Economy of Costa Rica

BET Costa Rica

 This article needs additional citations for verification.
Please help improve this article by adding reliable references. (November 2007)

The economy of Costa Rica heavily depends on tourism, agriculture, and electronics exports. Poverty has been reduced over the past 15 years, and a social safety net put into place. Economic growth rebounded from -0.9% in 1996 to 4% in 1997, 6% in 1998, 7% in 1999.

According to the CIA World Factbook, Costa Rica's GDP per capita is US$12,500; however, this developing country still faces the second highest inflation rate in Latin America, lack of maintenance and new investment in infrastructure, over 610,000 (16%) people below the poverty line and just over 270,000 (6.6%) unemployed. The Costa Rican economy grew nearly 5% in 2006 after experiencing 4 years of slow economic growth.[1]

Inflation rose to 22.5% in 1995, dropped to 11.1% in 1997, 12% in 1998, 11% in 1999 and 9% in 2007. Large government deficits - fueled by interest payments on the massive internal debt - and inefficient administration by government monopolies have undermined efforts to maintain the quality of social services. Curbing inflation, reducing the deficit, and improving public sector efficiency through an anti-corruption drive, remain key challenges to the government. Political resistance to privatization has stalled liberalization efforts.

Costa Rica's economy emerged from recession in 1997 and has shown strong aggregate growth since then. After 6.2% growth in 1998, GDP grew a substantial 8.3% in 1999, led by exports of the country's.

The strength in the nontraditional export and tourism sector is masking a relatively lackluster performance by traditional sectors, including agriculture. Inflation, as measured by the Consumer Price Index, was 10.1% in 1999, down from 11.2% the year before. The central government deficit decreased to 3.2% of GDP in 1999, down from 3.3% from the year before. On a consolidated basis, including Central Bank losses and parastatal enterprise profits, the public sector deficit was 2.3% of GDP.

Controlling the budget deficit remains the single biggest challenge for the country's economic policy makers, as interest costs on the accumulated central government debt consumes the equivalent of 30% of the government's total revenues. This limits the resources available for investments in the country's deteriorated public infrastructure, investments in many cases that would result in higher quality infrastructure if they were better planned.

Contents

Natural resources

Costa Rica's major economic resources are its fertile land and frequent rainfall, its well-educated population, and its location in the Central American isthmus, which provides easy access to North and South American markets and direct ocean access to the European and Asian Continents. Costa Rica has two seasons, both of which have their own agricultural resources. The seasons are the basic, wet and dry, tropical seasons. One-fourth of Costa Rica's land is dedicated to national forests, often adjoining beaches, which has made the country a popular destination for affluent retirees and ecotourists. In terms of the 2008 Environmental Performance Index ranking, Costa Rica is 5th in the world, up from the 15th place in 2006.[2]

Tourism

Main article: Tourism in Costa Rica

With a $1.92-billion-a-year tourism industry, Costa Rica stands as the most visited nation in the Central American region, with 1.9 million foreign visitors in 2007,[3] thus reaching a rate of foreign tourists per capita of 0.46, one of the highest in the Caribbean Basin, and above other popular destinations such as Mexico (0.21), Dominican Republic (0.38), and Brazil (0.03).

Ecotourism is extremely popular with the many tourists visiting the extensive national parks and protected areas around the country. Costa Rica was a pioneer in this type of tourism and the country is recognized as one of the few with real ecotourism.[4] Other important market segments are adventure, and sun and beaches. Most of the tourists come from the U.S. (54%) and the E.U. (14%), the prime market travelers in the world, which translates into a relatively high expenditure per tourist of $1000 per trip. In terms of 2008 Travel and Tourism Competitiveness Index (TTCI), Costa Rica reached the 44th place in the world ranking, being the first among Latin American countries, and second if the Caribbean is included.[5] Just considering the subindex measuring human, cultural, and natural resources, Costa Rica ranks in the 24th place at a worldwide level, and 7th when considering just the natural resources criteria. The TTCI report also notes Costa Rica's main weaknesses, ground transport infrastructure (ranked 113th), and safety and security (ranked 128th).[6] [7]

Exports, jobs, and energy

Costa Rica used to be known principally as a producer of bananas and coffee. Even though coffee, bananas, pineapple, sugar, lumber, wood products and beef are still important exports, in recent times electronics, pharmaceuticals, financial outsourcing, software development, and ecotourism have become the prime industries in Costa Rica's economy. High levels of education among its residents make the country an attractive investing location.

