Despite gains on development, country not competitive on global stage
The government’s business development strategy in the last 15 years has been tailored to make Costa Rica into a player on the world economic stage. Costa Rica has free trade agreements with 11 countries, sold more than $13.6 billion in exports to 148 countries in 2010, received nearly 2.1 million tourists last year, and is on pace to set a new record for foreign investment, at nearly $2 billion.
By regional standards, Costa Rica is a success story. Per capita income is rivaled only by Panama, foreign investment development has transcended traditional textile production to incorporate medical and high-tech manufacturing, and in a region of increasing violence, Costa Rica has maintained a reputation for safety and – thanks to its first-place ranking by the 2009 Happy Planet Index – happiness.
Beyond the isthmus, however, Costa Rica is losing ground. Countries comparable in population and size, such as Singapore, have vaulted ahead in terms of per capita income, infrastructure, number of trading partners, technology innovation and overall efficiency.
On Monday, some of Costa Rica’s top economic officials, including Vice President Luis Liberman and Foreign Trade Minister Anabel González, and international experts including Ji Hong Kim, associate director of the Korean Development Institute, participated in the second Costa Rican-North American Chamber of Commerce (AMCHAM) Competitive-ness Summit, held at the Hotel Real Intercontinental in Escazú, west of San José. AMCHAM and the international consulting firm Deloitte hosted the daylong event that examined Costa Rica’s strengths, weaknesses and challenges as the country strives to improve its standing in the global economy.
“What we recognize is that Costa Rica has to advance at a quicker pace to become a developed country,” Federico Chavarría, a partner at Deloitte and president of the summit, told The Tico Times. “We believe that Costa Rica has the talent, education and ability to do so, but we are currently lacking a national development plan that applies to everyone in the public and private sectors. The talent is there but we lack a plan that focuses the efforts of each sector towards one goal.”
The idea of creating a collective plan to guide national-development goals was central to Monday’s summit. In each panel, which included some of the nation’s most prominent public and private business representatives, the need to establish a cooperative development plan to guide all economic participants was a prevailing theme.
Chavarría announced the creation of the Competitiveness Promotion Council, which will strive to create a shared plan for various economic sectors to guide the country towards the goal of becoming a developed country.
“If the long-term goal of Costa Rica and the current administration is to become a developed country,” Chavarría said, “then we must develop a clear strategy across all sectors to arrive at that goal.”
Where Costa Rica Falls Short
If Costa Rica wants to move from developing to developed status, most panelists agreed that policies must be structured to assure sustainable, efficient and innovative long-term growth.
Some of Costa Rica’s current obstacles to progress are self-created. Government bureaucracy continues to slow the creation of new businesses in Costa Rica. In the World Economic Forum’s annual global competitiveness rankings, Costa Rica was ranked 61st of the 142 countries surveyed, dropping five spots from its 2010 ranking. The difficulty in creating new businesses was one of the primary reasons for a lowered competitiveness score.
“The macroeconomic imbalances seen in [Costa Rica’s] high budget deficit and inflation, the excessive red tape that makes it cumbersome and time-consuming to start a new business, and a scarcity of financial resources for the private sector, be it through equity finance or loans, are the most important constraints to the country’s competitive potential,” the report concluded.
Infrastructure is another area that needs improvement. The World Economic Forum ranked Costa Rica’s transport infrastructure competitiveness 111th out of the 142 countries scored. National transportation infrastructure was ranked as the lowest in Central America and considered one of the worst in Latin America.
In perhaps the most spirited panel of the day, four influential panelists, including Transportation Minister Francisco Jiménez, discussed current flaws in national highways, airports and ports. Carlos Plass, executive director of Aeris Holding Costa Rica, which operates the Juan Santamaría International Airport, outside of San José, commented on Costa Rica’s failure to keep up with other countries in infrastructure advancements.
“I have seen and worked in several countries where infrastructure development has been executed successfully. Chile was able to do so. Peru was able to do so. Many other countries in Latin America have advanced in infrastructure development. So why hasn’t Costa Rica been able to do so?” Plass asked.
Plass said that Costa Rica’s biggest infrastructure problem is inefficiency. Construction and improvement of roads and bridges, as well as airport and port enhancements, take far too long to execute. As Costa Rica flounders in the creation of reliable roads, such as the Caldera Highway, which took 30 years to build, other countries are completing similar projects in significantly less time.
Paul Gallie, managing director of APM Terminals Moín, which plans to build a new $1 billion port terminal in the Caribbean town of Moín, provided several examples of how Costa Rican infrastructure is causing self-inflicted problems.
“Around 90 to 95 percent of all cargo that is exported and imported in and out of Costa Rica goes through the [Caribbean] ports of Limón and Moín,” Gallie said. “But to get there, trucks have to travel down Route 32, a two-lane highway that is often closed and has landslides and excessive traffic. The highway must be improved, but nothing is being done [about it]. I don’t think that is representative of competitiveness in any sense.”
Gallie also said that much of Costa Rica’s shortcomings stem from internal fighting, protests and disagreements, which result in delays in infrastructure projects such as construction of the Moín port, the opening of the new wing of the Daniel Oduber International Airport in Liberia, in the northwestern Guanacaste province, and several other national highway projects currently bogged down by bureaucracy.
“The competition is all over the world, such as in Asia, Africa, Europe and other parts of Latin America,” Gallie said. “So why is Costa Rica fighting with itself? While Costa Rica fights within itself, other countries are advancing.”
Lessons From South Korea
South Korea became a developed country in one generation. In 1980, the country had a per capita income of $2,300. By 2010, average per capita income reached almost $30,000. South Korea’s rapid ascension is often referred to as “the miracle,” and is a case study often examined by developing countries.
At Monday’s summit, Kim, a Harvard-educated economist instrumental in South Korea’s economic development, spoke of his country’s blueprint for economic development in the last 30 years.
“Several lessons can be applied to the current economic development of Costa Rica,” Kim told The Tico Times. “One example is that we had very coordinated efforts between the government and private sectors to decide the path of economic development. At every export promotion meeting, for example, we had the president and government ministers on one side of a table and all of the members of the private sector on the other side. We discussed the issue at hand and agreed to resolve the issue on the spot.”
Kim said that South Korea’s ability to “find solutions to problems without delay” was integral in the country’s rapid development. Decisions were made with immediacy and action followed. Bureaucratic wrangling was limited, and business and infrastructure projects were carried out in an efficient and urgent manner. According to the World Economic Forum, South Korea is the 24th most competitive country, thanks in large part to its “outstanding” infrastructure, “remarkable” innovation and ease of doing business.
Kim also stressed the importance of scientific education. In the last 30 years, South Korea has invested heavily in scientific education and technology innovation. The decision was strategic. For students graduating from colleges and technological schools, jobs in the fields of technology, science, research and development were waiting.
“It is important that the education system, business systems, research and development programs and government are all linked,” Kim said. “I proposed to Costa Rica that they attempt to unite their systems to create a clearer roadmap to development. Linking the various systems of a country are the new rules to the game.”
No Looking Back
Vice President Liberman closed Monday’s summit by saying that it is time for Costa Rica to stop pointing to its “glorious past” and begin developing its future. While Liberman said he is optimistic because of Costa Rica’s past gains in human development and education, he warned that the country must develop a plan to keep up with the rest of the world if it wants to compete in the global economy.
“We see that the world is moving at a faster pace than we are,” Liberman said. “We are optimistic that we can keep up and that we have the human resources and talent to improve. However, if we don’t resolve the issues that are impeding our development, our ability to compete at the international level will continue to recede.”
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