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Growing Nicaragua

Despite Dictators, Revolution, War and, Last Fall, Hurricane Mitch, Tobacco Men in Nicaragua Keep Planting and Rolling
Alejandro Benes
From the Print Edition:
Orlando Hernandez, Mar/Apr 99

(continued from page 1)

Lacayo wants to make it clear that tobacco is a force of social stability. "Many women work in the tobacco industry, both in the countryside and in the factory," he says. "The salary that a woman earns in my country is doubly important because it's a salary that goes to the house. The salary of the male passes through the tavern and other diversions, and what makes it home is substantially less. The salary of the woman goes directly to the betterment of the standard of living of her family."

Francisca Gonzalez, a 30-year veteran at the factory in Estelí that makes Joya de Nicaragua, says succinctly, "We are living better because there are more jobs. There's more work and that benefits everybody."

A colleague agrees but notes that the tobacco, particularly wrapper, still has a way to go. "The production is not the same as it was 20 years ago, because the tobacco today is different," Rafaela Guevara says of the wrapper that she is expertly manipulating to envelop a cigar. "From one side it has been very favorable to the working class because jobs have been created. Now, however, because of falling sales, there have been fewer exports and personnel has been reduced. So, the person who becomes unemployed really has no economic resources to survive. Those of us who are here, sure we're working, but the salary doesn't really go far enough. Everything, the staple items, have gone up in price tremendously: electricity, water."

Alejandro Martinez Cuenca agrees. Martinez, an economist, is a former Nicaraguan minister and the current head of Tabacos Puros de Nicaragua, the new owner of the factory where Joya de Nicaragua is made.

"The tobacco industry has been the life and the heart of this region," Martinez says. "This whole area was battered, especially after 1986. It was basically subsistence agriculture here. Until the tobacco industry arrived, until the boom came in 1995, this had not changed a lot, but now it is radically different from what was going on in 1983. This was a dead town then."

With a population of about 100,000, Estelí now has four auto dealerships, which sell mostly four-wheel-drive vehicles, a dozen private banks and seven new hotels. Unemployment in Nicaragua has fallen significantly in the Estelí valley and other tobacco regions, and that heartens Mario de Franco, Nicaragua's minister of agriculture.

"Tobacco is what makes a city like Estelí, a city like Ocotal," he says. "This represents the life of all these zones through all the indirect implications which it has. Estelí is one of the most prosperous cities in Nicaragua because of the tobacco industry. It represents the modernization of the city."

De Franco calculates that for each job in the cigar industry--in the growing and processing of cigar tobacco, plus the making of cigars--three jobs in other sectors are created. He notes that the cigar-industry worker makes a higher salary than many Nicaraguan doctors, accountants and teachers.

"A teacher in Nicaragua, and it's ridiculous, earns about $60 a month," de Franco says. "In the tobacco industry, the salaries are around $180 a month." (Martinez at Tabacos Puros de Nicaragua disagrees, saying that the disparity only occurred during the boom and has since leveled off.) De Franco asserts that Nicaragua has 14 cigar companies and that the industry is responsible for the equivalent of 15,000 permanent jobs. Despite the official weight of the figures, there are doubters.

Martinez believes that statistics about the tobacco industry in Nicaragua are highly unreliable. "Nobody tells the truth," he says over lunch at the Hotel Moderno in Estelí. Jose and Jorge Padrón are listening and laughing. "This is a sector--I've been in coffee, in sugar, in oil--where the producers all try to fool one another. I don't know why. I don't understand the psychology of the industry. They never tell the truth. 'No, I'm producing a hundred, four hundred' they'll say, even though they're going broke. [Jose] Padrón is the exception." Padrón laughs.

Back at the factory offices, Martinez continues. "We launched a campaign from here to try to gather all of us fibbers to see if we would stop lying" with respect to the size of the industry's workforce. "We finally calculated that during the boom there were between 10,000 and 12,000 workers in field and factory. Today, we figure between 5,000 and 7,000." He's using a calculator as he concludes that the number of permanent, full-time workers is roughly 4,000, which he says is nearly 1 percent of the nation's full-time labor force.

