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- U.S. DEPARTMENT OF STATE
- NICARAGUA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
- BUREAU OF ECONOMIC AND BUSINESS AFFAIRS
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- NICARAGUA
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- Key Economic Indicators
- (Millions of U.S. dollars unless otherwise noted)
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- 1992 1993 1994 1/
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- Income, Production and Employment:
-
- Real GDP (1991 dollars) 1,781.2 1,765.2 1,800.5
- Real GDP Growth (pct.) 0.4 -0.9 2.0
- GDP by Sector:
- Agriculture 2/ 434.6 437.8 448.3
- Energy/Water 55.2 56.5 57.6
- Manufacturing 399.0 391.9 397.9
- Construction 53.4 54.7 55.8
- Rents 74.8 74.1 75.6
- Financial Services 57.0 56.5 59.4
- Other Services 78.4 79.4 81.0
- Government/Health/Education 199.5 195.9 198.0
- Net Exports of Goods & Services 3/ -567.0 -430.0 -426.1
- Real Per Capita GDP (USD) 430.4 414.4 410.1
- Labor Force (000s) 4/ 1,445.4 1,489.5 1,543.7
- Unemployment Rate (pct.) 17.8 21.8 23.5
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- Money and Prices:
- (annual percentage growth unless otherwise noted)
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- Money Supply (M2) 21.1 8.0 16.5
- Rediscount Rate (pct.) 5/ 13.0 13.0 10.5
- Personal Saving Rate
- (pct. of GDP) 6/ -15.2 -14.6 -13.3
- Retail Inflation N/A N/A N/A
- Wholesale Inflation N/A N/A N/A
- Consumer Price Index 3.5 19.5 13.5
- Exchange Rate (cordobas:USD)
- Official 5.00 6.32 7.08
- Parallel 5.34 6.42 7.43
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- Balance of Payments and Trade:
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- Total Exports (FOB) 223.1 226.9 328.9
- Exports to U.S. (FOB) 52.0 125.9 121.1
- Total Imports (CIF) 855.0 727.7 786.0
- Imports from U.S. (CIF) 220.0 149.8 164.5
- AID from U.S. 7/ 114.7 80.5 80.9
- AID from Other Countries 8/ 644.8 306.2 482.1
- External Public Debt 10,808.2 10,987.0 11,553.0
- Debt Service Payment (paid) 194.0 178.0 272.0
- Gold and FOREX Reserves (gross) 179.1 87.7 109.1
- Trade Balance 9/ -551.2 -390.0 -389.1
- Trade Balance with U.S. 9/ -147.2 -23.2 -28.6
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- N/A--Not available.
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- 1/ Figures are all annual projections based upon 8-9 months of
- data.
- 2/ Agriculture does not include livestock and fisheries.
- 3/ Does not include interest payments or debt service.
- 4/ Defined as working age population as reported by the
- Nicaraguan Ministry of Labor.
- 5/ Central Bank rediscount rate.
- 6/ Based upon IMF figures.
- 7/ Includes all non-military aid granted.
- 8/ Includes total grants and credits received minus U.S. aid.
- 9/ Trade balance is calculated on FOB basis.
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- Sources: International Monetary Fund (IMF), the World Bank,
- and the Central Bank of Nicaragua unless otherwise noted.
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- 1. General Policy Framework
-
- Over the period 1990-93, the Government of Nicaragua
- focused on making the transition from a centralized to a
- market-oriented economy, and on reversing the severe
- mismanagement of the economy during the Sandinista era, which
- had resulted in a 25 percent drop in real GDP and 50 percent
- drop in GDP per capita during the 1980's.
-
- During the first four years of the Chamorro Administration,
- the currency was stabilized and inflation brought under
- control. The cordoba is presently devalued against the dollar
- on a crawling-peg basis of 12 percent per annum, and inflation
- has fallen from 13,490 percent in 1990 to an estimated 13.5
- percent in 1994. The executive implemented various structural
- adjustment measures, including the successful privatization of
- more than 300 of the 350 non-financial public sector companies
- it inherited from the previous government. A Superintendency
- was created to supervise the banking sector, which now includes
- nine private banks and three state-owned institutions. The
- Government of Nicaragua has also reduced tariffs, eliminated
- most non-tariff trade barriers, and greatly relaxed foreign
- exchange controls.
