CR Cell Phone 011 506 363 2875
Skype Phone 1 561 459 4858
goodlife@puraosa.com
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CR Cell Phone 011 506 363 2875 Skype Phone 1 561 459 4858 goodlife@puraosa.com |
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Investing
in Costa Rica |
Costa Rican policies and practices substantially meet the elements of an open investment regime, as outlined below: -- Openness to Foreign Investment -- General Government Attitude Toward
Foreign Direct Investment Since mid-1982, the Government has placed considerable emphasis on improving the investment climate, exemplified by the creation of the Ministry of Foreign Trade (COMEX), which coordinates government efforts in the trade and investment areas. Reform legislation of 1996 redefined COMEX's authority, to include independence in negotiating international treaties, representation of Costa Rica in the World Trade Organization (WTO), and oversight of the Center for Export and Investment Promotion (PROCOMER) and the Free Trade Zone (FTZ) Corporation. COMEX is also charged with assisting prospective investors to gather information and complete formalities required for investing in Costa Rica. Under the Rodriguez Administration, COMEX has become part of the Ministry of Economy, Industry and Trade. The Costa Rican Coalition for Development Initiatives (CINDE), a private non-profit association originally created in 1982 under USAID sponsorship, operates a very active investment promotion program through its office in Costa Rica and regional offices in the United States, Europe and the Far East. CINDE has been closely associated with the arrival of some of the largest foreign investments in Costa Rica, e.g., Intel, Alcoa and (in the near future) Abbott Laboratories. Industry surveys suggest that investors are most attracted by competitive labor costs for a well-educated workforce and by the country's economic and political stability. Another factor is that Costa Rica is a beneficiary of the U.S. Caribbean Basin Economic Recovery Act (CBERA), also known as the Caribbean Basin Initiative (CBI). The CBERA program grants Costa Rica duty-free treatment for some 4,000 products and has played a significant role in helping Costa Rica diversify its exports and increase bilateral trade with the U.S. Industries considered to have good development potential in Costa Rica are those that are relatively labor intensive and require moderately or highly skilled workers. If the goods produced are eligible for CBI treatment, Costa Rica's attractiveness is further enhanced. Industries that have taken advantage of this potential include manufacturing or assembly of electronic components, telecommunications equipment, machinery, consumer goods, electrical appliances, up-scale apparel products, toys, sporting goods, selected leather products (most leather products do not benefit from CBI), and health and natural resource-based products, including food processing and agro-industrial products. With the Government of Costa Rica's emphasis on exports, enterprises meant to supply or service domestic consumers tend to be overlooked. However, the local market has been targeted for the past twenty years by investors in fast food franchises (Burger King, Taco Bell, McDonald's, Pizza Hut, Subway, TCBY Yogurt, Kentucky Fried Chicken, Papa John's Pizza, etc.), car rentals (Hertz, Avis, Dollar, Budget, etc.), hotels (Marriott, Hampton Inn, Intercontinental), designer clothing boutiques (Tommy Hilfiger, Liz Claiborne), and computer products and services.
Overall Economic
or Industrial Strategy that has Discriminatory Effects on Foreign-Owned
Investments Screening (Host Government Selection)
and Sectors Screened Sectors/Matters in which Foreigners
are Denied National Treatment or MFN Treatment Is there any Discrimination Against Foreign Investors at the Time of the Initial Investment or After the Investment is Made, Such as through Special Tax and Treatment, Access to Licenses, Approvals, Procurement, Etc.? There is no such discrimination against foreign investors, although access to licenses, approvals, etc., may be considered cumbersome by most foreign investors, as it is by Costa Ricans. -- Conversion and Transfer Policies -- Are there any Restrictions on Converting or Transferring Funds Associated with an Investment (Remittances of Investment Capital, Earnings, Loan Repayments, Lease Payments, for example), Into a Freely Usable Currency and at a Legal Market Clearing Rate? There are no limitations on transferring funds associated with investments, in any available currency, and at a legal market-clearing rate. There is no queuing for foreign exchange and no restrictions are imposed on reinvestments or on the repatriation of earnings, royalties, or capital except when these rights are covered in contractual agreements with the Government of Costa Rica. Royalties are taxed in accordance with Title IV of the Income Tax Law, No. 7092, extensively reformed in October 1988, in amounts varying from 10 to 25 percent. Is there Difficulty Obtaining Foreign Exchange? No. The 1995 Financial Reform Law's guarantee of the free conversion of the colon opened the possibility of negotiating contracts in any currency. Exporters and other earners of foreign exchange are now guaranteed the right to keep 100 percent of their foreign exchange earnings. Is There a Limitation on Inflow/Outflow of Funds for Remittances of Profits, Debt Service, Capital, Capital Gains, Returns on Intellectual Property, Imported Inputs? There are no limitations on inflow/outflow of