The recent fiscal reform, changes in social charges in Nicaragua and low international prices are affecting the competitiveness of the sector.
At the end of February 2019, in the midst of the country's political and economic crisis, the National Assembly approved a tax reform that increases the income tax of large taxpayers from 1% to 3%.
In Nicaragua, the government plans to increase employer, labor, and state Social Security contributions, and to approve a tax reform that would increase taxes for medium and large companies.
Although the country has been in a serious economic and political crisis since April 2018, when the government tried to implement reforms to the Nicaraguan Institute of Social Security (INSS), the Ortega administration is once again trying to make changes to the institution, this time through an administrative resolution.
Due to the political and social crisis that Nicaragua is experiencing, between April and August of this year, around 116,000 employees have stopped contributing to Social Security.
Official figures from the Nicaraguan Social Security Institute (INSS) detail that between April, the month in which the political and social crisis occurred, and August, 115,978 employees have stopped paying their social security contributions.
Fitch Ratings is warning that the growing INSS deficit in Nicaragua and the failure of the reform which would have raised contributions of workers and employers, will increase the need for government financing, at about 0.6% of GDP per year.
From a statement issued by Fitch Ratings:
Fitch Ratings-New York-27 April 2018: The Nicaraguan government's rollback of social security (INSS) changes amid widespread protests will lead to increased general government financing requirements and debt in 2018 and 2019, says Fitch Ratings. The INSS cash reserves previously projected to last through 2019 are depleting faster than expected. The protests and violence over INSS changes also underscore political risks from an increasingly centralized policy-making process reflected in Nicaragua's weak governance indicators.
In May of this year, worker affiliation to the Social Security Institute grew by 7% compared to the same month in 2016, explained mainly by the mining sector and commerce, hotels and restaurants.
From a report by the Central Bank of Nicaragua:
On July 12, 2017, the Central Bank of Nicaragua (BCN) published statistics on the labor market (employment and wages), corresponding to the month of May of this year.
The entity highlighted macroeconomic strength, but warned about the Social Security Institute's growing deficit and other risks linked to less cooperation with Venezuela over oil matters.
From a press release issued by the IMF:
This statement summarizes the preliminary findings and recommendations of the mission that visited Managua during April 24-May 5 in the context of the 2017 Article IV consultation.
A greater amount of private investment, mainly in construction and infrastructure and transport, explained most of the interannual increase of 11% in formal employment up to December 2016.
Up to December last year companies in the sectors of construction and infrastructure and transport workers increased their payroll by 22% and 20%, respectively, according to figures from the Nicaraguan Institute of Social Security.
In September 2016 an annual increase of 10% was registered in the number of workers signed up with the social security department and a 5% increase was recorded in the average nominal wage.
Membership of the Nicaraguan Institute of Social Security (INSS) grew by 9.8% in September compared with the same month in 2015, with noteworthy sectors being trade, hotels and restaurants, with an increase of 18%, transport, storage and communications, with 17%, construction with 15% and community, social and personal services, with 11.5%, according to Central Bank of Nicaragua.
In 2015 60 new construction companies and 1450 workers registered with the social security department, and in the sector of hotels and restaurants, 40 new companies and 437 workers registered.
Construction, tourism and trade are the three sectors that are driving economic activity and growth of formal employment in the department of Rivas.
Between January and April 2015 82,000 new employees of companies were registered with the Nicaraguan Institute of Social Security department, which represents growth of 13%.
Companies in the construction, transportation and finance sectors signed up the most new employees to the social insurance scheme in the first four months of the year.
The Chamber of Builders has recorded eight projects for luxury housing in the country with retail prices ranging from $100 thousand to $450 thousand.
The Chamber of Builders of Nicaragua (Cadur), argues that housing designed for more affluent people have had good sales. Currently there are eight projects of this type recorded in Managua and there are an estimated eight more that are not part of Cadur, with prices ranging from $100 thousand to $450 thousand.
Through this move, transfers by private and state employers to the Nicaraguan Institute of Social Security will increase by $26 million.
This was announced José Adán Aguerri, president of the Superior Council of Private Enterprise (Cosep). Of that $27 million, $6 million will be provided by state enterprises and the rest by private companies.
"This increase in the employer contribution is something that has been established in the negotiations we have had with the government," said the chief of Cosep.
In order to balance the social security finances the Government of Nicaragua wants to increase employer's contributions from 16% to 19% .
Bayardo Arce, economic affairs adviser to the President, was the person who presented the project to representatives of the Superior Council of Private Enterprise (Cosep).
"... The first point of the proposal is that the Government undertakes to pay 2% of the state's debt to the INSS, estimated between $580 and $600 million, or pay it off within 50 years", reported Prensa.com.
For 2013, the Chamber of Builders of Nicaragua projects an increase in housing construction of between 10% and 12%, the lowest percentage in the past three years.
"In the last three years, not including the current one, between 12,000 and 14,000 homes were built, that's a ratio of about 4000 houses per year, for this reason we believe that this year growth will not have the same level bringing acceleration," said Alberto Atha, vice president of the Chamber of Urban Builders (Cadur).
In one year the number of employees in the formal labor market has grown by 8%.
41,800 new workers were added to the payrolls of companies between April 2010 and April this year, making the number of registered workers rise to 572,500.
Among the sectors which showed the largest increases were mining, electrical, manufacturing and construction.
According to an article in Elnuevodiario.com.ni : "However, economic activities such as agriculture reflect a slowdown or weaker growth, showing an annual increase of 4.45% in the number of unionized workers in the industry. "