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Wish you were here…?

 

Close your eyes and think of Nicaragua.  What do you see?  Guerrillas fighting it out on the street while the murderous military run amok among its hapless citizens?  Bombed out hotels and economic chaos?  Certainly not the kind of place you’d choose for a trip to Latin America, let alone invest in a casino.

      Nicaragua suffers perhaps the worst image problem in the entire Latin American region.  Think Argentina and its tango and shoe-sized steaks.  Mexico and maybe its tequila, beautiful beaches and Aztec ruins.  But think Nicaragua and there is a tendency to imagine how it was over 10 years ago: guerrillas and car bombs or as one sharp observer noted: “Russia with palm trees.”
      Nicaragua does have plenty of problems.  It remains the second-poorest nation in the hemisphere.  Nearly half of its people earn less than US $ 1 a day.  Unemployment is officially around 12.2 per cent, and another 35.4 per cent are underemployed.  Corruption is rampant and Hurricane Mitch made a very bad economic situation even worse when it hit in 1998.
      Despite these factors, casinos that have already been established in Nicaragua, such as those run by Thunderbird Gaming, have shown positive returns.  Thunderbird increased its presence in Nicaragua in 2003 when it successfully completed a subsidiary merger with the local Pharaoh’s Casino.

      Nicaragua boasts Caribbean islands, 19 smouldering volcanoes and beautiful, unspoilt beaches.  There’s great surfing, mile upon mile of unspoilt rainforest, along with charming colonial towns.  More than half a million tourists visited in 2005

Thunderbird now runs the Pharaoh and Fiesta casinos in Nicaragua and has decided to maintain its leadership in the market by building three new casinos this year.  The company describes the market as a “bright spot for development in Central America, having achieved healthy growth in foreign investment and strong initiatives to assure long-term democratic stability.”
      Thunderbird isn’t the only one interested in building new casinos.  If you look beyond the negative stereotype it is not hard to see why.  Despite all of its problem, Nicaragua has been a relatively stable democracy for over 15 years and people are slowly discovering that the ‘Russia with palm trees’ image couldn’t be further from the truth.


      Nicaragua boasts Caribbean islands, 19 smouldering volcanoes and beautiful, unspoilt rainforest, along with charming co0lonial towns.  More than half a million tourists visited in 2005 – up 15 per cent from the previous year according to official figures.
      And because the image of Nicaragua still remains fundamentally negative, casino developers are seeing some of the best property deals on the planet. 
      InterGaming talked to Michael Cobb, chief executive and co-founder of Gran Pacifica.  Gran Pacifica, now under construction, is one of the biggest development projects underway in Nicaragua.  The hotel, golf and basic infrastructure systems for phase one are estimated to cost around US $ 55m, while the build out of the entire property will be well in excess of an additional $ 100m in infrastructure and amenities alone.  When it is finished in 15 years, it will be ‘be a small city by the ocean,” according to Cobb, and will make it Nicaragua’s leading upscale hotel and golfing resort.  It will also have a casino rivaling in size the largest casino in Nicaragua; The Pharaoh’s casino in Managua, which has 160 gaming positions.

     

“Originally the idea was only for an amenity casino as part of the hotel, but as we started to examine the density potential of the community, it quickly became apparent that we could sustain a much larger casino in the not so distant future,”  Cobb says.  “With this in mind, we will use a placement that is near the hotel, but separate from it to allow expansion as the market need require.
      “The critical density is probably 1,000 rooms or home equivalents to see a larger casino in place.  We have not obtained a license since it will be tied to the hotel as part of the upcoming law here.  Determining the number of slots and tables at this point is also difficult as we don’t have a firm knowledge of the home density in three or four years when the hotel will be open.  My guess is that we’£ be close to the 500 slot mark with 1,000 in our sites.”
      According to Cobb, a study predicted that hotel guests will be about 50 per cent Central American and 50 per cent North American in the first five years.  Home sites right now are about 90 per cent North America and 10 per cent Nicaraguan with over 100 lots sold.


      But are the tourists really going to come to Nicaragua and will the country ever get over its negative image to be able to make such a casino project like this sustainable?
      “A good friend of mine, Dr Steve Sjuggerud, actually coined the phrase and what he said was that as long as people think of Nicaragua as Russia with palm trees, it will be a great investment opportunity,” said Cobb.  “He is right.  Image is a hard thing to change and one never really knows that a change is happening until after it has actually happened, or at least until it is well under way.
      “As businessmen come here to take advantage of the lowest labour rates in the region, they also return home with positive stories in the business community.  None of these things by themselves means much of anything and one never knows the tipping point, but as more and more of middle America hears about Nicaragua in a positive light, it chips away at the palm trees stereotype.”


