Business Environment

Many internationally recognized companies have started operations in Costa Rica since 1980. A great number of factors have contributed so that Costa Rica can be an attractive productive destination for their remote operations.

Costa Rica provides:

A great educated and highly productive workforce.
Strategically located in the center of the Americas.
A renowned history of political, social and economic stability.
Preferential access to strategic markets.
Foreign investment incentive regimes.
International standard business infrastructure.
High quality of life

General Issues

The Costa Rican workforce is considered perhaps the most important attraction for foreign investors, as the population is highly literate and well educated.  The government has long placed a high priority in investing in public education, which includes the university system as well as the technical and vocational training scheme. The abolishment of the armed forces in 1949 freed resources that have mostly been invested in free education and health services for the population, while a generous education expenditure ratio of more than 5% over GDP is currently maintained by law.  As an reflect of these efforts, Costa Rica now has one of the highest Human Development Indexes among developing nations (0.834), and one of the highest literacy rates of the Americas (95.6%); in addition, the expected number of years of schooling has been calculated at 10, according to World Bank's World Development Indicators 2004.  A nation that long ago realized the importance of education and which currently allocates more than 5% of its GDP to educational programs is indeed the best guarantee for a successful business environment.

English Skills

Education is compulsory up to 9th grade and places a strong emphasis on computer skills and English skills since the early grades.  To this respect, an official nationwide survey showed that more than 200,000 Costa Ricans could speak English well.

Educational Institutions

Two key factors have become critical to the country's educational strategy: science and technology. Costa Rica 's previous and current administrations believe that technical training, along with innovation and technology transfer, are crucial factors to achieve higher levels of productivity and a better competitiveness level in the global economy. The National Learning Institute (INA) offers free technical training in a wide variety of fields, and is able to provide tailor-made programs to meet specific manufacturing and service investors´ needs. Several other technical schools and universities prepare professionals with the highest international standards.  Even Harvard University has had an extension in Costa Rica since 1964 through INCAE, to prepare middle and upper level managers.  The America Economy Magazine considered INCAE as the best Latin American business school during 2003 and 2004.

Schools are allowed sufficient flexibility to pursue curriculums that fulfill the needs of a changing society, but are also monitored to ensure excellence and quality.  As a result of this ample array of options, the country enjoys a large pool of engineers, business officers and other professionals. As it was cited in Latin Trade (August 1998), Intel's Corporate Vice President Mike Splinter said the company chose Costa Rica over Brazil, Chile and Mexico because of its "excellent educational system."

Source: 2005 Human Development Report, UN.

Productivity and wages

Workers are considered very trainable and productive. Costa Rica 's main comparative advantage for attracting high-tech investments is to provide sufficient qualified professional and technical personnel at competitive costs.  In lower technology industries, although Costa Rica 's wage rates are higher than many country competitors abroad, higher labor productivity and modern manufacturing techniques can often compensate for labor costs.

This highly educated, versatile and productive workforce is accessible at competitive rates that currently range from $1.8 to $4.11 (per-hour, fully loaded).

(a) Estimated salary per worked hour (mid year rate), with 8-hour workdays and 6-day weeks. Exchange rate 510 colons per US$.
(b) Estimated fully-loaded salary per worked hour (mid year rate): 25% fringe benefits, 8.33% Christmas bonus, 8.33% severance, 3.85% vacations and 2.47% for holidays.

Labor Regulations

Labor unions only have a significant role for public sector workers. The main form of labor organization in private companies is the "Solidarity Association" that employers support through a credit union and other assistance services.  Investors seem very satisfied with the operation of solidarity associations, and frequently mentioned that they tend to work with the company, not against it. The associations have not been confrontational in nature or used for negotiating wages. Some companies have a separate permanent council of employees, serving as a mechanism to bring up complaints and problems for solution. 


Strategic Location

•The time zone of Costa Rica is the same as the central time of the USA .  Also, a direct flight from San Jose takes 2:30 hours to arrive in Miami .

