In a recent development, Chile and Canada have announced the successful signing of the strategic partnership agreement modernization, which renews the terms of their longstanding relationship. The new agreement modernizes the 2023 partnership by adding four new pillars in addition to trade, focusing on 21st-century challenges of mutual interest: gender equality, climate change, critical minerals, and Indigenous people. “The modernization of the Strategic Partnership between Canada and Chile reflects the evolution of our societies’ priorities and is a blueprint for future-oriented cooperation between our nations,” said van Klaveren.

Prime Minister Trudeau and President Boric met on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea and led the official discussions around the modernization, which were concluded in a subsequent meeting between the two Ministers of Foreign Affairs. In a press conference following the bilateral signing ceremony, both Prime Minister Trudeau and President Boric described the modernization of the agreement as a confirmation of Chile and Canada’s historical alliance, as well as a more pointed effort to refocus their shared goals to better address global and local challenges of the present day. The two leaders’ speeches and the official Joint Declaration identified core areas of similarity in Chile and Canada’s approach to international affairs, emphasizing democracy, environmental stewardship, and economic modernization as defining characteristics of both states. The original Partnership for Prosperity and Growth was first signed in 2007, and modernized this year, to enhance bilateral trade and investment relations. However, in its new version, the modernized agreement seeks to deepen and widen the relationship, incorporating a more comprehensive and globally oriented agenda for cooperation.

The Agreement Modernization Expands on the Original Framework

Notably, while trade and investment continue to serve as the foundation for Chile and Canada’s bilateral relations, the modernized agreement includes areas of collaboration beyond the economic, emphasizing the intertwined nature of social, environmental, and economic policies. As van Klaveren said in his opening remarks, the new Framework Agreement for Strategic Partnership “addresses our societies’ evolving priorities” with a joint commitment to implementing free, fair, and rules-based trade in a globalized, climate-constrained world. The inclusion of a pillar on gender equality signals both governments’ shared interest in ensuring women’s full participation and leadership at home and abroad, as well as the equitable application of national and international policy. Climate change and polar affairs, as well as Chilean and Canadian Arctic collaboration, are also central to the agreement, reflecting the existential nature of environmental and climate policy for both states and their citizens. Chile and Canada have ambitious goals and significant capabilities in the sustainable development and processing of critical minerals, a pillar that directly links the other three in the modernized agreement and to the broader 21st-century challenges. Both states have long been leaders in mining for copper, lithium, nickel, and other minerals key to the global transition to renewables, and are taking steps to ensure the sector remains sustainable, safe, and productive in the long term.

Canadian Investment and Chilean Exports

For two decades, Chile and Canada have steadily expanded bilateral trade and investment, which has served to strengthen both economies and create business and employment opportunities in each country. The latest data from Global Affairs Canada and Chile’s Ministerio de Hacienda indicate that total trade between the two nations exceeded CAN$2 billion in 2025, making Canada Chile’s single largest foreign investor. Notably, as in many other countries, mining represents the majority of Canadian investment stock in Chile, with active participation in the energy, infrastructure, and technology sectors as well. In van Klaveren’s press statement, he reaffirmed Canada’s key role in Chile’s economic modernization over the past two decades, bringing not just capital, but technology and high-value-added knowledge transfer. Canada remains the most important trade and investment partner for Chile in the mining sector, with active engagement in exploration, extraction, and innovation in processing and technological applications for Chile’s vast copper, lithium, and other critical mineral resources. As part of the modernization, Chile and Canada have committed to greater regulatory alignment and standardization on issues that directly impact the sector, such as climate change, environmental impact, and social inclusion, in particular Indigenous collaboration and cooperation. This cooperation has not yet been finalized, but it is to include not just dialogue but shared action plans and joint initiatives, with the understanding that foreign investment will support not extractive exploitation but rather responsible stewardship of natural resources.