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- All of these measures were designed to pave the way for
- economic expansion. To date, however, the anticipated growth
- has failed to materialize, as real GDP growth has remained
- stagnant, registering rates of 0.4 percent in 1992 and -0.9
- percent in 1993. Estimated growth of 4 percent in 1994 has
- been revised downward to 2 percent due to a drought which
- damaged the first agricultural planting cycle and an
- accompanying energy shortage which has resulted in mid-1994 in
- power cutoffs of 4 hours per day. The lack of credit to the
- productive sector continues to be a major stumbling block to
- growth, and private investment flows remain limited as concerns
- over property rights and political stability persist.
-
- In June 1994, the Government came to agreement with the IMF
- on an Enhanced Structural Adjustment Facility (ESAF) -- a
- 3-year program designed to maintain stability and generate
- growth. Consequently, the stage has been set for continued
- lending from international financial institutions and other
- bilateral donors, including an Economic Recovery Credit from
- the World Bank. These credit sources represent critical
- elements for the nation@s economic stability, as Nicaragua
- continues to suffer from a chronic balance-of-payments gap
- estimated at 1.1 billion dollars for 1994.
-
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- 2. Exchange Rate Policy
-
- In January 1993, the Government of Nicaragua modified its
- fixed official exchange rate system which since September 1991
- had pegged the cordoba to the dollar at 5:1. With its
- devaluation, the Government set the cordoba at 6:1, with a
- crawling-peg schedule adjusted daily, at an annual rate of 5
- percent. This schedule was accelerated in November 1993 to an
- annual rate of 12 percent. A parallel exchange market,
- legalized in September 1991, continues to operate, supplying
- foreign currency for virtually all types of exchange
- transactions. The spread between the official and parallel
- markets has been generally maintained at 2-4 percent.
-
- Foreign exchange generated from the export of most
- traditional products (e.g., beef, coffee, sugar, cotton) must
- be surrendered to the Central Bank, although private banks can
- accept the dollars as agents of the Central Bank. Remittance
- of profits generated through foreign investments, as well as
- original capital 3 years following investment, is guaranteed
- through the Central Bank at the official exchange rate for
- those investments registered under the Foreign Investment Law.
- Investors who do not register their capital may still make
- remittances through the parallel market, although these
- transactions are not guaranteed by law. Embassy is aware of no
- investor who has encountered remittance difficulties since the
- inception of the Foreign Investment Law in 1991.
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- 3. Structural Policies
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- Pricing Policies: Since taking office in April 1990, the
- Chamorro Administration has lifted price controls with the
- exception of those imposed upon "fiscal" goods (e.g., tobacco,
- soft drinks, alcoholic beverages), pharmaceuticals and medical
- goods, petroleum products, and public utility charges.
- However, the Central Government (i.e., the Ministry of Economy
- and Development) commonly negotiates with domestic producers of
- important consumer goods to establish voluntary price
- restraints and, on several occasions, has purchased emergency
- stores of important basic foods (sugar, beans, basic grains,
- etc.) during periods of shortages to maintain domestic supplies
- and moderate prices.
-
- Tax Policies: Nicaragua maintains a maximum tariff level
- (DAI) on virtually all imports of 20 percent of CIF value. An
- additional Temporary Protection Tariff (ATP) of 5-15 percent of
- CIF value is levied on some 900 imported items, largely goods
- also produced in Nicaragua. Some 750 other products (whether
- imported or locally produced) are assessed a Specific
- Consumption Tax (IEC), generally limited to 15 percent of CIF
- value. A stamp tax of 5 percent (ITF) is levied on all
- imports. The country@s 15 percent sales tax (IGV) is charged
- (in a cascading fashion) on entry of all imported goods that
- are not categorized as basic food basket items. Overall import
- taxation levels on "fiscal" goods are particularly high.
-
- The highest income tax rate is 30 percent (for taxpayers
- earning more than 180,000 cordobas yearly -- or about 25,000
- dollars at the official exchange rate. Individuals earning
- between 100,000 and 180,000 cordobas are taxed at a rate of 26
- percent; between 60,000 and 100,000 -- 20 percent; between
- 40,000 and 60,000 - 12 percent; and between 25,000 and 40,000
- -- 7 percent. Individuals earning less than 25,000 cordobas
- yearly are exempt from income tax. Corporations are levied
- taxes at a flat rate of 30 percent. In addition, busines
- income is subject to a series of municipal and special taxes,
- such as the 2 percent tax on sales charged by the Municipality
- of Managua.