The country has successfully attracted important investments by such companies as Intel Corporation, which employs nearly 3,500 people at its custom built $300 million microprocessor plant; Procter & Gamble, which is establishing its administrative center for the Western Hemisphere in Costa Rica; and Abbott Laboratories and Baxter Healthcare from the health care products industry likewise. Manufacturing and industry's contribution to GDP overtook agriculture over the course of the 1990s, led by foreign investment in Costa Rica's free trade zones. Well over half of that investment has come from the U.S. In 2006 Intel's microprocessor facility alone was responsible for 20% of Costa Rican exports and 4.9% of the country's GDP.[8][9]

Trade with South East Asia and Russia has boomed during 2004 and 2005, and the country is expected to obtain full Asia-Pacific Economic Cooperation Forum (APEC) membership by 2007 (the country became an observer in 2004).

Tourism is booming, with the number of visitors up from 780,000 in 1996, through 1 million in 1999, to 1.9 million foreign visitors in 2007, allowing the country to earn $1.9-billion in that year.[10] Tourism now earns more foreign exchange than bananas and coffee combined.[11] In 2005, tourism contributed with 8,1% of the country's GDP and represented 13,3% of direct and indirect employment.[12]

The country has not discovered sources of fossil fuels--apart from minor coal deposits-- but its mountainous terrain and abundant rainfall have permitted the construction of a dozen hydroelectric power plants, making it self-sufficient in all energy needs, except oil for transportation. Costa Rica exports electricity to Central America and has the potential to become a major electricity exporter if plans for new generating plants and a regional distribution grid are realized. Mild climate and trade winds make neither heating nor cooling necessary, particularly in the highland cities and towns where some 90% of the population lives.

Infrastructure

Costa Rica's infrastructure has suffered from a lack of maintenance and new investment. The country has an extensive road system of more than 30,000 kilometers, although much of it is in disrepair. Most parts of the country are accessible by road. The main highland cities in the country's Central Valley are connected by paved all-weather roads with the Atlantic and Pacific coasts and by the Pan American Highway with Nicaragua and Panama, the neighboring countries to the North and the South. Costa Rica's ports are struggling to keep pace with growing trade. They have insufficient capacity, and their equipment is in poor condition. The railroad didn't function for several years, until recent government effort to reactivate it for city transportation.

The government hopes to bring foreign investment, technology, and management into the telecommunications and electrical power sectors, which are monopolies of the state. However, political opposition to opening these sectors to private participation has stalled the government's efforts.

Costa Rica has a reputation as one of the most stable, prosperous, and among the least corrupt in Latin America.[13] However, in fall 2004, three former Costa Rican presidents (Jose Maria Figueres, Miguel Angel Rodríguez, and Rafael Angel Calderon) were investigated on corruption charges related to the issuance of government contracts, and several of the legal proceeding are still open.

The poor state of public finances and the maladministration by state monopolies will continue to limit the state's ability to try to modernize these sectors in the absence of a political consensus to permit private investment. Failure to act soon on telecommunications could prove an obstacle to the government's desire to attract more world-class foreign investment.

Nationalized industry

Some large sectors such as utilities and telecommunications are nationalized and/or are government supported monopolies.

Although there are no formal capital controls, it has been claimed that the prevalence of state-owned banks have had the same effect. They are also blamed for the rampant inflation that currently runs at around 11%.

The quality of these industries, particularly power and communications, have been sharply criticized for the outages that occur nearly daily.

The large amount of government intervention and support for these industries has been blamed for the lack of funding for and virtual non-existence of police.

Trade policy

Costa Rica has sought to widen its economic and trade ties, both within and outside the region. Costa Rica signed a bilateral trade agreement with Mexico in 1994, which was later amended to cover a wider range of products. Costa Rica joined other Central American countries, plus the Dominican Republic, in establishing a Trade and Investment Council with the United States in March 1998.

Costa Rica is negotiating or seeking ratification of trade agreements with Chile, the Dominican Republic, Panama, and Cuba. It lobbied aggressively for enhancement of the U.S. Government's Caribbean Basin Initiative and has made clear its interest in joining the North American Free Trade Agreement (NAFTA) or signing a similar treaty with the U.S. Costa Rica is an active participant in the negotiation of the hemispheric Free Trade Area of the Americas, a process that the Costa Rican Government chaired in preparation for the April 1998 Summit of the Americas in Santiago, Chile.

Costa Rica was the final signatory to the US-Central American Free Trade Agreement (CAFTA) just ratifying it after a referendum vote on October 7, 2007. A narrow margin tipped the scales, giving CAFTA the victory with 51% of voters in favor. CAFTA implementation will now result in economic reforms and an improved investment climate.

Costa Rica also is a member of the Cairns Group which is pursuing global agricultural trade liberalization in the World Trade Organization and helping to maintain the proper economy level in Costa Rica.

Statistics

 This article or section needs to be updated.
Please update the article to reflect recent events / newly available information, and remove this template when finished.

GDP: $20.2 billion (2006)

GDP PPP: $37.96 billion. (2006)

GDP real growth rate: 6.8% (2006 est.)

GDP per capita: purchasing power parity - $11,100 (2005 est.)

