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- The United States is Costa Rica’s main trading partner, accounting for about 40% of Costa Rica’s total imports. According to U.S. Census Bureau trade data, the U.S. had a US$2.5 billion trade deficit with Costa Rica in 2014 which is the lowest it has been since 2009. The U.S. had a US$4.7 billion trade deficit with Costa Rica in 2013, as compared with a deficit of US $4.8 billion in 2012, US$4.0 billion in 2011, US$3.5 billion in 2010, a deficit of US$897 million in 2009, and surpluses of US$1.7 billion in 2008, US$639 million in 2007, US$288 million in 2006, and US$183 million in 2005.
- Foreign direct investment in Costa Rica climbed steadily from the year 2000 ($408 million) to 2008 (over $2 billion), falling back over the last three years to 2006 levels of roughly $1.5 billion. New foreign direct investment in Costa Rica from all countries was US$1billion in 2013 down from US$1.6 billion in 2012, US$1.56 billion in 2011, US$1.46 billion in 2010, US$ 1.35 billion in 2009, US$2.08 billion in 2008, US$1.9 billion in 2007, US$1.5 billion in 2006, and US$861 million in 2005. About 50 percent of that investment has come from the United States. Del Monte, Dole, and Chiquita have a large presence in the banana and pineapple industries.
- In recent years, Costa Rica has successfully attracted important investments by such companies as Procter & Gamble, which had employed about 1,200 in its administrative center for the Western Hemisphere but increased its number of employees by 600 more at the end of last year; Walmart (10,000), Hewlett-Packard (6,500), Boston Scientific, Allergan, Hospira, Baxter Healthcare and others from the healthcare products industry. According to the US Census Bureau, 2013 data shows that two-way trade between the U.S. and Costa Rica exceeded $19.1 billion during that timeframe. Other U.S. companies with a great number of employees in Costa Rica include Dell, Amazon, IBM and Western Union. Last year, Bank of America moved its operations from Costa Rica and laid off more than 1,000 workers. And, earlier this year, Intel opened a Global Innovation Center where its manufacturing facility had been since 1999.
- After experiencing positive growth for several years, the Costa Rican economy shrank slightly in 2009 (-2.5%) due to the global economic crisis. The services sector (around 68% of GDP) was the most affected, with tourism falling by 8%. The economy experienced a rebound in 2010 with a 3.6% GDP growth rate, a growth rate in 2011 of 3.8%, and a growth rate in 2012 of 5.1%. Costa Rica enjoys the region’s highest standard of living, with a per capita income of about US$ 7,843, and an unemployment rate of 7.37%. Consumer price inflation is high but relatively constant at about a 10% annual rate over the last decade. The exchange rate fluctuation earlier this year has caused concern that inflation will increase this year.
- According to the latest National Population Census of 2010, the percentage of population living in poverty in 2012 was estimated at 17.6 percent in the urban areas and 25.8 percent in the rural areas, with 4.8 percent in extreme poverty in the urban areas and 8.9 percent in extreme poverty in the rural areas. Inflation reached 13.9% at the end of 2008, dropped during 2009 to 4.0% by year’s end, and reached 5.8 percent by the end of 2010 and decreased to 4.74% during 2011. The inflation rate was 4.55% during 2012 and decreased to 3.68% in 2013. The unemployment rate for 2012 was 7.8% and estimates state it was 8.1% in 2013 and remained the same in 2014. During 2010, the unemployment rate reached 7.3%, an increase from the 2009 year-end figure of 7.0% and it has continued to increase since then. The Government of Costa Rica has been running budget deficits in 2009-2011 but is currently capable of borrowing the necessary funds to do so. The previous administration was unable to pass fiscal reform legislation and to date the current administration has not made any progress with fiscal reform legislation.
Some of the top reasons why a U.S. would consider export to local market are:
- Consumers trust in the quality of U.S. products and follow U.S. market trends
- Political stability
- High level of education and literacy (+94%)
- CAFTA- DR trade agreement eliminates most of the duties to U.S. exports and allows non-discriminatory treatment for U.S. firms in government procurement bids
- Fiscal incentives in free trade zones
- While Costa Rica’s close trading and investment relationship with the United States has long benefited both nations, the recession that affected the U.S. in 2008-2009, began to be felt in Costa Rica after some lag time and has somewhat diminished the level of bilateral trade and investment activity. A bright spot is that there was an upturn in Costa Rica’s economic activity at the end of 2009, which continued in 2010 and 2011. During 2010, foreign investment activity in Costa Rica increased by 12 percent and in 2011 by 8 percent. According to the Costa Rican Ministry of Foreign Commerce –COMEX, in the course of 2012, the investment activity remained fairly constant and increased 1 percent. Growth is expected to continue during 2013.
- U.S. tourism to Costa Rica, which drives both local employment and U.S. exports (building and supplying the tourist resorts), has fallen off substantially since 2008, affecting the construction industry whose activity dropped off significantly in the coastal areas. By the end of 2010, both the construction industry and the tourist visits began to show a slow recovery. And according to the Costa Rican Tourism Board, tourism is once again at its pre-recession levels and growing. An important fact in all this is the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) which entered into force on January 1, 2009, and has brought new interest and opportunity in trade and helped to buoy the local economy and demand for U.S. exports to some degree.
