The Central American Group: Hello. Welcome to another installation in the Central American Group’s series of podcasts. We speak with people that have an expertise in Central America that are both internal to our organization and external to the group. Today, we are very fortunate to have Vanessa Gibson with us to speak about doing business in Costa Rica. She is the head of investment climate at the organization that is in charge of economic development for the country at the Costa Rican Investment Promotion Agency (CINDE).
Can you please introduce yourself and tell us a little bit about your background, Vanessa?
Vanessa Gibson: Hello. It’s great to be here. Thank you so very much for the time. I have been with CINDE for over twenty-one years now helping people and companies that are interested in doing business in Costa Rica. I work with a team that is in charge of the investment climate. Our role is to work with companies that would like to establish operations here. We make sure that we are monitoring and actually conveying the message communicated by the government in order to improve the investment climate in Costa Rica. We also work on projects that are aimed at improving the competitiveness of the country.
The Central American Group: One of the things that is noteworthy about Costa Rica is that, although it is a very small country, over the last it has been successful in becoming one of the world’s most prolific exporters of medical devices. My understanding is, please correct me if I am mistaken, that right now Costa Rica’s most prominent export, over and above what is exported in terms of agricultural commodities, is medical devices.
Can you please tell us about the success that Costa Rica has experienced in this area over the last several decades?
Vanessa Gibson: Yes, you are correct. For the last two or three years, Costa Rican exports have been diversified in such a way that are main products exported are medical devices that are made by companies that are doing business in Costa Rica. One of our main markets is the United States. We are the second largest exporter of these products to the US in Latin America. Mexico is first in the region.
We have been able to see a very interesting evolution of the export base of the country. It is accurate to say that for many years Costa Rica was a net exporter of agricultural products. We proudly exported some of the best coffee in the world, as well as bananas, sugar cane, and beef. In the last thirty years, however, we have seen a huge transformation of our economic base. We have diversified our efforts to attract investments in what we call advanced manufacturing and medical devices. Most recently, in the last twenty years, we have diversified quite a bit in terms of service industries. This area has become a key factor in our country’s economic stability.
The Central American Group: One of the keys of Costa Rica’s success of doing business in this area is due to the promotion of education by the country’s government. Can you please give listeners that may be interested in doing business in Costa Rica information about that?
Vanessa Gibson: Of course. I think that one of the things that many people will hear about Costa Rica is that it is a country that does not have an army. With that in mind, Costa Rica has a long history, over the last 50 years, during which most of the investment of the government has been in the areas of education and health. Costa Rica’s strategy in the long term is to work diligently on developing its people. The country’s human resources are the most valued and strongest asset of the country. With that, by the country’s constitution, the government has to allocate no less than 8 percent of Costa Rica’s GDP to education and 10 percent to the nation’s healthcare system.
What companies that are doing business in Costa Rica find is that the labor force is very healthy and highly educated. This results in an improvement in their competitive advantage in the global marketplace.
The Central American Group: Talking about the demographics of the labor force, what is the economically active population of Costa Rica?
Vanessa Gibson: In terms of the country’s demographics, the total population of Costa Rica about five million one hundred thousand. Of that 2.4 million of the nation’s inhabitants are active in the labor force. As you know, we are a small country, but there is a high concentration of the population in what we call the Greater Metropolitan Area (GMA). This area encompasses four main cities that are mainly in the middle of the country. Almost sixty-seven percent of the population lives in the GMA. This is an advantage for companies that are doing business in Costa Rica because they can tap into a very interesting labor market in a concentrated area. For many industries, this enables them to create very strong clusters from a geographical perspective.
The Central American Group: Costa Rica has been successful in progressing from very simple manufacturing to things that are more intricate but another place in which Costa Rica is starting to make its mark internationally is in the area of Research and Development.
Can you fill us in on what is happening in the country with respect to R&D?
Vanessa Gibson: Thank you very much for the question. For us it is almost a part of the natural evolution of the value-add that the country has from an economic perspective. We encourage companies that are doing business in Costa Rica to consider the next generation of manufacturing processes and products, or services that they will offer in Costa Rica. With that, based on investment and talent, companies will find here a suitable labor force to actually pursue that evolution.
