Costa Rica in GVCs

Anabel GonzálezMinister of Foreign Trade, Costa Rica

Latin America’s prospects for upgrading in global value chainsColegio de México

March 14, 2012

The Latin American Context

•Agriculture and natural resources dominate most LAcountries’ export basket (minimum transformation, low unitary values, little differentiation)

Driven by surging Asian demand

•Some participation in low-value GVC (eg. apparel)

Impacted by China et al and by greater trade exposure to

industrialized markets

•Limited participation –by few countries- in GVC with higher technological content

The case of Costa Rica

52%

22%

39%

28%

19%

35%

40%

24%

48%

30%

7%

88%

85%

89%

24%

74%

24%

14%

71%

22%

60%

52%

2%

51%

4%

9%

4%

16%

2%

6%

1%

59%

2%

97%

32%

33%

6%

39%

12%

29%

63%

9%

72%

43%

66%

77%

10%

9%

11%

16%

24%

3%

45%

Argentina

Bolivia

Brazil

Chile

Colombia

Costa …

Ecuador

El …

Guatem…

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezu…

Total …

Latin America: Export Basket by Country (2009)

Agriculture

Natural Resources

Manufacturing

0%

10%

20%

30%

40%

50%

Share of High-Tech Exports in Manufactured Exports

2010

1997

Costa Rica: Exports and FDI

Source: COMEX, using data from PROCOMER. Source: COMEX, using data from BCCR* Preliminary data.

Source: COMEX, using data from PROCOMER and BCCR.

1.899

10.361

0

2.000

4.000

6.000

8.000

10.000

12.000

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011*

Costa Rica: Exports 1991-2011

178,4

2.145

0

500

1.000

1.500

2.000

2.500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011*

Mill

on

US$

Costa Rica: FDI Inflows (1991-2011)

0

2.000

4.000

6.000

8.000

10.000

0

500

1.000

1.500

2.000

2.500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011*

FDI

Costa Rica: Relationship between FDI Inflows and Merchandise Exports, US$ million (1991-2011)

Exp

ort

s

AgroindustryFirst contact centers

Blue-Chip companies

Consolidation of CR as one of the main FDI locations in Latin America

1st leading medical devices company

Costa Rica: evolution of FDI

19

60

19

82

19

86

19

90

19

95

20

00

20

04

20

11

Pioneer of the industrial

sector

Textiles & apparel

Costa Rica: towards increased sophistication of production processes

Low cost labor

Access to highly Skilled labor pool

Sub-assembly

•Parts and

components

assembly

•Sub-assembly of

components

Assembly

•Textile maquila

•Devices class I

•Product

assembly

Manufacturing and

Assembly

• Extrusion

•Injection

•Thermoforming

•Precision

engineering

•Product

assembly

•Packaging

Design and

Engineering

•Re-design of products

•Devices class II and III

•Product validation

•Re-design of

processes

•Automatization

Research & Development

•New products design

•Design of new

processes (BTCa/)

•Prototype testing

•Pre-clinical and clinical

studies

Source: CINDE, 2011. Notes: a/Business Transformation Center.

Increasing sophistication

Costa Rica: participation in GVC

Electronics55%

Medical devices36%

Automotive7%

Film & Broadcasting

1%

Aeronautic/Aerospace

1%

Costa Rica: GVC-related exportsby industry

2011

Source: COMEX, using data from PROCOMER.Source: COMEX, using data from PROCOMER.

57%67% 64%

43%33% 36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011

Costa Rica: Participation of GVC-related exports in total exports

2009-2011

Other GVC-related exports

COSTA RICA: EXPORTS AND EPZ

Source: COMEX, using data from BCCR.

Source: COMEX, using data from BCCR and PROCOMER.

Sou

rce:

Mo

nge

-Ari

ño

(2

01

1).

41%

42%

12%5%

Costa Rica: Structure of Exports (2010)

Raw Materials & Intermediate Goods

Final Consumption Goods

Capital Goods

Other

Source: COMEX, using data from BCCR.

36%

22%

59%

39%

71%

00,10,20,30,40,50,60,70,80,9

1

Costa Rica: Domestic Component of GVC Exports (DCE), by chain (2009)

51%

20%

16%

13%

Costa Rica: Structure of Imports (2010)

Raw Materials & Intermediate Goods

Final Consumption Goods

Capital Goods

Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Costa Rica: Share of EPZ Exports (1991-2010)

Other Exports

EPZ Exports

Costa Rica’s: participation in GVC: Key drivers

• Attraction of FDI• Interagency execution

Strategic visionProactive and coordinated

approach

• Political and economic stability• Export processing zone regime

Sound business environment

• WTO + PTAs with 54 countries• Robust air transportation network

Solid export platform

• Quality of educational system -1st in LatAm (WEF)• Cost competitive

Educated work force

• Middle of the Americas• Proximity to US market

Privileged geographical location

Diversify

Participate in more GVC

Increase tasks performed

Expand number of firms

Strengthen

Increase local content

Promote backward

linkages to local suppliers

Upgrade

The role of innovation, science and technology

Increased focus on high-skilled

tasks

Costa Rica: What next in GVC?

OPPORTUNITIES AND CHALLENGES AHEAD

•How to increase participation in GVC in the absence of a regional production system?

•What growth potential for US-centered GVC?

•What role for Costa Rica in GVC centered in Asia?

•What role for Costa Rica in GVC producing for emerging markets?

chal

len

ges

• Increased linksbetween Asia and Latin America

• Expansion of GVC

• Off-shoring services

• Growth dynamics of emerging markets

op

po

rtu

nit

ies

Domestic agenda in support of GVC

•Securing preferential access to international markets and deepening trade liberalization

•Reducing the cost and time to trade at the border and securing trade flows

•Enhancing and expanding the human resource base

•Moving towards an innovation-driven economy

•Upgrading infrastructure

•Securing the energy supply

•Better understanding CR's participation in GVC

What role for trade policy in enhancing Costa Rica’s participation in GVC?

Trade liberalization• The role of PTAs

• An enhanced ITA?

• Removal of non-tariff barriers

• Increased competition in trade-related services

• Exploring new ideas

• Eg. an International Digital Economy Agreement?

Trade facilitation• Simplification and harmonization of trade regulations and procedures

Protection of IPRs

A multilateral investment framework?