THIS IS HOW IT’S DONE

Costa Rica 2017 | ECONOMY | VIP INTERVIEW

TBY talks to Jorge Sequeira, Managing Director of the Costa Rican Investment Promotion Agency (CINDE), on the significance of FTAs and growth prospects.

What are your expectations for Costa Rica's growth and what sectors do you feel will push the 4.2% growth in GDP projected by the IMF?

Costa Rica has managed to sustain growth over the past three decades, which is mainly because we were able to advance our economy from a basic agricultural setup. We used to export basic agricultural products such as coffee, bananas, sugar, and beef, which accounted for about 80% of our total exports, to mainly Central American countries and the US. Today, we export 4,500 different products to 160 different countries around the world. Our number-one export sector is the services sector, with $3.5 billion worth of IT and IT-related and enabled services alone. The service sector exports a total of $7 billion in the export of actual services. In goods, our number-one export sector is medical devices or life sciences, which accounted for $2.2 billion of the $10 billion in total goods exported in 2015. Basic agriculture exports today account for less than $1.3 billion, which is less than 10% of our total exports. This shows how Costa Rica has completely transformed its economy, which is what has allowed us to sustain that growth. In 2015, the sectors that exported and grew the most were life sciences and services. Also, tourism has been growing tremendously. We coined the term ecotourism. Lastly, FDI today is probably the number-one sector that is moving the economy forward and will continue to move it forward in the coming years as long as the country is able to sustain its growth in terms of delivering the number and quality of people that those sectors demand.

What has been the significance of local talent to this growth?

Costa Rica has invested heavily in its human capital, both in education and health. For 150 years the education in the country has been public, free, and mandatory for both men and women. When we abolished the army 60 years ago, we were able to take that money and invest it in health and education. Today, Costa Rica is able to harvest the investments that it made when we decided to invest in our people, and thanks to globalization and the internet we are able to provide services to the world using our local talent. Today, we provide 75 different types of services and processes in a wide range of areas, from finance and accounting, receivables, human resources, and what are called basic service facilities, to R&D and design. However, there is a lot more demand than supply. Our universities are still graduating people in a lot of fields that are not necessarily in demand in the market today, and something that we push a lot for is to shift those resources to careers that are demanded globally, such as engineering, technical sciences, finance, data analytics, business administration, and bilingual talent. Costa Rica continues to invest in educating its population in a second language, particularly English, which opens doors.

Some manufacturing companies have recently left Costa Rica, claiming costs in the country are too high. How can Costa Rica become more competitive and what are the main challenges facing the country?

From CINDE's perspective, our number-one challenge and the one we have to work on the most is human capital; we need to produce more engineers, more technicians, and more bilingual professionals. There are, of course, other issues though, such as the cost of electricity, which is high compared to neighbors such as Mexico, the US, and Colombia, which have all invested in cheap and clean technologies. We need to produce clean energy at a competitive price. That is something that is impeding our competitiveness, particularly in the manufacturing sector. Salaries are also high, and the standard of living is fortunately much higher than some of our neighbors, but that also means that basic salaries are almost three times higher than in neighboring countries. We need to retool these people and teach them new skills so that they can be more productive and work in sectors that demand a different type of labor. We also have an issue with infrastructure; we have problematic traffic jams and we are 30 years behind on infrastructure development. The country needs to make a decision and finally embrace public-private partnerships. Unfortunately, many people are still not open to that, but we have a huge deficit and we do not have the money to build those roads, bridges, and seaports ourselves. Even if we did have the money to do it, we do not have the capability.

CINDE recently highlighted how the country needs to shift from “Made In Costa Rica" to “Created In Costa Rica." How can this be done?

We realize that is the route the country needs to take to learn from Ireland, Singapore, Israel, and so on. This transition essentially entails investing in education to produce more doctorate degrees and attract more foreign talent. We have a small population and we have very few doctors or scientists in specific fields; therefore, we have to make it easier for these professionals to migrate to Costa Rica. We have to build labs and improve our relations with academia. We still need to figure out new incentives to attract companies to come and invest in R&D in the country. We are looking at what models have been successful in other parts of the world to see which of those the country can adopt and put together a basket of incentives for R&D.

Companies such as Bridgestone and Bimbo are expanding their operations in Costa Rica. What are the advantages for foreign investors to invest in Costa Rica?

Human talent is the number-one factor. We also have FTAs with the contributors to two-thirds of the world's GDP and the world's population, including all of the Americas, Europe, Singapore, China, and Asia-Pacific countries. That platform has also helped companies become more competitive because they can import all of their supplies and export to the rest of the world with lower tariffs. We have a competitive free trade zone regime that offers tax incentives that very few countries do, including zero income tax for companies depending on their particular investment. The geographic location is also a factor, as we are in the same time zone as the US. The level of English and the cultural affinity to Europe and the US has been an advantage for Costa Rica; companies feel at home when they operate here, and they can bring their companies' cultural values and the locals will quickly absorb it and become part of it.

The President recently put the Pacific Alliance process on hold. What is your stand on this?

We need to be in the Pacific Alliance. Costa Rica is a small country, so alone it is hard to have any real negotiating power with a serious trading partner. It would be a great opportunity for Costa Rica to be part of what will be the eighth largest economic bloc in the world. Obviously, it is a market and a population many times that of Costa Rica; hence, it allows us to not only import goods and services, but also to export and have a much larger market than we have in just Costa Rica or Central America. It is important both from intra-country and inter-country investment perspective. We would be able to attract a lot more investment from countries like Mexico, Chile, Colombia, and Peru, as well as from other countries that want to access the Pacific Alliance via Costa Rica.