MANAGUA—One of Central America’s leading businessmen says Nicaragua’s conditions for business and investment are more favorable than they appear from a distance.
While there are some doubts about what an emboldened President Daniel Ortega will do with unchecked power in his next term in office, there are also benefits to having a strong executive branch in a shaky Latin American country.
“The perception is bad, the reality is not,” says Guatemalan sugar tycoon Julio Herrera Zevallos, president of the Pantaleón Group, Central America’s largest sugar-producing group.
“I think (Ortega) is trying to develop the country one way or another, and that’s good,” Herrera told The Nicaragua Dispatch in a recent interview. “And he’s got the power to do it. Whereas in the other countries, like Europe and U.S., there is paralysis because of politics.”
With more than $200 million invested in Nicaragua, Herrera is one of largest foreign investors in the country. His company owns Monte Rosa sugar mill in Chinandega (the second largest mill in Nicaragua) and has built several middle-income housing developments in Managua and San Juan del Sur.
Pantaleón is also considering the possibility of investing in commercial real-estate development in Nicaragua, once the economic conditions here can support more shopping malls.
Herrera, who was in Managua last week to receive the Nicaraguan-American Chamber of Commerce’s (AMCHAM) 2011 Business Excellency Award, has generally good things to say about Nicaragua’s conditions for investment.
He says Nicaragua has excellent natural resources, good workers, ample land and good security compared to the rest of Central America. Nicaragua’s problem, he says, is mostly related to its image and unhelpful political rhetoric—both of which seem scarier from a distance than they are up close.
“Nicaragua is developing, despite what everybody says,” Herrera said. “They are doing a lot of the right things here.”
However, the sugar magnate says, President Ortega’s political rhetoric is not helping Nicaragua’s cause.
“People perceive risk here because of what Ortega says, but in reality he doesn’t act on what he says. It’s an image,” Herrera said, in flawless English.
But in the world of big business, perception is oftentimes more important than reality, Herrera said. In that sense, Ortega could do a lot to help his own cause if he toned down the revolutionary grandstanding, especially amid growing national and international concern about his commitment to democracy.
“He is working against his own benefit,” Herrera said. “He could do an awful lot to get world support for a lot of things, but instead he plays everybody against the middle. More or less that’s his style, and it’s not necessarily what we would like.”
Continued plans for Nicaragua
Overall, Nicaragua’s political noise does not seem to have dampened Herrera’s enthusiasm for doing business in this country.
The Guatemalan businessman, who got his undergraduate degree from Dartmouth College and a MBA in international business from Columbia University, says Pantaleon Sugar Holdings decided to invest in Nicaragua in 1998, when they bought the dilapidated Monte Rosa Sugar Mill in Chinandega.
“We came here because we were convinced that we could do something that was necessary and add value. And it worked,” Herrera said.
Over the past 13 years, the Pantaleón group has completely modernized the antiquated Monte Rosa mill, converting it into one of the most efficient and productive mills in Central America. Today, the mill has a 14,000-ton daily sugar-crushing capacity, more than four times the mill’s production levels under previous management.
The Monte Rosa mill is still smaller than the San Antonio mill owned by Nicaraguan business mogul Carlos Pellas, and is less than half the size of Pantaleón’s flagship mill in Guatemala, which is producing 28,000 tons of sugar a day. But because of its modernization and efficiency, the Monte Rosa mill is considered “one of the best mills in Central America,” Herrera said.
“San Antonio is still a little bit bigger, and let’s let them be bigger,” he says of the Pellas’ mill in Chichigalpa, home to the distillery of Nicaragua’s famous Flor de Caña rum.
On a global level, however, Paltaleón is one of the largest sugar producers in Latin America. In addition to its investments in Guatemala and Nicaragua, Pantaleón has mills and distilleries in Honduras, Brazil and Mexico, producing an annual total of 11 million tons of cane.
Nicaragua, however, represents 20 percent of their business operation worldwide, Herrera says.
A business that wastes not
While international sugar profits fluctuate wildly due to volatile world market prices, efficient mills are able to dramatically cut production costs by using byproducts to generate energy and liquor.
Pantaleón’s business goals, therefore, are not be the No. 1 in production, rather No. 1 in efficiency and profitability, Herrera says. And so far so good. Pantaleón has had more than 38 years of continual growth, despite sugar prices that can be at $.30 cents a pound one year, and $.03 cents another (sugar prices are currently high—around $.24 cents a pound).
“The sugar business today is three things,” Herrera said. “It’s no longer just the amount to sugar you produce. Now it’s the amount of cane you can mill, because from the cane you get byproducts. You can produce an awful lot of electrical energy, and by doing that you can lower your production costs. And if you put in a distillery, too, between both those operations you end up using your byproducts and, as they say about the pig business, All that’s left is the squeal.”
During the six-month cane-harvesting cycle, Monte Rosa is now producing 144 megawatts of energy for Nicaragua, nearly 8 percent of the country’s total demand.
Herrera says Pantaleón takes its commitment to social responsibility very seriously. Though his mill has not been affected by widespread worker complaints of chronic kidney disease, he insists Monte Rosa is taking preventive measures to address the matter and deal with it head-on, he said.
“We have a culture of social responsibility and we try to face the problems; we don’t try to avoid them,” he said. “We feel that we are responsible for whatever decisions we are making, so we do not walk away from a problem. We try to find a solution.”
Despite the recent PR problems related to ailing cane-cutters and political concerns about the democratic future of the country, Herrera insists that the sugar business, when done responsibly and efficiently, is still a sweet investment in Nicaragua.
Next: Did Daniel Ortega overreach in the Nov. 6 elections?