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### Viewing cable 07MANAGUA327, NICARAGUA: WEAK INFRASTRUCTURE HAMPERS TRADE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07MANAGUA327 | 2007-02-05 19:19 | 2011-06-21 08:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Managua

`

    VZCZCXYZ0012
    RR RUEHWEB

    DE RUEHMU #0327/01 0361919
    ZNR UUUUU ZZH
    R 051919Z FEB 07
    FM AMEMBASSY MANAGUA
    TO RUEHC/SECSTATE WASHDC 8958
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

` `

    UNCLAS MANAGUA 000327

    SIPDIS

    SENSITIVE
    SIPDIS

    PASS TO USTDA KATE MALONEY

    E.O. 12958: N/A
    TAGS: ELTN EWWT EAIR ECON EIND EINV NU
    SUBJECT: NICARAGUA: WEAK INFRASTRUCTURE HAMPERS TRADE

    SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY.

    ¶1. (SBU) Summary.  A 2006 World Bank study characterized
    Nicaragua's infrastructure as the least developed in Central
    America.  Nicaragua,s poor national road network compounds
    the challenge of bringing products to market and presents
    "the greatest obstacles to export led economic growth."  At
    times, poor road conditions halt trade altogether and
    jeopardize tens of millions of dollars of commerce.  Sea
    ports, in dire need of investment, have reached maximum
    capacity but by law cannot raise funds or enter into
    public-private partnerships such as concessions or joint
    ventures.  International air cargo is also reaching capacity,
    limited by the ability of the airport to handle more
    shipments.  The Ministry of Transportation and Infrastructure
    (MTI) has consistently shown itself incapable of managing the
    sector in a way that supports development.  Newly-inaugurated
    President Daniel Ortega has focused on the need to stimulate
    large infrastructure projects to create jobs and alleviate
    poverty.  Ortega's seeming unwillingness to tackle ministry
    corruption and inefficiency in this sector early on is not
    completely unexpected, but belies Sandinista criticism of the
    Bolanos government in this regard.  It is not clear whether
    Ortega is interested in strengthening the ministry or simply
    finding a way around it. End Summary.

    Introduction
    ------------

    ¶2. (U) A 2006 World Bank study depicted Nicaragua as having
    the least developed transportation infrastructure in Central
    America.  Sea ports are inadequate for the volume of trade
    that Nicaragua is beginning to generate.  The fragile road
    system, frequently pounded by torrential rains and mudslides,
    is largely unpaved.  The railroad system closed down fourteen
    years ago ) reportedly selling its ties, rails, and rolling
    stock to the Cubans.  International air transport to and from
    Managua has experienced steady growth, but domestic air
    transport shows no signs of graduating from its perennial
    infancy.  In general, the report found that the sad state the
    nation,s transportation infrastructure is hardly conducive
    to taking advantage of CAFTA-DR and integrating with regional
    markets.

    Roads: Unpaved and in Disrepair
    -------------------------------

    ¶3. (U) As in many countries, the vast majority of commercial
    export shipping begins the journey overland, but the lack of
    adequate port facilities in Nicaragua means that almost 40%
    of all goods headed for the United States and other major
    markets must first travel an additional leg by land to
    neighboring countries where port services are better.

    ¶4. (U) Nicaragua,s poor national road network only compounds
    the challenge of getting product to market.  The country's
    road network is comprised of 9,700 miles, yielding a road
    density per square kilometer that compares to other Central
    American countries.  In Nicaragua, however, only 1,455 miles
    -- or 15% -- are paved - half the Central American average of
    30%.  Moreover, more than 1,164 miles of the roads that are
    paved are in "poor or deteriorated8 condition.  According to
    the Ministry of Transportation and Infrastructure (MTI), only
    291 miles are in "good or excellent8 condition.  It comes as
    no surprise, then, that the World Bank study concluded that a
    well developed and maintained road network is the &greatest
    obstacle to maximizing export led economic growth."

