Costa Rica and the US Supply Chain: A Discussion with Andrew Crawford of Procomer

Procomer in Houston provides valuable services to foreign direct investors

Andrew Crawford
Trade Commissioner
Procomer
acrawford@procomer.com

The Central American Group: Today, we have Andrew Crawford with us. Andrew is the Trade Commissioner and Director for Texas and the Pacific region of the US for the Costa Rican Trade Promotion Agency called Procomer. Today, we will have a conversation touching upon the Costa Rica and the US supply chain. Andrew, welcome. Could you tell us a bit about yourself, your background, and your organization?

Andrew Crawford: Steve, thank you for having me. I’m excited to have this conversation with you. I’ve been representing Costa Rica’s interests in trade and investment for the last 20 years in different capacities and countries. Our main focus is to ensure that we can develop capabilities in the export ecosystem and, at the same time, ensure that we create adequate policies to bring foreign direct investments to Costa Rica. So currently, I’m based in the United based in Houston, Texas, and like you said, also taking care of the Pacific region of the United States. In my position, I do significant work on how the Costa Rica and US supply chain interact.

The Central American Group: Okay, to start things off, let’s talk a little about trade and geopolitics because that’s on many business people’s minds these days. What can you tell us about Costa Rica and how the Costa Rica and the US supply chain are intertwined?

Andrew Crawford: Let me try to elaborate a little on that one, Steven, because I read a fascinating article a few days ago from Shannon K. O’Neill. She’s the Vice President and a Senior Fellow for Latin America Studies at the Council of Foreign Relations. She came up with great insights in that article, Steven. What fascinated me the most is that China currently processes 85 % of the critical minerals that go into high-tech devices worldwide. Also,  it has 77 % of the world’s battery manufacturing capacity. That is going to be linked to electric vehicles. The other interesting thing from that article is that the United States authorities started assessing the Costa Rica and US supply chain in vital areas. And critical minerals, which is one that I just mentioned, large capacity batteries, semiconductors, and pharmaceuticals are not in the very best position right now in terms of the Costa Rica and the US supply chain. That tells us what we’ve seen after the pandemic in terms of certain levels of political instability in different regions of the world, a good number of societies and countries not feeling comfortable with what they’re seeing. The chip crisis we had a couple of years ago skyrocketed the prices of many consumer goods.

All of these things together brought the idea to the United States it needs to rethink its supply chains. That is a great takeaway from the article, as we see Costa Rican authorities jumping into a different mode for foreign relations from what they saw in the past. Right now, I think everybody pulls the brakes and says it’s time to rethink the idea of heading to Asia in terms of foreign trade as the central core of our trade development in the future and put on the breaks and say that it’s time to get back into a very good position with the United States in terms of critical industries and a relationship that we can build on of the capacities that Costa Rica has.

The Central American Group: One of the things that I want to bring up because it’s very important is related to what you were saying about rare earth minerals and how they relate to Costa Rica and the US supply chain. A couple of weeks ago, I happened to read an article in the, believe it or not, the Cowboy State Daily, which is the Wyoming newspaper. According to this publication, there’s been a discovery of rare earth minerals in Wyoming, near a place called Wheatland, that could make the United States the world’s largest producer. So maybe that problem can be solved domestically. According to what I read, the discovery is 2.34 billion metric tons. So, just to put that in there as something we should keep in mind regarding rare earth minerals and our access to them. We may have greater access to them in the future because of this particular find.

Andrew Crawford: That is a great thing to address. And that China complements the role closer locations can play for the US. We know this process for transforming minerals into useful middle to intermediate goods takes some time. And the combination of efforts that the United States can make from their local capacities and closer allies can be a game changer in the long run, Steven.

The Central American Group: You mentioned a little bit about Costa Rica and the US supply chain. In a broader perspective, what opportunities do you see for Latin America as a whole?

Andrew Crawford: Well, I have the idea that in the past, the United States saw Latin America as a place in which they could have a lot of business going on, but it did not worry about critical industries from the perspective of having a region that could be a place for working along with this type of approach of economies of scale. Right now, I think the conversation is going in this direction. Let’s say Latin America is not extremely close to the United States, but it’s not that far either. And that limits our problems with long-distance logistics, which is part of our situation with Asia. So right now, you have, in most countries, political stability. Right now, you have economic growth in most of them. I was checking the economic growth of Latin America yesterday, by the way. Most economies have grown at least 1%, Steven. Even Venezuela, with all its constraints, grew 3% last year. Only Argentina, and I think it was Haiti, let’s say the whole region itself, did not have positive figures for growth. So that means you have a place where there’s economic growth, a middle class of consumers, and a middle class of travelers and workers open to developing projects.

