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International Political Analysis

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COSTA RICA
Country Presentation

Percy Venegas Trieste, Jan 07

Agenda
Country overview
History and Politics Economical indicators

Business outlook
SWOT analysis

Conclusions Appendix: Culture


The meaning of Pura Vida
Costa Ricas Army
6% of GDP invested in Education

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country snapshot
Costa Rica has no army and a strong tradition of democratic and economic stability in the region as well as a record of high achievement in education, health and social security reflected in his high ranking in the UNDP Human development index. European Commission, http://ec.europa.eu http://ec.europa.eu

Profile
democratic republic
Geography
Area: 51,100 sq. km (4 times smaller than Kansas). Timezone GMT -6 Cities: Capital--San Jose (greater metropolitan area pop. 2.1 million, includes the cities of Alajuela, 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 groups by origin: white (including mestizo) 94%, African 3%, Chinese 1%, Amerindian 1%, other 1%. Languages: Spanish (official), English widely spoken. Average age: 26 yo
Sources: US Dept of State http://www.state.gov World Bank worldbank.org

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Timeline
a few historic highlights

200 BC

1502

1821

1899

1949

Christopher Columbus
arrives. The Spanish optimistically called the country "Rich Coast.

Pacific Independence
from Spain

First democratic
government

The Stone Spheres


One of the strangest mysteries in archaeology
http://www.worldmysteries.com/sar_12.htm

Abolition of the Army


Para qu tractores sin violines! (No violins, no trucks), Jose Figueres F

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Who is who?
Government Branches: ExecutivePresident (head of government and chief of state), two vice presidents, Cabinet (15 ministers).
President: Oscar ARIAS (re elected 2005) First Vice-president: Laura CHINCHILLA Ministry of Foreign Affairs: Bruno STAGNO
As President, he intervened against the activities of U.S.-backed Contras on Costa Rican territory. Although critical of the political system in Nicaragua, Arias has concentrated on engaging Nicaragua and the other Central American states in a peacemaking process. The accord approved by the five Presidents in Guatemala on August 7 was based on President Arias's plan.
Source: Les Prix Nobel. The Nobel Prizes 1987, Editor Wilhelm Odelberg, Nobel Foundation, Stockholm 1988

Legislative57 deputy unicameral Legislative Assembly. JudicialSupreme Court of Justice (22 magistrates) and the independent Electoral Tribunal (4th power) that oversees elections.

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An Human development approach


to Economic Growth
UN gives a high HDI score to Costa Rica ,(0.841) rank of 48th out of 177 countries

Composition of GDP service oriented

Countries on the same level of HDI as Costa Rica can have very different levels of income and life expectancy.
Source: UN Human Development Report 2006 http://hdr.undp.org

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

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Economy
lets slide the pie
Agriculture
Coffee, Pineapples, Flowers

High-tech exports account for a fourth of total exports FMI, 2004


Source: Costa Rica Investment Agency www.cinde.org

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.

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A small country struggle for bargaining power


among the International Community
1. Leveraging on Human Rights Advocacy
Costa Rica is an active member of the international community and, in 1993, proclaimed its permanent neutrality. Its record on the environment, human rights, and advocacy of peaceful settlement of disputes give it a weight in world affairs far beyond its size. The country lobbied aggressively for the establishment of the UN High Commissioner for Human Rights and became the first nation to recognize the jurisdiction of the Inter-American Human Rights Court, based on San Jose.
Source: US Dept of State http://www.state.gov

2. Converging Sustainable development to the business agenda

+4 % of the Biodiversity of the world 25% of the territory are protected areas 97.5% clean and redundant electric energy: hydroelectric, geothermic, wind Oil deposits not developed for environmental reasons

Headquartered in Costa Rica, the United Nations-mandated University for Peace was established in December 1980 as a Treaty Organization by the UN General Assembly. upeace.org/
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1. Attracts FDI focused in Corporate Social Responsibility 2. Allows trade of Environmental services 3. Increases Capitalization in Ecotourism

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why Costa Rica?


Costa Rica continues to be a strategic site for us and now our best products are manufactured here. I believe this speaks for itself Paul Otellini, President and CEO, Intel Corporation Otellini,

Strengths
Open Economy
1200 1000 Millions of US$ 800 600 400 200 0
1990 1992 1994

FDI Inflows

GDP and Exports Growth


40% 30% 20% Exports 10% 0% -10% -20% 1996 1997 1998 1999 2000 Exports 2001 2002 GDP 2003 2004 2005 9% 8% 7% 6% GDP 5% 4% 3% 2% 1% 0%

1996

1998

2000

2002

2004

2006*

Foreign Direct Investment, has been growing steadily over the last 15 years. The peaks are from Intels investment in 1996, Abbott Laboratories and Procter & Gamble in 1999, and in 2002 the purchase of 25% of the Costa Rican Brewery by Heineken.

Best in class indicators in the Latin Globalization Index 2006 (Latin Business Chronicle): 2nd place in Exports, Tourism and Internet penetration, 3rd place in Imports and 5th in Investments.

Source: Costa Rican Central Bank and Cinde.org

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Economic Stability
30% 20% 10% 0%
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)
Costa Rica benefits from good access to the worlds capital markets and moderate risk premium. Costa Rican Long Term Bond Ratings: Moodys Ba1 (stable) Fitch Ratings BB (stable) Standard & Poors BB (stable)
Source: CINDE, based on Costa Rican Central Bank

Twenty Years Without a Crisis in Costa Rica: The IMF's View


one of the most fundamental reasons for Costa Rica's success has been the emphasis of its economic policy on human development and social cohesion
...There is a strong legal system and levels of corruption are Low... economic reforms tend to be sustained because they have grown out of the widespread support of society.

