By Dale Scott

“I’d like to think we’re seeing the new, improved Daniel Ortega, but I’d be surprised if he doesn’t return to making life difficult for foreign-owned businesses in Nicaragua,” says Philip Wynne, founder and president of Felipe Gregorio Cigars, Inc. Either way, Wynne’s taking no chances, having already pulled his entire cigar-making operation out of Agro Tobacco in Condega, Nicaragua, following November 6 election that resulted in Ortega’s return to the Presidency in January after a 17-year hiatus. Will other Nicaraguan tobacco producers and cigar makers follow? Wynne is the only exception to date, as all other manufacturers are sitting tight, keeping a close eye on developments. Many are even forging ahead with new factory projects, but speculation over Ortega’s future plans for private ownership of foreign-owned companies has run rampant.

A Long, Winding Road
Ortega, a leftist and former communist revolutionary, is one of the founders of Nicaragua’s Sandinista National Liberation Front (FSLN) movement in the early 1970s. The Sandinistas, supported by the peasant citizenry that accounts for perhaps 95% of Nicaragua’s population, overthrew Anastasio Somoza in 1979.

The Somozas, in the fashion of Central American despots, had used the country’s National Guard police force to keep their boot heel on the necks of the people since their ascent in 1935. But an epochal event in 1972 began to turn the tide of the people against Somoza and his hated National Guard. A massive earthquake leveled 80% of the capital city of Managua, killing 10,000 and leaving 250,000 homeless. Somoza and the National Guard embezzled much of the international aid that flowed into Nicaragua. Somoza himself reportedly increased his wealth to an indecent $400 million, all at the cost of the suffering victims.

Ortega and other leaders of the dissident FSLN, who had begun their movement in the early 1970s, gained momentum as the government’s overt corruption became intolerable. The FSLN prevailed, and Somoza fled to Miami. Ortega rose to power, and among other policies, enacted a land reform program that returned almost 50% of the land to peasants. Unfortunately for all Nicaraguan industries, it came at a significant cost: the complete loss of their holdings to Sandinista expropriation, just as Cubans had under Fidel Castro.

Prompted by fears of communism in Central America, the U.S. Central Intelligence Agency clandestinely resisted Ortega’s FSLN by supporting the counter-revolutionary contras. The war continued until 1990, largely in the northern parts of Nicaragua, around the cigar-making capital of Estelí. That year, Ortega and the Sandinistas were removed from power. Ortega ran unsuccessfully for president twice since then, and has remained in the background. A sudden power play in March 2006 resulted in Ortega tightening his grasp on the FSLN party, expelling would-be presidential contenders, canceling presidential primary elections, and ensuring his candidacy in November. International observers declared the elections “clean,” despite the earlier erosion of established protocol. Regardless, Ortega is now president.

An Old Player in a New World

Nestor Plasencia, Jr. has been selected to take the helm of a revived Nicaraguan cigar manufacturer’s association which will address a range of cigar maker’s concerns.

If Ortega repeated his policies of expropriation once again, what would happen to the Nicaraguan cigar and tobacco industry, which has burgeoned over the past decade? The nation is today the third-largest producer of cigars bound for the U.S. market, having shipped over 50 million cigars last year. Overall, the U.S. is Nicaragua’s largest trading partner and accounts for about one fifth of the country’s imports and approximately a third of its exports. About 25 wholly- or partially-owned subsidiaries of U.S. corporations operate in Nicaragua.

Wynne has already chosen his path — straight out of the country. Although his decision was as much born of a desire to consolidate his operations to the Dominican Republic where he also owns a factory, his wariness toward Ortega was a significant factor. “I believe there is an increasing anti-U.S. sentiment growing in Nicaragua and other Latin countries,” he explains. “This has been fueled lately by Washington’s failure to help Central America by inking a U.S./Central American free trade agreement. I will not leave assets there for confiscation. As an American, I do not think it wise to do business in a country which was — and remains —antagonistic to my country.”

Wynne established Felipe Gregorio’s first operation in Nicaragua in 1993, and says he regrets having to abandon it. “I have nothing but respect and love for the Nicaraguan people, especially my workers. But they have made their choice in Ortega, and I have made mine,” he says. “I hope my colleagues don’t have problems, and that I can continue to buy Nicaraguan tobacco; it would be a major cash crop for him. The Sandinistas promised they would bring social progress and a better way of life, but he and his government didn’t do that. They only built their own wealth. What’s to keep Ortega from seizing the industry once again and saying, ‘Thanks for building it for me?’”

Wait and See… But be Prepared
Over a half-dozen manufacturers in Nicaragua have built world-respected premium cigar empires, from square one. Many, having already been through the pain of nationalization under Fidel Castro, share the feelings of blues giant Sonny Boy Williamson’s lament about guys stealing his women: “I ain’t fattenin’ no more frogs for snakes.”

