Long known for exporting coffee and bananas, Costa Rica has managed to build a whole new economic foundation in just over a decade. This small Central American nation of slightly more than four million people is currently experiencing a boom in high-tech manufacturing, sustainable energy and ecotourism. Costa Rica, by aggressively pursuing foreign direct investment and establishing itself as a free-trade mecca, is fast becoming the location of choice for foreign companies looking to pursue business opportunities in Latin America and beyond.
"Costa Rica has changed dramatically, in the past five years especially," says Bruce Poon Tip, whose Toronto-based adventure tour company, G Adventures, has been taking ecotourists through the Costa Rican rainforest for 20 years. The company moved its Latin American headquarters to Costa Rica 10 years ago. "Compared with other Latin American countries," says Poon Tip, "it's just easier to do business there; they are much more receptive to the needs of foreign companies."
Beginning in the late 1990s, successive Costa Rican governments made moves to diversify the economy through investments in education and infrastructure, free-trade agreements (FTAs) and an aggressive tax incentive policy designed specifically to attract foreign manufacturers.
Coupled with Costa Rica's strategic exporting location—near the Panama Canal and a relatively short flight from major centres in North and South America—the country's business-friendly approach worked like a charm. Costa Rica now boasts manufacturing facilities operated by more than 200 multinationals, including Intel, Hewlett-Packard, P&G and Microsoft, and exports more software per capita than any other country in Latin America. Meanwhile, tourism has grown from 780,000 visitors in 1996 to 2.2 million in 2011 and now brings in more foreign currency than exports of bananas and coffee combined.
The centrepiece of Costa Rica's economic overhaul has been its free-trade zone policy, which offers incentives to foreign companies willing to use the country as a base for manufacturing and exporting. Companies working under the free-trade zone regime enjoy an enviable array of incentives: no import duties on raw materials, capital equipment or parts; a 100% corporate tax exemption for eight years, and a 50% exemption for the following four years; a 10-year property tax exemption; and the ability to repatriate profits without penalty. And there are only minimum investment requirements for any company looking to access these benefits.
According to Caitlin Workman, a spokesperson for Foreign Affairs and International Trade Canada, there are about three dozen Canadian companies doing business in Costa Rica right now, "most of them SMEs." They're involved in an array of industries that includes financial services, construction, tourism and hotels, and telecom equipment and services.
Foreign firms set up in Costa Rica's free trade zones can enjoy eight years tax-free
Robert Fleury, a native of Montreal, has lived and done business in Costa Rica since 2000. For the past seven years, he has been the licensed Costa Rican distributor for Saint-Sauveur, Que.-based Palmex International, a company that manufactures and installs synthetic palm-leaf roofs. Fleury, who also has run businesses in Africa, says it's possible to do things in Costa Rica that would be impossible in most developing countries.
"In San Jose [Costa Rica's capital city] and in the other more urban areas of the country, the business environment is familiar to North Americans," explains Fleury. "You have banks; you have ATMs; business and legal services are readily available. There is a sense of organization that you don't find in most developing countries."
There is a residency requirement for foreigners looking to establish a business in Costa Rica, Fleury warns, and that process can take up to a year. For that reason, and because only 10% of the population is bilingual in Spanish and English, many foreign companies do business in Costa Rica through lawyers who are able to navigate the often complicated regulations.
Canadian businesses also can benefit from Costa Rica's growing list of FTAs. Costa Rica is a member of both CAFTA and CARICOM, which cover Central America, the Caribbean and the U.S. Costa Rica also has struck FTAs with Canada, the EU, Mexico, Chile, Singapore, Colombia and, in 2011, China. Talks currently are underway to establish an FTA between Costa Rica and South Korea.
"Canada's exports to Costa Rica have more than doubled since the [Canada- Costa Rica] FTA was implemented," says Workman. The agreement also allows Canadian companies to manufacture products in Costa Rica for export back to Canada free of tariffs. In August 2011, the two countries began negotiations to "modernize" the existing FTA through lower tariffs on goods and expanded market access for trade in services, investment, ecommerce and telecommunications. Workman says the new FTA is on track to be finalized by this autumn.
In spite of the rapid growth in Costa Rica's economy, its labour costs remain low, and the 94% literacy rate is one of the highest in Latin America. Still, Costa Rica is not without its problems. While the country's poverty rate is the lowest in Central America, it remains stubbornly high, hovering around 20%. And in spite of the progress made in recent years, Fleury says, the pace of business, and especially of local government, is not what North Americans are used to: "People come down here and they want things done in a snap, but you have to adapt."
Costa Rica also offers foreign businesses something that often has been in short supply in Central America—political stability. Following a bloody civil war in 1947, a new constitution was drafted that abolished the standing army and, today, Costa Rica ranks among the world's most enduring democracies. The current president, elected in 2010, vows to continue with the pro-free trade policies of previous governments while maintaining Costa Rica's focus on sustaining the environment.
G Adventures currently employs 43 people in Costa Rica and, Poon Tip says, that number will grow when an ecotourism project the company is working on with Washington, D.C.-based Inter-American Development Bank gets going. He says his company chose San Jose for the new venture's headquarters because it has plenty of educated, bilingual workers and access to business services, which make it easier to manage resources. "In other parts of Latin America," says Poon Tip, "it can be really hard to get stuff done."