      Part of the long-term goal is to rival other resorts in neighbouring Costa Rica, which has successfully lured American retirees away from Miami.  Over populated and expensive American retirees have flocked to places like Costa Rica where they get more bank for their retirement buck (more North Americans live in Costa Rica per capita than any other country outside of the US).  In Costa Rica they can live well on a medium pension but just north of the border in Nicaragua they could really live it up.  Nicaragua, like Costa Rica, often has tax incentives to retirees.  Under Decree No.628 all you need to be eligible is a monthly income of at least $ 400 and to be over the grand old age of 45.  Five thousand to 10,000 American retirees now call Nicaragua home.

      Aram Terry, owner of Aurora Beachfront Realty in San Juan del Sur, told InterGaming that Nicaragua is rapidly becoming the next Costa Rica and thinks growth will happen a lot faster aided by the internet and demographic trends in the US.
      “The government has invested millions of dollars in improving accessibility to the pristine beeches along the Pacific Coast and has been promoting Nicaragua around the world as a tourist hotspot,” he says.  “It’s hard work persuading tourists to come here though, especially when there are more established destinations nearby such as Panama, Honduras and Costa Rica.”
      Casinos have also been hindered by a lack of clear legislation.  Casinos first came under the government spotlight in the form of a sweeping gaming law in 2001.  As part of a drive to boost tourism and of reap plenty of much needed tax, and with illegal gambling thriving, it was proposed that casinos would be regulated by the Ministry of Tourism.

     

Casinos, the 2001 law stated, would be permitted in both hotels and nightclubs with a  minimum inversion of $ 250,000 in the capital and $ 100,000 throughout the rest of the country.  Only those slots with an 80 per cent payout would be permitted and casino operators would  have to put down 50 per cent of the total investment as a guarantee.
      But four years later and the casino issue is up for debate once again, mostly because of widespread illegal unregistered casinos.  In 2005, in the National Assembly, the president of the Ministry of Tourism, Tomas Borge, came out angrily in the face of a proliferation of illegal slots in Nicaragua and claimed  that there needed to be new legislation in place to control gambling centers.  According to local press, only 12 businesses are officially registered by the government to operate casinos
      Borge claimed that the casinos were ‘ripping off’  Nicaraguan citizen because the slots very rarely paid out large prizes and also claimed that the slots were designed in such a way that gave benefit only to their owners. Borge claimed also that he would only support the casino bill if casinos were in or part of five-star hotels.
      Now stuck in a legislative quagmire, the new casino law was sent to the senate in April 2005 and went to a special investigative committee who handed in its report in July.  The most important part of the laws as it stands in its revised from is only be allowed as part of a five-star hotel.  But due to a presidential backlog the law has yet to be passed.


      Casinos already up and running have also been hit recently by a new tax because when the government ran into trouble lately, it was casinos which had to foot part of the bill.
      At the beginning of 2005 the IMF began pressurizing the Nicaraguan government to cut expenditure and to pass stringent new tax laws.  At stake was $ 300m that the country would receive between 2005 and 2006 in aid.  The granting of the money was on the condition that the government would make budget reforms and cut expenses but during a bust up between the presidency and legislators, parliament raised salaries in both the health service and in education meaning no IMF handouts.
      After much acrimony, in February 2005 the President finally agreed to sanction the budget even though it went against the terms set up by the IMF.  Then in order to sustain a balanced budget the government looked at ways of making up the deficit.  Banks, and casinos were singled out to raise a quarter of what was needed.
      For casinos, the government looked at either implementing a tax whereby the more money the casinos made, the more the state would take, or the other option was to fix a set additional tax on each table and each slot.
      Initially, it looked like casinos would have to fork out an additional $ 30 a slot and $ 300 a table per month.

      In March this was approved in principle but with some changes.  A fixed tax was set at $ 200 per table as opposed to $ 300.  The tax on slots varied depending on the size of the casino between $ 18 for the smaller casinos to $ 25 to the largest (those with more than 601 slots).
      So while casinos have been hit by an extra tax and wait for the final bill to be approved, the future of casinos in Nicaragua depends very much on whether it will be able to shake off its negative image and lure tourists and those affluent retirees.
      However, while property and building costs remain low now may be the time to build for a long-term investment.  Certainly for Cobb now is a good time to get on board.
      “The timing is still good but we are definitely seeing a transition from the pioneers to the early adapters right now.  This trend will continue to pick up steam.  Costa Rica will always be ahead of Nicaragua because it had a 20-year  head start.  But it won’t take Nicaragua 20 years to be where Costa Rica is today.”

 

 

 
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