Why Costa Rica?Why Costa Rica?

• Strategic Location• Political and Social stability• Economic Stability• Human Resources• Incentives• Infrastructure • Legal Security • Quality of Life• Great Potential• Business Sectors• Professional Assistance from CIN

DE

Strategic LocationStrategic Location

•In the center of the In the center of the AmericasAmericas •Central Standard Time Central Standard Time ZoneZone•2:50 hours flying time to 2:50 hours flying time to MiamiMiami•Duty free access to the Duty free access to the U.S. U.S. through CBIthrough CBI

Political and social stabilityPolitical and social stability

• Tradition of peace and stability– Army abolished in 1948

• Government– More than 100 years of democracy– 3 independent powers– 4 year term with reelection– Presidential System

• No financial crisis for more than 20 years– Yearly output growth of 4.2%– $4,361 per capita income in 2004

• As a result, Costa Rica benefits from good access to the world’s capital markets and moderate risk premium

• Costa Rican Long Term Bond Ratings:Moody’s Ba1 (non investment

grade)FITCH Ratings BB (speculative)Standard & Poor’s BB (speculative)

Political and social stabilityPolitical and social stability

Economic StabilityEconomic Stability

0%

5%

10%

15%

20%

25%

30%

35%

90

91

92

93

94

95

96

97

98

99

00 01 02 03 04

Infl ation (Costa Rica)

Devaluation (Costa Rica)Mexico,

Turkey,

Venezuela

Thailand

Malaysia

Indonesia

Czec Rep.

Phillipines

Korea

Brazil

Rusia

A

r

g

e

n

t

i

n

a

Macroeconomic Stability in spite of world economic crisis Macroeconomic Stability in spite of world economic crisis periodsperiods

Source: CINDE

Foreign Direct InvestmentForeign Direct Investment

0

100

200

300

400

500

600

700

1989 1991 1993 1995 1997 1999 2001 2003

US$ M

illion

Annual Growth of FDIAnnual Growth of FDI

Open EconomyOpen Economy

Openness of the economy

0%

20%

40%

60%

80%

100%

120%

1980 2003

* Goods trade as porcentage of the GDP, 1980-2003; China: 2002.* Goods trade as porcentage of the GDP, 1980-2003; China: 2002.

Source: WTO y IMF, 2004Source: WTO y IMF, 2004

• Tax free access to:Tax free access to:– USA through the CBI– Mexico– Canada– Central America– Chile– Dominican Republic– Panama– CARICOM

• Preferential access through the GPS to:Preferential access through the GPS to:– Europe and Asia

• Free Trade Agreements negotiations:Free Trade Agreements negotiations:– USA (signed)– Investment Promotion and Protection agreements with several

countries

Strategic market accessStrategic market access

Human ResourcesHuman Resources• Population to October, Population to October,

2005:2005: – 4.3 million– 34.2% of population is 15 to

35 years old• Labor force 2004: 1.8 millionLabor force 2004: 1.8 million

– Unemployment, July 2005: 6.6%

– Underemployment, July 2005: 8.4%

• Universal Health Care and Universal Health Care and Education SystemEducation System– Pillars for the national

stability– 6.5% of the GDP’s destiny is

for education

12108642024681012

0-9

20-29

40-49

60-69

80+

Percentage

Males Females

Age Structure by GenderAge Structure by Gender

Literacy RateLiteracy Rate

75 80 85 90 95 100

Dominican Rep.

Mexico

Singapoure

Phillipines

Hong Kong (SAR)

Chile

Costa Rica

Ireland

Source: United Nations, Human Development Index, 2004Source: United Nations, Human Development Index, 2004

• Universal, free and compulsory education since 1870 (the first in Latin America)

• Computer labs in 50% of the primary schools and 100% of high schools

• English teaching in 50% of public schools and 100% of private schools

• 92% of high school students will present graduate English test (*)

EducationEducation

*Source: Ministry of Public *Source: Ministry of Public EducationEducation

EducationEducation

• Training centersTraining centers– Technical High Schools (81)– University Foundations– INA: Free on-site technical training – CEFOF: Center for training trainers – CENFOTEC: Software training

• Universities, 56 (52 private, 4 state)Universities, 56 (52 private, 4 state) – Including HBS/INCAE.