We have many international companies that are doing business in Costa Rica in this area. They have operations that are centered upon innovation and R&D. We have seen this in the medical device sector, as well as in advanced manufacturing, and in services as well. Obviously, a sector such as agriculture, in which Costa Rica has a long tradition, is involved in many interesting projects right now.
The Central American Group: You mentioned in a prior conversation that we had offline that Costa Rica and universities in foreign countries have made some partnerships so that Costa Rica will be much more equipped to integrate itself into the world of Industry 4.0.
Can you tell us about relationships that Costa Rican universities have with educational institutions outside of the country?
Vanessa Gibson: Being a small country that hopes to do more than just survive the digital transformation which we are experiencing, such as the impact of disruptive technologies and everything having to do with Industry 4.0, we a concentrating on building a stronger labor pool. We are constructing a workforce that we able to deal with the changes that are occurring. We have been very sensitive, from early on, that we would have to work at a faster pace to be able to seize the opportunities and overcome that challenges that come our way. We are aware of the fact that it will take some time for the local university system to develop the internal know-how to create a knowledge base in emerging fields. We talk about blockchain, cybersecurity, and other areas. We have been taking advantage of Costa Rica as a country to promote partnerships among universities that are bringing all of this know-how into the nation.
For example, we have content that is delivered in Costa Rica from universities such as Georgia Tech, the University of Minnesota, Rice University, and the University of Wisconsin. Each brings specialized information with them. This enhances the abilities of companies that are doing business in Costa Rica to experience the positive impact that these institutions are having on the country as a whole.
We have created a joint master’s program or new specializations and new training that these universities are offering. We even have the success story of motivating the creation of the first campus abroad of Texas Tech University that is now fully operational in Costa Rica.
The Central American Group: That’s very interesting. It’s my understanding that there are a number of pharmaceutical companies that are doing business in Costa Rica. Could you tell us a bit about this?
Vanessa Gibson: Yes, we have a local, indigenous pharmaceutical industry. However, there is also a presence of large international pharmaceutical companies in Costa Rica. Presently, one of those areas of opportunities that we are seeing developing over time is clinical trials. This is the case for several reasons. Firstly, the country offers a set of conditions that conducive to running clinical studies. There is a homogeneity of the data points of the population. This makes it easier for pharmaceutical companies doing business in Costa Rica to test the benefits of their drugs. Also, we are seeing pharmaceutical companies in the country not only performing their core activities, but they are also opening service centers in Costa Rica to support their corporations from a global perspective. So, yes, the medical device and pharmaceutical industries both play a key role in what we think will be the future of direct foreign investment in Costa Rica. These sectors will not only take advantage of the nation’s talent but will also add to the sophistication of the processes that companies will be able to bring to the country.
The Central American Group: What other kind of services are being conducted by foreign companies that are doing business in Costa Rica?
Vanessa Gibson: Here is where we have seen strategic and very amazing growth in the last ten years.
The service sector took root in Costa Rica exactly twenty years ago with six companies. Today we have one hundred and eighty. They do everything from accounts payable to actually building digital robotics for these same processes. Additionally, there is everything related to finance and accounting, as well as HR and procurement. All the back-office operations that multinational companies have are represented. Global firms like Proctor & Gamble, Western Union, and L.L. Bean and other big names that you might be familiar with are doing business in Costa Rica. These firms centralize some of their functions in locations such as Cost Rica to do everything that supports their core activity.
We also have major players in the IT field. Just this year IBM confirmed that their largest cybersecurity sub is in the region here in Costa Rica. We are seeing a faster diversification and a faster transformation of these types of operations in Costa Rica which relies on what we mentioned earlier. The local talent pool adds value to the business model of the companies that are doing business in Costa Rica.
The Central American Group: One of the things that stands out is a statistic that I read related to the education level of the population of Costa Rica. This statistic is that 95% of the workforce is literate. This is a testament to the stress that the Costa Rican government has put upon developing its education system to prepare people for the workforce.
One other thing that has to do with a very tangible benefit and advantage of doing business in Costa Rica when compared to other countries in the region is political stability. Can you tell us about that?
