Overlooked Nicaragua Could be Future Bright Spot

Although it is often overlooked, Nicaragua’s tourism industry is slowly improving as the government invests in tourist infrastructure. And because the image of Nicaragua still remains fundamentally negative, casino developers are seeing some of the best property deals in Central America, while casinos that are already up and running in Nicaragua are seeing healthy returns.

Today, tourism is the second largest industry in Nicaragua. More than half a million tourists visited in 2006—up 15 percent from 2004, according to official figures. Over the last seven years, income earned by the tourism industry has increased by 70 percent, or 10 percent per year. Almost 200,000 Americans visit Nicaragua each year, and many of them come to see family members who now call Nicaragua home.

Nicaragua is becoming increasingly adept at luring baby boomers away from its southern neighbor, Costa Rica. Indeed, for some time now Nicaragua has been viewed as a more affordable alternative, and as Nicaragua slowly changes the way it is perceived, an even more attractive proposition.

Nicaragua offers fast connectivity to the United States, a high standard of living at a lower cost, and stunning natural beauty. Bordering both the North Pacific Ocean and the Caribbean Sea, the country boasts miles upon miles of unspoiled beaches, spectacular volcanoes and rainforests. With its low cost of living and excellent tax incentives for retirees, Nicaragua is now one of the top five foreign U.S. retirement destinations.

And it’s not just Americans who are visiting Nicaragua in increasing numbers.

Traditionally speaking, 60 percent of tourists come from Central America, 30 percent arrive from the United States, and only 10 percent come from Europe. However, this looks set to change, as last year the percentage of Europeans visiting Nicaragua more than doubled.

The construction of condos and hotels continues at a fast pace, especially along the Pacific coastline, which is famous for offering the best surfing spots in the country. Land and building costs are still relatively cheap, and there are more than 90 developments on the way around the old fishing village of San Juan del Sur. One of the most significant is the Gran Pacifica Beach and Golf Resort, located on the Pacific coast 45 minutes outside Nicaragua’s capital, Managua.

Nationwide, the government is making significant investments in tourist infrastructure and last year saw a record government investment of $134.6 million (all amounts U.S.D.). But perhaps the biggest challenge the government faces is to change the way Nicaragua is perceived the world over. Think of Mexico, and one imagines perhaps beautiful beaches and Aztec Ruins. Argentina? Tango. Uruguay? The glamour of Punta del Este. Brazil? The carnival and the beaches of Rio de Janeiro.

But for Nicaragua, the memory of the bloody guerrilla war against the Marxist-inspired Sandinista government still lingers. Nicaragua has struggled to overcome the negative image left by the civil war and has tried, on a very limited budget, to promote itself as a safe place to travel.

A huge boost comes with CBS’s decision to shoot the next two series of the popular reality TV show Survivor in Nicaragua. Watched in 13 million American homes per week and further broadcast in 154 other countries, it is believed that the series will have a tremendous impact on Nicaragua’s tourism industry. Watched by 100 million, people the show will help showcase Nicaragua’s stunning natural beauty and has been described as a “dream come true” by tourism ministry officials.

Casino Law in Nicaragua
Unfortunately, casinos in Nicaragua have been hindered by a lack of a clear legal framework in which to operate, and illegal gaming remains widespread. Since 2001, when Nicaragua passed a wide sweeping gaming law that affected both slot parlors and casinos, casinos have been regulated by the Ministry of Tourism. Casinos would, it was hoped, be a further boost to the tourism industry and would be permitted in night clubs and hotels only.

The minimum investment varied depending on where the casino was located, with a minimum investment of $250,000 in capital Managua and $100,000 elsewhere. However, the law made very little impact, as illegal gaming nationwide continued to thrive and went generally unchecked. As a result, the gaming law of 2001 went up for debate once again in 2006.

The new law, as it was debated in the National Assembly, sought to allow casinos but only if they were part of a five-star hotel. At first, the law appeared to have the backing of the majority of the deputies, especially after a special investigative committee was charged with investigating the issue, and it did appear for a time that Nicaragua would soon pass its second major gaming law. Unfortunately, due to a backlog of more pressing issues, the law became stalled and then finally stuck—an unfortunate situation that still continues today.

However, this could change very soon. The issue of gaming is once more being discussed in the House of Deputies under a new initiative and is now considered to be urgent due to the number of minors who have been found to be playing illegal slot machines. As a result, various proposals are now being put forward and it is hoped that if a new gaming law is passed, a crackdown on illegal gaming will ensue. Deputies are now considering allowing casinos to operate in three- to five-star hotels with a minimum of 30 rooms and are currently debating how much casinos will have to pay in tax.

Unfortunately, in the past, casinos and slot machines in Nicaragua have also come under special attention from the tax collection agency. In order to pay back some of the money owed to the International Monetary Fund (IMF) in 2005 the government looked to casinos to raise part of the necessary tax income. Initially, it looked like casinos would have to pay an additional $30 per slot and $300 per table per month.

In March 2006, this was in principle approved but with some changes. A fixed tax was set at $200 per table as opposed to $300. The tax on slots varied depending on the size of the casino, ranging from $18 for the smaller casinos to $25 for the largest (those with more than 601 slots). The new emergency tax meant that taxation on casinos increased by more than 123 percent for the next six months.

Now casinos are once more in the spotlight as part of a new emergency budget that was passed by the House of Deputies in December 2009. The new budget, which went into effect in January this year, imposed an extra tax on business and was aimed to raise $45 million. For casinos, it meant raising taxation on each slot machine from $20 per month to between $50 and $150 per month, depending on the size of the casino.

Casinos in Nicaragua
Despite the lack of regulation, gaming is widespread around the country. The majority of casinos, however, are located in Managua. According to statistics collected by the government tax collection agency, there are 612 gaming centers in Nicaragua run by 50 operators. There are 6,500 slot machines and 73 gaming tables. Unfortunately, with more than 7,000 illegal slot machines, according to government statistics, there are still more illegal slot machines than there are slot machines operating legally.

Thunderbird Resorts, which has offices in San Diego and is registered on the Canadian stock exchange, is one of the most powerful players in the Latin America region and has a strong presence in Nicaragua as well as in neighboring Costa Rica. In fact, Thunderbird has been very active in Central America in recent years and has expanded throughout Costa Rica, Guatemala and Nicaragua. Thunderbird de Costa Rica, a subsidiary of Thunderbird Resorts, has extensively focused on Costa Rica since 2003, and Thunderbird has been doing the same, although not quite as intensely, in Nicaragua.

Thunderbird is one of the major operators in Latin America. It increased its presence in Nicaragua in 2003 when it successfully completed a subsidiary merger with the local Pharaoh’s Casino. Thunderbird now runs five casinos in Nicaragua with 644 slot machines and 189 gaming tables. Its latest project, the construction of a new flagship Pharaoh’s Casino in downtown Managua was, however, put on hold in 2009 while Thunderbird assesses the viability of the project.

As Nicaragua continues to present a more positive image the world over, tourist numbers and retirees wishing to relocate there will continue to grow. However, for many Americans, as one local observer noted, Nicaragua still retains the “Russia with palm trees” image, and it’s a difficult image to overcome. But that image is fading, and with the filming of Survivor in Nicaragua, that image is bound to fade more quickly than previously hoped. With the casino industry more developed in its neighbors, Nicaragua could be an interesting prospect for future investment.