Joint Action on Climate Change and Energy Transition

Prime Minister Carney made it a point to underscore the particular significance of strengthening cooperation on critical minerals, clean energy, wildfire management, and digital technologies. In other words, Canada and Chile have an opportunity, in both bilateral and multilateral settings, to not only speak but act together to the benefit of their own peoples and the world at large. Canada has supported Chile’s efforts to diversify its economy in the past, and this new version of the agreement is built on that model of mutually beneficial long-term cooperation. The two countries plan to establish closer working relationships with governments, private enterprises, and educational and research institutions with the goal of developing new initiatives on lithium extraction, battery manufacturing, and renewable energy systems, all of which are in high demand on the global market. These initiatives are all already in Canada’s national critical minerals strategy, which highlights international cooperation, responsible sourcing, green innovation, and productivity as the four central pillars to guide the sector’s development over the coming years. Prime Minister Carney also emphasized the importance of cooperation in wildfire management and prevention, an area where both countries are deeply interested and increasingly active as climate change takes its toll.

Cultural Exchange and Social Inclusion

Beyond the more technocratic aspects of the modernized agreement, Chile and Canada have also signaled their commitment to joint action in the area of social inclusion and cultural exchange. Indigenous cooperation is a separate pillar of the new Strategic Partnership, demonstrating the importance the two governments give to promoting and protecting Indigenous peoples and their rights. Canada’s decades-long national reconciliation process provides a potential model for Chile, where government and Indigenous groups continue to discuss autonomy, land rights, and cultural preservation. Joint programs to support education, sustainable development, and local governance could open new channels of communication and best-practice sharing between Indigenous peoples in Canada and Chile. Finally, the gender equality pillar of the modernized agreement dovetails with ongoing domestic policies in Chile that aim to create equal opportunities for women in business, government, and society in general. Both governments have committed to encouraging women’s participation in science, technology, and business leadership, as well as in foreign service and diplomacy, as a priority for building a better future for all.

The Milei government is advancing a package of reforms to bring about a structural change in the Argentine economy. The head of State has designed an economic offensive in Argentina that seeks to dismantle rigid regulations, simplify a complicated tax system, and restore investor confidence in one of the most volatile markets in Latin America. Javier Milei, the economist turned political outsider, has long argued that Argentina’s economic stagnation is a product of an oversized state, labor rigidity, and a suffocating tax burden. Now, from the Casa Rosada, he is putting those ideas into practice with a set of measures that could upend the country’s economic order.

The flagship of Milei’s program is twofold: an ambitious labor reform to modernize the employment system and a drastic tax reduction that, in the administration’s view, will revitalize the productive sector. The scope of the plan is enormous, and so are the challenges that lie ahead. The country’s Congress is deeply divided, and powerful labor unions are gearing up to fight what they consider an attack on hard-won worker rights.

Argentina’s economic crisis is not new. Inflation, which has topped 100 percent, continues to devour wages and savings. For much of the population, a trip to the supermarket is a bitter exercise that makes them feel like hostages of decades of mismanagement and populist cycles. Against this scenario, the economic offensive in Argentina is betting on a bet on radical change: a commitment to tear down old institutions and unleash market forces that, so they say, can restore stability and growth.

Labor Reform: Flexibility vs. Social Protection

The first pillar of Milei’s strategy is labor reform. The proposal is aimed at simplifying the complex rules that regulate the relationship between employers and employees, reducing litigation, and introducing more flexibility in hiring and firing. They argue that this would encourage businesses, especially small and medium-sized ones, to formalize employment, reducing the well-known informal work that afflicts nearly half of the country’s workers.

The reform’s defenders argue that Argentina’s rigid labor laws, many of them dating back to the mid-20th century, scare off investment and hinder companies’ growth. By making contracts more flexible and reducing bureaucratic costs, they believe the economy could generate hundreds of thousands of formal jobs by 2027.

