Increased Imports Push Up Trade Deficit
Costa Rica imported over $15.3 billion worth of goods and services in 2008, the highest level of imports in the country’s history. At the same time, Costa Rican exports, valued at $9.5 billion, also reached their highest level ever.
These increases are representative of the country’s place in the global market. While there is a steady external demand for Costa Rican goods and services, the demand for expensive foreign goods causes the deficit (the difference between imports and exports), which stood at $5.8 billion in 2008, to continue to expand.
“We have to import the products we don’t produce,” said Emmanuel Hess, president of the Foreign Trade Promotion Office (PROCOMER), in an interview with The Tico Times this week. “And unfortunately, Costa Rica doesn’t produce any gasoline. With the increase in the price of gasoline last year, we saw a larger deficit than in previous years.”
From 2007 to 2008, the national trade deficit jumped $2.2 billion, the biggest spike ever recorded in this area in Costa Rica. According to the Foreign Trade Ministry (COMEX), the importation of refined gasoline, the most costly commodity imported by Costa Rica, in 2008 totaled $1.59 billion, a cost increase of 47.4 percent. The importation of crude oil, the third most costly commodity imported into the country, also grew significantly, by 33.8 percent. Gas prices peaked in June and July of 2008, when the average gas price in the United States was over $4 per gallon. Hess said that as long as the price of imported gasoline remains high, the trade deficit will continue to broaden.
While gasoline was a primary cause of the increased spending on imports, the importation of raw materials used for construction, textiles and manufacturing – such as iron, gold, silver, copper, nickel and zinc – account for the largest slice of the import pie. According to COMEX, 52 percent of all Costa Rican imports in 2008 were raw materials and products used in production.
“As we continue to build and improve infrastructure, there is pressure to import more raw materials,” Hess said. “We cannot produce certain raw materials here and, as the demand for them grows, we spend more on imports.”
Costa Rica’s total expenditure on imports grew from $12.95 billion in 2007 to $15.37 billion in 2008. This represents an 18.7 percent increase in one year.
Optimism in the Export Market Although exports increased in 2008, the sector has suffered somewhat in the first six months of 2009.
On July 23, PROCOMER reported that exports had brought in $4.27 billion during the first six months of this year. That total is $706 million less than during the first six months of 2008, and represents a 14.2 percent decrease.
Despite this year’s contraction, the Costa Rican export market continues to display savvy in developing new products and markets to bolster exports.
According to PROCOMER, through the first six months of 2009, the export of Intel Pentium computer processors generated $910.84 million, which accounted for close to 22 percent of all exports. Intel reported exports during the months of April, May and June totaling $449 million, or $32 million more than during the same period of 2008.
Hess said this success is due to the utilization of free trade zones, which house international companies such as Intel and allow for the production of goods in high demand.
“The free trade zones allow for a great deal of foreign direct investment for the purpose of exports,” Hess said. “What is produced there are goods of high quality, such as microprocessors for computers, medical equipment and technology and pharmaceutical products. Free trade zones also allow for the outsourcing of services, such as call centers, contract centers and shared-service locations. These are all very important areas of growth for the export market.”
The continued development of free trade zones has bolstered investment and exports in Costa Rica and, especially, in the Central Valley.
In the past months, Boston Scientific, St. Jude’s Medical and Moog Inc. have committed to investing a combined $80 million in the free-trade zone of Coyol, near Alajuela, northwest of San José. These companies are just beginning to build their facilities, and the assumption is that when they begin production, the export of medical equipment will flourish.
Another area of the export market that continues to see gains in Costa Rica is in services and outsourcing.
Many international companies have created call centers or service centers in Costa Rican free trade zones, bringing investment to the country through building construction and support for infrastructure. They also hire many local workers. In this way, the “services” provided can be considered exports.
Hess said that services – which include medical tourism and construction services and even production and audiovisual services for images and movies – account for over $4 billion of exports. This means that for every dollar earned in the export market, almost half of it stems from the services sector.
Aside from technology, medical equipment and service exports, Costa Rica remains a large exporter of agricultural products, especially fruit.
“We are the number one exporter in pineapples and number two in bananas,” Hess said. “We have also seen an increased demand for melones (cantaloupe) in recent years that continues to grow.”
The two Costa Rican export staples, coffee and bananas, experienced decreases in exports during the first six months of 2009, but Hess expressed confidence that they will improve in the final six months of the year. The export of melones rose 11 percent compared to the first six months of 2008.
Where Imports Come From
Around Costa Rica, U.S. name brands are abundant in supermarkets, shopping centers and on office and home computers.
The reason for the omnipresent U.S. name brands stems from the fact that the U.S. accounts for 40 percent of all Costa Rican imports. Mexico and China are the second and third leading sources of imports to Costa Rica, respectively, each accounting for around 6 percent of total imports.
Of the 15 most-imported products, the U.S. provides 90 percent of integrated circuits and electronic devices, 51 percent of telephones, 99 percent of corn, 93 percent of paper, and 88 percent of computers.
The principal imported product, refined gasoline and other petroleum derivatives, is imported from various places, including Aruba (30 percent), the U.S. (26 percent), the Holland Antilles islands (17 percent) and Venezuela (13 percent). The leading source of crude oil, the third most costly import into the country, is Venezuela, which accounts for almost 80 percent of all Costa Rican crude oil.
Where Exports Go
Foreign Trade Minister Marco Vinicio Ruiz said that during the first six months of 2009, Costa Rica exported more than 4,000 products to 150 different markets. Of those markets, the U.S. received the majority of Costa Rican exports.
Hess at PRO COMER estimated that 36 percent of exports were shipped to the U.S., 19 percent to the other Central American nations, 15 percent to Europe and 15 percent to Asia. Hess also indicated that Costa Rica is negotiating with both China and Singapore to establish free trade zones.
Of the products exported, most are shipped, taking advantage of the ports on both Costa Rican coasts.
“We ship about 70 percent of our products, mostly fresh products, to save costs,” Hess said. “Products of high value, such as medical equipment and computer processors, are sent by plane.”
Market the Benefits and
Hope for the Best
Although the rising costs of the import market cannot be controlled, Costa Rica can continue to market the products offered here in hopes of generating more funds through exports.
Next week, PRO COMER will host an event for 270 Costa Rican companies to meet with 210 international buyers in an attempt to create opportunities for potential exportation of products. At a time when external costs remain high, the promotion of Costa Rican goods to foreign markets appears to be the only option that could bring more revenue into the country and eliminate the swelling deficit.
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