Costa Rica: Small Country, Big Decisions
Costa Rica, a country of 51,060 square kilometers (19,714 sq. mi.) with a population of approximately 5 million, has recently appeared in the media for its achievements on the management of the COVID-19 health crisis. The fact is that Costa Rica has been doing things differently for a while, and this small country has taken the right decisions to attract to our shores some of the most important and innovative companies in the world.
In the 1980s, the Costa Rican Government started to promote foreign trade more aggressively. The intention was to diversify the country’s production to provide more stability to the economy that at the time, was highly dependent on the export of traditional goods such as coffee, bananas, sugar, and meat. During that decade, the country also faced the effects of a recession and needed to attract Foreign Direct Investment (FDI) as a way to return to the path of economic development. With this objective in mind, in 1981 the first Free Trade Zone (FTZ) Regime Law was enacted. This law and the subsequent amendments to improve it, grant tax incentives to companies involved in manufacturing, trade, service, and research and development.
Forty years after the enactment of the first FTZ Law, the model has proved successful. The statistics demonstrate that the FTZ regime is predominant, representing around 57% of the total FDI, more than other outside sources such as tourism. (Source: BCCR 2018). Compared to the ‘80s, Costa Rica was successful in transitioning from traditional goods to exporting primarily medical devices and high precision equipment (31% of all exports). More than half of total exports derive from the FTZ regime and are equally divided between goods and services. (Source: PROCOMER 2018).
COVID-19: Crisis Management
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, with over 118,000 cases of COVID-19 in more than 110 countries around the world. Five days later, the Government of Costa Rica declared a state of emergency and announced the closure of borders beginning on March 18, 2020.
As part of the emergency measures, the Government announced a series of actions oriented toward minimizing the exposure of the population but also trying to avoid significant effects on the economy. In the specific case of service centers and manufacturing facilities–a large number of them working under the FTZ regime-, the companies were required to apply sanitary protocols to minimize infections and strongly encouraged to apply work from home. Compared to shut-down orders in many other countries, free zone enterprises, regardless of their type of industry, were allowed to stay open and operate with minimum impact.
By the beginning of May, less than two months after the declaration of the pandemic, the number of people who have recovered from COVID-19 in Costa Rica surpassed for the first time the number of active cases. At the same time, our country had the lowest mortality rate for the illness in America (0.8%).
Because the management of the health crisis by the Government has been so successful, Costa Rica has proved that it is a safe place to invest, making the country an even more attractive destination for FDI, which is such an important source of employment for Costa Ricans.
Life after COVID-19 requires us to rethink and redesign the future, and the Government surely has the challenge to start working on the next generation of investment incentives that will continue to attract foreign companies. For the moment, Costa Rica has a lot to offer to foreign companies: in addition to our talented human resources, political stability, tax incentives and 40 years’ experience in attracting the best companies around the world, we can proudly add an extraordinary crisis management task force, which not only achieved great results from a Public Health perspective but also kept to a minimum the effect of the pandemic on business operations. Today, our small country continues to emerge from the crowd.