But unions and opposition leaders warn that the reform could reverse decades of progress in worker protection. They fear a step towards precarious employment, less job security, and weaker collective bargaining power. For them, the labor reform is not modernization; it is deregulation at the expense of social justice.

This ideological battle is at the heart of Milei’s presidency, trying to reconcile the need for competitiveness with the preservation of social cohesion. The fight over labor reform will be key to the economic offensive in Argentina, since it sets two visions of progress against each other, one based on market dynamism, the other on social rights.

Tax Reduction: A Radical Simplification

Along with labor reform, the Milei government is advancing an equally audacious fiscal proposal. The president has proposed eliminating up to twenty different taxes, many of which are considered inefficient or distortive. Among the taxes to be repealed are some that are repeated between the national and provincial levels, generating a network of red tape that discourages investment and production.

Defenders of this tax reform argue that Argentina’s tax pressure is one of the highest in the region and has long choked private initiative. Simplifying the system and reducing the overall burden would make the country more competitive and attract both domestic and foreign capital. This boost of confidence, they hope, will translate into job creation and sustained growth.

Critics, on the other hand, point out the fiscal cost that this proposal would entail. Argentina’s public finances are already stretched, and eliminating taxes without a clear plan to offset the loss of revenue could jeopardize essential public services such as education, health, and social assistance. The government argues that the expansion of the formal economy would eventually offset the initial revenue loss, but many economists and opposition lawmakers are skeptical.

The challenge, therefore, is to find a balance between fiscal prudence and economic stimulus. Done carefully, the tax reform could mark a turning point in Argentina’s long-term economic recovery; badly managed, it could deepen the fiscal deficit and trigger new instability.

Political and Institutional Resistance

In addition to the technical aspects, the success of Milei’s reforms also depends on his ability to lead a fragmented political landscape. The president faces a Congress in which his party has a minority of seats, forcing him to negotiate with governors and opposition groups that have little interest in giving him excessive powers.

Labor unions, historically powerful in Argentine politics, are already mobilizing strikes and demonstrations to defend what they call “conquests of the working class.” The Peronist opposition, still reeling from the electoral defeat, is already sniffing that confrontation as an opportunity to regroup and reassert its hegemony.

Milei, however, remains undeterred. In his speeches, he frames the conflict as a battle between those who want to maintain the status quo and those willing to break with decades of stagnation. His rhetoric is appealing to sectors of the population that are exhausted by inflation, corruption, and the recurrent crises. But to maintain that support he will have to provide results, lower inflation, create jobs, and restore confidence.

A Paradigm Shift or a Risky Gamble?

For many observers, what is at stake is more than a series of policy changes: it is a paradigm shift in how Argentina understands the state and the market. The economic offensive in Argentina that Milei is leading could redefine the country’s trajectory and open the door to a more liberal, investment-friendly model, similar to the changes that have taken place in Chile or even in Eastern Europe after the fall of communism.

However, Argentina’s reality is unique, with deep inequalities, institutional fragility, and a population accustomed to the State’s hand. Whether Milei’s experiment can achieve prosperity without unleashing new cycles of social protest remains to be seen.

For now, optimism and skepticism coexist in equal parts. Investors are watching closely, unions are on the move, and ordinary Argentines continue to live in daily inflation and economic uncertainty. What is clear is that Milei has unleashed an economic offensive in Argentina unlike any seen in decades, which could propel the country towards long-awaited stability or plunge it into a new cycle of turbulence.

The Organization for Economic Cooperation and Development (OECD) confirmed in its latest report that Mexico foreign direct investment (FDI) reaffirmed its position as one of the most attractive in the first half of 2025. According to the organization’s document “Foreign Direct Investment Flows in the First Half of 2025,” the country is in the top five of the main recipients worldwide with USD 34.265 billion in FDI. The amount reflects that Mexico remains the most relevant among the receiving economies in America, underlined by reinvestment in profits.

