Economic Impact of Social Conflicts in Nicaragua 2018
The social crisis in the country has surpassed two months, and there has been an upsurge in the repression by government forces consisting of the National Police, parapolice forces, and other armed groups, increasing the number of fatal victims to 285 and exacerbating the environment of citizen insecurity.
This crisis has economic implications that negatively affect the economic development of Nicaraguan society. In this context, the Nicaraguan Foundation for Economic and Social Development (FUNIDES), as part of its mission to promote sustainable development and poverty reduction in Nicaragua, estimated in late May the economic impact of the crisis in the country’s economic activity for 2018. This estimate has been updated with information provided by trade union representatives and businesspeople from key economic sectors until the second week of June.
Since the last report, FUNIDES identified new activities affected by the crisis such as the financial system, non-metallic mining, automotive parts manufacturing and public construction. Due to the deepening of the crisis, production decreased in most of the sectors analyzed in the previous report.
We continue analyzing two potential scenarios. The first scenario assumes that the government accepts an early exit, negotiated and implemented no later than the end of July, consequently achieving a framework of understanding focused on issues of justice and democratization, ending the repression, violence and citizen insecurity. In this scenario, the 2018 economic growth rate would contract to -0.03 percent in relation to 2017 and the economy would face losses of US$638 million in value-added.
The second scenario assumes that there is no political will on behalf of the Government to seek a negotiated solution to the current crisis, thus leading to a prolonged and intensified crisis for the rest of the year. In this scenario, the economic growth rate would contract to -5.6 percent in relation to 2017 and the economy would face losses of US$1,400 million in value-added.
In all scenarios, there are substantial economic losses. The most affected goods and services are 1) commerce, 2) hotels and restaurants, 3) textile, clothing and leather goods, 4) construction, 5) financial services, and 6) agriculture and livestock.
The aforementioned economic activities are key for the Nicaraguan economy, resulting in greater total losses not only because they generate value added but because they are job generators as well. It is estimated that to date 215 thousand people have been fired. Specifically, activities related to tourism, commerce, and construction represent 77 percent of the total jobs lost.
Increased unemployment rates have a direct impact on the quality of life of Nicaraguan families. Job losses lead to an increase in the percentage of people living in poverty from 29.6 percent to 31.7 percent. We estimate 131 thousand people have fallen into poverty during this crisis.
Due to the government’s inability to recover investor confidence without resolving the current legitimacy crisis, the future socio-economic costs are even greater than those in scenario # 2. There are approximately 1.3 million people who are at risk of falling into poverty if they lose their jobs or their income is considerably reduced in the upcoming months. If all these people are affected, the poverty levels would be similar to those observed in the first half of the 1990s, when practically half of the population lived in poverty.