Many a giant US firm has thrived in Nicaragua despite tumult

Nicaragua's $35 million breach-of-contract dispute against the Standard Fruit Company, filed in a San Francisco court recently, is ``the last chapter in the black history that transnational octopi have written here,'' says Nicaragua's agriculture minister, Jaime Wheelock Rom'an. That angry rhetoric, however, belies the fact that more than 40 other multinationals continue to operate, and to make money, in revolutionary Nicaragua.

Those companies ``have survived, grown, and generated profit'' since the 1979 Sandinista revolution, a recent Harvard Business School study found. ``They do well despite the nationalist and anticapitalist sentiment of the Sandinista regime.''

The Standard Fruit affair is typical: The United States-based fruit giant, which sells Dole bananas, pulled out of Nicaragua four years ago after a series of disputes with the Sandinista government. The authorities here say the company withdrew in breach of a five-year contract to buy Nicaragua's banana output. Standard Fruit claims it was expropriated. Either way, the two sides' relations fit a predictable pattern of problems between big capitalist enterprises and third-world socialist revolutions.

Less predictable and less publicized are the Nicaraguan operations of a wide range of mostly US-based multinationals, from International Business Machines and Intercontinental Hotels to Nestl'e.

Eight years of war, revolution, and increasing economic breakdown have posed enormous problems for such companies.

The multinationals' survival ``is precarious and subject to the whims of a capricious, arbitrary, and economically ignorant government,'' a US Embassy official contends. ``Profits have little meaning, particularly for the parent company, when they are generated in useless local currency.''

Indeed, few companies are reinvesting profits from the Nicaraguan cordoba, and only two have won the right to repatriate any profits to their parent companies in dollars. Almost all the multinationals here simply deposit their earnings in an interest-yielding account at the Central Bank.

But these problems seem of only secondary importance to multinational managers in Managua, who take a longer-term view of the situation. Other Latin American countries have forbidden the repatriation of profits, points out one whose company went through lean years in Argentina, Peru, and Chile.

Nicaragua's critical shortage of dollars poses another problem: extreme difficulty in importing even the spare parts companies need to maintain operation, let alone invest in expansion. The government allocates its scant dollars according to its overall economic priorities, and if a business does not rank high enough on the priority scale, all it can do is resort to the prohibitively expensive black market.

One enterprising company, however, has parlayed its market dominance and expertise into hard cash. British American Tobacco, which owns 60 percent of Nicaragua's only cigarette manufacturer, has secured privileged access to foreign exchange by joining a Sandinista drive to boost tobacco exports. As the only local company able to process tobacco for export, the Tabacalera Nicaraguense deal with the government brought $2.6 million at a preferential exchange rate, which it used to build the most modern facility in Latin America.

Although government officials say they welcome foreign companies prepared to work within the framework of the revolution, the Sandinistas' commitment to a mixed economy looks thin to many multinational managers here.

``We are vividly aware of the many controls, laws, and regulations hedging one around, which make you wonder how real your right to manage is,'' one says.

At one stage, the government sought to limit multinational profits to 25 percent of their turnover, but that interference sparked fierce protest from the companies affected and the Sandinistas backed off.

The depth of government involvement in business decision-making, however, lead to an ``Alice in Wonderland'' situation. Exxon's local subsidiary, for example, buys crude at a price dictated by the government, refines it, and then sells it at a price dictated by the government.

Most multinationals stay, however, because ``the costs of reestablishing yourself once you have pulled out are very, very high,'' says a manager whose company enjoys a strong position throughout Latin America.

At the same time, another multinational official says, ``we have a responsibility to safeguard our shareholders' interests as long as we can operate here. Leaving the country is not necessarily in the shareholders' best interests, because the future may hold the possibility of repatriating our profits.''

Multinationals may start pulling out of Nicaragua, says a Western economic observer, if employees are harassed or if dollars become impossible to find.

But as the Harvard Business Review found, ``The corporate headquarters of the more successful multinationals appear to take a long-term view of their involvement in the country.''

You've read  of  free articles. Subscribe to continue.
QR Code to Many a giant US firm has thrived in Nicaragua despite tumult
Read this article in
QR Code to Subscription page
Start your subscription today