Mexico foreign direct investment improves its standing: OECD

The OECD’s report was issued amid a scenario of global economic uncertainty, where trade growth is at a low level, interest rates are at their highest in more than a decade, and geopolitical conflicts continue to take place. In this situation, Mexico’s FDI has stood out by maintaining an important level of activity. “Global growth in the first half of 2025 was hampered by weakening trade, a high level of interest rates, and continued geopolitical tensions. The outlook remains highly uncertain, as many countries continue to struggle with high inflation, higher public and private debt, and tighter financial conditions, while China remains under pressure,” the OECD explained.

The organization’s report confirmed that worldwide FDI was stable in the first half of the year, reaching approximately USD 663 billion. This result was little change from the prior years, given the fact that global economic conditions had not encouraged large movements of capital in or out of borders. However, within this context, the OECD pointed out how the distribution of global flows had changed among countries.

Mexico Ranks Fifth in the Global Recipients of FDI

In this way, what the OECD described was a landscape of flows where the most favored economies had been mainly those that registered an important internal reinvestment or strong industrial performance. In the general ranking, the countries that would be the preferred ones among investors would be the United States, Brazil, the United Kingdom, and Canada. In this list, the United States is in first place, with USD 149 billion; Brazil, in second place, with USD 38 billion; the United Kingdom, in third, with USD 37 billion; and Canada, in fourth, with USD 36.869 billion. Rounding out the first five is Mexico with USD 34.265 billion. This way, the Mexican economy was above other large economies in Europe and Asia.

Mexico’s profit reinvestment

In this regard, what is notable about Mexico’s position is the origin of its FDI inflows. For the OECD, the main characteristic of the Mexican economy is that its FDI is mainly explained by profit reinvestment. This means that Mexico’s FDI was driven not by capital injections from abroad but by local companies that are already in the country and that decided to reinvest the profits that are made here rather than returning them to the country of origin.

This situation is described in OECD as a general trend by which a large part of the Mexican FDI was made up of profits reinvested by the same companies that were operating here. The sectors in which this situation is seen would be manufacturing, automotive, aerospace, and electronics. In all of these, Mexico continues to be very competitive as a production and export platform and is the main destination of large companies.

Mexico’s FDI and other countries

In this sense, the OECD report showed that this process is not something unique to Mexico, since in other economies of similar size, it is also notable that the main driver of investment has been the profit reinvestment by the companies themselves. Germany and France are OECD members, where these figures would be more important in relative terms. In this case, it is noteworthy that the German economy, and even France to a lesser extent, has registered better FDI figures than Mexico.

For the OECD member countries, global FDI increased by 8% to USD 249 billion in the first six months of 2025. According to the OECD, most of the FDI increases in 2025 resulted from intra-company loans, or intercompany lending within multinational groups of companies. Reinvested profits also made a significant contribution, especially in Mexico, Germany, and France.

On the other hand, total cross-border M&A values declined in both developed and emerging markets. Fewer transactions were carried out in each case compared to the previous year. While developed market M&A activity softened somewhat, that of emerging markets was particularly affected. M&A activity in these markets also tends to be more sensitive to financial conditions, commodity prices, and exchange rates.

As the OECD itself points out, some sectors have registered positive peaks. Among them, investment in green technologies in advanced economies, with investments in clean energy, electric vehicles, and charging infrastructure, or infrastructure for the development of artificial intelligence, is reaching record levels. However, these peaks are still limited given the drop in FDI inflows into new projects around the world.

OECD’s Outbound FDI

The OECD data reveal that between these organizations’ member countries, outbound foreign direct investment fell 19% during the first half of 2025. The sharpest declines in overseas investments were recorded in Canada, Australia, and Sweden, according to OECD data, which cited weaker domestic savings and changes in corporate investment priorities as a result of market uncertainties. In contrast, France was the only other major developed economy to increase its outbound FDI in the first half of 2025.

