Sunday 1 October 2023

Costa Rica worsens its international image as a place to do business

We are the ninth most complex country, according to TMF Group. Neighbors like Panama, in another US News list, surpasses Costa Rica by 14 positions. Despite the complexity, Cosa Rica remains an attractive destination for FDI (Foreign Direct Investment)

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30 September 2023 - At The Banks - Source: BCCR

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QCOSTARICA – Our country, Costa Rica, worsens in how it is perceived internationally with respect as a place to do business.

“Our fiscal situation is one of the main challenges and the result obtained is a reflection of how we see ourselves from the outside,” said Dayanna Quirós, economic analyst at Mercado de Valores

It ranks ninth in the world for the complexity of doing business in the Global Business Complexity Index 2021, an annual report from TMF Group.

The fall of Costa Rica in the valuations is notorious, a year ago it was in 26th place and in 2019 in the 31st, at that time of 76 countries analyzed, now increasing to 77.

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In addition, it is the worst valued in Central America when a year ago it was the third (behind Nicaragua and Panama).

Reasons noted are the constantly changing legislation and tedious bureaucracy.

And there arises a double-edged sword, since if you consider that with the entry into the OECD that demands the highest international standards, the advances required in competition matters, encouraging transparency, more controls against evasion, among others, some investors can see it as obstacles to their choosing Costa Rica.

But that transparency occurs for private companies, since one of the main problems lies in the lack of transparency of public purchases, since many of the institutions until recently did not use Sicop, which prevents monitoring of expenses, Dayanna considered Quirós, economic analyst of the Stock Market.

If we consider other rankings, for the US News Open for Business, the one that in 2019 put us as the third best destination to invest and that the government of Carlos Alvarado boasted, now puts us in 16th position for two consecutive years.

It does not seem like a bad thing, but the comparison does not favor Costa Rica if it is made with countries like Panama, which occupies the second position, behind Switzerland.

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The US News ranking is based on a weighted average of five attribute scores; Those are: bureaucracy, cheap manufacturing costs, corruption, a favorable fiscal environment and transparent government practices, the latter being where Costa Rica does not finish on a good note.

For example, again drawing the parallels with our neighbor Panama, in the fiscal environment section, they receive a score of 100, against only 28.6 for our country.

It is not news that there are fiscal aspects that hinder doing business in Costa Rica; We take another international study, Doing Business 2020, which points out that Costa Rica is among the countries where companies pay the most taxes, with a tax rate that reaches 58.3% of profits, against 40% which is the average global.

Not to mention that the high fiscal deficit and growing debt do not give businessmen confidence.

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“By having high payments of workers’ employer fees that companies have to assume between their expenses and disbursements, the operation becomes more expensive compared to other countries,” added German Morales, managing partner of Grant Thornton.

The 10 most complex countries to do business in the world, according to TMF Group:

  1. Brazil
  2. France
  3. Mexico
  4. Colombia
  5. Turkey
  6. Indonesia
  7. Argentina
  8. Bolivia
  9. Costa Rica
  10. Poland

The 10 least complex countries to do business in the world:

  1. Mauritius
  2. El Salvador
  3. Netherlands
  4. United States
  5. British Virgin Islands
  6. Curaçao
  7. Ireland
  8. Cayman Islands
  9. Hong Kong
  10. Denmark

However, despite the complexity of the jurisdiction, Cosa Rica remains an attractive destination for FDI (Foreign Direct Investment). While the need for transparency adds complexity, it also adds security, making it an attractive place to establish business operations abroad.

Amazon and Microsoft have large operations in Costa Rica, and due to their skilled workforce, we see more and more companies choosing our country for nearshoring operations.

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