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- 4. Debt Management Policies
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- Although it inherited an enormous foreign debt burden from
- the previous government, the Chamorro Administration succeeded
- in clearing its total arrears to the World Bank and IDB in 1991
- with the assistance of grant contributions from the
- international community. This made Nicaragua eligible to
- receive new credits from the multilateral development banks,
- and the country began to renegotiate its bilateral debt.
- Nicaragua entered into agreements with Mexico, the United
- States, Venezuela, Colombia, and Argentina for rescheduling,
- debt swaps, and/or debt forgiveness. Over the past 2 years,
- Nicaragua has held discussions with Russia over the large debt
- owed to the former Soviet Union. Similarly, Nicaragua
- continues to seek renegotiation of its debt of roughly 1.7
- billion dollars to private foreign banks, via a buy-back
- mechanism. However, Nicaragua's foreign debt still totals more
- than six times its GDP and more than 35 times its annual
- merchandise exports.
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- In December 1991, the Paris Club creditors agreed to grant
- Nicaragua the most favorable rescheduling terms offered by the
- club to date. In April 1993, Paris Club members made new
- pledges of 46.8 million dollars, which, although significant,
- still left Nicaragua with a substantial financing gap. That
- gap was closed by additional sources of assistance, new
- austerity measures, and the suspension, beginning September
- 1993, of pre-cutoff day (October 31, 1988) Paris Club
- obligations.
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- In August 1994, Germany and Nicaragua reached agreement for
- an overall 70 percent forgiveness of the 180 million dollars
- subject to the 1991 Paris Club agreement. This set the stage
- for a second round of Paris Club talks to beheld in early 1995
- to deal with the remaining bilateral debt, the majority of
- which (approximately 500 million dollars) consisting of debts
- to the former German Democratic Republic (East Germany). It is
- anticipated that Nicaragua will seek even more favorable
- treatment ("enhanced Toronto Terms") at the talks, requesting
- up to two-thirds forgiveness of its remaining debt.
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- 5. Significant Barriers to U.S. Exports
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- Import Licenses: In most cases the issuance of import
- licenses is a formality, or at worst an inconvenience. U.S.
- pharmaceutical importers, however, continue to complain that
- licensing procedures, continually under review due to a process
- of regional harmonization of such regulations, can continue to
- delay the entry of some U.S. pharmaceutical products.
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- Service Barriers: 1991 legislation allowed the
- establishment of the first private banks in Nicaragua in a
- decade. Nine private banks are now in operation in a
- competitive financial market. Although current banking law
- does allow foreign banks to open and operate branches in
- Nicaragua, no U.S. bank has initiated the necessary paperwork.
- Insurance activities are currently in the hands of a state
- monopoly. However, legislation is pending in the National
- Assembly that would allow private sector participation in the
- insurance sector.
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- Investment Barriers: An investment law, passed in June
- 1991, allows 100 percent foreign ownership in virtually all
- sectors of the economy, guaranteed repatriation of profits, and
- repatriation of original capital 3 years after the initial
- investment. However, to benefit from this law, investments
- must be approved by the Foreign Investment Committee which
- analyzes the proposal based upon various criteria. The fishing
- industry remains protected by requirements involving the
- nationality and composition of vessel crews and a requirement
- for repatriation of 100 percent of the catch (i.e., domestic
- processing for eventual export). In early 1993, the Government
- of Nicaragua lifted its moratorium on lumbering in state
- forests (representing over 50 percent of the country@s forest
- area); but authorities painstakingly review all project
- proposals in this sector.
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- The Government continues to move forward with privatizing
- state-owned companies in government-dominated sectors. In the
- mining sector, a private worker-owned consortium is active, and
- several foreign companies have initiated operations. In
- October 1993, the Government began the pre-qualification bid
- process for privatization of the national telecommunications
- company, which was scheduled to be finalized by October 1994.
