Costa Rica has moved on from its days as a Banana Republic

Costa Rica has one of the strongest economies in Central America. There are many factors that have contributed to help the country get to this point, but arguably, the origin lies in having had a few capable and forward-looking leaders in its early history. As part of their vision, these leaders had the foresight to eliminate the armed forces which in turn freed up a large amount of funds to be invested in education, social services, commerce and infrastructure.

The end result is that today, Costa Rica has a high literacy rate of around 95%, a highly-skilled workforce, a competitive telecommunications infrastructure and a stable political environment which all makes for an attractive destination for foreign investment.

Costa Rica was founded as one of the “Banana Republics” where everything was dependent on agriculture, namely the production and export of bananas and coffee. This situation has changed over the years due to increasing competition from neighboring countries and a changing global economy. The Costa Rica which exists today has evolved to include a diverse and strong industry which includes hi-tech, medical, service, agriculture and tourism industries.

Hi-Tech
The Hi-Tech industry is among the rising industries that have developed within the last 10-15 years. Today there are more than 50 companies employing over 11,000 people, with an export value of US$2.120 million in 2005. Intel, one of the most prominent companies in this sector, plans to invest $90 million in 2008 and its total investment to date is about $800 million, so there is still significant growth in this field. Others in this sector are: design and engineering centers (e.g. orthodontic appliances), telecommunications, and consumer electronics (e.g. Panasonic).

Medical
The medical industry is one of the lesser known components of the Costa Rican economy. With more than 23 medical companies with established manufacturing plants, it is certainly a growing and powerful sector. Among them are world leaders such as Hospira, Boston Scientific and Coloplast.

Services
The service sector is booming with high levels of employment in customer service call centers (e.g. Western Union), back-office services (e.g. Accounting & Human Resources) and software development companies (e.g. Microsoft, Unisys and Oracle). Costa Rica is a prime location for companies who want to invest in this field because many locals have a relatively high level of education and can speak English.

Agriculture
Costa Rica’s early economy was based on agriculture and it still stays close to its roots. Although the overall demand for traditional Costa Rican products like bananas and coffee has declined, these products are still in demand. These crops have evolved to serve high-end niche markets as foreign consumers are willing to pay a premium for goods produced using sustainable methods and above-average working conditions (i.e. Fair Trade).

New and alternative crops like pineapple, watermelon, ornamental plants & flowers, hearts of palm, papaya and fish (e.g. Tilapia) have gained importance and filled the void left by lower banana and coffee production.

Tourism
Last but not least, with more than 1.9 million tourists arriving in 2007, a 10.6% growth relative to the previous year, it is easy to see the potential in the tourism industry. As with other sectors of the economy, tourism has also evolved to offer more varied options to reach different target markets. For example, eco-tourism, medical tourism (e.g. plastic surgery), and 5-star luxury destinations like the Four Seasons Resort are in vogue and are experiencing major growth.

Outlook for the Future
Although Costa Rica’s economy remains strong due to diversification and its ability to adapt to changing market needs, it still remains fragile. Much of the industry and labor depends on external factors like the weather, fuel prices and the stability of foreign economies. For example, if the United States’ or world economy is unstable, as it is now, people may refrain from purchasing luxury goods and services like foreign vacations or premium coffee.

The pending implementation of CAFTA, or the TLC as it is called by locals, promises to open up opportunities for increased trade with the United States and other Central American countries. Increased trade relations with the European Union and emerging markets like China are also areas with great potential for future growth.

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John D. Kloninger is a online marketer Living in Costa Rica. Born in California, he grew up in San Jose and then went on to University in Honolulu, HI and Boston, MA. You can contact him at jkloninger@gmail.com.

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Filed under: Business on February 28th, 2008