(qCOSTARICA) Once again the Presidency (Casa Presidencial) has spoken out to calm investors denying the insinuations of a Deputy Minister related to opening up the discussion on “zona franacas” – free trade zone regime.
According to an article in Crhoy.com, the Deputy Minister of Labour, Harold Villegas, mentioned in the framework of the International Forum of Social Solidarity Economy that “as a society we should discuss the activities that should or should not be tax-free and although free zones functioned well in a moment of history, it’s time to move towards a system of greater tax justice and for a more open discussion to take place. ”
Cries of alarm rose immediately from the business sector : Francisco Llobet, President of the Chamber of Commerce of Costa Rica, said that “… This system has allowed us to increase exports and although in the past administration of Laura Chinchilla, Otton Solis put the issue on the table and a lot of companies left it should not be discussed again. It is much more difficult to attract free zone businesses because other Central American countries are offering more benefits. ”
Now President Luis Guillermo Solis has “… discredited Villegas’ assertions and said the only speaker in his administration authorized to discuss this matter is the minister of Foreign Trade, Alexander Mora” ,,, adding “… Free zones are a very important instrument for attracting increased investment flows and generating more and better sources of employment, in light of the complex international situation in which countries improve their capacity to attract high value investment and even offer more aggressive benefits that the country is in a position to bestow. ”
Costa Rica needs an expansion of foreign investment in the Free Trade Zones to create more employment. Costa Rica cannot afford to be under-cut by the reduced wages and benefits offered by competing countries in this area.
Villegas is right to say that which businesses receive sweetheart tax deals and which ones don’t needs to be more carefully considered. A study not long ago showed that the rest of Costa Rica is supporting the businesses and their employees in the free trade zones, even though the profits and wages in those zones are higher than they are in the rest of the country. This simply isn’t fair.
But Solís was right to quash fears that any of this will change soon. Now is not the time to discourage business, even if fair-minded people may have to hold their noses lest the stink of the sweetheart deals overpower them.
Llobet is also right that a practical difficulty with nixing these sweetheart deals is that other countries are offering them to the multinationals, and if Costa Rica doesn’t it won’t be able to compete successfully with the other countries to attract these businesses. This isn’t a pleasant fact to deal with, but it is reality. The multinationals can play one country against another in order to negotiate the best deals for themselves.
Ultimately, the only solution is for Costa Rica to cast off its dependency on the multinationals by building its own companies. This must be the top priority. In the meantime, though, a lot of us just have to hold our noses.
Generally speaking, Costa Rica does not have the entrepreneurial spirit and/or will to build its own companies. Foreign investment by multinationals will continue to be the solution for the foreseeable future. Get used to holding your nose.
I agree with your current analysis, namely that Ticos don’t have the entrepreneurial spirit, prefer “office jobs” (ideally in government), and as a practical matter are dependent upon foreign multiunationals to invest in Costa Rica to create decent jobs.
However, I have to wonder how much of all this is a Tico reaction to their circumstances rather than a fixed national character trait.
Consider entrepreneurship. While it might be partly myth, Costa Rica is believed to have historically been a country of small farmers and small business owners. Some say this history in part explains why Costa Rica was able to develop democratic institutions superior to most of its neighborhoods.
Even today, I just read (and maybe you did too) that a third of the country’s GDP and half of its employment can be attributed to small businesses. True, much of this employment is probably not high wage, and many of these small businesses may be seasonal tourist operations. Even so, it may be a mistake to characterize Ticos as lacking an entrepreneurial spirit and prefering “office jobs” in multinationals.
The same article that provided the data on small businesses’ contribution to GDP and employment also noted that small businesses receive less than 10% of the business financing from the country’s financial institutions.
This leads me to wonder whether banking reform designed to free up financing for small businesses might be a better policy than free trade zones intended to attract multinationals. Of course, the policies aren’t mutually exclusive–they could exist simultaneousy–but at the moment it appears that public policy is making it harder for Tico-owned businesses than for the multinationals.
I also wonder about the assumption implicit in a lot of this discussion that foreign investments only happen when foreign companies set up shop in Costa Rica. My sense is that global capital is pretty mobile, and a lot of the investors are scouring the globe for investment opportunities.
I therefore don’t understand why Tico businesses can’t attract foreign investments on their own. Why do the foreign investments have to take the form of a foreign-owned multinational setting up shop here? Tico-owned businesses could attract the investments on their own, couldn’t they?
The differences between us, in my opinion, is that I believe you are too resigned to current arrangements. To a point, I share your resignations. Some things, like preserving the free trade zones, probably just have to continue for now. However, it’s when you use phrases like “the foreseeable future” that I begin to disagree. I fear that some of the policies you favor will have the effect of ensuring that “the foreseeable future” remains like the present. I prefer policies that promise a better future, in this case of Tico-owned businesses bearing only their fair share of the tax burden rather than subsidizing the multinationals.