- However, the privatization still awaits National Assembly
- approval and at this writing it is unclear when such approval
- will be granted. The Government also is in the process of
- drafting legislation which would allow for the liberalization
- of petroleum imports, establish an oil exploration regime, and
- explicitly grant the private sector the right to generate
- electrical power. At this time, the legislation is still under
- executive review.
-
- Definition of property rights continues to remain an
- obstacle to both domestic and foreign investment. Claims for
- thousands of homes and businesses, as well as large tracts of
- land, confiscated without compensation by the Sandinista
- government of Nicaragua have yet to be resolved. In early
- 1993, the Chamorro government's administrative property claim
- resolution mechanism began to process claims for some
- 16,000-18,000 individual pieces of property. A small number of
- properties have been returned to original owners; other cases
- have been settled through the issuance of long-term
- compensation bonds.
-
- The current market value of these bonds remains a matter of
- concern. Trades of the securities on the stock market have
- ranged from 17-28 percent of face value. As of November 1994,
- informal trading on the secondary market has settled at 19-21
- percent of face value. The bond compensation program remains
- controversial, as the majority of U.S. citizen and Nicaraguan
- claims have not been resolved, and most claimants believe their
- properties should be more fully compensated.
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- Customs Procedures: Importers commonly complain of steep
- "secondary" customs costs including custom declaration form
- charges and consular fees. In addition, importers are required
- to utilize the services of licensed custom agents, adding yet
- another layer of costs. Legitimate importers also complain
- that "black market" firms are able to bring in the same goods
- at greatly reduced tariff rates and then offer these
- under-priced goods on the open market.
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- 6. Export Subsidies Policies
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- An export promotion decree, signed in August 1991,
- established a package of fiscal exonerations and incentives for
- exporters of non-traditional goods (for this purpose, goods
- other than coffee, cotton, sugar, wood, beer, lobster, and
- sea-harvested shrimp). Export operations for such products
- receive exemption on payment of 80 to 60 percent of income tax
- liabilities on a sliding scale from 1991 to 1996, after which
- the benefit will be eliminated. In addition, exporters of both
- traditional and non-traditional goods are allowed to import
- inputs (used to produce exports goods) duty-free and are exempt
- from paying the current 15 percent value-added tax on this
- merchandise. The decree also allows for preferential access to
- foreign exchange at the official rate for exporters of
- non-traditional goods.
-
- One of the more attractive benefits of the export promotion
- law is the right to a Tax Benefit Certificate equivalent to 15
- percent of the FOB value of exported non-traditional goods.
- (The percent of FOB value eligible decreases to 5 percent in
- 1996.) In May 1993, the first group of Nicaraguan exporters
- received the certificates, valid for payment of tax and duties,
- or payable 24 months from the date of issue.
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- 7. Protection of U.S. Intellectual Property
-
- In 1990, the Nicaraguan government committed itself to
- "provide adequate and effective protection for the right to
- intellectual properties of foreign nationals" in the context of
- requesting designation as a beneficiary of the Caribbean Basin
- Initiative Recovery Act. Current levels of protection,
- however, still do not meet modern international standards.
-
- Although unfortunately unable to dedicate extensive
- resources to the protection of intellectual property rights,
- the Government of Nicaragua is in the process of evaluating and
- modernizing its intellectual property rights regime. Drafts of
- a new patent law and a new copyright law are under review. The
- trademark law in Nicaragua, codified in the Central American
- Convention for the Protection of Industrial Property, is
- currently undergoing revision by the four signatory countries
- (Nicaragua, Costa Rica, Guatemala, and El Salvador).
-
- The Government has publicly committed itself to accede to
- the Paris Convention for the Protection of Industrial Property,
- and to the Bern Convention on Copyrights. As of this writing,
- the Government has acceded to neither convention. However,
- Nicaragua is a signatory to the following copyright conventions:
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- --Mexico Convention on Literary and Artistic Copyrights (1902)
-
- --Buenos Aires Convention on Literary and Artistic Copyrights
- (1910)
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- --Inter-American Copyrights Convention (1946)
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- --Universal Copyright Convention (Geneva 1952 and Paris 1971)
- Brussels Convention on Satellites (1974)
-
- Trademarks: Notorious trademarks represent a problem area
- for Nicaragua. Current Nicaraguan procedures allow individuals
- to register a trademark without restriction, at a low fee, for
- a period of 15 years.