EducationEducation

0

50000

100000

150000

200000

250000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

High School Students (1990-2003)

1°, 2° and 3° grade students 4° and 5° grade students

Source: Estado de la NaciónSource: Estado de la Nación

Labor ForceLabor Force

• Costa Ricans are healthy and motivated learners

• High observed productivity and learning speed by Free Zone Companies

• Favorable labor environment: non-union worker organization (Solidarismo)

• Low Turnover

Low TurnoverLow Turnover

1.43.6

4.1

5.36.1

7.2

0 2 4 6 8

Percentage

Managers

Engineers

Technicians

Administrative

Non - qualified workers

Qualified workers

Aggregate Personnel Turn Over RateElectronics & Medical Devices Sectors

Minimum wagesMinimum wages

CategoryCategory C o s t C o s t T o t a l T o t a lper hourper hour per year per year

(thousands) (thousands)

Non qualifiedNon qualified 1.81 1.81 4.52 4.52 Semi qualifiedSemi qualified 1.961.96 4.89 4.89 QualifiedQualified 2.112.11 5.26 5.26 SpecializedSpecialized 2.432.43 6.06 6.06

NOTES:All costs include all labor charges paid by the company, Christmas bonus and All costs include all labor charges paid by the company, Christmas bonus and reserves for vacations, holidays and severance (47.98% in total). Minimum reserves for vacations, holidays and severance (47.98% in total). Minimum salaries effective from July 1st to December 31st of 2005. Exchange rate used: salaries effective from July 1st to December 31st of 2005. Exchange rate used: 495 colons per US$ (expected and the year end). Normal week of 48 hours and 495 colons per US$ (expected and the year end). Normal week of 48 hours and 8 hours per day8 hours per day

In US$In US$

Average SalariesAverage Salaries Occupation Annual Cost (Thousands of US$)

General ManagerGeneral Manager 122.1 – 122.1 – 210.1210.1

Operations Manager & Operations Manager & 42.0 – 42.0 – 67.667.6

Customers Service Manager Customers Service Manager Production SupervisorProduction Supervisor 10.4 – 10.4 –

15.715.7AssistantsAssistants 9.4 – 9.4 –

12.512.5Bilingual Secretary 10.5 – 13.Bilingual Secretary 10.5 – 13.Specialized WorkerSpecialized Worker 5.9 – 7.5 5.9 – 7.5Non Specialized Worker Non Specialized Worker 4.6 – 5.4 4.6 – 5.4

NOTES:The total cost includes all the work charges paid by the company, the Christmas The total cost includes all the work charges paid by the company, the Christmas

bonus an bonus an reserves for vacations, holidays and severance. Source: Consulting Companies, reserves for vacations, holidays and severance. Source: Consulting Companies,

Survey for theSurvey for thesecond semester of 2004.second semester of 2004.

Investment IncentivesInvestment Incentives

FREE TRADE ZONE REGIMEFREE TRADE ZONE REGIME• 100% exemption on:100% exemption on:

– Import rights for raw materials, equipment and components.

– Export taxes, local sales tax, excise taxes, etc

– Profits repatriation taxes.– Those incentives dependents on the

exporter’s performance must follow the WTO Guidelines starting from December 2007.

• Minimum Investment:Minimum Investment:– US$ 150,000 inside free trade industrial

parks– US$ 2,000,000 outside free trade

industrial parks– With possibility of sale to other exporters

in the country and up to 25% of the production in the local market.

Investment IncentivesInvestment Incentives

Investment IncentivesInvestment Incentives

ACTIVE FINISHING REGIMEACTIVE FINISHING REGIME• Suspension of 100% of the import taxes

over:• Raw materials• Components• Packing• Machinery and equipment• It does not apply a minimum amount of

investment• Proportional payment of sales taxes for the

Central American markets

InfrastructureInfrastructure• Industrial Parks

– Designated areas for Free Trade Zone companies– Privately owned and managed– Variety of services:

• On site expedited customs• Health • Security• Maintenance• Day care• Garbage disposal, etc

– Located 7 km away from the Juan Santamaria Intl. Airport

Industrial ParksIndustrial Parks

InfrastructureInfrastructure• Water and Water and

ElectricityElectricity• Abundant water availability• Enough and trustable

electric power supply– Hydroelectric, geothermic

and other sources– Electric service coverage:

97%• Installed capacity of 1.962

MW• Approximated cost of $0,07 -

$0,12 per KW/Hour, industrial rate

• Clean energy: 97.5% of the energy sources are renewable.

InfrastructureInfrastructure• TransportationTransportation• Ports on both shores• 24 maritime cargo lines

service• Main airport located 15

km away from San Jose– 2º better airport of

Latin-American– 3º better airport of the

world (5 million passengers per year category)

• Competitive maritime rates to the USA, Europe and Asia

InfrastructureInfrastructure

• TelecommunicationTelecommunications s

• Direct dialing worldwide• Tone dialing, call waiting,

call forwarding, etc.• Redundant fiber optics

network• Point to point connections• Direct world wide fiber

optic access through Maya 1 & Arcos cables

Submarine CablesSubmarine Cables

• Foreigners have no limits of property handling and they can drive business activities freely.

• Foreigners have constitutional equality of rights and obligations.

• Free capital movement

• Intellectual property laws in accordance with WTO Guidelines.

