The feasibility of a Nicaraguan caustic soda-chlorine chemical plant : 1966-1970

One facet of the program of coordinated economic development in the countries of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua is the establishment of a chemical plant in Nicaragua. The successful operation of the proposed caustic soda-chlorine plant could prove the stimulus for developing a chemical complex in the country. The purpose of this paper was to determine if establishment of such a plant would be feasible and profitable in Nicaragua during the years 1966-1970. This study confined itself to financial analysis of the caustic soda-chlorine plant proposed for Nicaragua. Political, sociological and cultural problems were not considered. In addition, neither the effects of the proposed plant on the economy of Nicaragua nor the economy's effects on the plant's operation were discussed. It was hypothesized that the caustic soda-chlorine venture would prove profitable on the basis of Nicaragua's raw materials, labor, energy, capital and technological resources in addition to the Central American Common Market demand for the chemicals. In order to prove the Nicaraguan industry would be profitable, (1) the economic privileges to be enjoyed by the "infant industry" under the Central American Common Market agreements, (2) the procedure to be followed by Nicaragua to establish the plant, and (3) the resource needs for production of caustic soda and chlorine were discussed. Feasibility reports on the prospects of such a plant, prepared by the United Nations, governmental and semigovernmental agencies of the United States and Central America, were consulted for evidence on how Nicaragua would meet the resource needs of her new plant. Whenever possible, source material on the chemical industry in Central America and Nicaragua came from such institutions as the United Nations, the Inter-American Development Bank, the International Bank for Reconstruction and Development, the United States Department of Commerce, and the United States State Department. Among the private organizations from which source materials were obtained are the American Institute of Chemical Engineers, the Committee for Economic Development, the Center of Latin American Studies of the University of California, and the Stanford Research Institute. It became evident that sufficient financial resources would be available through the Nicaraguan National Development Institute, Penn- salt Chemical Corporation and the Morton Salt Corporation of the United States. Research showed a demand for the caustic soda, chlorine and the plant's by-products does exist in Central America especially since the plant price is expected to be lower than the historical price. Analysis of production costs, capital investment, productive capacities and projected sales revenues indicated net profits of $174,000 will first be realized in the second year of operation. Net returns are expected to increase annually; in the ninth year of operation, net profits should reach $736,000. On a straight line method of depreciation, after nine years of depreciation on the total fixed assets, a salvage value of $217,000 remains. All loans of the caustic soda-chlorine plant should be paid within five years of the start of operations according to the payback method used here. The internal rate-of-return method yielded a positive net present value greater than a 17 per cent interest rate. Similar positive findings resulted when the net present value methods was used. The conclusions reached here may prove helpful in the financial analysis of other new industries being established in Central America and other developing areas of the world. Additional research on unit costs at varying plant capacities and the creation of new product demand by newly established industries in other Central American Common Market nations could be quite useful in delineating the rapidly changing economic character of Central America.