Steve Saka, president of Drew Estate, Inc., a large Estelí manufacturer which first established its own Nicaraguan factory in 1998, has a more optimistic outlook. The company is sufficiently confident to forge ahead with pre-existing plans to build a new 85,000 square-foot factory. “We’re not only confidant Ortega will leave us alone, so are the banks that loaned us construction money,” says Saka. “If they were nervous, would they not cancel the loan?

“Ortega is in his early 60s, and has mellowed from his revolutionary, communist philosophy of the ‘70s. The political, economic, and social landscape has changed significantly. Outsiders still have visions of the war — the kidnaping and killing of foreign reporters, the Iran-Contra scandal, and the bombings in Managua,” says Saka. “But today, an emerging middle-class is tempering the poverty and unrest, and signs of progress are everywhere. If Ortega doesn’t do anything irrational and unpredictable, I see a continuing and improving stability in the country. But, he just needs to put the people first.”

Saka points out that Ortega became president with the support of a poor and oppressed citizenry. This time, a peaceful, orderly, and uncontested election put him in power. But one still wonders, what is to prevent a peaceful Ortega from nationalizing assets to satisfy his personal ambitions? Saka admits that he, and probably all other cigar companies, are forming contingency plans. He says finding skilled rollers would be the biggest challenge. Other countries would leap at the opportunity to host the industry, he feels, providing a favorable environment by easing regulations and taxation. He sees a change as a “bump in road,” and that Nicaragua would be the loser, no longer in spotlight they’ve enjoyed for the past several years.

Nick Perdomo set up shop in Nicaragua in 1997 and built a brand new Tabacalera Perdomo facility from scratch in 2000. Like many producers there, all manufacturing is done in Estelí.

Nick Perdomo, president of Tabacalera Perdomo, S.A., treads the middle path, saying “We’re optimistic, but extremely cautious. My late father’s roots in tobacco extend back to Cuba. Castro’s nationalization forced him to leave. I don’t want to have to leave Nicaragua. We have invested millions here.” Perdomo employs over 1,500 people in its 80,000 square-foot factory in Esteli. The company is also a large tobacco producer, growing its own tobacco on 375 acres in the Esteli, Jalapa, and Condega valleys.

“In 1997, following an easing in tensions with the election of Nicaraguan president Violeta Chamorro, we moved our operation to Estelí,” Perdomo recalls of his jump from Miami. “The tobacco is what drew us there — its rich sweet flavor, complexity, and aroma are the world’s finest. We’re not only very happy with the tobacco, but also with our Nicaraguan workers, and feel the future remains bright.” Like others, Perdomo is tapping blind faith in a leader who has every reason to cast doubts.

“I hope Ortega has changed, and am happy my father didn’t see this, in case he hasn’t,” says Perdomo. But overseas business being what it is, Perdomo — like many other cigar makers — hasn’t left his future entirely up to fate. “Just in case, we have had a contingency plan in place for five years, putting large stores of tobacco into strategic locations in other countries,” Perdomo explains. “We are prepared to move our factory to another country, probably Honduras, should things turn sour. We would hate to see that happen for the Nicaraguans’ sake. They only want peace and jobs to support their families. Our industry employs 120,000 people in northern Nicaragua alone. With their families, there are probably a half-million people dependent on tobacco. They, and the rest of the Nicaraguan people, are peaceful now. If things turn oppressive, Ortega — who only won with 38% of the vote — knows the people will turn against him. ”

Carlos and Charlie Toraño of Toraño Cigars (above) are forging ahead with a new showcase cigar factory in Estelí (at top) but are closely monitoring national politics following Daniel Ortega’s return to the presidency of Nicaragua in January.

Charlie Toraño, president of Toraño Cigars, provided deep insights, admitting that his family, along with native Nicaraguan partner Fidel Olivas, have had long discussions about the future. “I check Google every morning for the latest developments,” he says. But he joins the others in saying the popular opinion among the cigar companies is watchful optimism.

“Conditions are far different now, with peace, greater prosperity, and contentment,” he suggests. “Nicaraguans enjoy a free press and recognition of the Catholic Church. The election was followed by a smooth transition of power. The revolution set Nicaragua back 15 years, while Honduras and the Dominican Republic fortified their reputations in our industry. A once-oppressive police and military is now subdued and respectful. Ortega’s platform and the electorate’s mandate are not one of FSLN revolution, communism, or nationalization, but one of progress and outreach to other countries. Sandinistas have approached us officially, saying they want to open banks to make favorable loans to small- and medium-sized U.S. businesses to encourage their growth.”

Toraño sees the economic inroads as major difference this time around. “Having seen the benefits of capitalism, they certainly don’t plan to repeat their previous mistake of draconian measures,” he believes. “The Sandinistas have enjoyed influence in Nicaragua’s landscape for years, even after losing the presidency in 1990. There are Sandinista legislators, judges, and mayors.

