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Caribbean Management Talk

Costa Rica: The Human Capital Advantage

Author: Staff
Last Update: Aug 12, 5:08 AM ET

Pilar Madrigal
Costa Rica stands out as the only nation in Central and Latin America to have attracted foreign direct investment in manufacturing and services. That distinction seems even more unique, considering that most of this is efficiency-seeking FDI on sectors such as advanced manufacturing, medical devices and services.
CINDE - Costa Rican Investment Promotion Agency
A: Intel had a tremendous impact on our economy since they were the first semiconductor company to set up operations in our country. The knowledge transfer effect helped us develop into a high-tech oriented economy. Intel currently manufactures microprocessors and chipsets and has a total of 4,000 employees, a facility of about 800,000 square feet, and millions of dollars in foreign direct investment. They started operations in 1998 with purely a manufacturing facility. Today they have diversified and today 3% of their employees (about 900) work at their shared services operation which includes human resources, financial and procurement processes.

Q: What are the incentives that Costa Rica offers to the corporations?

Costa Rica has a system called the Free Trade Zone Regime which provides companies with tax incentives. The company that meets certain requirements and is able to apply to the free trade zone regime will receive a 100% tax exemption status. The tax exemption includes corporate income tax, capital repatriation tax, import duties, export duties, municipal taxes, and sales taxes.

Costa Rica offers non-direct incentives too. For example, National Training Center (INA) is free for the user and a company can use the courses provided by this training center for only 1.5% of their annual payroll. Even though it is not a direct monthly incentive or a cash incentive, it offers an educational advantage. Last year, the Government invested $89 million dollars and trained 50,000 workers.

Q: What is the Costa Rican policy for the designation of free trade zones?

In Costa Rica the free trade zones are actually privately owned and not government owned. The policy is a developer that wants to develop a free trade zone can purchase the land based on their focus or strategic plan. The developer must apply to get the permit to function as a free trade zone, be able to host several companies within its property and have security, among other requirements.

Q: Would you give us some information about expatriates in Costa Rica?

As far as Costa Rica is concerned, the ratio of expats to the number of employees that are in the free trade zone companies is very small, almost non-significant. Most of the companies based in Costa Rica have a local manage. In occasion, companies bring a person from abroad to train the employees for a certain amount of time, and then leave the operation to the local manager. A case in point is Intel, which has 4,000 people and about 0.1% of them are expatriates.

Q: How developed is the country’s infrastructure in terms of electricity and highway network?

With regards to infrastructure it is important to highlight that in terms of the quality energy and electricity we are ranked number 40 in the world according to the World Economic Forum. There are a number of projects that are open for bidding that are given by concession to develop roads and ports. We are managing the growth of the infrastructure to match the needs of a growing economy.

Q: What are the country’s advantages from a demographic point of view?

About 20% of the entire population is between 10 and 19 years old and then 18% of the population is between 20 and 29 so it is in fact a very young population and 67% of the population is actually less than 40 years old.

Q: How many people graduate every year from colleges?

About 30,000 people graduate every year. We have four major public universities and 56 private universities in Costa Rica. We have seen graduates from both public and private universities grow at an average rate of 4.1% since 2001. The number of graduates for 2008 was 31,149.

Q: Would you give an overview of your organization?

CINDE is a private, non-profit organization founded in 1982 and declared of public interest in 1984. We focus our services in the attraction of foreign direct investment as well on a program called aftercare, which acts both as the liaison for post-establishment services as well as on policy advocacy efforts.

There are 29 people working in the organization with offices in Costa Rica and in New York City. Although we are globally focused, we do concentrate our efforts in certain geographies that match the type of foreign investment we try to attract to the country.

Q: Does the government rely on your agency for seeking foreign direct investment?

The government does rely our agency for attracting efficiency-seeking foreign direct investment. We not only have a role in attracting foreign direct investment but we also have a very strong aftercare program which serves as a channel to promote improvements in the investment climate in Costa Rica.

One of our strong focus is on the development of the human capital but also on policy advocacy for the continuous improvement of our competitive environment. Therefore, we have a very close relationship with the government.

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