Legal SecurityLegal Security

Quality of lifeQuality of life

• Life expectancy: 78.7 years

• Health-Care Public Services Coverage: 98.3%

• Infant Mortality very similar to those of developed countries: 9.75 death per each 1.000 born alive

• San Jose is among the cities with the San Jose is among the cities with the best quality of life in Latin Americabest quality of life in Latin America– The Economist Intelligence Unit,

Liveability Rankings 2005• Costa Rica is the 35° country of the Costa Rica is the 35° country of the

world in Quality of life.world in Quality of life.– The World in 2005, The Economist

• The surveys highlight Costa Rica as the country with the most solid and uninterrupted democracy

Quality of lifeQuality of life

Great PotentialGreat Potential

• ““Central American Country of the Future”Central American Country of the Future”– FDI Magazine, 2005FDI Magazine, 2005

• 55thth High-Tech exporter of the world High-Tech exporter of the world– United Nations Human Development Report

2005• 3535thth in the Trade and Development Index in the Trade and Development Index

– UNCTAD, 2005• One of the most successful FDI attraction One of the most successful FDI attraction

advantage countriesadvantage countries– UNCTAD: World Investment Report, 2002; and

CEPAL “FDI in Latin America” 2003

Success StorySuccess Story

William Abraham, William Abraham, General Manager, INTEL Costa General Manager, INTEL Costa

RicaRica

ElectronicsElectronics

• US $1,514 million exported in 2004US $1,514 million exported in 2004

• 12,000 direct employees12,000 direct employees

• US$ 172.5 million in FDI (2004)US$ 172.5 million in FDI (2004)

• Product Lines:Product Lines:RF MicrowaveAutotronicsSemiconductorsOther subsectors

• Intel, Sawtek, Remec, EMC Technology, Bourns, Teradyne, Suttle, Merrimac, Narda Microwave/ L3, Aetec, Conair/Babyliss, Panasonic, Current Controls, ITT Industries, Panduit, Pharos, Micro Technologies, Pycon, IDI International, Cuttler Hammer, Schneider/Square D; Wai Semicon and others...

Medical DevicesMedical Devices• US $521 million exported in 2004US $521 million exported in 2004• 4,800 direct employees through 20044,800 direct employees through 2004• US $152 million in FDI in 2004US $152 million in FDI in 2004

• Product Lines:Product Lines:CardiovascularOrthopedicImage diagnostics

• It is one of the most dynamic and productive sectors in Costa Rica.• Exports increased by 5% during 2003.

• Baxter Healthcare and Hospira, leaders of the industry, have operations in Costa Rica.

• Industry growth has created the need to attract new company suppliers to provide the industry with: molding, filters, packaging, resins and other supplies.

ServicesServices

• US $37.3 million in FDI in 2003US $37.3 million in FDI in 2003• 6873 direct jobs through 20036873 direct jobs through 2003

• Costa Rica offers the right conditions to companies for added value to their production with cost effective infrastructure, its labor force’s characteristics, and world wide services, such as:

• Shared service CentersShared service Centers• Back OfficesBack Offices• Software DevelopmentSoftware Development• Call CentersCall Centers• Engineering, Architecture & DesignEngineering, Architecture & Design

• Special ProjectsSpecial Projects – Existing industrial fashion designing capabilities. – Back office services (offshoring /outsourcing) in marketing, logistics,

sourcing, quality assurance and others. – Assembly of medical & other specialized products.

• Tourism – The national tourism market maintains a 7.1% annual growth. – Rooms have been expanding at an annual 4.5%. – More than one million tourists visit Costa Rica every year. – 48% of all tourists come from the USA, 16% from Europe and 36% from

other countries. – Great tourist real estate development presence, golf courses and

marinas

Others SectorsOthers Sectors

Support IndustrySupport Industry

• Plastic injection, extrusion, blow moldingPlastic injection, extrusion, blow molding– (Electroplast, Plásticos Modernos, Plásticos Star, PPC)

• Sheet metalSheet metal – (DIMMSA, Leogar, Perfiles Ranurados)

• Precision MachiningPrecision Machining – (R&R, Prolex, Oberg Industeries, FEMA, Weststar, Techshop,

Microtechnologies, Olympic Machining, MOTROSA)

• Tools and Dies, Stamping & PlatingTools and Dies, Stamping & Plating

• Quality and manufacturing systems:Quality and manufacturing systems: – ISO 9000, ISO 14000, QS9000, TL9000, 5S, TQM, Six Sigma.

Assistance from Assistance from CINDECINDE

• CINDE, the Costa Rican Investment Promotion

Agency, is a private non-profit nonpolitical

organization, founded in 1982.

• Providing assistance to investors through the New

York and Costa Rica offices

• Active promotion of foreign investment, local

support, and post establishment services.

• Support for new projects and reinvestment

Solidarista AssociationsSolidarista Associations

• Employer-sponsored workers’ associations

• Each company has an organization, in which white and blue collar workers participate

• The organization operates as a credit union which provides multiple benefits to workers

• It is funded by employers, with part of the severance provisions, and by employees

• Solidarista organizations ARE NOT sector-wide bargaining instances, as American unions