Foreign Direct Investment in Costa Rica
Reports of positive economic results from 2009 – a year in which economic indicators plummeted across almost all economic sectors in Costa Rica – are as surprising as they are rare.
So when the Costa Rican Investment Promotion Agency (CINDE) recently announced that 29 foreign companies entered or enhanced their operations in the country last year – accounting for over $304 million in investment and creating over 5,729 jobs – a pillar of the national economy that may have been the most crucial in limiting the effects of the economic crisis was highlighted.
That pillar is foreign direct investment (FDI).
“In terms of the economy, the thing that the country is doing well is ensuring that we have strong foreign direct investment,” said Otto Guevara, the Libertarian Movement Party presidential candidate. “This is what we are doing right. Continued foreign direct investment is the key to helping this economy fight the international crisis.”
The core of Costa Rica’s FDI is generated by foreign companies that are primarily United States-based and relocating a branch of their operations to the country.
Most of these operations are in the services sector, which accounted for 15 of the 21 new operations that moved to Costa Rica in 2009.
Included under the “services” label are foreign companies that outsource a component of their operations to Costa Rica in the form of call centers, plants for the production of components, “back office” work such as inventory, and minor assembly plants.
CINDE reports that from 2000 to 2009 the number of services companies in Costa Rica grew from five to 95 and that employment within the services sector grew from just over 1,000 people to over 28,000. In 2009 alone, the services sector generated 4,586 jobs and over $62 million.
“The services sector has become one of the largest employers in our country,” said Gabriela Llobet, director general of CINDE. “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.”
But in recent years, companies outside the services sector also have taken an interest in outsourcing or relocating to Costa Rica.
Prominent among these are companies in the medical and high-tech fields. CINDE reports that three new medical companies established locations in Costa Rica, while three existing medical companies committed to further investment.
Perhaps the most notable of these companies is Boston Scientific, a medical device production company that has operated a plant in Heredia since 2004.
In June, the company announced plans to construct a second plant in the Propark free trade zone in Coyol, near Alajuela. The new plant is expected to employ as many as 3,000 people, and it already has generated $35 million in investment during the first stage of construction. The existing Boston Scientific plant employs 1,700 people.
In the high-tech sector, U.S.-based Intel, the acknowledged crown jewel of FDI companies in Costa Rica, is the country’s biggest exporter. According to Raquel Golcher, manager of external communications at Intel Costa Rica, the tech company averages annual sales of more than $2 billion and makes up about 20 percent of Costa Rica’s total exports. Intel’s sales account for 3 to 4 percent of the nation’s gross domestic product (GDP).
In a study released in October, CINDE claimed that Costa Rica was the fourth largest exporter of high-tech and computer software products in the world as a percentage of the country’s total exports. Using information from a World Bank study of development indicators, CINDE found that of all the products and services exported by Costa Rica, 46 percent are high-tech products.
“The country (is selling) itself to companies, such as high-tech operations, that give lots of value to the country,” said Alfredo Guzman, coordinator of external and executive relations at the Costa Rican-American Chamber of Commerce (AMCHAM). “As you see, we’ve changed from manufacturing, to high-tech, to medical, so the country is kind of moving with what the world needs.”
Though CINDE does not track the number of foreign high-tech companies in the country, from 2000 to 2009 the number of companies in Costa Rica exporting medical devices increased from eight to 31. The number of manufacturing companies increased from 30 to 55.
Why Companies Choose Costa Rica
When The Tico Times asked recent entrants to Costa Rica, as well as companies already in the country, why they chose to start or expand business in Costa Rica, most mentioned the educated, bilingual workforce and the tariff breaks offered by free trade zones.
“We looked at several different alternatives in Latin America and we chose Costa Rica because there is a very strong, educated bilingual population there, and the majority of work is going to be handled in English,” said Bret Milne, vice president of operations at StarTek, which in August announced plans to open a call center in Costa Rica. “The other reason that we chose Costa Rica is that it has a friendly business climate for U.S. companies.
I think that is probably why Costa Rica is seeing such success, not only from Startek, but from some of our competitors as well as non-competitors that are U.S. based.”
Milne added that the free trade zones were also a primary determinant in selecting Costa Rica as a new location.
Currently, Costa Rica has 253 companies operating in free trade zones, where businesses are allowed to import and export goods without barriers such as quotas or tariffs.
According to the Foreign Trade Ministry (COMEX), businesses in the free trade zones employ more than 53,000 workers directly and 10,000 indirectly. In 2009, the 253 companies operating in free trade zones exported 1,212 products to 98 countries and accounted for more than 50 percent of Costa Rica’s total exports.
Two weeks ago, a reform of the free trade zone law was signed into law. The new law provides tax breaks to companies that choose to operate in areas outside the Central Valley, such as in Limón, Puntarenas or Guanacaste. It also irons out some of the poorly defined guidelines for entrance of foreign companies.
“The approved reform establishes a series of attractive fiscal benefits that keep Costa Rica competitive as an investment destination, versus countries that fight among themselves to attract foreign direct investment,” said Vanessa Gibson, director of After Care at CINDE. Gibson oversees relationships with foreign companies after they have settled in Costa Rica.
Are Companies Here to Stay?
While FDI has surged in the last decade, some have asked whether, in a depressed economy, foreign companies will continue to enter Costa Rica at such a torrid pace.
In 2008, the FDI generated by companies of CINDE represented 6.8 percent of the total GDP. In 2009, it accounted for 4.5 percent of the total GDP. According to CINDE, the FDI for this year is expected to stay about the same as last year. CINDE projects that 25 new companies will enter the country and employ some 5,500 people.
“We (CINDE) try to target companies that we know are looking to outsource services or operations or have the profile of a company looking to do so,” said Andrea Centeno, communications manager at CINDE. “We pursue them, present what we do and invite them to visit Costa Rica to see if the country fits their interests. We also participate in fairs or events of businesses in our sectors and present what we do … We continue to present ourselves and the country to interested companies around the world.”
Given the work done to date to attract FDI – such as creating free trade zones, developing a bilingual workforce and aggressively promoting the country worldwide – FCI boosters seem confident Costa Rica will continue to attract foreign investors well into the new decade.
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