This is Cuba!" Nestor Plasencia exclaims as he savors a cigar wrapped with this year's Habana 2000 leaf, which has begun to develop strong notes of flavor since the first tests began. "Everybody wants it. In two years this will be it." Plasencia has 400 workers at his Estelí factory; he also has factories over the border in Honduras. He divides his time between the two countries.

The Estelí factory, Segovia Cigars, produces 20,000 cigars a day. The factory resembles a Spanish-style manse, complete with a fountain in the courtyard and stained-glass windows, and is referred to as "The Cathedral of Cigars" by other manufacturers. Finished in 1997 as a joint venture with Danneman, the Swiss tobacco company that was starting to make handmade cigars, the factory is intended as a showcase where Danneman can take distributors and buyers and demonstrate a seriousness and long-term commitment to premium cigar making. The "cathedral" is a copy of the Danneman factory in Sao Felix, Brazil.

Plasencia, who has been marketing his own label for 15 years, has made it big in the cigar business principally as a manufacturer of other companies' brands. Plasencia still does a significant amount of that kind of business, but not like he did in 1997, when his factories produced approximately 50 million cigars.

"Comes the boom in 1994, and in 1996 and 1997 the boom really goes crazy," Plasencia says. "We really thought that was something that could not continue. For example, Estelí used to be visited daily by a ton of people who wanted to buy cigars. Not wanting to buy a box of cigars; [they wanted to buy] 100,000, 200,000 cigars. There was a large proliferation of factories--20 factories opened here--some put up by people who had been involved in tobacco, but many by people who had no experience. People would buy cigars at whatever price, no matter the price. It was something we had never seen before.

"Various companies visited us," Plasencia continues, cautiously. "We were increasing our production of plantings and manufacture. We make a very good quality product at a good price. We started making cigars for many companies and our production increased considerably. Our production represented a large segment of the market. A production of 50 million cigars, made totally by hand, had an impact. A lot of large companies took notice: 'What's happening there? What's going on with Nestor? He's got farms in Honduras, farms in Nicaragua. Factories in Honduras, factories in Nicaragua. Farms in Costa Rica. Nestor is alone. We've got to go see Nestor. We've got to go buy from Nestor.' Then, various companies came to visit. But really, we like what we do. We are in love with what we do apart from the economic part, which is very important. I form part of the fourth generation of the family in this business. So, they come to see us, and one of them [Tabacalera S.A.] made us a generous offer, one that was very attractive: 'If you won't sell us the whole operation, why don't you sell us one factory in Honduras and one factory in Nicaragua?'"

For how many dollars, he is asked. "For a few, for a few," he answers, and laughs.

Other makers have struggled a bit more. Henry Berger runs the World Cigars factory in Estelí, maker of the 5 Vegas brand. The company opened in Miami in 1995 and added the factory in Nicaragua a year later.

"We have a group of people who make investments. We get into different businesses and we saw cigars coming in," Berger explains as two visitors, Drug Enforcement Administration agents from the U.S. embassy, shop for cigars. "My father was a cigar smoker back in Cuba. I've always liked cigars. I wasn't a big smoker, but I had a little bit of knowledge tasting different cigars and that's about it. We opened up this business, we brought a guy in, and the first three months that he was here, we had problems with him. Weird things were happening and it gave me no choice but to come down. I was the only one who was able to come down out of all the partners. So I took over the factory and I had to learn everything from scratch, practically."

Berger's is one of the many cigar companies that was created during the boom. To prevent financial problems that could arise from the post-boom slowdown, Berger says he has reduced the number of workers from a high of 290 to about 150. He and his partners have a total of $3.5 million invested, including the "5 Vegas Mansion," a guest house in Estelí for visitors, where the rooms bear the names of cigars and show off the company brand everywhere.

"It was more of an emotional thing," Berger admits. "I came down to Nicaragua to see the factory. To be honest with you, I thought everything was fine. One day we open up a box of cigars and find that it's not our brand. [Our factory] had made a mistake and shipped us the wrong cigars. I said, 'Uh oh, something ain't kosher here.' No control. Now that I've gotten into it and now that I've really learned the business, I understand it in a different way. I don't know that I'll ever leave it, because I fell in love with this thing. I like cigars. I've learned from some of the best." He acknowledges the help he has received from Jose Padrón and Juan Francisco Bermejo by saying they are some of the best people he has ever met. Along with 5 Vegas, Berger is now producing about 5,000 flavored cigars a day under the Lacuna label: rum, vanilla and amaretto. He says they're selling well.