Still, the company Ortega keeps globally is one of the more troubling sources of jitters. “The American media publicizes Ortega’s collaboration with Iran’s, Venezuela’s, and Bolivia’s anti-American leaders,” says Toraño, noting that Ortega was “noticeably subdued, tempering his remarks during those visits.” But the same media, Toraño notes, never mentions Ortega’s relations with Taiwain. “He abandoned communist China for relations with Taiwan, and has benefited for years.”

Again, for Toraño, there is faith that Nicaragua’s modest economic engine will make an important impression. “Economics are more important than politics to a country, and Ortega would be foolish to antagonize his biggest marketplace in the U.S., which would likely result in another embargo,” he says. “He couldn’t replace lost sales in the U.S. with sales in Europe, because Nicarag­uan cigars don’t have the perceived quality and panache of Cuban cigars. The Nicaraguan cigar industry would collapse, because all cigar production would stop overnight. Nicaragua would have to recreate industry on their own, without the money and technical assistance we give it.

Governments, especially communism, are abysmal at running businesses, Toraño contends, and points to Cuba’s cigar output, which is no greater now than before the Embargo. “Ortega knows he’s being watched by his electorate and the rest of the world. He also saw what happened after the U.S. embargo of Cuba. The economy and infrastructure has collapsed for 40 years.”

Toraño already has another factory in Honduras, and would probably move its operations there it was forced to abandon Nicaragua. If a majority of manufacturers all moved at once, serious shortages of skilled rollers would cripple the industry for up to two years, says Toraño.

For now, Toraño is continuing to invest heavily in Nicaragua, and plans to begin construction on a new showcase factory in the spring, “moving forward full-speed, with no changes in business plans.”

Several Confident Veterans
During the civil war, one manufacturer who shifted production across the border to a smaller factory in Honduras was José Padrón. Having first set up shop in Estelí in 1970, Padron’s factory was burned. Even after returning to Nicaragua in 1990, following the end of the U.S. embargo, Padrón continued to roll smaller quantities of cigars in Honduras. Meanwhile, in Estelí, a jumble of scattered operations were consolidated into a brand new facility that opened in 2004.

Padrón cigars, which had been operating a smaller factory in Honduras, has just closed that facility down and is reactivating its original Estelí factory (above) which had been used as a tobacco warehouse since the opening of a new, larger factory nearby in 2004.

Ironically, despite the recent political developments, Padrón announced in January he was ceasing cigar production in Honduras altogether and re-establishing rolling operations at his old Estelí factory. The Honduran facility will be still be retained for cigar box making and could once again become a beachhead should a retreat become necessary.

Nestor Plasencia, Jr., who’s father Nestor Sr., has been a leading tobacco farmer in Nicaragua and Honduras for years and who also operates several cigar factories in both countries, was recently selected by his peers in Nicaragua to head the country’s low-profile association of cigar manufacturers — the Nicaraguan Cigar Guilders Association. Established prior to the cigar boom, it has not exactly taken a leadership role in promoting Nicarag­uan cigars, but that is something the cigar makers — and in fact the new Ortega government — would like to see change, promoting Nicaraguan cigars, combatting counterfiets, and instituting programs to produce top-quality products.

Alejandro Martínez Cuenca, owner of Tabacos Puros de Nicaragua S.A. and producer of the Joya de Nicaragua brand, saw his own political aspirations as a potential presidential candidate sidelined last year. But Martínez, a prolific author on economic issues who served as minister of trade in the Sandinista government yet has been quite clear in his opposition to Ortega, believes Nicaragua will emerge just fine.

“The mandate given to the elected President is very slim, in terms of voting results, and that means [he] did not receive a mandate to do whatever he wants,” says Martinéz, who believes the elections demonstrated that Nicaragua is now a country with a more solid democratic foundation where free elections are taking place.

“Obviously the country is today in the midst of a paradox,” notes Martinéz, citing the high level of expectations among the many Nicaraguans who have not benefited from growth and opportunities and are looking for quick solutions from the new government. At the same time, industries that have successfully taken route since the end of the war and the U.S. embargo — like cigars — are facing high levels of uncertainty. “The new government needs to deal with this paradox as soon as possible,” says Martinéz, adding that if it fails, it will loose its already weak mandate.

That said, as long as the government maintains its commitments to C.A.F.T.A. and its good working relations with donor countries and international organizations, and takes the best aspects of the agreement signed with Venezuela’s Hugo Chavez last year — particularly the oil benefits — Martinéz believes the Ortega government could successfully manage the swell of uncertainty.

“The tobacco industry and its investors in Nicaragua should be calm, since there is no possibility for Ortega to nationalize property in [this] industry,” Martinéz concludes. “As soon as the emotions from the election settle down, it will be business be as usual. Nicaragua is not going back to the past.”