•There are 7 customs of interest for trading purposes.  These are located at the borders with Panama and Nicaragua , at the main Atlantic & Pacific ports, at the Juan Santamaria International Airport and other strategic points in the country.

•The fact that Costa Rica has major ports in both coasts (Pacific and Atlantic) makes it attractive to 236 major carriers to operate in the country, 60% of them from Moin (in the Atlantic at Limon) and the rest from Caldera Port (Pacific shore).  It takes 5 hours of effective transit time through customs to go to San Jose from Moin, and 6 from the Caldera Port.  Tariff rates are competitive with respect to the USA , Europe and Asia .

•The main airport (Juan Santamaria) at a distance of 15 km from San Jose . The second major airport is the Daniel Oduber, located at Liberia , Guanacaste, in the northern part of the country.  Both airports have been approved Class 1 by the Federal Aviation Administration of the USA.

Stability

Costa Rica : a country of stability

The economic, political and social stability of Costa Rica is one characteristic that has distinguished it through its entire contemporary history. This factor is one of the most important strengths that have enabled Costa Rica to achieve great success in attracting foreign investors.

The Costa Rican government is ruled by a series of constitutional checks and balances. The executive responsibilities rest on the President, who is at the center of power, and who is supported by two Vice-presidents and his cabinet. The President and Vice-presidents, plus 57 Congressmen, form the Legislative Assembly, and are directly elected every 4 years. In addition, the country has a strong legal system that manages the “judicial power”, which ensures compliance with the law. The legal system protects both nationals and foreigners within the country's territory.

Costa Rica has a long tradition and stable democracy, which is recognized worldwide and has over 115 years of history. Such vocation of respect for political and peace processes have been enriched by the abolition of the military in 1949, and acknowledged internationally in 1987 when the then President of the Republic, Oscar Arias Sanchez, was awarded the Nobel Peace Prize.

The last World Bank survey for Political Stability puts Costa Rica in the second place within Latin America and the 36^th place among a total of 209 countries from all over the world. This measure includes several indicators, among which it includes a measure for the perception of the likelihood that the government in power will be de-stabilized or overthrown by unconstitutional and/or violent means, including domestic violence and terrorism.

Costa Rica is one of the most stable economies in Latin America. After the last economic crisis almost 25 years ago due to external debt circumstances, it has maintained a yearly current average growth rate above 4.5%, which has resulted in a per-capita income level of $4,361 for 2005. As a result, Costa Rica has benefited from an excellent access to global capital markets and a moderate country risk premium, as seen in recent Costa Rica 's sovereign debt qualifications:

Market access

During the two last decades, Costa Rica´s trade policy has shifted from being one with a high level of protection into one that promotes openness and active trade negotiations internationally.

By 1985, as part of the trade concessions granted by the US government to several countries in Latin America coming out of debt crisis, the Caribbean Basin Initiative, a unilateral mechanism through which Costa Rica exports duty-free products to the US to this date, was created.  Later, in 1990 Costa Rica joined the General Agreement on Tariffs and Trade, and since then actively participates in multilateral negotiations concerning the elimination of tariffs, and at the same time, in numerous bilateral trade agreements with its most important trade partners.In 1994, the first Free Trade Agreement as such was negotiated and ratified with Mexico, and since then, Costa Rica started an aggressive venture in international markets with relevant governmental support through COMEX (Foreign Trade Ministry) and its trade promotion agency, PROCOMER.

Incentives

Types of Incentive Regimes

Since the 90's, Costa Rica has actively sought promoting exports of its manufactured goods through the creation of special incentive regimes.  To this respect, the establishment of the free trade zone regime led to the creation of the first free trade zones in 1982, in which the companies established were mainly of the textile industry. The current regimes are managed by PROCOMER and are an important compliment to other key site selection factors; existing small, medium and large firms that use the regimes now exceed 400 small, the majority of which are manufacturing operations located within the free trade zones.  Nevertheless, there are a large number of international service operations enabled by info-communication technologies, such as data entry and contact centers, as well as business processing outsourcing units and engineering and design processing centers.  In addition, the tourism sector has a specific regime which is granted through the Tourism Interest Declaratory.

