The United States is Costa Rica’s main trading partner, accounting for about 40% of Costa Rica’s total imports. According to U.S. Census Bureau trade data, the U.S. had a US$4.0 billion trade deficit with Costa Rica in 2011, as compared with a deficit of US$3.5 billion in 2010, a deficit of US$897 million in 2009, and surpluses of US$1.7 billion in 2008, US$639 million in 2007, US$288 million in 2006, and US$183 million in 2005.

Foreign direct investment in Costa Rica climbed steadily from the year 2000 ($408 million) to 2008 (over $2 billion), falling back over the last three years to 2006 levels of roughly $1.5 billion. New foreign direct investment in Costa Rica from all countries was US$1.56 billion in 2011, US$1.46 billion in 2010, US$ 1.35 billion in 2009, US$2.08 billion in 2008, US$1.9 billion in 2007, US$1.5 billion in 2006, and US$861 million in 2005. About 70 percent of that investment has come from the United States. Del Monte, Dole, and Chiquita have a large presence in the banana and pineapple industries.
In recent years, Costa Rica has successfully attracted important investments by such companies as Intel Corporation, which employs 3,200 people at its major fabrication plant; Procter & Gamble, which employs about 1,200 in its administrative center for the Western Hemisphere; Hewlett-Packard (6,500), Boston Scientific, Allergan, Hospira, Baxter Healthcare and others from the healthcare products industry. According to the US Census Bureau, 2011 data show that two-way trade between the U.S. and Costa Rica exceeded $16.2 billion during that timeframe.
After experiencing positive growth for several years, the Costa Rican economy shrank slightly in 2009 (-2.5%) due to the global economic crisis. The services sector (around 68% of GDP) was the most affected, with tourism falling by 8%. The economy experienced a rebound in 2010 with a 3.6% GDP growth rate, and a growth rate in 2011 of 3.8%. Costa Rica enjoys the region’s highest standard of living, with a per capita income of about US$7,843, and an unemployment rate of 7.37%. Consumer price inflation is high but relatively constant at about a 10% annual rate over the last decade.
According to the latest National Population Census of 2010, the percentage of population living in poverty in 2010 was estimated at 18.3 percent in the urban areas and 26.3 percent in the rural areas, with 4.2 percent in extreme poverty in the urban areas and 9.0 percent in extreme poverty in the rural areas. Inflation reached 13.9% at the end of 2008, dropped during 2009 to 4.0% by year’s end, and reached 5.8 percent by the end of 2010. Inflation rate was 4.74% during 2011. During 2010, the unemployment rate reached 7.3%, an increase from the 2009 year-end figure of 7.0%. The Government of Costa Rica has been running budget deficits in 2009-2011 but is currently capable of borrowing the necessary funds to do so.
While Costa Rica’s close trading and investment relationship with the United States has long benefited both nations, the recession that affected the U.S. in 2008-2009, began to be felt in Costa Rica after some lag time and diminished the level of bilateral trade and investment activity.
By the end of 2009. However, Costa Rica’s economic activity experienced an upturn which continued in 2010 and 2011. Total bilateral trade activity (export plus imports), in fact, rose by over 57% from 2009 ($10.3 billion) to 2011 ($16.2 billion).
During 2010, foreign investment activity in Costa Rica increased by 12 percent and in 2011 by 8 percent. Growth is expected to continue during 2012.
U.S. tourism to Costa Rica, which drives both local employment and U.S. exports (building and supplying the tourist resorts), fell off substantially in 2008, affecting the construction industry whose activity had already dropped off significantly in the coastal areas. By the end of 2010, though, both the construction industry and the tourist visits began to show an incipient recovery.
An important factor in this picture is the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR), which entered into force on January 1, 2009, and has brought new interest and opportunity in trade and helped to buoy the local economy and demand for U.S. exports.
As of June 2011, Costa Rica ranked 121 out of 183 countries in the 2011 World Bank's Ease of Doing Business Index. This has hampered the flow of investment and resources badly needed to repair and rebuild the country's public infrastructure, an infrastructure which has deteriorated over the years from a lack of maintenance and new investment.
Most parts of the country are accessible through an extensive road system of more than 30,000 kilometers (18,750 miles), although much of the system has fallen into disrepair. Contamination in rivers, beaches, and aquifers is a matter of rising concern, given that the great majority of wastewater is discharged directly into river systems, untreated. Although Costa Rica has made significant progress in the past decade in expanding access to water supplies and sanitation, just 3.5% of the country's sewage is managed in sewage treatment facilities, with the country’s Water and Sewage Institute (AyA) estimating that perhaps only 50% of septic systems function.
Although the overall investment picture, to date, has been relatively bright, the Costa Rican government really had not until recently enjoyed great success with many of its concession schemes for its public works projects, including the Juan Santamaria Airport in San Jose, which in July 2009 transferred its management to a new entity. That new entity has made great strides in restoring efficient operation to the airport and has concurrently become visible evidence to the public of how a concession can operate successfully.
Infrastructure, in an overall sense (e.g., roads and bridges, water/wastewater, electricity generation, airports and ports) is in substantial need of improvement. This represents both challenges and opportunities. In many instances, deteriorated infrastructure will need to be improved if Costa Rica is to remain competitive in the regional and world economy.
Enforcement of intellectual property laws has been lacking in many cases, due to insufficient resources and training, and weaknesses in the country’s criminal code. This is expected to improve as CAFTA-based commitments take hold. The legal process in general is often sluggish, making binding arbitration an attractive option.
Costa Rica recognized the People’s Republic of China in 2007 and was visited by the President of China with great fanfare in 2008. Costa Rica subsequently signed a free trade agreement with China in February 2010. The intensified relationship between these two countries implies potentially growing competition for U.S. exports from products originating in China. Costa Rica is also part of the Central American effort to negotiate a Free Trade Agreement with the European Union.