-
- Copyrights/New Technology: Pirated videos are readily
- available in nation-wide video rental stores, as are pirated
- audio cassettes. In addition, cable television operators are
- known to intercept and retransmit U.S. satellite signals -- a
- practice which continues despite a limited trend of negotiating
- contracts with U.S. sports and news satellite programmers. One
- of Managua's private television stations similarly transmits
- (often from video cassettes) pirated U.S. films. A report
- prepared in September 1992 by the International Intellectual
- Property Alliance estimated that losses in Nicaragua due to
- copyright infringements involving books and the motion picture
- industry cost U.S. firms 1.3 million dollars annually.
-
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- 8. Worker Rights
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- a. The Right of Association
-
- Legally, all public and private sector workers, with the
- exception of the military and the police, are entitled to form
- and join unions of their own choosing; they exercise this right
- extensively. New unions must register with the Ministry of
- Labor and be granted legal status before they may engage in
- collective bargaining with management. Some labor groups
- report occasional delays in obtaining legal status. Nearly
- half of Nicaragua's workforce, including agricultural workers,
- is unionized. Unions may freely form or join federations or
- confederations and affiliate with, and participate in,
- international bodies.
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- b. The Right to Organize and Bargain Collectively
-
- The Constitution provides for the right to bargain
- collectively, and, despite unfamiliarity with the practice
- following 10 years of central planning under the Sandinista
- regime, collective bargaining is becoming more common in the
- private sector. The International Labor Organization@s
- Committee of Experts on the Application of Conventions and
- Recommendations issued a report in 1992 asserting that the
- Nicaraguan law which requires collective agreements to be
- approved by the Ministry of Labor before they come into force
- violates the Convention on the Right to Organize and Bargain
- Collectively, ratified by Nicaraguan in 1967. No action has
- been taken to modify this provision, although the Labor Code is
- currently being revised by the National Assembly.
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- c. Prohibition of Forced or Compulsory Labor
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- The Constitution prohibits forced or compulsory labor, and
- there is no evidence that it is practiced.
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- d. Minimum Age for Employment of Children
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- The Constitution prohibits child labor that can affect
- normal childhood development or interfere with the obligatory
- school year. Education is compulsory to age 12, and children
- under the age of 14 are legally not permitted to work.
- Nevertheless, because of the prevailing economic difficulties
- in Nicaragua, reportedly more than 100,000 children are members
- of the workforce, particularly in the agricultural and informal
- commercial sectors of the economy. The child labor law is,
- however, generally observed in the modern, formal segment of
- the economy.
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- e. Acceptable Conditions of Work
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- The standard legal work week is a maximum of 48 hours with
- one day of rest. Health and safety standards are extensive,
- but not strictly enforced due to an insufficient number of
- inspectors. Sectoral minimum wages were set in mid-1991, but,
- according to a study by the Government's National Commission on
- the Standard of Living, the minimum wage does not provide a
- family of four with the income to meet its basic needs.
- Minimum wage levels were not adjusted following the 20 percent
- devaluation of the cordoba in January 1993. However, Ministry
- of Labor surveys indicate that some 86 percent of urban area
- workers earn more than the minimum wage.
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- f. Rights in Sectors with U.S. Investments
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- The above rights are observed in sectors with U.S.
- investment and overall working conditions do not differ
- adversely from the general description above.
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- Extent of U.S. Investment in Selected Industries.--U.S. Direct
- Investment Position Abroad on an Historical Cost Basis--1993
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- (Millions of U.S. dollars)
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- Category Amount
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- Petroleum (1)
- Total Manufacturing (1)
- Food & Kindred Products (1)
- Chemicals and Allied Products 0
- Metals, Primary & Fabricated 0
- Machinery, except Electrical 0
- Electric & Electronic Equipment 0
- Transportation Equipment 0
- Other Manufacturing
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- Wholesale Trade 2
- Banking 0
- Finance/Insurance/Real Estate 0
- Services 3
- Other Industries 0
- TOTAL ALL INDUSTRIES (1)
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- (1) Suppressed to avoid disclosing data of individual companies
- Source: U.S. Department of Commerce, Bureau of Economic
- Analysis
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