Historically, Nicaragua's small industrial sector has consisted primarily of food processing. Except for one cement plant and one petroleum refinery, agro-processing industries (slaughterhouses, meat packing plants, food processing plants, cooking oil plants, and dairy facilities) and the manufacture of animal by-products (candles, soap, and leather) have been the backbone of Nicaragua's urban industry. The 1960s was a period of rapid growth of the industrial sector, as new external tariffs established by the CACM allowed the growth of import-substitution plants in Nicaragua. Formation of new import-substitution plants slowed in the 1970s, however, and the percentage of GDP derived from industry dropped to only 23 percent in 1978.
Political and economic problems caused the industrial sector to shrink in the years after 1978. The civil war caused manufacturing output to decrease by one-quarter in 1979 alone. In the agro-industries, which represented 75 percent of the total industrial putout, idle capacity became a serious problem after the Sandinista victory in 1979. In the early 1980s, food processing plants were operating at only 50 percent capacity; sugar mills, 49 percent capacity; animal feed processing plants, 70 percent capacity; fruit canning plants, 94 percent capacity; and vegetable oil refineries, 42 percent capacity. The Sandinista government maintained a monopoly on beef processing facilities, but here, too, idle capacity rose from 30 percent in the period between 1977 and 1979 to 85 percent by 1981. Idle capacity in this industry averaged 60 percent in subsequent years. This phenomenon resulted mainly from clandestine slaughter houses, an illegal network of beef distributors, and the withholding of food products by producers.
Although the government-controlled distribution system created shortages, a black market thrived for milk, cheese, chicken, and eggs, as well as livestock by-products such as soap and shoes. In the mid-1980s, Black-market prices soared, and essentials became next to impossible to obtain through legitimate channels. As basic grains and other food became scarcer, beef consumption in Nicaragua rose to the highest level in Central America. Unable to buy corn, Nicaraguans ate beef. Immediately before the imposition of the United States trade embargo in 1985, many ranchers instituted the wholesale slaughter of beef and dairy cows that they were unable to shift across the borders to Costa Rica or Honduras.
The industrial sector, which had grown only sporadically in the early 1980s, declined in the mid- to late 1980s as the Contra war escalated and United States markets dried up. Industrial production dropped an average of 5 percent each year from 1984 to 1989. By 1989 the industrial sector contributed only 19 percent to the nation's GDP and construction accounted for only 4 percent.
By President Chamorro's inauguration in 1990, only about 10 percent of the pre-Sandinista era work force was still employed in the skeletal industrial sector. A few larger-scale industries, including a cement production plant, a chemical plant, a metals processing plant, and a petroleum refinery, were geared toward domestic consumption. Even these suffered badly from shortages of essential imports and the lack of skilled labor, however.
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