funds. There are no limitations on capital exports by either local or foreign residents or enterprises. Many Costa Ricans pay for raw materials and capital goods, or simply hedge against devaluation, by keeping some funds abroad, mainly in U.S. banks. -- Expropriation and Compensation-- Reasons for Expropriation In the past, the Government of Costa Rica expropriated large amounts of land for national parks, biological refuges, and indigenous reserves. It also expropriates land to build roads and other public infrastructure. Does the Government Offer Compensation at the Time of Expropriation? Article 45 of the Constitution of Costa Rica stipulates that no property can be expropriated from a Costa Rican or foreigner without prior payment and demonstrable proof of public interest. Nonetheless, several U.S. claimants continue to seek resolution of expropriation disputes that began 15 or more years ago. On June 8, 1995, the Legislative Assembly passed Law
7495 on expropriations, to clarify that expropriations are to take place
only after full and advance payment is made, regardless of the nationality
of the holder of such property. Included among the various provisions
of the new expropriations law are: The Expropriations law was amended in 1998 to expedite some procedures, particularly those necessary for the Government to acquire land for new roads. It is expected that the new amended law will facilitate resolution of new expropriation cases. How have Investors Viewed the Amount of Compensation Offered? Several unresolved expropriation cases involve disputes over the current value of the property or the rate of interest to be paid on amounts due and owing. The courts have not always required that interest be paid when payment is delayed or that the value of an award be protected against inflation. Are Claimants Thwarted in Efforts to have Claims Heard? The current and past governments have made considerable efforts to resolve several pending expropriation cases, and a number of longstanding high-profile cases have been partially resolved by the owners obtaining partial compensation or return of the property. One high-profile case has gone to international arbitration. In another, the government deposited over USD$ 7 million of compensation with the courts. Still, the process has been very slow. The U.S. Government is working with the Government of Costa Rica to resolve the remaining cases. Have there been any Expropriation Actions in the Recent Past or Policy Shifts which would Lead the Embassy to Believe there may be Expropriation Actions in the Near Future? There have been no recent expropriation cases or policy shifts. Are there any Tendencies in the Host Government to Discriminate Against U.S. Investments, Companies or Representatives in Expropriation? There are no tendencies to discriminate against U.S. investors. Are there Certain Sectors (e.g., Mining, Banking, Large Land Holdings) that are more at Risk for Expropriation or Similar Actions? Most of the major expropriations involving U.S. citizens have involved rural land that has been incorporated into national parks or indigenous reserves. -- Right to Private Ownership and Establishment -- Is there a Right of Foreign and Domestic Private Entities to establish and Own Business Enterprises and Engage in all Forms of Remunerative Activity? Apart from sectors described earlier that are reserved for the State or that require Costa Rican citizenship or residency, all private entities and persons, domestic or foreign, may establish and own business enterprises and engage in all forms of remunerative activity. Is there a Right of Private Entities to Freely establish, Acquire, and Dispose of Interests in Business Enterprises? Private entities, whether locally or foreign owned, may freely establish, acquire, and dispose of interests in business enterprises. Is Competitive Equality the Standard Applied to Private Enterprises in Competition with Public Enterprises with Respect to Market Access, Credit, and other Business Operations, such as Licenses and Supplies? State-owned enterprises are generally monopolies (such as electricity, telecommunications, insurance, etc.). Other activities (medical services, etc.) generally have equality of treatment with respect to activities also undertaken by State companies, although banks owned by the State receive some advantages over their private competitors. -- Protection of Property Rights -- Are Secured Interests in Property, Both Chattel and Real, Recognized and Enforced? Does the Concept of a Mortgage Exist? Is There a Recognized and Reliable System of Recording Such Security Interests? Secured interests in both chattel and real property are recognized and enforced, and mortgage and title recording is mandatory. However, recent property title disputes have suggested that abnormalities may exist in the National Registry, the Government entity recording property titles and boundaries. A U.S. title insurance company established a branch in Costa Rica in 1997 to provide title protection for investors in real estate. Is There A Functioning, Non-Discriminatory Legal System Accessible To Foreign Investors That Protects And Facilitates Acquisition And Disposition Of All Property Rights, Such As Land, Buildings, And Mortgages? In general, the laws controlling investment by foreigners are transparent. However, investment in real estate requires particular care due to potential problems with title, as mentioned above, and to the possibility of squatter invasions. This is especially true for absentee owners of undeveloped