Monday 18 October 2021

Costa Rica Sustainable Model & Investment Opportunities

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Producing pineapples in Costa Rica. Photo: UNDP

Q BUSINESS – The Business Year (TBY) gathered together three prominent businessmen in Costa Rica to discuss economic growth and the challenges going forward: Alberto Arguedas, Executive Director, AmCham Costa Rica; Edward F. Sanchez, General Manager, Citibank Costa Rica; and Humberto Pacheco, Chairman, Pacheco Coto.

According to the latest rankings in the World Economic Forum, Costa Rica has gone down two positions to 54th out of 138 countries. How can Costa Rica maintain its competitiveness in the region?

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Humberto Pacheco When I talk with the experts from the World Bank, they say we are supposed to pay the same amount of taxes in Costa Rica as they do in Argentina, which is around 29-30%. I ask them why, and as soon as I point out the subject of the army the argument finishes.

Nobody contemplates this, but it is a reality—every little plane that Peru or Ecuador buys would have added to Costa Rica’s total budget for the next 100 years; therefore, the eradication of the army was the most important element that boosted everything previous presidents and leaders of the country had done in the first half of the 20th Century.

Edward F. Sanchez Costa Rica is blessed with many things, but these past 48 years without military spending and instead using this money for education and healthcare was an important move for the development of the country; it is the foundation for the growth we are having now in Costa Rica. Regarding Citibank, we chose Costa Rica as a country to invest our shared services and have now been here for 48 years. That is because it is the number one country in Latin America to speak English.

We are also blessed because our time zone is “las Americas,” and we have the advantage of being in the right time zone to do financial, manufacturing, and agricultural business. We have been growing at nearly 4% a year with the highest international reserves in history, less than 1% inflation, the deficit of credit accounts is covered by the FDI, which is up by 8%. All these macro-economic figures indicate that Costa Rica is a great country for investment but it does have a black eye, which is the fiscal deficit.

Humberto Pacheco We also have the cases of Procter & Gamble and Hewlett Packard, which has huge services. All these companies have proven that the level of education is high. Furthermore, when Alcatel came here for the first time this was the element that weighed the most in choosing to establish themselves here. It started with 40 countries and was between Mexico and Costa Rica; it was the capacity of the staff that made them decide to come here in the end, the preparation, the level of education and the quality of life.

Infrastructure remains the main challenge in Costa Rica right now. What needs to be done both in the public and private sector to develop it?

Edward F. Sanchez In terms of infrastructure, there are many things to do here; it is not money that is lacking, but the leadership needed to push these projects forward and accomplish something. This will come, I do not know when but one day, because people are looking for this. I always say that the leaders of the world that wanted political change were the Ticos, because in the two last years there has been a change from the traditional parties to the creation of new parties without political experience. Brexit is the same; the US is the same; Brazil is changing its way of thinking and leading the country; and in 2018 Costa Rica will ask itself how it wants to proceed with issues such as infrastructure and finance. I am optimistic on the subject of public and private partnerships, with concessions there are ways to do it.

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Alberto Arguedas In December 2016, a decree was published to define the regulations for public-private alliances that will help revive some projects at a standstill.

The problem is of execution and the time spent planning incessantly and never executing and when we finally execute, many of these projects are no longer viable or obsolete. At the end of the day, it is consumers who end up paying for those things.

Edward F. Sanchez What worries me is a “crowding out effect” of infrastructure in the US, because this new administration has definitely taken a direction in improving infrastructure in the US. This is coming and there is lot to do there in airports, ports, and bridges, for example. It’s like a mini Costa Rica, so if you have a public-private partnership (PPP) and you have money, although money does run out, where do you invest your money? In building a bridge in Pittsburg or one in Limón? Longer term this is the struggle we have to face, not tomorrow and not in two years but in the future because infrastructure takes time.

Humberto Pacheco  There are some positive aspects starting to show, such as the fact that APM’s destiny was decided at this very table only several years ago. Here, we agreed with President Solis that APM would be a good move, and it has turned into one of our most brilliant projects. Even so there were still problems with infrastructure: the road was supposed to be finished, for example, yet is still incomplete. Either way, it is a fantastic project that will launch us to the 22nd Century. The great thing about APM is that it is in the least developed region of Costa Rica, and now we can see the effect of a billion dollar investment getting people to work, creating jobs, schools, hotels, and creating the first lawyer’s office in that region.

What impact will the US elections have on Costa Rica?

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Humberto Pacheco  If we are smart, they will not have much of an impact at all on us or Central America. We need to open a dialogue instead of creating distance, which is how things are in politics. Costa Rica can tell Trump, “Ok, you don’t want immigration? Then, keep supporting our development and you will not have any,” because if this country is developed, it will not need to send its citizens to the US.

Edward F. Sanchez Another positive thing that sets Costa Rica apart from its neighbors is that it does not depend on remittances to anchor the government. The type of person that likes to be in Costa Rica does not like to live abroad. Thanks to that, we find ourselves here. Years ago, the government established a philosophy of developing high quality services here in Costa Rica. Other countries have tried to capture and recreate this service but they do not have the experience or educational force; they do not speak English perfectly; they are not in the same time zone; so there are a number of areas where Costa Rica is very advanced, and it will continue to strengthen these. We are part of a niche that is less drawn in my opinion because the first thing that Trump is going to attack is manufacturing; the services industry is less of a priority.

Alberto Arguedas I agree that insofar as Costa Rica has created a hub in medical devices—20 out of 60 companies are already here, and this cluster is only growing, as are services. The human talent offered in Costa Rica is difficult to re-establish in the depressed parts of the US in the medium term; and there are far more interesting markets like China that are more likely to be attacked to recuperate some of the investments that have gone to these countries. Another important aspect of the Costa Rican economy is tourism. We need to continue boosting tourism with the US, our main partner—but either way this area will not suffer. There are many opportunities for the country in general.

Humberto Pacheco  Another element that works in our favor is that we have a trade deficit with them; we do not harm them in any way and we give them the opportunity to export American products from here to other countries.

Costa Rica’s sustainable model has become a source of envy for many countries that want to reach 100% non-conventional renewable energy. How did you do it?

Alberto Arguedas It is thanks to the Instituto Costaricense de Electricidad (ICE), which had the vision a few years ago to use renewable energies, mainly hydroelectric, which supplies around 80% of our needs. Yet, we have also diversified into other sources of energy like thermal, solar, and wind, and that has been part of the success of the model. Like everything, there are positive and negative aspects—the main problem we are confronting is the distribution of energy, which is centralized in ICE and, as users, we do not have the option to obtain energy from other providers. The private market is limited to a 15-30%, which eradicated competition. As we already mentioned, the ICE is a great builder—some of the buildings it has constructed are exemplary—but it is not efficient in executing them. Reducing the price of electricity is one of the country’s biggest challenges.

Humberto Pacheco  The geothermic energy in this country is huge, and we have not been capable of exploiting it because it is in national parks and thus not allowed. Eolic energy is expensive and they are managing it very slowly because the numbers are simple and not suitable to be manipulated. We are wasting an incredible amount of gas and petrol by progressing toward renewable energy. We do not want to stop this, but the price of renewable energies needs to be financed because it is high. Costa Rica’s oil bill abroad is mind-boggling, and if we would exploit the gas and petrol that we have, under the Norwegian protocol, it could be done cleanly.

For more on Costa Rica on The Business Year, click here.

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