And in contrast to what you get to see in Asia, the limitations for, let’s say, policies on labor protection and aspects like that are already being revised here in the region. The United States felt even a lot better during the last few years about doing business with Latin America, as in many of these cases, countries try to stick to much more comprehensive policies for labor, much more comprehensive policies for having an open book in terms of regulations and provisions and legislation that can apply for investors. And that allows rethinking in those countries. Let’s not just think of the US as a partner for trade. Let’s think about the US as a partner for developing critical and very strategic industries in between or serving both areas, the United States and Latin America.

The Central American Group: You mentioned when we were chatting before we started to record that the US State Department is actively working and speaking to Costa Rica about how the two countries can collaborate economically. Could you tell us a bit about that?

Andrew Crawford: Yes. And that comes together with the openness of Costa Rica to, like I said, pull the break a little back of what we were thinking in the future for doing business and developing strategies with Asia and go back to the core of relationships that have built most of the economic development of Costa Rica, which is our main ally in terms of trade and economic cooperation. So right now, after one year of lots of conversations and given goals in terms of how to put this down, Costa Rica has become one of those countries, one of the few allies around the world that are entitled to utilize funds for something that we’re going to discuss in a few minutes, which is the Chips Act. The Department of State said, yes, Costa Rica, Panama, yes, Mexico, you are reliable countries. And we are determined to start creating the path to understand in which capacities you can play a role in the semiconductor industry. So, by creating this openness from the United States government to consider Costa Rica an ally, we feel the responsibility to move forward. Also, Steven, for sure, imitates or replicates this successful model that Costa Rica has used for the medical device and life sciences sector, which is now operating plus 120 companies combining local and international companies.

A linkage model for success in which small businesses in Costa Rica connect with the OEMs and act in a manner for developing exports, a talent strategy, and national policy for developing and connecting talent to all these needs. So, there are a lot of interesting tools that we put down through the life science case study that Costa Rica has been doing for the last few years. We can replicate this into a semiconductor plan. The idea here is not to reinvent the wheel but to use many of the good things that we already made and adjust to the realities of the semiconductor industry. This collaboration that is putting down, Steve, right now is given. To give you an idea. The Chips Act bill is starting with a $50 billion, let’s say, package that is coming from US authorities right now. Out of those $50 billion, approximately $500 million can be utilized by US companies or US organizations or institutions related to the semiconductor industry in Latin America. And of those $5 million already, to give you an example, one university in Arizona last week received the great news that $14 million out of those $50 million have already been assigned to be utilized for semiconductor policies in Latin America, including Costa Rica, as of this year.

To give you an idea, the bill is already up and running, and it will start creating a lot of leverage for the next few years.

The Central American Group: You mentioned earlier, too, when we were chatting before recording, some very It’s very interesting information in terms of what Intel has done since it began to manufacture again in Costa Rica, which happened, as you told me, just a few years ago. Please give a little background about where Intel went, what they’ve done within the last four years, and how that’s important.

Andrew Crawford: Absolutely. I think it’s a great insight. Intel has been in Costa Rica for more than two decades. That’s an important thing to address. And those two decades have seen a lot of transformations in the Intel operation in Costa Rica. It went from lots of manufacturing at one point to lots of services at another to lots of research and development and testing, to a present, not so far from the post-pandemic, let’s say, times, to a reconsideration of manufacturing, again, in Costa Rica on a high level. Why? 60 % of microchips and 90 % of the most advanced semiconductor chips vital to the United States on daily communications to defense to manufacturing rely on Taiwan. From Intel’s perspective and operations, 75 % of the advanced semiconductors were manufactured in Taiwan two or three years ago. That 75 % has decreased to 50 % because the operation is 50 % Costa Rica and 50 % Taiwan. So that means that in a matter of two or three years, Intel has been able to bring 25 % of their chip production from Taiwan to Costa Rica to, let’s say, decrease the level of risk for the Costa Rica and US supply chain.

The other interesting fact is that this is not only the effort that they put down for this particular thing, but also the next two years are going to be pretty active for Intel in Costa Rica. The country will invest $1.2 billion in different capacities for their facility down there to create many more labs, many more spaces for developing innovation, and many more areas for addressing critical IP and developments for the betterment of the United States security. With this in mind, we can say that this is a great case to understand how an industry and a corporation like this are betting big time in Costa Rica.

The Central American Group: You mentioned before talking about semiconductors that Costa Rica has a very well-developed life science and medical device sector. So, it’s safe to say that Costa Rica, in general terms, has a very advanced manufacturing ecosystem for technologically advanced things. Given that this is the case, could you tell us what you mentioned earlier about the Greenfield FDI Performance Index? First of all, what is that index? And secondly, what does it tell us about Costa Rica and its level of development?