farmland. Do Tax, Labor, Health and Safety, and Other Laws and Policies Distort or Impede Investment? Tax, labor, health and safety laws are generally well conceived and enforced and do not interfere with investment decisions or flows. Are Bureaucratic Procedures Sufficiently Streamlined and Transparent? To what Extent is Unnecessary Red Tape a Problem? Bureaucratic procedures are frequently long, involved and discouraging to newcomers. Nevertheless, long-time foreign resident companies and individuals appear to thrive despite the red tape that might discourage some newcomers. Judging by the recent arrivals of microchip giant Intel, bottle cap manufacturer Alcoa, and Abbott Laboratories, as well as the growth of the Costa Rican-American Chamber of Commerce, the regulations and red tape are not sufficient to block investor interest. Much remains to be done to eliminate bottlenecks in public services, such as the Customs Service, and in the judicial system. At present, there is little or no provision for punitive damage remedies in civil cases, and an average two-year turnaround for criminal cases (intellectual property rights, squatter invasion of land, etc.). All judicial proceedings require highly specialized professional assistance. Supplying goods and services to the Government also requires expertise. Public bidding proceedings occasionally are annulled because the would-be supplier or contractor has not understood or complied with all the regulations, including those involving environmental impact. In 1998, the Legislative Assembly enacted the Public Concessions law that modifies the 1995 legislation dealing with administrative contracting and procurement. This allows private contractors to bid on government projects within monopolized sectors while strengthening transparency in the process and simplifying procedures for appealing contract awards. -- Efficient Capital Markets and Portfolio Investment -- Do Policies Facilitate the Free Flow of Financial Resources to Support the Flow of Resources in the Product and Factor Markets? The absence of capital controls greatly facilitates the free flow of financial resources. However, the small size of the economy and of the domestic banking system, together with the large domestically-financed public sector debt, constrain the efficiency of the financial system. Is Credit Allocated on Market Terms? Are Foreign Investors Able to get Credit on the Local Market? The three State-owned banks supply about 80 percent of domestic credit. Private banks are increasing their market share by employing innovative ways of borrowing and by operating in a more efficient manner, free of the political considerations of the State-owned banks. Credit is allocated on market terms, although the State-owned banks are sometimes obliged to finance high-risk or unprofitable activities deemed to be of public interest by the Government. Foreign investors are able to borrow in the local market, but the small scale of the economy and closed nature of the society generally mean foreign borrowers must often form joint ventures with well-known local persons or meet stricter credit criteria if they wish to obtain domestic financing. They are free to borrow from abroad. Generally, the legal, regulatory and accounting systems are transparent and consistent with international norms. Some major international accounting firms have local offices to service international, as well as local, enterprises. Is the Banking System Sound? If not, what Percentage of the Total Assest Base is estimated as Non-Performing? Approximately 9.5 percent of the total loans of State-owned banks are more than 90 days overdue, compared to 3.6 for the banking sector as a whole. A few of the smaller credit cooperatives and finance companies have failed in recent years. Generally, they have been absorbed by stronger institutions without losses to depositors, but a couple of cases remain unresolved. Since the establishment of the General Superintendent of Financial Institutions (SUGEF) in 1996, oversight of all financial institutions is believed to be enhanced, and banks are obligated to provide substantial reserves for their non-performing loans. As private banks make further inroads into the credit market, observers expect the financial sector to become more competitive, consolidating around a smaller total number of institutions. Are there laws or regulations specifically authorizing private firms to adopt articles of incorporation which limit or prohibit foreign investment, participation, or control? It is illegal to limit or prohibit foreign investment, participation, or control of private corporations. Are there private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations? There are no private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations. -- Political Violence-- Have there been incidents over the past few years involving politically motivated damage to projects and/or installations? No. Costa Rica has not recently experienced significant problems with domestic political violence. Nonetheless, internal conditions in neighboring Nicaragua have contributed to extensive illegal migration into Costa Rica. The situation was exacerbated in late 1998 by Hurricane Mitch, which caused severe damage to Nicaraguan crops, housing and infrastructure. While there are no hard statistics on the numbers of people involved, Costa Rican immigration authorities estimated in March 1999 that there were 600,000 or more Nicaraguans living in Costa Rica at that time. This compares to a total population of around 3.5 