costa rica international political economics

7/29/2019 COSTA RICA International Political Economics

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MBA IN INTERNATIONAL BUSINESS

MIB School of Management

International Political Analysis

COSTA RICA

Country Presentation

Percy VenegasTrieste, Jan 07


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MIB School of ManagementInternational Political Analysis

Agenda

Country overview

History and Politics Economical indicators

Business outlook SWOT analysis

Conclusions

Appendix: Culture The meaning of Pura Vida

Costa Ricas Army6% of GDP invested in Education


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country snapshotcountry snapshotcountry snapshotcountry snapshotCosta Rica has no army and a strong tradition of democratic and

economic stability in the region as well as a record of highachievement in education, health and social security reflected in his

high ranking in the UNDP Human development index.

European Commission, http://European Commission, http://ec.europa.euec.europa.eu


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ProfileProfile

democratic republicdemocratic republic Geography

Area: 51,100 sq. km (4 times smaller thanKansas). Timezone GMT -6

Cities: Capital--San Jose (greater metropolitan

area pop. 2.1 million, includes the cities ofAlajuela, Cartago, and Heredia).

Climate: Mild in the central highlands,tropical and subtropical in coastal areas.

People

Population: 4.02 million. +15% Immigrants

Annual growth rate: 1.48%.

Ethnic groupsby origin: white (includingmestizo) 94%, African 3%, Chinese 1%,Amerindian 1%, other 1%.

Languages: Spanish (official), English widelyspoken.

Average age: 26 yo Sources: US Dept of State http://www.state.gov

World Bank worldbank.org


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TimelineTimeline

a few historic highlightsa few historic highlights

The Stone Spheres

One of the strangestmysteries in archaeology

http://www.world-mysteries.com/sar_12.htm

Abolition of the ArmyPara qu tractores sinviolines! (No violins,

no trucks), JoseFigueres F

PacificIndependencefrom Spain

ChristopherColumbus

arrives.

The Spanishoptimistically

called thecountry "Rich

Coast.

First democraticgovernment

200 BC 1502 1821 19491899


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Government Branches:

ExecutivePresident (head of government and

chief of state), two vice presidents, Cabinet (15ministers).

President: Oscar ARIAS (re elected 2005)

First Vice-president: Laura CHINCHILLA

Ministry of Foreign Affairs: Bruno STAGNO

Legislative57 deputy unicameral LegislativeAssembly.

JudicialSupreme Court of Justice (22magistrates) and the independent ElectoralTribunal (4th power) that oversees elections.

As President, he intervened against the

activities of U.S.-backed Contras on CostaRican territory. Although critical of the

political system in Nicaragua, Arias hasconcentrated on engaging Nicaragua and theother Central American states in a peace-

making process. The accord approved by thefive Presidents in Guatemala on August 7

was based on President Arias's plan.

Who is who?Who is who?

Source: Les Prix Nobel. The Nobel Prizes 1987, EditorWilhelm Odelberg, Nobel Foundation, Stockholm 1988


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An Human development approachAn Human development approach

to Economic Growthto Economic Growth

Countries on the same level ofHDI as Costa Rica can have

very different levels ofincome and life

expectancy.

Source: UN Human Development Report 2006

http://hdr.undp.org

Source: World Development Indicators database, April 2006worldbank.org

UN gives a high HDI score toCosta Rica,(0.841) rank of

48th out of 177 countries

Composition of GDPservice oriented


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EconomyEconomy

letletss slideslide the piethe pie

Tourism

1.6 million tourists visit Costa Rica every year.7.1% annual growth rate.

Rooms expansion at an annual rate of 4.5%.Tourists come from: USA 48%, Europe 16% and Others 36%.Fast Real estate development: golf courses and marinas.

High-tech exports account for a fourthof total exports FMI, 2004

AgricultureCoffee,Pineapples,

Flowers

Source: Costa Rica Investment Agency www.cinde.org


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2. Converging Sustainable developmentto the business agenda

A small countryA small country struggle for bargaining powerstruggle for bargaining power

among the International Communityamong the International Community1. Leveraging onHuman Rights AdvocacyCosta Rica is an active member of the internationalcommunity and, in 1993, proclaimed its permanent

neutrality. Its record on the environment, humanrights, and advocacy of peaceful settlement ofdisputes give it a weight in world affairs farbeyond its size. The country lobbied aggressivelyfor the establishment of the UN High Commissionerfor Human Rights and became the first nation torecognize the jurisdiction of the Inter-AmericanHuman Rights Court, based on San Jose.