Andrew Crawford: Yes, I think this is a great question, and it’s a great insight, Steven, because it gives us a perspective of how reliable the country has become globally for greenfield investments. This Greenfield FDI Performance Index tries to explain the size of an economy and the amount of investments they receive in terms of the GDP. So, in the case of Costa Rica, during the assessment of 2022 and ’23,  it received 12.7 times more investment than the expected size of its economy. And let me give you a perspective on this to give you an idea. Singapore is one of the countries that is admired the most worldwide for its development policies. And Singapore ranked 10 in this index with 4.9 times. Costa Rica received 12.7 more influx of investment in terms of the size of its economy. So that means that there’s an acceleration in general terms of the investments that the country is receiving as they rank number one in this index if you compare it to other countries in terms of the size of the economy, which is important to highlight. I’m not talking about huge economies.

I’m talking about economies that are receiving a lot of investments in terms of the size of their economy. And that’s where you see that we are performing pretty well. And we see, and maybe, Steven, the daily or weekly announcement of investments in the pharmaceutical and medical device industry. Let me take quick cases: Bayer, $200 million. Johnson & Johnson announced a few weeks ago an investment of plus $300 million for the next five years. Swedish companies, Danish companies, 20 million here, 15 million there. Those are the announcements you get mostly every week of investments made in Costa Rica. And that’s why we are tying up this with the component of talent, Steve, which is very important. We created a national public policy to ensure that the talent can meet all these future and midterm demands for qualified human resources. My agency, Procomer, operates a department that is also tied up to talent development and breach with the different investors and companies interested in settling down to make sure that they understand the role and the level of involvement that we get into whenever there’s a decision for investing in Costa Rica and how we’re going to support the talent development process as well for these companies that establish a greenfield operation.

The Central American Group: Regarding Costa Rica, it’s a place that has been very successful, especially considering its size in attracting foreign direct investment. Again, you’ve got an impressive sector in the medical device and life science industry. Things will develop further than Intel in terms of semiconductors. Regarding incentives, does Costa Rica offer to companies that work in these realms? What can companies take advantage of to situate themselves in your country?

Andrew Crawford: Yes, that’s something that we can combine, Steve. Let’s say it’s not going to apply to everyone, but since we’re talking about semiconductors, let’s create a scenario where a company can apply for funds at the Chips Act bill to try for operations in Costa Rica, which is very important to highlight, too, Steven. It’s not only manufacturing. If you are related to the semiconductor industry in any of the 25 subsectors of the industry, including software development or a company of semiconductors that would like to move out from a location overseas, their GIS centers or their supply chain offices or their shared services offices, that can be applied to the Chips Act bill as well. So, it’s not only manufacturing itself, it’s a lot of different ways in which you can take advantage of the Chips Act bill. So, let’s say you can apply for that purpose, and in the meantime, you can apply to join the free zone model in Costa Rica. The free zone is a model that complies with the World Trade Organization in terms of the incentives that you’re entitled to receive. And we have broken it down into two different regions.

One is the metro area region, and the other one is, let’s say, out of the metro area region. And you will have some variations of the incentives regarding where you settle down your operation. But in general aspects and general levels of, let’s say, percentages in quantity units, you will enjoy no income tax for several years. You will get rid of any withholding tax for several years whenever you transfer your income to your headquarters, for example. There will not be any local government tax applied to any of your activities for a certain period. All the value-added tax that has to be paid, a 13% value-added tax that has to be paid for buying goods locally or importing assets or goods internationally, and the cost of taxes involved in any of those operations will be exempt. If you buy property, you won’t pay the transfer tax for that property with some provisions that we have for the purpose itself, depending on certain levels of investment in that particular property. And you can also, let’s say, get some provisions on the social security rates.

For example, if you get to operate out of the Metropolitan area, incentives are a bit different. So instead of paying a certain amount of social security for the employees, the less developed areas will entitle you to pay a lot less to the social security as a way to incentivize the possibility of doing business there. And when I say out of the Metro area, Costa Rica is a small country. You call the Metro area a place, let’s say, the ground zero zone, and you drive for one hour, and then you are out of the Metro area already, Steven. So is it a very convenient scenario for those who would like to combine the incentives that we already apply to the Chips Act bill, for example. On the other hand, the free zone model also applies to goods and services. So, you get medical devices and semiconductor companies, but you also get delivery centers, IT, software development, AI, and architectural engineering services. So, a lot of stuff can be combined and can be entitled to incentives by applying to the free zone. We call it in Spanish zona franca.

The Central American Group: One of the things that I want to point out to people, and this is all second nature to you, obviously, but when Andrew refers to the Metropolitan area and the non-metropolitan area, the Metro area, in terms of what Costa Rica is, is the area around San Jose and its environs.