The OECD report indicated that Japan was the world’s largest source of FDI during the first half of 2025, with USD 64 billion invested abroad. It was followed by France, with USD 49 billion. Third place in the world’s major economies’ FDI sources was for the United States with USD 26 billion. The report also noted that Japanese corporations have continued to expand abroad despite the higher cost of financing and lower domestic growth. This is due to their long-term strategic planning horizon.

Mexico maintains a favorable long-term FDI performance

As the OECD itself notes, Mexico foreign direct investment data shows that the economy’s good performance in this indicator in the short, medium, and long term will be maintained. In this sense, a context such as the current one, with a greater desire on the part of large companies to maintain or increase investments in the countries where they are located, will only have a positive impact on Mexico. This is because these companies have in the national space a geographically strategic location, with excellent infrastructure and a wide network of free trade agreements that allow them to supply not only their main market but also other destinations.

For Mexico, factors such as its location, the value of free trade agreements or the vast number of people with a good academic and professional training have been determining factors to ensure a high performance in terms of receiving foreign direct investment. In addition, the work carried out in recent years in infrastructure or energy has been another key element. The prudent management of macroeconomic policy, with monetary and fiscal policies that have allowed, among other things, to contain inflation expectations in a context of global shocks, has been another characteristic that has allowed Mexico to remain a safe haven for investors.

The Directorate of Investments and Special Regimes (DIE) of the Ministry of Industry and Commerce (MIC) revealed that in the third quarter of 2025 (July-September), Paraguay issued 74 certificates to foreign investors, who committed to approximately USD 6 million in national investment projects. These data show a tendency of continuity in foreign investment in Paraguay, despite a regional context that, due to the deceleration of world trade and tighter financial conditions, has not been as favorable. Paraguay, in this regard, has become a destination of greater interest for foreign capital in the region, as a country that stands out for its macroeconomic stability and investment incentives.

Changes in the Destination of Foreign Investment

The MIC highlights that foreign investment in Paraguay is becoming more diversified in the long term. If a few years ago the majority of these operations were destined for the primary sector (mainly, agriculture) and construction activities, recently more than half of the total foreign capital committed in the third quarter was destined for business services, industrial technologies, and light manufacturing. In this sense, foreign investments in Paraguay are consolidating themselves in the medium term as a form of productive insertion in global value chains and are gaining relevance as a result of industrial relocation and nearshoring trends.

More concretely, the technology-linked investment model is gaining a growing share of foreign investment in Paraguay. On the one hand, this activity is part of a governmental policy of digitalization and productive innovation. In this context, numerous incentives for industrial modernization have been launched in recent years, such as the National Innovation and Industrial Competitiveness Program, which has encouraged, among other things, the adoption of new technologies in production and logistics. On the other hand, certain segments of light manufacturing are also beginning to move to Paraguay. Production units of this kind are located in the country’s free zones and are able to reduce their tax burden and face simpler and more agile administrative procedures. Companies also committed to expanding certain services in the third quarter. In particular, back-office functions, logistics coordination centers, and some technical support services, among others. These operations take place in Paraguay’s main cities, such as Asunción and Ciudad del Este. The work and social insertion that these services generate is not limited to formal jobs, since training and human capital are also developed in the national territory.

Mercosur: The Main Source of Investment

The Mercosur region continues to be the main source of foreign investments in Paraguay. Of the 74 certificates that the DIE issued in the third quarter, about 50% corresponded to companies and investors from Mercosur countries. Brazilian investors registered the most projects of all countries in the region, with a total of 26 new investments. The main driver of these investments has been Paraguay’s lower energy costs compared to Brazil and the rest of the world, which is a competitive advantage that is maintained in the medium term. It should be remembered that the national energy matrix is mainly based on clean hydroelectricity from the Itaipú and Yacyretá dams. For the case of Brazil, investments have been prominent, especially in food processing industries, automotive, and plastics parts.

