Central America´s Business Blog

If a country can privatize its ports, highways and telecom services, why can’t it privatize itself?

Nicaragua is by no means the only country which might consider selling itself, but it offers a dramatic example of why the idea could work.
Let’s say you wanted to buy a beachfront lot on the northern tip of Costa Rica’s popular Pacific coast.
The cost: $1,000 per square meter.
Now suppose you priced a beachfront property one meter further north, across an imaginary line.
The cost: $100 a meter.
Same sand, same surf, same sun.
The only difference is that you’re now in Nicaragua, one of the world’s poorest countries, and one which most investors see as a risky place to do business.
It follows that with better management Nicaraguan beachfront properties (and much of the rest of the country) could be worth 10 times more.
One way of doing this involves a consortium, made up of respected local leaders and a group of foreign investors, who know how to run businesses efficiently.
The consortium then runs for election - in its own way.
The concept of Nicaragua Limited is illegal, according to the country’s constitution.
But the constitution hasn’t done much for Nicaraguans.
Nationalists will claim that the concept is undemocratic.
But it isn’t, since Nicaragua Limited won’t happen unless Nicaraguans vote for it in a referendum.
If nationalists oppose the referendum, that would be undemocratic.
In any case, there’s no assurance that the consortium would win.
Like any political group, the concept needs a platform that gets people to vote for it.
In this case, the consortium starts by valuing Nicaragua at a little more than one times revenue - the amount of taxes the government collects each year (it goes without saying that privatization gives the new owners the right to buy only public resources – all private property stays private).
This comes to $1 billion.
The consortium then offers to pay this amount to the country’s 5 million people – meaning that a family of five would get $1,000, the equivalent of a year of earnings for many Nicaraguans.
The consortium guarantees that it will respect the existing system of civil and commercial rights and – most important – promises to double Nicaraguans’ living standards within, say, seven years, by letting professional managers run the government.
At the end of each such period, Nicaraguans can vote to extend the consortium’s mandate for another term or – if they think the concept has failed - to kick it out without paying a cent.
The consortium will do its best to improve Nicaragua’s economy, because the only way it can recover its investment and make a profit is if the country becomes productive and tax revenues go up (as the government, the consortium could impose and collect taxes).
To make investors feel good about Nicaragua, the consortium would promote tourism, by giving developers the right to own beachfront properties – currently forbidden by the constitution – plus a guarantee against expropriation.
Meanwhile, the consortium would create national oceanfront parks equal in size and quality to beach areas sold, so the public always has free access to the sea (with 1,000 kilometers of shoreline on two coasts, Nicaragua has plenty of beaches for everyone).
The consortium would improve roads in tourism areas and between those areas and Managua, the capital.
The consortium would hire the best local and foreign instructors, to train Nicaragua’s future teachers in areas such as computing, health care and English, so they can in turn train young Nicaraguans.
Within five years, the consortium would have computers in every school of each town of at least 10,000 people, not to mention books and basic furniture, as well as a local health center.
These investments would cost money during the first part of the company’s mandate. But they would make a profit after that, through taxes on tourism and other businesses, along with income taxes on Nicaraguans, most of whom are for the first time earning decent wages.
With good management, Nicaragua would boom. During the North American and European winter, Nicaragua has perfect weather – hot and dry. With oceanfront, jungle, lakes, rivers and volcanoes, the opportunities for conventional and eco-tourism are endless.
At the same time, competitive wage rates in urban areas would attract assembly plants, especially for the production of clothing, which gets favorable treatment when imported into the United States, thanks to the Central American Free Trade Agreement.
A fertile country with abundant water and a year-round growing season, Nicaragua should also be able significantly to increase its agricultural exports.
Nicaragua Limited.
It may be a crazy idea.
But so far the sane ideas haven’t worked.