Market Opportunities

The National Export Initiative (NEI) introduced by President Obama in January 2010 in his State of the Union message, provided a goal around which the US Embassy in Costa Rica and its various sections have come together to support American business and to achieve a doubling of US exports by 2015.
CAFTA-DR’s entry into force on January 1, 2009, represented a major step forward in the trade and investment relationship between Costa Rica and the United States, opening opportunities in the wireless telecommunications, Internet, and insurance markets that previously had not existed.
Costa Rica’s accession to the agreement has meant that more than 80 percent of all non-agricultural goods and more than 50 percent of agricultural products became duty-free immediately, on January 1, 2009, and the remaining duties are being eliminated on an agreed-upon schedule that is underway.
Furthermore, CAFTA-DR’s entry into force eliminated Costa Rica’s dealer protection regimes, allowed non-discriminatory treatment for U.S. firms in government procurement bids, and provided stronger protection for investors.
Market prospects are excellent in the following sectors: building products, hotel and restaurant equipment, and medical and dental equipment. Prospects are also good in auto parts and service equipment, drugs and pharmaceuticals, construction equipment and travel and tourism, as well as in the emerging telecommunications and insurance sectors.

Market Entry Strategy

U.S. products enjoy an excellent reputation for quality and price-competitiveness. This inherent value will only be improved as CAFTA-DR continues its implementation and landed prices of U.S. exported goods drop. If and as this lower cost of goods is passed along through the distribution chain, it should drive an acceleration of trade and greater market share for U.S. products.
Proximity to the Costa Rican market is also a major advantage for U.S. exporters who wish to visit or communicate with potential customers. The proximity facilitates close contacts and strong relationships with clients, both before and after the sale. The same holds true for agents and distributors, who typically represent U.S. exporters in the national market.
With Costa Rica’s accession to the CAFTA-DR Free Trade Agreement, it is important to remember that the free trade regime is region-wide, i.e., for the countries of Honduras, Guatemala, Nicaragua, El Salvador, and the Dominican Republic, as well as for the United States and Costa Rica. This presents the opportunity to consider these markets from a regional perspective and to design a regional marketing approach, given the lowered barriers and relative proximity, particularly for those signatories in Central America. In 2011, U.S. exports to the CAFTA-DR countries were up an estimated 26 percent from 2010 to $30.3 billion, making the region the 12th largest U.S. export market worldwide and the third largest in Latin America, following Mexico and Brazil.
The U.S. Commercial Service Costa Rica advises U.S. companies to consult with local market research companies and law firms to conduct the necessary due diligence before entering into contracts with local firms. These partners can be instrumental in helping to penetrate and expand the market for a company’s exports.

U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go click HERE.

For a complete copy of the Country Commercial guide (2012) please go to:

http://www.buyusainfo.net/docs/x_1853591.pdf

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.

Print | Last Updated: 4/17/12 5:40 PM