The main export regimes related to the free trade zones and the active finishing (drawback) regime.  Free trade zones consist of primary extraterritorial customs and fiscal areas that allow for the establishment of companies whose main purpose is to use Costa Rica as an exporting platform.  Free trade zones also confer  other incentives, such as tariff exemptions for raw materials and capital goods, income tax payment, added value, asset, and municipal tax exemptions, and the possibility of selling up to 25% of the product in the local market (50% for service companies).  Currently, there are nine different private free trade zones (AZOFRAS), the majority of which are located near San Jose , as well as to the two important main ports of entry, the Juan Santamaria Airport , the key highways and container terminals.  Most of the parks provide fiber optics that allows high-level broadband and dedicated services for voice, data and video transmission.

The Active Finishing regime introducing raw materials, inputs and capital goods into national customs territory in order to be subsequently transformed with the suspension of all kinds of taxes.  To enjoy the benefits of this regime, it is not necessary to operate within a specific industrial park.

Free Trade Zones as well as Active Finishing Zones are also designed to facilitate the development of relations with suppliers established in Costa Rica through subcontracting.

Economic Impact

The free trade zones regime is currently the main export generation regime, amounting to 52% of the total export value of Costa Rica .  Also, almost 90% of the direct foreign investment companies that invest in Costa Rica invest through this regime, while only 0.2% establish under the Active Finishing regime, which generated $373 million in exports in 2004.

Incentive Regimes Exports and Imports

Infrastructure

Electric Energy

Costa Rica is internationally known for its high degree of electrification (97.04%, 2005) and generation from renewable sources (which currently stands at 97.5%), which helps protect the environment and reduces in turn the country's dependence on oil for energy production.

The Costa Rican Electricity Institute, ICE, is the main responsible public entity in charge of generation and transmission activities, while distribution is allocated among the ICE and eight other public and private companies located in different regions. The ICE accounts for 38% of total energy distribution in Alajuela and other remote regions, while CNFL concentrates its operations in San Jose and has the biggest share of the national distribution grid (43.5%). The Cartago and Heredia regions are served mainly by JASEC and ESPH, which cover 6% and 5% of the total distribution network, respectively, while the remaining 4% corresponds to distributor co-ops that operate in rural zones.

Telecommunications

Telecommunication services in Costa Rica have significantly developed during the last few years, a fact that has allowed multinational and local companies to enjoy a varied and advanced menu of telecommunication services, including dedicated services and broadband Internet.

Telecommunications services in Costa Rica are provided on a nationwide basis by two companies: ICETEL (a Telecommunications division of the Costa Rican Institute of Electricity) and Radiográfica Costarricense , S.A. (RACSA).

Industrial and Commercial Use Water Service

Manufacturing and service companies located in Costa Rica can count on several means for getting their water supply. Acueductos y Alcantarillados (a state company), local authorities, municipalities and other entities are responsible for supplying water according to the location. ESPH, a private utility company, handles water and energy distribution for the province of Heredia , while Cartago and Alajuela have their own municipal water services. Besides, private companies and individuals on a personal basis can request underground water extraction permits from SENARA (a supervisory governmental agency) in order to drill private wells.

Quality of life

A relaxing place to stay

• Costa Rica 's weather is enjoyable year round. The average temperature range in San Jose goes from 57º-75ºF in December, and 63º - 81ºF in May. The Caribbean coast averages 70°F at night and over 86°F during the day. The Pacific coast is hotter than the Caribbean , but is less humid.
• With over 360 hotels located throughout the country, Costa Rica provides a wide spectrum of possibilities for resting and relaxing.
• The combination of rest places and adventure activities (such as playing golf, fishing, surfing, rafting, etc) make this country an ideal place to stay.
  

