Investor Concerns about Ortega
Jan 6th, 2009 by Wes
Recently we had one of our readers contact us. He is considering Nicaragua as an investment location but had some concerns about Daniel Ortega and all the recent media surrounding him. We really appreciated the message and thought we would share our response back with everyone. We share the concern that some have about about Daniel Ortega and the political strife in Nicaragua. When we embarked upon our venture in Nicaragua we evaluated the risks and rewards of the investments in this country. One concern of course was political, yet it was / is not our top concern.
Risk #1) CONNECTIONS or WHO: Who is going to oversee our land projects in country? Who is going to handle challenges and be our eyes and ears in country? Who do we trust in Nicaragua and who do we avoid. Places like Nicaragua attract the most adventurous and entrepreneurial and both personalities are prone to either enhancing the self-interested and their motives ( liars, beggars and thieves) or those enhancing the common good of the community and more importantly those who have the capacity to create community which will contribute to a common cause of greater good. We wanted to avoid scams and become involved with good businessmen with good intentions.
Our Solution: This is our strongest suit: we are very well connected. We are part of a team of people who have been doing business in Nicaragua since 2000, and we have access to many well respected people in all areas required to help with and execute Risk #2.
Risk #2) LOGISTICS or HOW: How do we purchase the properties? How do we resell them? How do we manage them from the US? We needed to be concerned about Legal, Finance, Administration, Management, Acquisitions and Sales.
Our Solution: Kevin and I are both entrepreneurs with many years of experience in building businesses. We also found the people we need in Nicaragua to perform the various tasks required to complete projects. Side Note: The developers we know are spending the time dreaming, planning and creating the next generation of destination / resort travel experiences in Latin America. Nicaragua is very alive with activity, the normal eye just can’t see it because the activity is creative vs concrete.
Risk #3) WHAT: What do we purchase? We chose to purchase large tracts of development land versus building lots. Fortunately for us we did. The prices of building lots have declined as much as 50% in some areas. They were overextended, and a lot of the buyers for these lots took out 2nd lines of credit or HELOCS on their homes in the U.S. When the financial crises started the folks wanted their cash back and were unable to sell their properties so the “fire sale” mentality has caused a glut of building lots for sale at deep discounts. The developers with land have all retreated from sub-dividing any more lots and are in a “land-banking mode”.
Our Solution: We purchased larger tracts of land which provide us more options. We paid cash for our land so we have no notes due. We can wait until the tide turns. The prices of larger pieces have not declined as far as we can tell.
Risk #4) POLITICAL: Hey we are in Latin America. I also love distress. I am a contrarian, buying when people are selling and selling when people are buying. What do we do about Ortega? We decided that this was the true risk vs reward. We have the opportunity to control any of the first 3 risks, we have no control over the political risk. Either the political situation in Nicaragua improves or it worsens. At worst we lose all our money, at best we 10x our money. We were one of the few who were still buying during the Ortega period. I truly believe that Ortega’s presidency will be the best thing for Nicaragua. Why? Every year since 1990 Daniel has run for the helm, each time his name was on the ballot box the country and the interested parts of the world freaked out. “What if Daniel gets the seat? That would be awful. For 1 - 2 years prior to the elections of 1995 and 2000 and 2005 fear gripped the country and the investors and other anti-Ortega folks. Finally the worst has happen, he got what he wanted. I believe that after his five years are up the Sandinista Revolution can finally be put to rest and new guard / ideology can prevail. See my previous article.
To answer the original question. Yes I am concerned about Ortega and I think it may be possible he can change the constitution only because it is Latin America. I believe the chances to be slim. I spent many hours with our Lawyer in Nicaragua and he has assured me that Ortega will not be able to create a dictatorship. Our lawyer (L) says he does not the have the support of the people (less than 20%) nor the support of the Legislative or Judicial branches. L says most of the Sandinistas are or have become wealthy business owners mainly because of land and they all know where the next generation of wealth is going to come from, development and tourism. Not all Sandinistas are prone to be Negative. For Example: the past Mayor of San Juan Del Sur, Eduardo Holmann Chamorro (2003 - 2008), was / is Sandinista and we was a magnificent Mayor who did a fantastic job for San Juan and the lower Pacific region. The new mayor is also Sandinista and he is very well respected and was the best choice according to the developer friends we have in San Juan.
The other note is the press. The press has been beating the Sandinistas forever. This is some of the only sensationalistic news they can get out of Central America. They chomp at the bit waiting for another revolution and grasp every detail of corruption they can find. I take it with a grain of salt.
It is no easy matter changing the constitution of a country. He may try, yet I do not think he will prevail. One last note: The relationship with Chavez out of Venezuela is deteriorating. Chavez is going bankrupt and he has his own problems now so he is leaving Daniel out in the cold. Notice Daniel’s latest ally: Georgia in the Ukraine!! He is running out of friends quickly.
He will be done in 2012, Nicaragua will be poised for growth and development, the world’s finances will be smoothed out and 80 Million US and Canadian baby boomers will be set to travel and 90 Million European boomers will be doing the same!
