As historical background, the trade balance of the Costa Rican economy was based on the export of traditional products, mainly coffee and banana to traditional destinations such as the United States and Europe. The first relevant diversification occurred through the expansion of tourism which, according to data from the Central Bank of Costa Rica, in 1999 accounted for close to 65% of the Services Sector. Consideration must also be given to the over 150 year old democratic and civil law tradition that led to the country’s abolishing the army in 1948. These factors have allowed gearing the national strategy towards key investment areas.
Key social growth factors
Costa Rica has universal-coverage social security and the highest educational levels that result from free and compulsory public education (public expenditure in education represents 7% of the GDP and will rise to 8%), where 85% of the children attend English classes since elementary school as well as English and French lessons in Junior High School.
As a result, in Costa Rica there is a high level of English proficiency, for which the country is recognized as one of the two leading countries in Latin America in the average results of the TOEFL and TOIEC standardized tests.
As for infrastructure development, Costa Rica has multiple directly connecting flights to the United States, Latin America and Europe, and has also developed free trade zones that offer competitive benefits to foreign investors.
Investment – a gateway to new possibilities
The investment we refer to above has allowed the country to venture, for over 15 years, in the diversification of GDP products, with a significant commitment in the Services Sector. Positive results are evidenced in comparable indicators. For instance, according to data of the Costa Rican Development Initiatives Coalition (CINDE), there are over 120 companies that are leaders among international service providers.
Today, Costa Rica exports value-added services that include Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) for companies in various industry sectors worldwide, some produced in over 14 languages.
In this sense, and in terms of contribution to the GDP, the Value Added Services Sector (technology and business process) currently represents practically the same percentage as that of the Agriculture and Tourism sectors.
Variables relating to competitiveness
Although Costa Rica’s workforce is relatively small, it possesses a high education level, teamed with the command of several languages. This, in addition to population growth and school enrolment and graduation statistics, is an element that sets Costa Rica apart from other countries.
Geographic location and logistic interconnection also help improve the rating of Costa Rica as a destination for investment. Sharing the same time zone with certain cities in the United States and Latin America has played a pivotal role in the “nearshoring” strategy.
Democratic stability and legal certainty offer companies the possibility of linking to other enterprises that are already established in Costa Rica or in the region. Therefore, generally, following up on the foreign investments has positive results and, in most cases, is consistent in terms of growth:
- In the number of workers and the investment
- In the export of services
- In the strategies for generating more revenues, including in the production other lines that are still at the source or in other places
Considering this state of affairs, the perspectives for this Central American country look positive; however, there is also the opportunity to introduce continuous improvement processes that relate mainly to the following challenges:
- Strengthening linkage for promoting a supply chain that takes advantage of local synergies and products
- Promoting the adoption of best practices
- Successfully become an OECD member country
In terms of trends, in Costa Rica we see a country which, owing to its level of development in the Services Sector, is no longer attractive for low value added processes (e.g. centralized telephone assistance) but has ventured in high value added schemes such as BPO and KPO, which augurs well for the future.
Note: The ideas and opinions expressed in this written are of the author and do not necessarily represent the ideas and opinions of KPMG.