    ¶5. (U) The problem manifests itself throughout the country,
    but perhaps nowhere more obviously than in the agriculturally
    rich departments of Leon and Chinandega.  Though close to the
    Port of Corinto and outlets in neighboring Honduras and El
    Salvador, the roads in these departments are in terrible
    condition, hampering the shipment of perishable product to
    market.  Of the 65 miles of paved roads in each Department,
    only 20-25 miles are classified as &good or excellent.8
    For this reason, the need to improve roads was a central
    consideration in the decision of the Millennium Challenge
    Corporation to channel $92.8 toward road reconstruction in
    the region.

    ¶6.  Sometimes the poor condition of the road network halts
    trade altogether.  In November, impassable roads in the
    departments of Matagalpa and Jinotega, key coffee-producing
    regions, threatened to keep 20% of Nicaraguan coffee exports
    from reaching the United States, jeopardizing the value of
    more than $30 million in exports.  Eduardo Rizo, president of
    the Coffee Producers of Jinotega, publicly explained that
    each day,s delay caused coffee beans to degrade, resulting
    in lower prices.  "Our coffee is practically trapped here,"
    Rizo declared during a demonstration by the Nicaraguan Union
    of Coffee Producers in Managua.  Eventually, funds for
    emergency road repair were released, but coffee growers
    complained that the repairs were superficial and would not
    last through the next rainy season.  Matagalpa and Jinotega
    are responsible for producing 75% of the nation,s coffee
    crop.

    Ports: Limited Capacity
    -----------------------

    ¶7. (U) The country,s largest port, Puerto Corinto, serves
    only the west coast of Nicaragua, moving 40,000 TEUs
    (twenty-foot equivalent units) in 2006.  Many ships departing
    Corinto will stop at Puerto Acajutal in El Salvador to
    transship rather than continue north along the Pacific Coast.
     Indeed, aggressive plans to develop Puerto Acajutal have
    caught Nicaraguans flat footed.  If Puerto Corinto does not
    expand its facilities and offer better services, more
    customers may choose to ship overland to the El Salvadorean
    port, bypassing Corinto altogether.  The national ports
    company, Empresa Portuaria Nacional (EPN), has been so far
    unable to respond to this competitive pressure.  EPN already
    carries considerable debt and, by law, is prevented from
    raising funds in the financial markets, entering into joint
    ventures with private entities, developing terminals through
    concessions, or undertaking other forms of public-private
    partnership.

    ¶8. (U) For access to the east coast of the United States and
    all points east, Nicaragua is dependent upon Puerto Cortez in
    Honduras and Puerto Limon in Costa Rica -- thirty eight per
    cent of all Nicaraguan sea trade passes through these
    outlets.  In recent years, delays at the Port of Cortez and
    organized theft have raised the risk of shipping through
    Honduras or Costa Rica for Nicaraguan exporters.  The only
    alternative is to ship goods overland to the small inland
    Nicaraguan Port of El Rama, located 18 miles inland on the
    Escondido River.  Cargo floats from Rama to the Atlantic
    coast, where it can be transferred to larger vessels that may
    well transship cargo in Puerto Cortez.

    Air: Managua Centered
    ---------------------

    ¶9. (U) International air cargo is a popular choice for
    exportors of highly perishable goods such as okra and fish.
    Exports via air have steadily increased at a rate of 5% a
    year since 2000, to 20.5 million pounds in 2006.  Limited
    ground storage for cargo and limited cargo processing
    facilies at Nicaragua's International Airport have frustrated
    air cargo carriers, however, who complain that the airport
    grants priority to passengers.  Juan Bosco Ortega, UPS
    General Manager in Nicaragua, believes that, without major
    renovations and expansion of the airport, the air cargo
    industry has reached its maximum capacity.

    ¶10. (U) In contrast, domestic airlines cut most cargo flights
    in 2006 to save on fuel costs, reducing internal air cargo
    trade to just 500,000 pounds, a 50% drop from 2005.  Neither
    of the two domestic airlines, La Costena and Atlantica, plan
    to increase cargo flights any time soon, citing financial
    problems and a limited fleet.  The domestic air market has
    struggled since the late 1990's, forcing the departure of two
    airline companies, Aerosegovia and NICA.  La Costena and
    Atlantica, newcomers to Nicaragua, are already showing signs
    of trouble with frequent delays or cancellations caused by
    mechanical failure in an aging turbo prop fleet.

