Political crisis in Nicaragua shakes revenues of large Mexican firms

In 2018, trade in the Central American nation fell 11.4%, according to official figures. According to specialists, among the most affected  activities are tourism, the distribution of some goods, as well as industry

Health sector workers demonstrate against riot policies this Saturday in Managua (Nicaragua). EFE / Jorge Torres

Reuters | Noe Torres and Ismael López

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The socio-political crisis that has plagued Nicaragua for more than a year has also hit large Mexican firms with businesses in the country.

Three of the largest Mexican companies operating in the Central American nation reported a decrease in sales in the second quarter of 2019, at a time when Nicaragua is plunged into a recession.

Leer en español: Crisis política en Nicaragua sacude ingresos de grandes firmas mexicanas

Since protests against President Daniel Ortega began in April 2018, cement company Cemex Latam Holdings (CLH) has warned of the effects of socio-political instability in the construction sector, which last year contracted 21%, according to Central Bank data.

"The crisis remains unresolved and continues to affect economic activity, including the demand for cement," the company, a subsidiary of Mexican giant Cemex, said in its second-quarter results report.

The demonstrations, which have left hundreds dead, have also dragged the fragile Nicaraguan economy, which last year contracted by 3.8%, according to World Bank data. For 2019 the agency expects an additional 5% breakdown.

"Nicaragua continues to operate in a very challenging environment," Constantino Spas, Finance Director of Coca-Cola FEMSA (KOF) bottler, said in a call with analysts, which since the first quarter of the year has been reporting declines in sales volumes of Drinks in the country.

In 2018, trade in the Central American nation fell 11.4%, according to official figures. According to specialists, among the most hit activities are tourism, the distribution of some goods, as well as industry.

"We are experiencing a crisis of confidence characterized by enormous uncertainty among consumers and investors," said José Adán Aguerri, president of the Higher Council of Private Enterprise (COSEP) in Nicaragua.

Amidst the chaos, Mexican telecommunications giant América Móvil, owned by tycoon Carlos Slim, reported a 7.1% drop in revenues from second-quarter services, after disconnecting more than 400,000 mobile phone subscribers.

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"People keep going out to buy"

However, weak performance seems not to have hit all sectors equally.

Retail giant Wal-Mart de México (Walmex) said its sales in the country helped boost its revenues in the Central American region, which grew 4.9% year-on-year in the second quarter.

"One of its qualities is that it is in a highly defensive sector," said Valentín Mendoza, an analyst at Banorte financial group.

"A good part of their sales come from basic consumer products and normally what tends to happen in a complicated scenario like the one in Nicaragua is that in the end people keep going out to buy food," he added.

Something very similar happened in the period with the manufacturer of dairy products Grupo Lala, whose rebound in sales in Nicaragua also helped boost quarterly revenues from the total of its operations in the region.

"This is the first quarter that considers the crisis in Nicaragua showing early signs of a recovery," Alberto Arellano, the company's vice president of Finance, told analysts.