Mexico, Turkey, Venezuela

Thailand Malaysia Indonesia Czech Rep. Phil ipines Korea Brazil Russia

A r g e n t i

The second foundation of the strategy is that efforts have been made to maintain reasonable macroeconomic stability
the recovery from the deep recession of 1982 was slow, and inflation has remained at comparatively high levels. Yet growth has picked up significantly during the last decade

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

Trade liberalization has been accompanied by structural Adjustment notably the dismantling of industrialization policies
aimed at import substitutionwhich has spurred investment, growth in total factor productivity, and significant economic diversification

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

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Strategic Market Access


Duty free access to:
USA through the CBI Mexico Canada Central America Chile Dominican Republic CARICOM

Investment Incentives

Preferential access through the Generalized System of Preferences to:


Europe and Asia

Reinvestment in Free Trade Zone regime

Free Trade negotiations:


Agreements

82%

USA (signed) Bilateral agreements with a number of countries


Reinvestment

18%

New Investment

Source: CINDE based on Costa Rican Central Bank

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Human Resources
a qualitative approach
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 primary schools and 82% of public high schools English teaching in 38% of public schools and all private schools Technical High Schools: 89 National Training Institute (INA)

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

Technical Education:

The lowest bilingual labor costs in the Americas. Advanced telecommunications infrastructure among Latin American locations. Greg Betz HP Costa Rica Global Delivery Center

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
youtube.com/watch?v=RxGj5bSvgNQ

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IT Infrastructure
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
Source: Latin Business Chronicle and International Communications Union

Quality of Life
San Jose is among the cities with the best quality of life in Latin America The Economist Intelligence Unit, Liveability Rankings 2005 San Jose is first among Latin America in the Worldwide Business Trip Index The Economist Intelligence Unit 2006 Costa Rica Ranked 36th in Political Stability out of 209 countries World Bank, 2005

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Weaknesses
The challenge to reduce poverty
Costa Rica has a relative good position among developing countries (ranks 4th out of 102)

and reduce corruption

HOWEVER
The inequality in income distribution is growing, which is usually correlated with criminality

Costa Rica ranks 51th out of 158 countries in the corruption perception index second best in Latin America. Upcoming liberalization of State monopolies is likely to decrease bureaucracy and help fighting corruption.

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

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Threats
Strongly linked to US economic performance " A cooling of the U.S. economy or a further increase in oil prices could adversely impact economic activity. " " Higher economic growth, combined with a significant reduction in inflation, would improve the living standards of all citizens and reduce poverty. " Need to align fiscal policy to country development agenda " Pass a comprehensive fiscal reform, with a focus on the income tax and the value-added tax.

IMF Staff Statement on the Conclusion of the Article IV Discussions with Costa Rica August 3, 2006 http://www.imf.org

Expected changes in tax policy in the upcoming months,however this may prove as the best decision as the government has been cutting expenses to reduce deficitwhich also affects investment in infrastructure, education, and other social needs.

Good overall performance of public finances since 2003


Source: Nacion.com

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Opportunities

3rd Most competitive country in Latin America and the Caribbean World Economic Forum, 2006

Theres still room for growth, here a few ideas:

The ratification and implementation of the Central AmericaDominican Republic-United States Free Trade Agreement will open the state monopoly in Insurance, Telecom and Energy. The demand for sourcing in the Leisure, Manufacturing and Financial Services is increasing. Infrastructure upgrade needs for copying with economic growth, including: The countrys extensive road system (30.000km) lacks of maintenance due to the recent focus on central government expending reduction. The new mega harbor to be constructed in the Caribbean. New hydroelectric plans to consolidate the countrys position as an energy exporter in the region.

Costa Rica accounts for 60% of total exports from Central America to European Unionyet EU has a secondary position among trading partners

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

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culture
some 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

a bunch of cool Ticos

leonorajimenez.com

edituscr.com edituscr.com

Leonora Jimenez
Miss Asia Pacific International 2005. You may watch her hosting a local Costa Rican TV Cuisine program, wrapping up with the typical: Coman rico! (eat delicious)

Editus (Costa Rica) and Ruben Blades (Panama)


Grammy Winners in several categories, including World Music. You are listening now Paisaje Abierto, fusion music from Editus De cada uno album.

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nasa.gov

Franking Chang
First Hispanic astronaut, veteran of 7 missions and former director of Nasas Jet Propulsion Laboratory. His new venture maintains research facilities in Houston an Costa Rica, where a plasma (clean energy, aiming to shorten space travel time) engine is under development.
deredia.com

nacion.com

Claudia Poll
Olympic Gold Medalist

Jorge Jimenez Deredia


Sculptor. Statue of Saint Marcellin Champagnat Basilica of Saint Peter in the Vatican

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Lets close the dealand take a break!

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Courtesy of Pia Morera pia@drinklocal.com MBA IN INTERNATIONAL BUSINESS

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+info

percy.venegas@economymonitor.com MBA IN INTERNATIONAL BUSINESS

Courtesy of Sergio Pucci PhotographyinCostaRica.com

Thanks!