The road between Estelí and Jalapa to the north has always been unpaved and crowded with livestock. This is the source of Alex Gimelstein's love-hate relationship with the country. He loves the cigar business here and the people in it. He just hates taking nearly four hours to drive 90 miles. And that was before Hurricane Mitch.

"The road is very bad. The bridges are horrible. The telephone service is horrible," says Gimelstein, the owner of the Havana Republic brand. "But Jalapa is the most productive land in Nicaragua because of the soil and climate. If Jalapa had the roads that Estelí has, nobody would be in Estelí."

Gimelstein, who says he has been in the industry since he was eight years old, and his partner, Medardo Padrón (no relation to Jose), who has been in the business 57 years, are in front of the TV at the Hotel Moderno watching Mark McGwire try to hit another home run.

"From 1995 until now," says Medardo Padrón (who seems to become truly animated only when he talks about fishing), the country's economy and infrastructure "has improved 50 percent. There is more security." He says this even though everyone warns about ambushes from car jackers and others on the way to Jalapa. "Once the highway is finished, Jalapa will increase another 50 percent. The land will be more valuable than in Estelí."

Jalapa, on the Honduras border, saw some of the heaviest fighting during the contra war. Tobacco barns, generally not the sturdiest structures to begin with, were burned down. Contra combatants used to take cover behind the barns, but Sandinista AK-47s would essentially make short filler out of the buildings.

"I'd like to take the optimistic view," says minister de Franco. "Before [1997], you couldn't get from Managua [the capital] to Estelí. [In 1997], we accomplished creating access from Managua to Estelí." (An accomplishment that has to be repeated after Mitch.) "We can communicate between Managua and Ocotal. We are constructing the infrastructure for Jalapa. During the entire Sandinista period and the government of Mrs. Chamorro, there was not an additional kilometer of highway built. The highways that we have are the highways that were built before 1979. We've already built more highway than had been built before." Others contend that about 500 miles of highway were built by the Chamorro government, though all agreed that the hurricane last fall has made it difficult for the current administration to connect additional parts of the country, including Jalapa. The entire cigar region, from Estelí to Ocotal to Jalapa to Honduras, was affected when many roads were washed away. Immediately after the storm, only one of three border crossings between Honduras and Nicaragua was open. The Nicaraguan government promised that reconstructing the nation's infrastructure was its highest priority.

It is also vital to the growth of the cigar industry. No one knows that better than Jose Padrón and his 200 full-time workers. He is focused as he walks into the leaf deveining area of one of his factories. He points out that the walls of all Padrón buildings are yellow. "It keeps the mosquitoes away," he says.

Padrón notes there are problems for the industry--problems yellow paint won't fix. Infrastructure is one. The tax situation is another. Without some sort of duty-free status, the industry will find it increasingly difficult to compete with prices of cigars from other nations. This is something the government has begun to explore, but taking advantage of any resulting special status may be difficult for many cigarmakers.

"The problem with the duty-free zone requirements is the physical reality of the factories," Padrón explains. The factories in Estelí are small and in the middle of town. Generally, they are not set apart in large industrial parks the way some are in the Dominican Republic, for example.

Nonetheless, for Padrón and for others who have invested not only in the tobacco, but also in the people who work it; who have had factories burned; who have lived through wars and embargos, Nicaragua is worth the effort. "Eighty percent of those people have been with me since the 1970s," Padrón says. "Because they have followed me--they've defended me--I also have been with them."

Padrón has seen it all and he has never left Nicaragua behind. Even when he had to move production to Honduras during the Reagan embargo, Padrón's factory in Nicaragua held hundreds of thousands of his cigars. He has always made only one brand of cigar.

"I returned in 1990," Padron recalls. "I never stopped going to Nicaragua, but to make cigars I went back when Violeta Chamorro became president and the embargo was lifted. You know how many cigars I had in Nicaragua when the embargo was lifted? Six hundred thousand cigars. And they were so good. What tobacco, brother!"

Alejandro Benes covered the Nicaraguan revolution for ABC News from 1979 to 1985.


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