million. In May 1997, then-President Figueres and Nicaraguan President Arnoldo Aleman reached agreement in principle on an ambitious plan to legalize the status of the large illegal work force. Following Hurricane Mitch, President Rodriguez implemented an amnesty program for illegal immigrants, and close to 150,000 Nicaraguans had applied by the deadline of July 31, 1999. While some migrants contribute to violence, incidents tend to be common crimes rather than politically motivated. In January 1996, a small group of Nicaraguans kidnapped a German tourist and a Swiss-Costa Rican tour guide, holding them captive for 71 days. This group, whose demands had political overtones, released the two women unharmed after relatives paid a ransom. The police subsequently made several arrests. In March 1997, the group leader, a former Nicaraguan Contra, was sentenced to 30 years in prison. In April 1996, authorities arrested a small group that had manufactured homemade bombs and made threats against the constitutional order. Are there any nascent insurrections, belligerent neighbors or other politically motivated activities? No indigenous or external movements are likely to produce political or social instability. While Costa Rica has a politically active society, most Costa Ricans direct their political activities within democratic norms. However, some groups block roads or highways to publicize their grievances. These demonstrations occasionally result in violent confrontations with police, as happened when police reopened highways blocked by Santa Ana residents protesting plans to establish a garbage dump in their town. Violence can also occur during the forceful eviction of squatters from private lands. -- Foreign Direct Investments --
According to the Minister of Foreign Trade (COMEX), foreign direct investment in Costa Rica in 1998 was US$ 530 million, roughly 5 percent of GDP. This compares to approximately US$ 480 million in 1997 and US$ 430 million the year before. The trend has been consistently upwards throughout the nineties and has reflected a concerted Costa Rican effort to attract high quality investors. Existing investors cite Costa Rica's well educated population, command of English, political and social stability, and proximity to the United States as the country's leading attractions. However, labor costs, particularly non-salary benefits, are relatively expensive. Accordingly, there has been an evolution away from investments requiring relatively unskilled and low cost labor and towards industries requiring a more highly skilled workforce. Costa Rica is aggressively marketing its human resources and geographic advantages and is seeking quality investments in the manufacture or assembly of microelectronic components and electrical appliances, medical equipment and supplies, and high value-added apparel. This effort is greatly assisted by the country's Free Trade Zone regulations and by the very liberal trading and foreign exchange regimes. Value of foreign direct investment (position/stock and
annual flows) by country of origin and industry sector designation. Specify
source of statistics and any significant characteristics or limitations
of data. List of major foreign direct investments by U.S. companies The Standard Fruit Company (Dole) and Chiquita Brands were for decades the principal U.S. investors in Costa Rica. Dole continues to expand its investment, diversifying from its core banana business into pineapples and, most recently, prepared salads for the Central American market. Chiquita has partially withdrawn from the plantation business and now concentrates more on exporting the fruit. In recent years, investment has turned more toward manufacturing. Microchip giant Intel reportedly invested approximately US$ 200 million in 1997, with tentative plans to invest an additional US$ 150 million over the next two years. Intel will reportedly employ 3,500 professionals and technicians to assemble its Pentium line of microprocessors for personal computers. Intel's first shipment took place in April 1998. The construction of four Intel plants is projected in Costa Rica, with 1998 sales targeted at over US$ 900 million. Recognizing that other Central American countries and Mexico offer more attractive labor costs, CINDE has long sought to promote Costa Rica's highly skilled labor force, political stability, and Free Trade Zone benefits to high-tech manufacturers, such as Intel, seeking a window to the Latin American and world markets. Consolidation continued in the textile and apparel sector, which have experienced little new or expansion investment and some plant closures in recent years. Several lingerie plants closed in 1997, one of which moved to Nicaragua, and two to Mexico. The slowed investment in the textile/apparel sector reportedly is primarily due to the passage of NAFTA (providing Mexico with at least a 20 percent cost advantage in apparel over Costa Rica), lack of NAFTA parity for CBI countries in this sector, and Costa Rica's high operating costs compared to other countries in the region. According to the Free Zone Corporation, there were 219
companies in the Free Zones in early 1999, an increase of 19 from 1997.
Some of the more prominent companies are: Del Rio Exportaciones Grupo Lider Alimentario Indagro Export Inc. Materiales Electricos Productos de Espuma S.D.B. Global, S.A. Tabacalera Tambor Leather products Industrial pastry N/A Electrical components N/A N/A Tobacco products Major new U.S. FTZ investments registered in 1998 included:
EXPANSION INVESTMENT (recent data) |