Economic diversification in Costa Rica is the key to its recovery
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With its tourism industry heavily hit by the pandemic, the Central American nation is committed to gradually recovering the contingent of travelers that it customarily has had. This will be done while encouraging further economic diversification in Costa in other sectors, such as manufacturing and services.
When Costa Rican journalist, Rocío Chacón, realized the impact that the pandemic would have on her country’s normally thriving tourism industry, she devised a strategy aimed at promoting local travel. The campaign was dubbed “Qué chiva ese lugar” (“This place is cool”). The purpose of this effort was to spread the word about tourism adventures in the country to the locals.
“I saw the opportunity to support the sector during the crisis. It is in complex situations when people come together. As a Costa Rican journalist, I wanted to contribute with my work,” explained Chacón.
More than a year later, the program continues
The country’s tourism-related businesses have fallen victim to a significant blow. Costa Rica has been accustomed to receiving international tourists with high purchasing power – such as Americans, Canadians, and Europeans. Travelers from those countries typically visit Costa Rica in significant numbers to seek out and enjoy its pristine natural environment and picturesque landscapes.
“I have heard stories told first-hand by people that started their businesses before the pandemic. These establishments were patronized solely by foreign tourists. With the coronavirus, they came to have no customers, neither foreigners nor nationals,” she attests.
For Rocío, this situation has caused many tourism sector entrepreneurs to offer different alternatives to the domestic traveler. Local businesses devised plans to take them to the landscapes, hotels, and agrotourism attractions at prices in line with their purchasing power.
“In these months, the sector has understood and valued the support of the Costa Rican tourist. Companies in the industry have generated attractive options in terms of prices and quality of service,” says the blogger.
The impulse that both Rocío’s initiative and other efforts that have elicited from the private and state sectors to support this industry is vital to the economic well-being of the Central American country.
According to data from the Costa Rican Tourism Institute (ICT), this has been among the sectors that have contributed the most to the Costa Rican economy in the last decade. It represents about 8.2% of the Gross Domestic Product and has generated approximately 211,000 jobs.
“In terms of the percentage of the economically active population, tourism accounts for 27%, between direct and indirect employment. This has enabled the tourism sector to generate about US $ 4 billion in foreign currency per year. That is, US $ 1 of every US $ 4 that entered the Costa Rican economy was generated by the tourism industry,” Alberto López, manager to AméricaEconomía. from the ICT, explained.
The best season in the sector occurred between 2019 and 2020. However, the pandemic with its devastating effect on tourism meant a 90% drop, compared to the 74% that global tourism fell. This is according to data provided by the World Tourism Organization of the United Nations (UNWTO).
This affected Costa Rica, whose economy contracted by almost 5% in 2020 and which today maintains a Negative B2 rating from Moody’s credit agency.
According to an executive at Moody’s, the liabilities of the Costa Rican State and its currently low capacity to pay its debt will continue to be one of the nation’s greatest credit challenges for the foreseeable future.
According to Ronald Arce, a researcher on issues related to international trade, Costa Rica already had a low level of economic growth and high unemployment before the pandemic. Measures taken to contain Covid-19 amplified these impacts. The solution to the country’s challenges is to promote economic diversification in Costa Rica.
As has been the case globally, the economic effects of the pandemic in Costa Rica have been significant. This has been the case, especially in the nation’s labor market. Unemployment increased to more than 20% during some months of 2020. Although the numbers have improved due to reduced restrictions on the operation of certain sectors, unemployment remains at approximately 15%.
But not everything is negative. For foreign investors seeking to participate in economic diversification in Costa Rica, the country has other positive characteristics that have been noted by groups such as Moody’s. These include its institutional stability, low corruption, an educated and productive workforce, and mature democratic institutions.
Looking for economic diversification in Costa Rica
In June of this year, the Costa Rican Foreign Trade Promotion Agency (Procomer), aware of the potential of the Chilean market in the digital animation sector, traveled to Chile with five Costa Rican companies to participate in this international marketing event. Animación Industria 2021 (MAI), organized by Fundación Chilemonos, took place for the purpose of boosting commercial exchange in this area between the two Latin American countries.
Promise Entertainment, Casa Garabato, Estudio Flex, Tropics Creative, and Marte Estudio participated in a series of meetings to network and encourage co-production between studios and animators from all over Latin America, willing to sign community, business, and co-production agreements.
Less than a month later, Procomer returned to Chile to promote undergraduate and graduate studies in Costa Rica. Officials did this by highlighting its mix of academic training, networking, and access to the natural wonders of the Caribbean.
These are not isolated cases. Since 1996 Procomer has promoted economic diversification in Costa Rica, especially among SMEs, by assisting companies throughout their internationalization processes. With the pandemic, participation in commercial events has accelerated, most notably through virtual means.
“In this context, the work of Procomer is even more valuable and important because it allows for the opening of global markets to medium and small-sized companies. It also enables them to consolidate their development and, at the same time, boost economic diversification in Costa Rica through the generation of foreign exchange and jobs,” explains Álvaro Piedra, director of Exports for Procomer.
According to indicators from the Costa Rican Foreign Trade Observatory (OCEX-UNED), the dilemma faced by the country’s exporters during the pandemic has been the flow of goods. Difficulties have been due to the delay in the return of containers precipitated by slow operations and shipments in ports. This has been the case, especially with respect to trade with Asia.
Investments in growth further economic diversification in Costa Rica
Along with promoting exports, Costa Rica has been betting heavily in recent years on foreign direct investment in the manufacturing and service sectors of the national economy.
According to the 2020 study by the Economic Commission for Latin America and the Caribbean (ECLAC), Costa Rica’s participation in the Foreign Investment Index was 21.8% in 2019. This meant that the country was second in the region, only behind Panama.
Although there are no definitive figures as of yet on the pandemic’s adverse effects on the manufacturing and service sectors, experts agree that the strategy being implemented by the Costa Rican Coalition of Development Initiatives (CINDE) is the right one.
“Through CINDE, a clear strategy has been formulated, with specific industry sectors and niches that have been targeted. This has allowed Costa Rica to continue to attract foreign investment, even during the pandemic,” says Professor Ronald Arce, of INCAE. “This has allowed specialization and the development of institutional capacities to attract investment.”
During the last several years, the sectors that have shown the largest investment gains have been achieved among companies related to the life sciences sector, biomedical equipment, and business services.
One of the most recent investments in Costa Rica is the arrival of the medical technology company Terumo Blood and Cell Technologies, which will open a medical device manufacturing plant in the country in December of 2022. The company investment will total close to US $ 60 million. Another company that has recently established operations in Costa Rica is Baylis Medical. The company is a leader in the development and commercialization of medical devices in the field of cardiology.
Other firms with similar characteristics that have recently established themselves in Costa Rica are Biomerics and Viant, which also manufacture medical devices.
At the end of 2020, CINDE reported record figures for new investment projects, as well as the generation of employment from multinational companies. Almost 20,000 formal jobs were created through 81 new investment projects and confirmed reinvestments.
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