Andrew Crawford: San Jose and its vicinity, which is three more provinces, Heredia, Alajuela, and Cartagena. Those are the four provinces encompass the Metro area, and the other three, coastal provinces encompass the out of the Metro area. But there are some other areas, Steven, that are close by and in proximity to Alajuela and the vicinity that are also considered out of the Metro area. So, the concept of a metro area has to be asked by the case-by-case interest of a company. So, we can lay it out on a map how that looks like regarding distances and connections. But the interesting fact is that most of the critical components, medical devices, or advanced manufacturing components are flowing now. And most of the time, they use night cargo transportation to arrive in the United States the following day. In terms of logistics, that facilitates a lot because they don’t have to deal with any, let’s say, constraints on traffic on a day, or they don’t have to deal with any potential difficulties, which is very limited in Costa Rica, a strike or a stop on the street. That’s a very limited condition in Costa Rica.

So, logistics is usually a very easygoing component of your decision-making in Costa Rica from the perspective and experiences we have seen for many companies. Another interesting thing before I pass it back to you, Steven, is the free zone model. You can set the clock back to zero before your incentives expire within a period of years, several years. If you are determined to keep up with the structure you already have established, you only have to reconsider a new reinvestment. Then, the clock will go back to zero, and then you keep up with your incentives that are already going on. So that’s a very friendly model as well, and you don’t have to consider that once these number of years are gone, I will be paying full taxes on everything. No. You can return to those incentives if you commit to another investment within a period. Also, the incentives are not right away to be paid upfront for being entitled to that. You can make a promise of investment for an estimated time of three years. And during those three years, you will be able to comply with your promise of investment. Then everything will be going with a great flow with our authorities in the government and the private company that is entitled to have this in some things going on.

The Central American Group: Before we wrap this up, there is one thing I want to circle back to, and we’ve mentioned it a couple of times during this podcast, and that is the Chips Act. For the benefit of those who may not be aware of what exactly that is, could you explain to those individuals who need a background and a little explanation of what the Chips Act is?

Andrew Crawford: The Chips Act is part of a package that the United States authorities decided to find a bipartisan deal right after the pandemic to relaunch the US economy in many different aspects. So, if I’m not wrong, the Chips Act is one of the components related to that huge package that was bipartisan legislation that came a couple of years ago. The Chips Act is a rethink of the US supply chain model for critical industries in which United States companies will have better control of those, let’s say, different assets that have given them leadership for many years and will allow them to have better control of those assets for the future and the of the United States security. We live in a world in which… Let me mention something very quickly here, Steve. Just think about this. We think about machines, robots, weapons, automobiles, airplanes, phones, servers, telecommunication antennas. To give you several things. Household goods, refrigerators, TVs, cameras, phones. Everything has semiconductors. Our life is based on semiconductors and critical minerals to create those semiconductors. If you don’t have control of that supply chain at a level that will assure that you will not suffer constraints during your development plans in the future, as a country in futuristic and innovative projects that you have on board.

So, the best way is to ensure that you bring those critical components of your supply chain as closely as possible. You cannot put every single thing in one basket. You cannot bring everything to the United States. It will be a lot of risk for lots of different stakeholders and players in the industry. You don’t see any industry having everything in one basket in any industry. But bringing those intermediate components and raw materials closer to friend-shoring locations. This will shore up Costa Rica and the US supply chain. We can call it that that will give you a better perspective to ensure that your IP, your knowledge, and the transfer of that knowledge to these industries will be well-kept or better-kept. And that’s something that the Chips Act brings behind doors, which is not only to think about industries to get them closer, but it’s also a futuristic mindset that has taken part of the United States. The interesting fact here, Steven, is that it is clear from both main parties in the United States, political parties of the United States, that the semiconductor industry is critical for the assurance and development of the United States as it should be for the next 25, 50, 70 years.

So that’s a great thing that in the political view is the correct approach and answer to a different world that we’re facing right now after the pandemic.

The Central American Group: Well, we’ve covered a lot of ground in the last, I believe it’s 20 minutes or so. How would people that have listened to this podcast who have questions about the content of it or questions about how they can do business in Costa Rica how would they go about contacting you?

Andrew Crawford: Pretty easy. I’m open to direct communication for questions about Costa Rica and the US supply chain. They can even call me. I’m based in Houston, Texas. My phone number is 832-940-8587. Let me repeat that one. 832-940-8587. And also, they can email me. They can email me at my email, acrawford@procomer.com.  I’m more than happy to have an extended conversation, Steven.

The Central American Group: Okay, thank you for the information. We’ll make that accessible by a click for people through a link to your website. We’ll have a link to your profile on LinkedIn if that’s okay with you.

Andrew Crawford: Absolutely.

The Central American Group: We’ll have the telephone number right in the transcript section of the podcast so that people can contact you with their questions.

Andrew Crawford: Absolutely.

The Central American Group: I want to thank you for speaking with me today. You’re always instructive and lend information that’s useful and relevant. Thank you very much.

Andrew Crawford: Thank you for the time, Steven.