans urgently need jobs and an income that will allow them to survive by eating more than gallopinto once or twice a day. Many need to improve their health, to live in decent housing, to give their children an education...simply to live better.

In universal history, industrialization has triggered productive dynamics that have—after intense union struggles—allowed the construction of acceptable standards of living for workers. All countries have created their comparative advantages, sometimes starting from zero in new sectors, demonstrating that developing manufacturing requires neither high technology nor super-skilled human resources.

It is obvious that in an open and inevitably globalized market, Nicaragua's small market—under 4.5 million people, of whom 4 million have low or very low incomes—cannot absorb production levels higher than the current ones. This means that industrial development is only possible if one begins to conceive of a market beyond the national one.

The Central American market extends around Nicaragua. Nicaraguan small enterprises should target their production to the Central American market. It has 40 million people, and the farther away but still close Mexican market has 100 million more. There is currently a fear that Mexicans will invade Nicaragua with their production. Why not think about "invading"—or rather penetrating—Mexico with some Nicaraguan products?

And why not think about the Venezuelan, Colombian or Brazilian markets, which in many cases have greater buying power and are not too far from the isthmus? And what about the United States? All are much larger countries than Nicaragua, and gaining entrance to only one of them would totally change the productive potential of national small enterprise.

The Tasks of Support Institutions

The first step on this path is to improve the competitive level of national small enterprise. That means improving the efficiency of these companies, guaranteeing the quality and innovation of their products so they can penetrate new markets. Such an objective will only be achieved if the state, national and international support institutions and small industry join together and agree on how to systematically meet these goals in an organized manner.

Support institutions must coordinate with each other in order to be more efficient. If one is geared to technical training, another to trade and another to financing, why not join forces so that the small enterprises working with one can benefit from the services of the others? There are costs that small industries cannot cover. Why can't the state and international organizations share projects to build information, marketing and commercial distribution networks for Nicaraguan products overseas? Small industry must improve significantly if it is to be competitive in the international market. Why not stimulate the creation of joint ventures with internationally recognized business groups and incorporate strategic business elements—exclusive licensing, know-how, technology and investments, etc.—to win quotas of the Central and North American markets? Artisans lack basic technology. Why not establish preferential credit lines—a job of the state—and seek significant buying channels—a job for international organizations—so that small entrepreneurs can benefit from technologies that are obsolete in other countries but would be very appropriate for Nicaragua?

Small Entrepreneurs: A Learning Process

None of these initiatives will be successful without the active participation of the artisans themselves. They are the ones responsible and they must acknowledge that they still have a lot to learn if they want to be competitive. They would have to learn, for example, about the experience of the industrial districts that have emerged in many countries around the world and that have the most interesting development in Italy.

In these industrial districts, small plants from the same subsector concentrate in determined geographic zones. They become more competitive as a whole because they can act together in trade associations, consortiums and chambers to solve many of their basic problems—credit, purchasing raw materials, export channels, division of labor—and because when many enterprises specializing in the same product are located in the same zone they benefit from highly skilled labor, from information sharing, from more clients, etc.

There are potential industrial districts in Nicaragua in Masaya, Masatepe, La Paz Centro, Nagarote, San Juan de Oriente, León, Chinandega and Matagalpa. Why don't they look for information on successful experiences of small businesses in other countries and have interchanges to learn from them and adapt what they have discovered to Nicaragua?

Broad Horizons for Action

Nicaragua is capable of overcoming the lamentable situation that exists today in its supermarkets, which sell cans of Costa Rican or US pineapple at 28 córdobas and fresh Nicaraguan pineapple at 3 córdobas. Nicaragua can overcome the sad reality of the Masaya artisans who make magnificent clothes, but only sell to tourists looking for souvenirs, while Nicaraguans buy used clothes imported from the United States. Nicaragua can successfully enter all these productions and others easily industrialized. This does not mean prohibiting the entrance of Costa Rican canned goods or used clothing from the North. It means giving products made in Nicaragua a competitive advantage and thus generating more income and creating more jobs in the country.

The margin of action is broad, but it is essential to look toward the horizon and overcome the short-term mentality imposed on us by national governments, unconditionally allied with the transnational government that wants to control the world economy.

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