Source: US Dept of State http://www.state.gov+4 % of the Biodiversity of the world25% of the territory are protected areas97.5% clean and redundant electric energy:hydroelectric, geothermic, windOil deposits not developed for environmental reasons

1. Attracts FDI focused in Corporate Social Responsibility

2. Allows trade of Environmental services

3. Increases Capitalization in Ecotourism

Headquartered in Costa Rica, theUnited Nations-mandated University

for Peace was established inDecember 1980 as a Treaty

Organization by the UN GeneralAssembly. upeace.org/


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why Costa Rica?why Costa Rica?why Costa Rica?why Costa Rica?

Costa Rica continues to be a strategic site for us and now our bestproducts are manufactured here. I believe this speaks for itself

PaulPaul OtelliniOtellini, President and CEO, Intel Corporation, President and CEO, Intel Corporation


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StrengthsStrengthsOpen EconomyOpen Economy

Best in class indicators in the Latin GlobalizationIndex 2006 (Latin Business Chronicle):

2nd place in Exports, Tourism and Internetpenetration, 3rd place in Imports and 5th inInvestments.

Source: Costa Rican Central Bank and Cinde.org

FDI Inflows

Foreign Direct Investment, has been growingsteadily over the last 15 years.

The peaks are from Intels investment in 1996,Abbott Laboratories and Procter & Gamble in1999, and in 2002 the purchase of 25% of theCosta Rican Brewery by Heineken.

GDP and Exports Growth

-20%

-10%

0%

10%

20%

30%

40%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

GDP

Exports GDP

0

200

400

600

800

1000

1200

1990 1992 1994 1996 1998 2000 2002 2004 2006*

Millions

ofUS$


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Economic StabilityEconomic StabilityTwenty Years Without a Crisis in Costa Rica:The IMF's View

one of the most fundamental reasons for CostaRica's success has been the emphasis of its economic policy on humandevelopment and social cohesion...There is a strong legal system and levels of corruption areLow... economic reforms tend to be sustained because they have grownout of the widespread support of society.

The second foundation of the strategy is that efforts have beenmade to maintain reasonable macroeconomic stabilitythe recovery from the deep recession of 1982 was slow, and inflation hasremained at comparatively high levels. Yet growth has picked upsignificantly during the last decade

The third foundation of Costa Rica's economic policy is itsoutward orientation Exports now represent around 50 percent of GDP,compared to 30 percent of GDP in 1980 The large size of trade and thecontinuing long-term capital inflows have clearly reduced the Costa Ricaneconomy's vulnerability to capital account shocks

Trade liberalization has been accompanied by structuralAdjustment notably the dismantling of industrialization policiesaimed at import substitutionwhich has spurred investment, growth

in total factor productivity, and significant economic diversification

Source: CINDE, based on Costa Rican Central Bank

Source: Agustn CarstensDeputy Managing Director, International Monetary Fund July 12, 2004

Costa Rica benefits from good access to theworlds capital markets and moderaterisk premium.

Costa Rican Long Term Bond Ratings:

Moodys Ba1 (stable)Fitch Ratings BB (stable)Standard & Poors BB (stable)

0%

10%

20%

30%

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Inflation (Costa Rica)

Devaluation Costa Rica

Mexico,

Turkey,

Venezuela

Thailand

Malaysia

Indonesia

Czech Rep.

Phillipines

Korea

BrazilRussia

A

r

g

e

n

t

i


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Duty free access to: USA through the CBI Mexico Canada Central America

Chile Dominican Republic CARICOM

Preferential access through theGeneralized System of Preferencesto: Europe and Asia

Free Trade Agreementsnegotiations: USA (signed) Bilateral agreements with a number

of countries

StrategicStrategic MarketMarket AccessAccess

Reinvestment in Free Trade Zone

regime

82%

18%Reinvestment New Investment

Source: CINDE based on Costa Rican Central Bank

Investment IncentivesInvestment Incentives


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HumanHuman ResourcesResources

aa qualitativequalitative approachapproach No Unions in private sector:

Employer-sponsored workers associations

(Credit Unions-Solidarism).

Universal Health Care and Education System

Academic Schools:

Computer labs in 18% of the public primaryschools and 82% of public high schools

English teaching in 38% of public schools andall private schools

Technical Education: Technical High Schools: 89

National Training Institute (INA)

Universities:

Total of 56 (plus regional branches):

4 public, 52 private

INCAE Business School

(FT Top 100 full time global MBA)

Sources: Ministry of Public Education, Cinde.org and

Financial Times MBA 2006

The lowest bilingual labor costs in the Americas.Advanced telecommunications infrastructure amongLatin American locations.Greg BetzHP Costa Rica Global Delivery Center

The quality of education we found in C.R. is impressive.We have confirmed that the talent and training of thepeople is one of the best we have seen worldwide.Alfonso Cos, Vice President for GBS North America,Procter & Gamble

thethe buzzbuzz......

youtube.com/watch?v=RxGj5bSvgNQ


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ITIT InfrastructureInfrastructure

Telecommunications: Redundant fiber optic submarine

cables (Maya & Arcos), satellite and terrestrial microwave

network in place to meet demand in fixed, mobile and

Internet services.