Vanessa Gibson: This is the flagship of our brand. As I mentioned earlier, having no army since 1948 has given Costa Rica a sense of stability that companies will value as it relates to their risk mitigation strategies, as well as their geopolitical strategies. Companies always seek to establish their operations in places that have been deemed to be safe.
Costa Rica is one of the oldest democracies in Latin America. Since the 19th century we have had a very long-standing democratic life. We are considered to be a safe country. This is not only considered from an economics perspective, but also from a social point of view.
The Central American Group: Another benefit that government of the country has put into place for companies that are doing business in Costa Rica is the free zone regime. Can you tell us about it?
Vanessa Gibson: This is a disruptive change that happened around the late 1960s. At that time, Costa Rica decided to begin to promote a new economic growth model. The country’s leadership realized that the economy would have to change its import substitution model to an export-oriented regime. With that the government put into place the legal framework for what we call the “free zone regime.”
The free zone regime consists of an incentive package. Companies doing business in Costa Rica under this model can be either local or foreign capital. The benefits that are enjoyed include an exemption from almost all taxes that would otherwise be charged. For example, a company that is able to make a commitment of an investment plan to our government that is valued at US $10 million in fixed assets spread out over eight years will receive a 100% exemption from corporate income tax of 30%. During eight years such a company will pay zero percent corporate income tax. Additionally, they will have an exemption on all import duties that apply to the operation. Furthermore, excise taxes will not be charged and, also, the repatriation of dividends will also be exempt. It is a very interesting package of incentives for companies that are doing business in Costa Rica, especially from a tax planning perspective. This is open and available to any company that is able to commit to the required level of investment.
If a company is a smaller firm that is unable to commit to an investment in fixed assets valued at US $10 million, but is able to commit to fixed asset investment of US $150,000 spread out over a three year period, they will be able to pay income tax at a rate of six percent. This is a significantly low tax rate when compared with the statutory thirty percent.
One of the things that is also very interesting related to the incentives that we are offering as a country is that there is an opportunity for companies to occasionally reinvest and renew applicable incentive packages. A large investor can renew its total income tax exemption, while a small company can renew its six percent corporate income tax rate.
The Central American Group: I have had the pleasure of seeing your organization, CINDE, at trade shows and at economic development events. I know that you provide specific help to people that might be that are interested in doing business in Costa Rica. How can CINDE help someone that wants to set up and conduct business in your country?
Vanessa Gibson: We are a not-for-profit organization, and a private, apolitical NGO. We are available to assist companies even from the due diligence phase. We assist in the gathering of data when companies that are interested in doing business in Mexico are researching a suitable location for their projects. We are able to provide free information that it is custom-tailored to meet specific needs. We have a CINDE webpage where investors can access very specific data, but if a company is looking to do a build-to-suit investment it is welcome to visit www.cinde.org.
We provide service to company teams and their consultants that are actually gathering data throughout the due diligence process.
When a company is close to make its decision and are ready to visit in order to have a first-hand experience of what the country has to offer, we put together what we call “executive agendas.” This means that we plan and coordinate meetings with relevant government agencies and companies that prospective investors wish to visit. Visits to companies that are already doing business in Costa Rica can provide value information on what firms that are new to the country should be aware of and look for.
Once a company decides that it will expand into Costa Rica, we work through the entire installation process with them. We provide not just advisory services, but also the follow through on the project plan in terms of keeping the schedule of implementation of the plan to start up in the country. Beyond that we work after the operation begins so that that it will continue to be successful. We have great ongoing communications with all the companies that we have been able to attract to Costa Rica.
The Central American Group: We often have people that approach us after listening to our podcasts that have questions regarding the discussion. How might people that have questions regarding doing business in Costa Rica get into contact with you directly?
Vanessa Gibson: In addition to the contact number that is listed on the CINDE webpage, we also have an email address that we give to individuals that have questions. It is email@example.com. All the requests for information that come from that address is followed up ASAP. We answer and support all the queries that come from potential investors.
The Central American Group: That is very helpful. The information that you shared with the listeners has been very interesting, as well. We’re looking forward to working with you to help to bring more business to Costa Rica.
Vanessa Gibson: We look forward to having you visit us.
The Central American Group: Thank you very much and have a wonderful day.
Vanessa Gibson: The same to you.
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