Following Brazil, Bolivia, Argentina, Uruguay, and Chile provided the second largest number of new investments. Bolivian investors have diversified their destinations and are beginning to expand logistics and agricultural input activities in Paraguay, for example. For its part, Argentine and Uruguayan investors have increased their presence, mainly in the construction, manufacturing, and wholesale and retail trade sectors. Finally, Chilean investments have been recurrently related to agri-food projects and renewable energy.

Expanding Extra-Regional Investment Partnerships

Paraguay is also expanding its investment relationships to other extra-regional countries, including a larger variety of European, Eurasian, North American, and Asian investors. European and Eurasian investors were responsible for around 35% of all new projects in the third quarter of 2025. Spain, Poland, Russia, Turkey, and Ukraine, in particular, have been financing projects in industrial services, infrastructure, and agribusiness. Finally, investors from North America and Asia were responsible for the remaining 15% of new projects. This group of countries, made up of investors from the United States, Canada, China, and South Korea, among others, has expanded its interest in Paraguay in recent years. This interest has been based on the long-term stability of the Paraguayan economy (characterized by low inflation and public debt, and relatively predictable fiscal policies) and its potential as a platform to the rest of the Southern Cone market, through Mercosur. As for Asian investments, several South Korean and Chinese investors have expressed interest in manufacturing components in Paraguay and assembling electrical and electronic goods. This may be part of a greater tendency of relocation of production and supply chains by companies that want to reduce logistics costs and diversify their operations across the Americas.

Foreign Investments in Paraguay: Key Strengths

One of the most important competitive advantages that explain the dynamism of foreign investments in Paraguay is the low tax burden. In this regard, Paraguay has a corporate income tax rate of 10% and a value-added tax (VAT) of 10%, which is one of the lowest in Latin America. Moreover, companies that operate under the Maquila Law only pay a single tax rate of 1% on the national value added, if their production is destined for export. Another structural advantage is related to low energy costs. Paraguay is a world leader in clean energy generation, whose production capacity far exceeds its domestic consumption. In the medium and long term, this means very low industrial rates for electricity in the national territory. In addition, in recent years investments have been made in infrastructure that improve logistics corridors that connect the main cities of Paraguay: Asunción-Ciudad del Este-Encarnación-Concepción. In this sense, road improvement projects, port facilities, and digital connectivity have significantly increased Paraguay’s connection to global trade routes. The improvement of the infrastructure in the country’s main river ports, a process that is still taking place, has also made the waterway formed by the Paraguay-Paraná rivers a strategic axis for the shipment of agricultural exports and industrial products.

Prospects: Paraguay’s Future as a Regional Hub

The government’s medium-term policy is expected to be increasingly focused on consolidating Paraguay’s role as a logistics and production hub for the rest of the Southern Cone. In this way, the state will prioritize policies that support industrial upgrading, digital transformation, and sustainable production. As new sectors continue to gain strength and diversity in foreign investments in Paraguay, these operations will be fundamental for shaping the next stage of Paraguayan development. With fiscal stability, abundant clean energy, and infrastructure connectivity, Paraguay will continue to attract foreign investors in 2026, looking for efficiency, sustainability, and regional insertion in an increasingly competitive environment.

Nicaragua approves special economic zones to attract Chinese investment, as the National Assembly grants wide tax exemptions for companies operating in the framework of the Belt and Road Initiative.

Nicaragua recently approved special economic zones, or free-trade areas, in a move to deepen ties with China and attract foreign investment. The National Assembly green-lighted the Nicaragua–China Special Economic Zones (SEZ), a framework that will give new fiscal and regulatory incentives for Chinese companies operating in the country and help diversify its industrial base. The zones will target manufacturing, agribusiness, logistics, and high-tech sectors.

Operating under the auspices of Beijing’s Belt and Road Initiative, these special economic zones will benefit from a preferential fiscal and regulatory regime that will remain in place for the next 10 years. The move is one of the most significant economic measures adopted by Nicaragua since it resumed relations with China in 2021.

