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Textiles trimmed in changing export market

December 10, 2010

The Costa Rican export landscape has changed over the last decade and the production of textiles, a huge revenue earner in the past, is hanging on by a thread.

In late November, a Cartago-based Levi’s and Dockers production plant operated by the Centro Industrial Manufacturero El Roble (Cimer) announced that it will close in January 2011. The plant is the 70th national textile company to terminate operations since 2000,  representing a sign of the times in the Costa Rican export market.

In 2000, Costa Rica was home to 152 textile companies that employed around 30,000 people. In 2009, only 82 textile companies were left, employing 8,000 workers.

Cimer’s announcement hints that the sector is withering. Textile export revenues have decreased annually at a clip unrivaled by other industries. According to the Foreign Trade Promotion Office (Procomer), in the last five years, Costa Rican textile export revenues fell from $528 million to $234 million. In 2000, textile exports raked in $729 million.

And while the figures appear to signify doom and gloom for the sector, several national textile production plants continue to supply garments to Costa Rica and materials to 46 other countries.

According Rodolfo Molina, president of Costa Rica’s Chamber of Textile Companies (Cateco), textile exporters that have weathered the diminished demand for Costa Rican goods are the Jockey plant in Aserrí, southeast of San José; four national Hanes production plants; and suit manufacturer BorKar, in San Pedro de Poás.

“Costa Rica will always have a textile sector,” said Molina, whose Rincon Grande textile company closed in 2008. “But this country no longer relies on textile exports like we did 20 years ago. We have diversified our export base.”

Labeling Costa Rica’s transition a “new era,” Molina said that exports are increasingly focused on high-tech goods and medical devices, a more profitable option.

In 2001, Costa Rican exports earned $5 billion. Earnings peaked in 2008, as export revenues exceeded $9.5 billion. Last year the country exported 4,116 products to more than 60 countries in four continents.

While traditional Costa Rican exports of bananas, coffee and pineapples have remained steady in the past decade, products such as computer accessories and medical devices have grossed the highest returns.

Intel’s  Costa Rica plant, which manufactures the Pentium microprocessor, has earned more than $2 billion in sales during the last three years, accounting for roughly 20 percent of total export sales, and 3 to 4 percent of the country’s gross domestic product (GDP).

According to Procomer, of the top 10 national exports, textiles are the only sector to see a reduction in sales each of the last five years.

“Textile exports are the biggest export sectors in other Central American countries, as well as the Dominican Republic,” Molina said. “Labor costs are cheaper in those countries and companies are relocating there. While that would damage other economies, Costa Rica appears to have moved past textiles.”

Ahead of the Central American Curve

A 68 percent drop in textile exports means Costa Rica is bucking the trend seen across Central America.

According to the Honduran Maquiladora Association (AHM), Honduran textile export sales have increased 20 percent in 2010 compared to 2009, and 15,000 new employees have been hired.

As textile exports sales rise in other Central American countries, they plummet in Costa Rica.

In Guatemala, textile exports were up 17.6 percent during the first half of the year and sales exceeded $705 million. Textile exports were up 21 percent in El Salvador through the first six months of the year and Nicaragua reported textile export sales of $733 million through September, a 10 percent increase from the same period in 2009.

“If you look at the new exports out of Costa Rica, such as microchips or medical devices or the number of call centers that are here now, these types of jobs require employees with a higher level of education, including being bilingual,” Molina said.

“Costa Rican employees have these skills and are better prepared for these challenges. It’s given us an advantage over the other Central American countries,” he said.

According to the Costa Rican Investment Promotion Agency (CINDE), from 2000 to 2009 the number of services companies in Costa Rica, which includes call centers, grew from five to 95. Employment within the services sector grew from just over 1,000 people to over 28,000. In 2009, the services sector generated 4,586 jobs and more than $62 million in sales.

“The services sector has become one of the largest employers in our country,” said CINDE Managing Director Gabriela Llobet. “As a result of the growth and the good results achieved during the last decade by the companies already established … Costa Rica is on the world map as an extremely competitive destination for this industry.”

Costa Rican textile exports were also affected by recent free-trade agreements. The country’s delay in signing the Central American Free-Trade Agreement with the U.S. (CAFTA) battered national textile exporters, as other countries in the region had a three-year lead in establishing trade relations with the U.S.

With a free-trade agreement with China needing only ratification by Costa Rica’s Legislative Assembly, it appears further competition may be looming for textile exporters.

“We obviously know that China is capable of producing a huge quantity of textiles,” Molina said. “But hopefully the guidelines established by the agreement will keep the Chinese from overtaking the market here.”

“However, if we do continue to lose textile production in the upcoming years, Costa Rica has positioned itself well enough in other export sectors to limit the impact. That’s part of the reason we’ve become the biggest market in Central America,” he said.

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