- Costa Rica ranked 83 out of 189 countries in the 2015 World Bank's Doing Business Index which is a slight decline over their ranking of 78th in 2014. This rating has hampered the flow of investment and resources badly needed to repair and rebuild the country's public infrastructure, an infrastructure which has deteriorated over the years from a lack of maintenance and new investment. Most parts of the country are accessible through an extensive road system of more than 30,000 kilometers (18,750 miles), although much of the system has fallen into disrepair. Contamination in rivers, beaches, and aquifers is a matter of rising concern, given that the great majority of wastewater is discharged directly into river systems, untreated. Although Costa Rica has made significant progress in the past decade in expanding access to water supplies and sanitation, just 3.5% of the country's sewage is managed in sewage treatment facilities, with the country’s Water and Sewage Institute (AyA) estimating that perhaps only 50% of septic systems function.
- Although the overall investment picture, to date, has been relatively bright, the Costa Rican government really has not had great success with many of its concession schemes for its public works projects, including the Juan Santamaria Airport in San Jose, which in July 2009 transferred its management to a new entity. Infrastructure, in an overall sense (e.g., roads and bridges, water/wastewater, electricity generation, airports and ports) is in substantial need of improvement. This represents both challenges and opportunities. In many instances, deteriorated infrastructure will need to be improved if Costa Rica is to remain competitive in the regional and world economy. The latest concession project given to a Brazilian company, route from San Jose to San Ramon of Alajuela, a 60 kilometers (37.5 miles) project, was cancelled in April of 2013. In 2014, the government agreed to pay the Brazilian company US$35 million for cancelling the contract. Another concession, the TCM Container terminal project is Moin, which was awarded to the Dutch company APM Terminals in 2010, finally received all of its permits to begin construction late last year and construction of the project began in early 2015.
- Enforcement of intellectual property laws has been lacking in many cases, due to insufficient resources and training, and weaknesses in the country’s criminal code. This is expected to improve as CAFTA-based commitments begin to take hold. The legal process in general is often sluggish, making binding arbitration an attractive option. Various arbitration and mediation centers have been established in Costa Rica.
- Product registration is another challenge to market entry. Although Costa Rica’s Digital Government began implementing a new online product registration system in 2013, there are still significant delays with product registration and renewals. These delays are a result of backlogs in product registration requests as well as recent changes in product registration regulations.
- Costa Rica recognized the People’s Republic of China in 2007 and was visited by the President of China with great fanfare in 2008. Costa Rica subsequently signed (February 2010) a free trade agreement with China. The intensified relationship between these two countries implies growing competition for U.S. exports from products originating in China. Costa Rica is also part of the Central American effort to negotiate a Free Trade Agreement with the European Union.
The National Export Initiative (NEI) introduced by President Obama in January 2010 in his State of the Union message, provided a goal around which the US Embassy in Costa Rica and its various sections have come together to support American business and to achieve a doubling of U.S. exports by 2015.
- CAFTA-DR’s entry into force on January 1, 2009, represented a major step forward in the trade and investment relationship between Costa Rica and the United States, opening opportunities in the wireless telecommunications, Internet, and insurance markets that previously had not existed.
- Costa Rica’s accession to the agreement has meant that more than 80 percent of all non-agricultural goods and more than 50 percent of agricultural products became duty-free immediately, on January 1, 2009, and the remaining duties are being eliminated on an agreed-upon schedule that is underway.
- Furthermore, CAFTA-DR’s entry into force eliminated Costa Rica’s dealer protection regimes, allowed non-discriminatory treatment for U.S. firms in government procurement bids, and provided stronger protection for investors.
- Costa Rica has announced its intention to become an OECD member and has begun taking the steps to make changes in key areas that will improve competitiveness.
- Market prospects are excellent in the following sectors: building products, hotel and restaurant equipment, renewable energy, franchising and cosmetics. Prospects are also good in auto parts and service equipment, drugs and pharmaceuticals, construction equipment and travel and tourism, as well as in the food processing and packaging sector.
U.S. products enjoy an excellent reputation for quality and price-competitiveness. This inherent value will only be improved as CAFTA-DR continues its implementation and landed prices of U.S. exported goods drop. If and as this lower cost of goods is passed along through the distribution chain, it should drive an acceleration of trade and greater market share for U.S. products.
- Proximity to the Costa Rican market is also a major advantage for U.S. exporters who wish to visit or communicate with potential customers. The proximity facilitates close contacts and strong relationships with clients, both before and after the sale. The same holds true for agents and distributors, who typically represent U.S. exporters in the national market.
- With Costa Rica’s accession to the CAFTA-DR Free Trade Agreement, it is important to remember that the free trade regime is region-wide, i.e., for the countries of Honduras, Guatemala, Nicaragua, El Salvador, and the Dominican Republic, as well as for the United States and Costa Rica. This presents the opportunity to consider these markets from a regional perspective and to design a regional marketing approach, given the lowered barriers and relative proximity, particularly for those signatories in Central America. U.S exports to the CAFTA-DR countries in 2012 were $30.2 billion, unchanged over 2011, but 79% higher than the level in 2005, the year before the Agreement first entered into force. In 2012, the CAFTA-DR region represented the 14th largest U.S. export market worldwide and the 3rd largest in Latin America behind Mexico and Brazil.
- Global Markets (U.S. Foreign Commercial Service) Costa Rica advises U.S. companies to consult with local market research companies and law firms to conduct the necessary due diligence before entering into contracts with local firms. These partners can be instrumental in helping to penetrate and expand the market for a company’s exports.
- With CAFTA-DR now in force in Costa Rica, trade should be further facilitated with the market access improvements and tariff reductions listed above.
U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go click HERE.
For a complete copy of the latest Costa Rica Country Commercial Guide please go to: http://export.gov/ccg/costarica090950.asp.
To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.