Fiscal and Investment Incentives

Companies that operate in the SEZs will enjoy a 100% exemption on income tax for the next decade, as well as exemption from customs duties, municipal taxes, and VAT on purchases made in Nicaragua, according to the recently approved law. The special regime also exempts from taxation the importation of machinery, raw materials, and intermediate goods for use in Nicaragua, as well as the payment of dividends.

The incentives could lead to investment in industrial manufacturing, agriculture and agro-industry, renewable energy, information technology, and other sectors. Nicaragua’s Ministry of Development, Industry and Trade (MIFIC) said that the law also promotes investments in export-oriented logistics and infrastructure. The government hopes the SEZs will also attract Chinese investment in the assembly of electronic components, auto parts, and other light industries.

Nicaragua plans to position itself as an attractive destination for Chinese firms looking to set up assembly lines and export to the United States and Europe, as well as a supplier of agricultural goods, under the framework of the Belt and Road Initiative (BRI), Beijing’s massive global infrastructure and investment program.

China’s BRI and Nicaragua: A Growing Partnership

Nicaragua and China signed the free trade agreement (FTA) in 2023, which will increase the access of Nicaraguan products such as beef, coffee, fish, cocoa, and sesame seeds to the Chinese market. Chinese state companies have also built thousands of homes, financed modernization of the country’s Pacific ports, and provided infrastructure and credit for upgrading the national telecoms network. The new SEZ measure is the latest in a long list of economic concessions to Beijing.

While Nicaraguan officials have hailed the measure as historic, the U.S. government has reacted with harsh rhetoric and warnings of potential economic reprisals. The administration of U.S. President Joe Biden is expected to impose a 100% tariff on Nicaraguan exports and suspend a range of preferential trade arrangements, including parts of the Central America–Dominican Republic Free Trade Agreement (CAFTA-DR), citing “continued authoritarianism and the deterioration of human rights” under the Ortega government.

Nicaragua approves special economic zones and the U.S. government fears that China is tightening its grip on Nicaragua, as Nicaragua-China Economic and Trade Forum plans to deepen ties between private sectors of both nations.

Government officials say that Nicaragua’s policy pivot to China and away from traditional Western partners is raising new concerns about transparency, labor standards, and national sovereignty. Analysts note that further U.S. sanctions could blunt some of the expected benefits of Chinese investment, given that the U.S. is Nicaragua’s largest export market.

Growing concern about China’s increasing footprint in the country has given way to protests and public criticism of the Ortega administration’s strategic alignment with Beijing. However, the Nicaraguan government has brushed off concerns, describing the move as a “sovereign economic decision” that will create jobs, generate income, and help modernize the economy.

Opposition and Concerns at Home

The decision to create special economic zones, as well as the naming of Laureano Ortega Murillo to coordinate the SEZs, has sparked criticism of authoritarian governance in Nicaragua. Laureano Ortega Murillo, the president’s son and a high-ranking member of the ruling party, has been placed in charge of coordinating and managing these SEZs. This decision has intensified concerns over nepotism and the consolidation of power within the Ortega family and their political allies.

Civil society groups and independent economists are increasingly vocal about the lack of transparency and institutional checks in the implementation of these SEZs. They argue that without proper regulatory frameworks and mechanisms for accountability, these zones risk becoming enclaves of discretionary authority, vulnerable to corruption and limited public scrutiny.

Nicaragua’s macroeconomic environment and broader political climate have also been a source of concern, especially for investors outside of China. Nicaragua’s media freedom, the independence of the judiciary, and space for political opposition have all come under pressure, a dynamic that could make the Ortega government less attractive to diverse sources of foreign direct investment.

A Chinese Flagship Investment?