GDP composition by sector: agriculture: 8.5% (2005) Bananas, pineapples, coffee, beef, sugarcane, rice, dairy products, vegetables, fruits and ornamental plants. industry: 29.7% (2004) Electronic components, food processing, textiles and apparel, construction materials, cement, fertilizer. services: 61.8% (2004) Hotels, restaurants, tourist services, banks, and insurance.

Population below poverty line: 18% (2006)

Household income or consumption by percentage share: lowest 10%: 1.1% highest 10%: 36.8% (2004 est.)

Inflation rate (consumer prices): 8.75% (interanual from June 2006 to June 2007), 9.76%(2006)

Labor force: 1.81 million (2004 est.)

Labor force by occupation: agriculture 20%, industry 22%, services 58% (1999 est.)

Unemployment rate: 6.6% (2004 est.) (understated); 7.5% underemployment

Budget: revenues: $2.497 billion (2004 est.) expenditures: $3.094 billion (2004 est.)

Industries: microprocessors, food processing, textiles and clothing, construction materials, fertilizer, plastic products

Industrial production growth rate: 24.5% (1999)

Electricity production: 5,742 GWh (1998)

Electricity production by source: fossil fuel: 9.28% hydro: 80.62% nuclear: 0% other: 10.1% (1998)

Electricity consumption: 5,267 GWh (1998)

Electricity exports: 77 GWh (1998)

Electricity imports: 4 GWh (1998)

Agriculture products: coffee, bananas, sugar, corn, rice, beans, potatoes, beef, timber

Exports: $6.4 billion (f.o.b., 1999 est.)

Export commodities: coffee, bananas, sugar; textiles, electronic components, electricity

Export partners: USA 49%, EU 22%, Central America 10% (1999)

Imports: $6.5 billion (c.i.f., 1999 est.)

Import commodities: raw materials, consumer goods, capital equipment, petroleum, electricity

Import partners: USA 41%, Japan 8.1%, Mexico 7.3%, Venezuela 4% (1998)

External debt: $3.9 billion (1998 est.)

Economic aid - recipient: $107.1 million (1995)

Currency: 1 Costa Rican colon (₡) = 100 centimos

Exchange rates: Costa Rican colones (₡) per US$1 - 500.10 (December 2007), 516.78 (November 2007), 506.11 (April 2006), 479.57 (July 2005), 299.63 (February 2000), 285.68 (1999), 257.23 (1998), 232.60 (1997), 207.69 (1996) and 179.73 (1995)

Fiscal year: October 1 – September 30

References

  1. ^ "Costa Rica: Economy", U.S. State Department. Retrieved on 2007-11-02. 
  2. ^ Yale Center for Environmental Law & Policy / Center for International Earth Science Information Network at Columbia University. Switzerland Tops 2008 Environmental Scorecard at World Economic Forum. Retrieved on 2008-01-26.
  3. ^ País cierra el año con llegada de 1,9 millones de turistas (Spanish). Nación (2007-12-19). Retrieved on 2007-03-16.
  4. ^ Honey, Martha (1999), Ecotourism and Sustainable Development: Who Owns Paradise?, Island Press; 1 edition , Washington, D.C., p. 5, ISBN 1-55963-582-7 
  5. ^ Jennifer Blanke and Thea Chiesa, Editors (2008), The Travel & Tourism Competitiveness Report 2008, World Economic Forum, Geneva, Switzerland, <http://www.weforum.org/pdf/CGR08/Rankings.pdf> 
  6. ^ País segundo en competitividad turística en América Latina (Spanish). La Nación (2008-03-06). Retrieved on 2007-03-16.
  7. ^ Podemos ser aún mejores (Spanish). La Nación (2008-03-08). Retrieved on 2007-03-16.
  8. ^ Intel supone el 4,9 por ciento del PIB de Costa Rica (Spanish). El Economista (2006-10-06). Retrieved on 2008-04-13.
  9. ^ Intel fabrica el procesador "más veloz del mundo" en Costa Rica (Spanish). La Vanguardia (2007-11-13). Retrieved on 2008-04-13.
  10. ^ Hassel Fallas (2007-12-19). País cierra el año con llegada de 1,9 millones de turistas (Spanish). La Nación. Retrieved on 2008-04-13. Translation: Country closes year with the arrival of 1,9 million tourists
  11. ^ José Enrique Rojas (2004-12-29). Turismo, principal motor de la economía durante el 2004 (Spanish). La Nación. Retrieved on 2008-04-13.
  12. ^ Altés, Carmen (2006), El Turismo en América Latina y el Caribe y la experiencia del BID, Inter-American Development Bank; Sustainable Development Department, Technical Paper Series ENV-149, Washington, D.C. available at http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=984876, p. 9 and 47 
  13. ^ Transparency International. Global Corruption Report 2007. Retrieved on 2008-03-11. Costa Rica ranks 3rd among Latin American countries, and the 55th position worldwide.