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The Ortega Factor…What Does it Mean for Investors?
Franklin Delano Roosevelt once said, “The only thing we have to fear is fear itself.” The famous axiom has no better relevance than in present day Nicaragua.
If you believed the international media, the election of Daniel Ortega should have had immediate negative consequences on the emerging development of Nicaragua. In reality however, it may turn out to be one of the more positive things that could have happened. Clearing out ghosts of the past creates new opportunity for growth.
An astute investor realizes the distinction between real danger and the perception of danger. While real danger should be avoided, the perception of danger can be an investor’s best friend. The savvy investor can find great deals while others remain timid and watchful. By the time the more reticent stick their toes in the water the opportunity may have passed.
The bottom line is that sensationalism sells. If you have any doubt of this just turn on your nightly news. The deluge is virtually endless. But think of all the big scares that came to naught. How about the Y2K scare? It was widely believed that the world’s computers were not adapted to adjust for the year 2000. The new millennium was to be met with widespread computer systems failure, leading to untold global economic catastrophes. What ended up happening? Virtually nothing. And what about the infamous anthrax scare? It was headline news for months. Supposedly, vast amounts of mail could be contaminated, leading to a virtual shut down of the US Postal system. And anthrax was supposed to emerge from the air vents of the NY subway system, leading to chaos and calamity in Manhattan. In the end what did it amount to? Virtually nothing.
Despite the sensationalistic media spin on Ortega, what has really come to pass in Nicaragua since the election? Again, the answer is virtually nothing. No one has been jailed. No property has been confiscated. There has been no run on the banks. Investors have not fled the country. The real estate market remains strong.
As a savvy investor, you need to determine whether Ortega is a real threat to Nicaragua or just a perceived threat. Could Nicaragua return to the war-torn era of the 1980’s? Consider these facts: the main source of funding for the Sandinistas—the U.S.S.R—no longer exists. Even Castro seems to be on his deathbed. And Chavez, while extremely vocal, is more likely a purveyor of hot air rhetoric than a bona fide threat to Nicaraguan stability. The President of Costa Rica (and Nobel Peace Prize winner) Oscar Arias stated that Ortega’s victory posed no risk to the region.
More important than what’s occurring outside Nicaragua are the political maneuverings taking place inside the country. Politically speaking, Daniel Ortega’s party does not hold a majority in the National Assembly or the Parliament. Ortega has no mandate to change laws unilaterally, even if he so desired. And there’s no evidence that Ortega would choose that path if he were able. On the contrary, Ortega has mended relations with many whom were his enemies in the 1980’s. He has forged close relationships with the Catholic Church, former conservative leaders and even former Contras. Ortega has reached out to the US by appointing Arturo Cruz, a well-respected economist, as the ambassador to the United States. Ortega has vowed to respect private property rights, the free trade agreement with the United States (CAFTA) and agreements with the International Monetary Fund (IMF).
The bottom line is that Ortega was poor in 1979, and to put it bluntly—he’s rich now. Most of the top Sandinistas are wealthy, and many of them have a significant stake in Nicaraguan real estate. Engaging in land confiscations or extremist policies would hit them in the pocketbook – hardly in their best interests. If Nicaragua’s economy crashed they could lose everything. If particular policies could financially devastate those in power, what are the chances those policies will be implemented? It’s just common sense. Unfortunately, common sense doesn’t sell newspapers.
Another wise man once said, “Be fearful when others are greedy and greedy when others are fearful.” Who put forth these apropos words? It was none other than the “Oracle of Omaha,” Warren Edward Buffett. It’s hard to go wrong taking advice from a man who has amassed a 43 billion dollar fortune solely on his levelheaded savvy. In fact, Buffett has turned out to be so accurate that if you had invested just $10,000 in Berkshire Hathaway when Buffett took control in 1965, you would have seen your money grow to more than 50 million dollars. (In contrast, the same $10,000 invested in the S&P 500 would have grown to only half a million dollars.) Buffett is the widely believed to be the most successful investor in the world. How does this apply to Nicaragua? Quite simply, while others remain fearful of the “Ortega Factor,” it might be your chance to make a killing.
People who have invested in Nicaraguan real estate recently have done extremely well for themselves. There’s no reason to believe this won’t continue. If the market takes a small breather now, it means more opportunity for you. You can profit while others watch and wait.
Despite what you’ve heard in the media, the re-emergence of Daniel Ortega may be one of the best things that could have happened for Nicaragua. People can no longer say, “I would invest, but what if Ortega came back?” The so-called worst-case political scenario for real estate investors came to pass. And guess what? Nicaragua is continuing to thrive and prosper. The ghosts of the past have been exorcised. Nothing happened. The future for Nicaragua remains brighter than ever.
Warmest Regards,
Kevin Fleming, Chairman Nicaragua Developments S.A.
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