VZCZCXRO6676
RR RUEHLMC
DE RUEHMU #0628/01 1372057
ZNR UUUUU ZZH
R 162057Z MAY 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2628
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHIN/AIT TAIPEI 0092
UNCLAS SECTION 01 OF 02 MANAGUA 000628
SIPDIS
SENSITIVE
STATE PASS USTR
E.O. 12958: N/A
TAGS: ETRD ECON EINV PGOV NU
SUBJECT: NICARAGUA: CONE DENIM INAUGURATES MILL
REFS: A) MANAGUA 610, B) MANAGUA 579
Summary
-------
1. (SBU) On April 22, 2008, U.S. textile manufacturer Cone Denim
inaugurated a vertically integrated textile mill near Managua. The
mill directly employees 850, and Cone Denim estimates that its
investment creates an additional 15,000 to 20,000 indirect jobs.
President Ortega told participants in the inauguration ceremony that
he had assured Cone Denim executives during several visits to
Managua in late 2006 that an FSLN government would respect Cone
Denim's investment. On the other hand, he criticized so-called
"fragile" investments such as that of departing Taiwanese apparel
manufacturer Nein Hsing, but said that he could not turn them away.
In the weeks following the inauguration, Ortega reverted to
lambasting free trade and criticizing foreign investors for abusing
and exploiting Nicaraguan labor. Lacking institutional assurances
that Ortega's rhetoric will not affect their investments, foreign
investors frequently seek personal assurances from Ortega that their
investments are safe, a sign of the erosion in the investment
climate here.
$100 Mill Provides 850 Direct and 15,000 Indirect Jobs
--------------------------------------------- ---------
2. (U) On April 22, 2008, Cone Denim, a division of International
Textile Group (ITG), inaugurated a vertically integrated textile
mill in Sandino City on the western outskirts of Managua.
Construction of the building, the largest in Nicaragua at 56,000
square meters, began only a year ago on April 18, 2007. It features
its own water treatment facility. Currently, the plant operates
with electricity from the grid, but Operations Manager Steve Maggard
reported that the company will install a 20 megawatt coal or bunker
generator. The $100 million facility will use 48 million pounds of
U.S. cotton a year to produce 28 million yards of denim fabric,
serving customers throughout Central America that will take
advantage of textile and apparel provision included in CAFTA-DR.
3. (U) The mill employs 850 workers directly, including a small
expatriate workforce from Mexico and the United States. Cone Denim
estimates that its investment creates an additional 15,000 to 20,000
indirect jobs. Operations Manager Steve Maggard reported that labor
relations have been straightforward to date. The plant operates on
a four-by-four labor schedule (that is, four, 11-hour workdays, with
pay for 48 hours, followed by four days rest). Nicaragua's Labor
Code officially recognizes only the standard 8 hour, six day a week
schedule, but Cone Denim secured approval to use the four-by-four
schedule in its investment agreement with the government. [Note:
The Ministry of Labor is supporting labor leaders in a lawsuit
pending in the Supreme Court to ban the four-by-four model. End
note.]
Ortega Welcomes Cone Denim, Criticizes "Fragile" Investment
--------------------------- -------------------------------
4. (U) President Ortega told participants in the inauguration
ceremony, including potential investors in apparel assembly
operations, that he was proud to have an investment such as Cone
Denim in Nicaragua. He recalled assuring ITG President and CEO
Joseph Gorga, during several visits the executive made to Managua in
late 2006, that an FSLN government would respect ITG's investment.
Ortega spoke at length about the scale of Cone Denim's investment,
noting the permanence of the structure, which includes large
ventilation tunnels built into the foundation to absorb heat and
improve air quality.
5. (U) In contrast with Cone Denim's investment, Ortega criticized
so-called "fragile" or "fly-by-night" investments such as that of
Taiwanese apparel manufacturer Nein Hsing, which is shuttering its
operations in Nicaragua. Ortega, who had previously suggested that
Nein Hsing withdraw from the country, softened his message to say
that Nicaragua cannot turn down any investor, even fragile ones.
[Note: Nein Hsing has operated in Nicaragua for 15 years and as
recently as 2006 provided employment to 14,000 Nicaraguans. Ref B
describes the reasons behind Nein Hsing's departure. End note.]
Ambassador Highlights Investment Calculus
-----------------------------------------
6. (U) Ambassador Trivelli spoke at the inauguration, highlighting
the role of the private sector in generating jobs and reducing
poverty. He portrayed Cone Denim's mill as an example of how
profitable enterprise and sound environmental and labor standards go
hand in hand. The Ambassador also suggested that investors look for
more than cheap labor in deciding where to locate their operations
-- among other factors, they look to the quality of infrastructure
and institutional mechanisms that protect their investments.
Assistant U.S. Trade Representative for the Americas Everett
Eissenstat, who met with Trade Ministry and other officials during
his visit to Managua (Ref B), also attended the Cone Denim
inauguration and toured the facility with ITG President and CEO
Joseph Gorga.
Comment: Ortega's Blessing
--------------------------
7. (SBU) Ortega's muted criticism of Nein Hsing perhaps reflects his
understanding that in attendance were several companies that
Nicaragua's investment promotion agency ProNicaragua was courting to
buy out the Taiwanese. At an event in Chontales the following day,
Ortega quickly reverted to form, criticizing foreign investors for
abusing and exploiting Nicaraguan labor. A week later at his food
summit, Ortega lambasted free trade and blamed the current food
crisis on the United States and wealthy nations of the world (Ref
A). Lacking institutional assurances that Ortega's rhetoric will
not affect their investments, foreign investors frequently seek
personal assurances from Ortega that their investments are safe, as
did Cone Denim on at least three separate occasions. This practice
is a sign of the erosion in the investment climate here.
TRIVELLI