Nicaragua approved special economic zones recently to support Chinese investment, as both countries signed an important FTA on 7 April in Managua. China’s trade and investments have reached significant levels in a short period. The Asian nation’s role as an investor has grown substantially since the renewal of bilateral relations in 2021.

In 2023 alone, more than 85% of the $870 million invested by China in Nicaragua focused on five economic sectors: construction and public works, trade, tourism, finance, and agriculture. The largest share was construction and infrastructure, reaching $200 million in private investment and another $400 million in public works. All of these projects will have a synergic relationship with the Special Economic Zones.

Nicaragua has become an important partner for Chinese investment in the Central American region and for diplomatic support in international fora, as both sides approve special economic zones. In 2022, Nicaragua–China trade reached $851 million, a 150% increase in just one year, with a trade surplus of $504 million in favor of Beijing.

Despite being a net importer of Chinese goods, Nicaragua’s exports to China have also grown significantly. In 2022, Nicaragua’s exports to China totaled $347 million, more than double the $136 million from the previous year. In terms of sectors, while Nicaraguan exports to China are mainly composed of agricultural goods and seafood, China exports a variety of manufactured goods, including electronic appliances and machinery.

China’s Economic Presence in Nicaragua

Chinese FDI has increased rapidly across sectors, including infrastructure, real estate, and mining. The Nicaragua–China Economic and Trade Forum is planning to play an important role in deepening the trade relationship between the private sectors of both countries and building bridges for further cooperation.

China approved two large infrastructure projects in 2022: a nearly $200 million investment in telecommunications equipment to upgrade the country’s telecoms network and a $367 million deal for the Pacific road, a coastal highway stretching over 100 km along the Pacific Ocean and open to bids from international investors.

The latest project, a 100,000-home development in Tipitapa, about 20 km north of Managua, is part of a deal signed in 2022. The $900 million development, which aims to build more than 500,000 homes by 2026, is being financed through Chinese debt and Chinese firms.

Opportunities and Risks Ahead

Nicaragua’s approval of the Nicaragua–China Special Economic Zones marks a significant shift in its economic policy, with the potential to reshape the country’s trade dynamics and foreign investment landscape. On the positive side, these zones could provide a much-needed boost to the Nicaraguan economy by attracting substantial Chinese investment, creating jobs, and fostering economic diversification.

Enhanced bilateral trade with China, supported by the zones, is also expected to increase revenue from exports and bring in advanced technology, which could be particularly beneficial for sectors like manufacturing and agriculture.

Nicaragua also sees the SEZs as a means to reduce economic dependence on the United States and explore new avenues for growth and development. However, these positive aspects are not without their risks and challenges. The special economic zones could exacerbate the existing economic dominance of Chinese interests, further concentrating economic power and limiting the growth of domestic industries that are not directly aligned with Chinese investment strategies.

Nicaragua recently approved special economic zones, but the growing Chinese footprint in the country also raises concerns about transparency, labor rights, and environmental standards, which are not always aligned with international norms. The potential impact on the U.S. trade relationship is particularly worrisome, given the traditional economic ties between Nicaragua and the U.S. Market.

The U.S. response, which could include punitive tariffs and a withdrawal of trade privileges, threatens to undermine the very investment that Nicaragua seeks to attract. Moreover, these zones could become highly politicized, serving as instruments for consolidating political power rather than advancing broader economic interests. The appointment of Laureano Ortega Murillo, the president’s son, as the coordinator for the SEZs has only intensified these concerns.

Conclusion

In conclusion, while the SEZs offer a strategic opportunity for Nicaragua to engage with China and potentially transform its economic landscape, the move is fraught with geopolitical, economic, and social implications. The potential benefits of job creation, technological transfer, and infrastructure development must be carefully weighed against the risks of increased dependence, economic polarization, and the potential erosion of regulatory standards. The outcome will largely depend on how Nicaragua navigates these complex dynamics and whether it can ensure that the SEZs serve the interests of the entire nation, rather than a privileged few.