Easy Access

• With over 1.4 million visitors in 2004, Costa Rica has been an excellent choice for international tourists. Tourist activities for this same year generated foreign currency of more than 1.4 billion dollars.
• An increasing offer of international flights has positioned the Daniel Oduber Airport ( Liberia ) a new entry port, which is close to the Pacific coast and the main tourism attractions of the country. Meanwhile, new resources are being destined for the improvement of the country's main airport infrastructure (Juan Santamaria), as well as many other secondary airports.
  

Costa Rica: country of natural beauty

• Costa Rica currently stands as the first ecological tourism in the world. Costa Rica represents 1% of the planet's surface, but contains 5% of the world's biodiversity. 25% of the country's territory is being protected as national parks or biological reserves. A total of 34 national parks are distributed throughout the country. Over 1,000 and 845 orchid and bird varieties (respectively) can be found.
• Fauna includes jaguars, pumas, agouties, green turtles, several species of monkeys, crocodiles and sloths.

Health indicators of a developed Country

• After Costa Rica decided to abolish its army in 1949, resources that were used for military purposes were redirected towards education and health. This has allowed the country to achieve the best health indicators of Latin America , comparable only to those of developed countries. Besides the public health system, the country has a strong private health network that counts on many hospitals and clinics of great prestige and reputation. In 2005, Costa Rica registers an infant death rate almost as low as the one for the United States (9.75 deaths for every 1,000 born alive in Costa Rica , against the 6.5 rate in the US ). This is particularly relevant when considering that the United States has a per-capita income 8.7 times larger than that of Costa Rica . According to the World Bank, Costa Rica has the highest life expectancy at birth within Latin America . With 78.7 years of life expectancy at birth, Costa Rica 's rate equals that of Canada and beats the US 's life expectancy by one year.
• 95% of Costa Rica 's population has adequate potable water access (at least 20 liters/person/day). In addition, 93% of all Costa Rican have access to improved sanitary facilities.

Source: World Bank, World Development Indicators 2004.

• According to the United Nations, between 95 and 100 percent of Costa Rican have possibilities of obtaining basic medication at accessible prices .
  

Real Estate

• There are little real estate restrictions for foreigners, and domestic law ensures the same rights to foreigners as for local citizens.
  According to the US State Department, more than 20,000 US expatriates currently reside in Costa Rica , many of them as retirees.
• To perform a real estate transaction in Costa Rica , the following steps are basically required:
  - Identification document
  - Cadastre Property Print
  - Public registry
  - Powers of attorney

Cost of Living

• According to The Economist Intelligence Unit, Costa Rica ranks as one of the best combinations of high quality of life and cost of living. According to the 2005 surveys related to its Hardship Rating and World Cost of Living, San José is among the cities with the best quality of life in Latin America , and one of the most inexpensive countries in the samples. The Economist Intelligence Unit's Liveability rankings, which is part of the Worldwide Cost of Living survey, assesses conditions for expatriates in 130 cities around the world by looking at 12 factors grouped in three categories: health and safety, culture and environment, and infrastructure.
• The Worldwide Cost of Living Survey compares the cost of a representative basket of goods and services in dollar terms from over 130 cities worldwide, in order to provide guidance for the calculation of executive allowances. Using New York as a base index of 100, Costa Rica's cost of living is 54, ranking 117th among 133 countries, which implies that the cost of buying the same goods basket in Costa Rica is almost the half the cost it has in New York. Only 3 other Latin-American cities are indicated as cheaper than San Jose .

Private Education

• Costa Rica has a wide array of private institutions that base their schedules according to the US scholar calendar (from August until the end of June).  These institutions typically offer at least two languages (English, German, French) besides Spanish.  In addition, almost all of these institutions allow students to obtain a diploma from the International Bachelor Organization (based in Geneva ) and from the Southern Association of Colleges and Schools (SACS – based in Atlanta ) as well as the Costa Rican Public Education Ministry (MEP).