    Ministry Performance: Consistency Is Not Always Good
    --------------------------------------------- -------

    ¶11. (SBU) Over the past decade, the Ministry of Transport and
    Infrastructure (MTI) has consistently shown itself incapable
    of managing the sector in a way that supports development,
    but 2006 may have been a new low.  The year ended with a
    flurry of corruption allegations, resignations, and
    investigations over missing money, mismanagement, and
    fraudulent reporting.  Under a cloud of corruption, Ricardo
    Vega Jackson resigned his post as minister on September 19.
    He promptly accused his predecessor, Pedro Solorzano Castillo
    (then an advisor to President Bolanos), as the original
    source of the corruption in the ministry.  In turn, Solorzano
    Castillo blamed former President and convicted felon Arnoldo
    Aleman of forging enduring corrupt relationships with road
    construction companies that routinely pocketed MTI money
    before fulfilling their contracts.  These accusations and
    counter-accusations caused the Accountant General to launch
    an investigation into official misconduct, and the National
    Assembly to impose a ministry-wide spending freeze, leading
    to the immediate withdrawal of tenders on a number of long
    awaited road construction projects.  The result was complete
    paralysis of an already dysfunctional ministry.

    ¶12. (SBU) Bickering and mismanagement seems to plague the
    ministry.  In October 2006, an internal MTI investigation
    revealed that the ministry had over reported the number of
    roads constructed or rehabilitated between 2002 and 2005.
    MTI had claimed that it had built or rehabilitated 470 miles
    of road, while the actual figure was closer to 332 miles.
    Former Director of Transportation Manuel Salgado (2003-2006)
    later claimed that he was ordered to produce these false
    reports.  In November, MTI,s road maintenance division
    (FOMAV) reported that 75 miles of these newly-constructed
    roads were "so badly constructed and designed" that they
    would have to be rebuilt.  Meanwhile, FOMAV,s ability to
    maintain even well constructed roads has been called into
    question by the World Bank's study.  The study concluded that
    lack of capacity at FOMAV "place(d) the major investments in
    the transportation sector of the past 5 years at risk,
    especially in rural areas."

    Enter Ortega
    ------------

    ¶13. (SBU) During the election campaign and weeks that
    followed, President Daniel Ortega has publicly stressed the
    need to stimulate large infrastructure projects to create
    jobs for Nicaragua and alleviate poverty.  During an October
    pre-election meeting with fregn investors in the tourism
    sector, Ortega promised to support the construction of a
    Pacific Coast Highway to help develop the industry, after a
    ministry-funded study concluded, surprisingly, that there was
    no economic justification for doing so.  In November, Ortega
    praised the proposal to build an $18 billion interoceanic
    canal, arguing that the megaproject would generate numerous
    jobs for the country and foster economic development.  In
    December, Ortega and Venezuelan President Hugo Chavez
    announced plans for the Venezuelan National Oil Company to
    build a multi-million dollar transisthmus oil pipeline in
    Nicaragua.  Immediately after his inauguration, Ortega
    announced agreements with Venezuela and Iran to build roads
    and improve ports.

    Comment
    ------

    ¶14. (SBU) Ortega has not publicly discussed MTI nor its
    problems.  Instead, he created a new position, that of
    Director of Public Projects, to function outside of MTI.
    Reportedly Manuel Coronel Kraus, Ortega's former Director of
    Public Projects during the 1980s, will take the job.  Coronel
    has represented Ortega at a number of infrastructure-related
    meetings, telling investors that Ortega "likes big projects."
     Coronel is noted for his grandiose ideas during the 1980s;
    some industry insiders have even characterized him as
    "eccentric and kooky."  Ortega's seeming early unwillingness
    to tackle ministry corruption and inefficency in this sector
    is telling, particularly given Sandinista criticism of the
    Bolanos government in this regard.  At this juncture, we are
    not sure whether Ortega is interested in strengthening the
    ministry or simply finding a way around it.  End Comment.
    TRIVELLI

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