Amid Ongoing Crisis, Nicaragua BPO is Holding On – For Now

Tim Wilson reports on the crisis in Nicaragua, which is expected to lead to a serious decline in BPO presence in the country if not resolved soon.

Nicaragua protests

On April 18, 2018, Nicaragua entered a period of crisis that, if not resolved soon, could lead to a serious decline in BPO presence in the country.

Street protests against the 11-year regime of President Daniel Ortega were met with violence from police and government-backed paramilitaries, creating a period of instability not seen since the Sandinista revolution almost 40 years ago.

“The main negative impact to the BPO industry right now is getting to work,” said Teresa Cartero, a digital marketing expert who recently fled the country. “The conflict has made local public transportation scarce, and the roads that lead to cities outside the capital have several roadblocks. If employees do get to work they’re often delayed by hours.”

Surviving When Faced With Crisis

The BPO industry has faced crises like this before, not just in Nicaragua — Egypt faced one during the Arab Spring, Honduras during the 2009 constitutional crisis, and the Philippines under strongman Rodrigo Duterte. Each time, the sector successfully weathered insecurity and political uncertainty. Nicaragua could also survive this crisis, assuming that it isn’t prolonged.

In the near term, companies have put certain measures in place.

“We’ve been having conversations with our contacts,” says Ann Harts, Executive Vice President, Site Selection & Incentives, at ESRP Real Estate Services in Kansas City. “So far, we’re hearing all is fine from an infrastructure perspective. However, the roadblocks and violent protests are creating issues getting in and out of Managua. I understand that inside Managua it is not too difficult to get around during the day with safety precautions, but access to outside the city can pose a problem. Some centers may have problems with employees not being able to get to work. BPO companies located in Nicaragua have implemented their disaster recovery plans for call transfers to other locations, as needed. Those companies in Managua, if experiencing any disruption, are handling it internally very well.”

Negative Impact on Country Brand

Nearshore Americas can confirm that it has heard directly from industry sources in Nicaragua that during the initial unrest on the weekend of April 20 to April 22, some centers were forced into temporary closure. Though all centers are now up and running, with business continuity plans in place, absenteeism remains an issue, with over-time and special transportation services driving up costs.

As well, the US has a travel advisory to Nicaragua, and one BPO contacted by Nearshore Americas stated that it has open seats, but that scheduled site visits from potential US clients have been cancelled.

Clearly, the longer the crisis continues, the more serious the damage.

“ProNicaragua, the economic development marketing arm for the country, will have to do quite a bit of repair work to their image,” says Harts. “It will temporarily hurt the country’s brand, but not for the long run.”

However, the view that this is only a temporary problem for BPOs assumes that there is a path out of the crisis that can ensure long-term stability.

The Political Root to Exodus

As the violence continues – as of this writing it is estimated that 139 people have been killed, with many more injured or imprisoned – and as President Ortega demurs on negotiating a long-term solution, few BPOs are likely to consider Nicaragua as an option, which could usher in an exodus.

“In the past ten years or so Ortega has been able to fashion himself as a democrat, and willing to work in a market economy,” says Peter Ryan of Ryan Strategic Advisory. “But unfortunately he is on the way to turning Nicaragua into a rogue state. This is sad given how well Nicaragua was doing in the BPO context. It all comes down to stability.”

From an economic perspective, the president of the Central Bank of Nicaragua (BCN), Ovidio Reyes, has sounded the alarm, saying that inflation and unemployment are both on the rise. In the context of BPO, this looks like a stress test more than a collapse of the industry, but people are clearly worried.

ProNicaragua was unavailable for comment for this article, and BPOs active in Nicaragua were either unavailable for comment, or only willing to speak off the record.

“BPOs are now reluctant to talk about this, because clients are knocking at their door,” says Jeff Pappas, Executive Vice President of Site Selection and Brokerage at ESRP. “This will not be remedied or resolved quickly. But BPO is still largely about cost, and Central America will always be cost effective.”

Operational Impacts

Nearshore Americas has received reports that some call volume is shifting out of Nicaragua. And though it remains possible to get around the capital Managua in the daytime, many call center employees live outside of the city, where there is still serious unrest.

Masaya, 35 kilometers to south, continues to experience violent demonstrations, and the road northwest to Leon is blocked. During an intense period early in the unrest, one BPO told Nearshore Americas that it had its employees stay overnight out of concern for their safety.

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For BPO providers, this level of uncertainty is unsustainable.

“You can’t continue to run a call center when employees are afraid to leave their houses,” says Cartero. “In what was until recently one of the safest countries in Latin America, families are now afraid to go out after dark. Barricades set up by protesters block highways, public transportation is scarce, and business in some parts of the country has stopped. The solution is a new and transparent election of a new government.”

But will that happen? Mr. Ortega doesn’t have much room to maneuver. If he holds an early election in January, 2019, as some are suggesting, he will likely lose. This will also dash the political aspirations of his wife Rosario Murillo, whom he has elevated to the vice presidency.

Expected Future Challenges

The complaints against Ortega – that he is corrupt and undemocratic – won’t go away. So far, attempts to broker a solution by the Catholic Church, the Inter-American Commission on Human Rights, and the Organization of American States (OAS) have produced nothing. But for some there’s still room for optimism.

“The government has agreed to an OAS investigation,” says Harts from ESRP. “For Ortega and his government to accept an investigation that he doesn’t control is a good thing. My understanding is that there is also an agreement to reform the electoral system, calling for a new election, possibly in 2019.”

There are growing calls for a national strike, something that doesn’t yet have the support of business groups or members of the opposition coalition. As it stands, the universities are under siege and the roadblocks are moving closer to the capital.

The chaos of a national strike would spell disaster for any immediate future investment in BPO, further driving up costs and pressuring providers to call it quits, close up shop, and move on. For now, however, that seems unlikely.

“In Nicaragua we’ll see people stand pat and keep delivering,” says Ryan. “When Egypt had its revolution in 2011 some observers were ringing the death knell, but the BPO industry never shrank, due to quality of service. It’s the same with Nicaragua. It takes a lot for outsourcers and clients to leave, because the last thing they want is disruption. There’s still a lot of value in Nicaragua. For BPOs to leave we would need to see excessive taxation and expropriation.”

All of this is happening in a country that, only a few months ago, was known for being one of the safest in Latin America, with a talented and motivated workforce. In 2008, Nicaragua’s fledgling BPO sector had yearly revenue of only US$6 million with a handful of companies. By the end of last year, in less than a decade, that had bloomed to US$82 million, with dozens of active providers.

Now, that stupendous growth is clearly in peril, with no long-term solution in sight.

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