Second largest Internet penetration in Latin America

Quality ofQuality of LifeLife

San Jose is among the cities with the best quality of life inLatin America

The Economist Intelligence Unit, Liveability Rankings 2005

San Jose is first among Latin America in the WorldwideBusiness Trip Index

The Economist Intelligence Unit 2006 Costa Rica Ranked 36th in Political Stability out of 209Costa Rica Ranked 36th in Political Stability out of 209

countriescountries

World Bank, 2005

Source: Latin Business Chronicle andInternational Communications Union


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MBA IN INTERNATIONAL BUSINESSMIB School of Management


WeaknessesWeaknesses

The challenge to reduce povertyThe challenge to reduce poverty

The inequality inincome distributionis growing, which

is usually correlatedwith

criminality

HOWEVER

Costa Rica has arelative good position

among developingcountries (ranks 4th

out of 102)

Sources: Transparency International 2006 www.transparency.orgUN Human Development Report 2006 http://hdr.undp.orgThe State of the Nation in Sustainable Human Development www.estadonacion.or.cr

and reduce corruptionand reduce corruption

Costa Rica ranks 51th out of 158countries in the corruptionperception index second

best in Latin America.Upcoming liberalization of

State monopolies is likely todecrease bureaucracy and

help fighting corruption.


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ThreatsThreats

Strongly linked to US economic performance " Acooling of the U.S. economy or a further increase in oilprices could adversely impact economic activity. "

" Higher economic growth, combined with a significantreduction in inflation, would improve the living

standards of all citizens and reduce poverty. "

Need to align fiscal policy to country developmentagenda " Pass a comprehensive fiscal reform, with afocus on the income tax and the value-added tax.

IMF Staff Statement on the Conclusion of the ArticleIV Discussions with Costa Rica

August 3, 2006 http://www.imf.org

Expected changes in tax policy in theupcoming months,however this may

prove as the best decision as the

government has been cutting expenses toreduce deficitwhich also affects investmentin infrastructure, education, and other social

needs.

Good overall

performance of publicfinances since 2003

Source: Nacion.com


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OpportunitiesOpportunities

The ratification and implementation of the Central America-Dominican Republic-United States Free Trade Agreementwill open the state monopoly in Insurance, Telecom andEnergy.

The demand for sourcing in the Leisure, Manufacturing andFinancial Services is increasing.

Infrastructure upgrade needs for copying with economicgrowth, including:

The countrys extensive road system (30.000km) lacksof maintenance due to the recent focus on centralgovernment expending reduction.

The new mega harbor to be constructed in theCaribbean.

New hydroelectric plans to consolidate the countrysposition as an energy exporter in the region.

Strategic consulting in areas related to growth in urbanareas: security modernization, waste management.

3rd Most competitive country in LatinAmerica and the Caribbean

World Economic Forum, 2006

Theres still room for growth, here a few ideas:

Costa Rica accounts for 60% of total exports fromCentral America to European Unionyet EU has a

secondary position among trading partners


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culturesome words that you will only (probably) hear in CR:

Pura Vida = national greeting, means Pure Life or Dolce Vita

Tico = how costa ricans call themselves

Mae = Dude


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a bunch of cool Ticos

Leonora JimenezMiss Asia Pacific International 2005.

You may watch her hosting a localCosta Rican TV Cuisine program,

wrapping up with the typical:

Coman rico! (eat delicious)

Editus (Costa Rica) and RubenBlades (Panama)Grammy Winners in several categories,including World Music. You are listening nowPaisaje Abierto, fusion music from EditusDe cada uno album.

edituscr.com

leonorajimenez.com

edituscr.com


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Claudia PollOlympic Gold MedalistJorge Jimenez DerediaSculptor. Statue of Saint Marcellin ChampagnatBasilica of Saint Peter in the Vatican

Franking ChangFirst Hispanic astronaut, veteran of 7

missions and former director of NasasJet Propulsion Laboratory. His newventure maintains research facilities inHouston an Costa Rica, where aplasma (clean energy, aiming toshorten space travel time) engine isunder development.

nasa.gov

nacion.com

deredia.com


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Lets close the dealand take a break!


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International Political Analysis Courtesy of Pia Morera

[email protected]


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Thanks!

[email protected]

Courtesy of Sergio Pucci

PhotographyinCostaRica.com

costa rica international political economics

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