Costa Rica - Economy

Economy

According to the World Bank, Costa Rica's GDP per capita is US$11,122 PPP (as of 2009); however, this developing country still faces lack of maintenance and new investment in infrastructure, a poverty rate estimated to be 23%, a 7.8% unemployment rate (2009 est.), and a trade deficit of 5.2%. For the fiscal year 2007, the country showed a government surplus. Economic growth in 2008 diminished to a 3% increase in the face of a global recession (down from 7% and 9% growth in the prior two years).

Costa Rica's inflation rate was an estimated 4.8% in 2011. On October 16, 2006, a new currency exchange system was introduced, allowing the value of the CRC colón to float between two bands as done previously by Chile. This policy's objective was to allow the Central Bank to be able to better tackle inflation and discourage the use of U.S. dollars. However, as of August 2009, the value of the colón against the dollar has decreased to 86% of its late-2006 value (see commonly available forex trading charts). The unit of currency is the colón, and as of May 2012, it trades around 507 to the US$, and about 660 colones to the euro.

The central government offers tax exemptions for those willing to invest in the country. Several global high tech corporations have already started developing in the area and are exporting goods, including chip manufacturer Intel, pharmaceutical company GlaxoSmithKline, and consumer products company Procter & Gamble. In 2006, Intel's microprocessor facility alone was responsible for 20% of Costa Rican exports and 4.9% of the country's GDP. Trade with Southeast Asia and Russia boomed during 2004 and 2005, and the country obtained full Asia-Pacific Economic Cooperation Forum (APEC) membership in 2007 after becoming an observer in 2004. The Financial Times Intelligent Unit awarded Costa Rica with the fDi’s Caribbean and Central American Country of the Future 2011/12 for its successful record in attracting FDI into the country, and being the number one destination country in the region in terms of foreign direct investment (FDI) project numbers since 2003.

In recent times, 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. Since 1999, tourism earns more foreign exchange than the combined exports of the country's three main cash crops: bananas, pineapples and coffee. Coffee production has played a key role in Costa Rica's history and economy, and by 2006, was the third cash crop export.

The largest coffee growing areas are in the provinces of San José, Alajuela, Heredia, Puntarenas, and Cartago. Costa Rica is famous for its gourmet coffee beans, with Costa Rican Tarrazú among the finest arabica coffee beans in the world used for making espresso coffee, together with Jamaican Blue Mountain, Guatemalan Antigua and Ethiopian Sidamo.

Costa Rica's location provides access to American markets as it has the same time zone as the central part of the United States and direct ocean access to Europe and Asia. In a countrywide referendum on October 5, 2007, the voters of Costa Rica narrowly backed a free trade agreement, with 51.6% of "Yes" votes.

With a $2.2 billion per year tourism industry, Costa Rica is the most visited nation in the Central American region, with two million foreign visitors in 2008, which translates into a high expenditure per tourist of $1,077 per trip, one of the highest in the Caribbean Basin. In 2008, most visitors came from the United States (38.6%), neighboring Nicaragua (21.8%), Europe (11.3%) and Canada (5.2%). In 2005, tourism contributed 8.1% of the country's GNP, and represented 13.3% of direct and indirect employment. Tourism now earns more foreign exchange than bananas and coffee combined.

Ecotourism draws many tourists to visit 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 true ecotourism. In terms of the 2011 Travel and Tourism Competitiveness Index, Costa Rica ranked 44th in the world and second among Latin American countries after Mexico. Considering its subindex natural resources, Costa Rica ranks sixth worldwide in the natural resources pillar, but 104th in terms of its cultural resources due to the country's limited number of cultural sites.

Costa Rica has also developed a system of payments for environmental services. Similarly, Costa Rica has a tax on water pollution to penalize businesses and homeowners that dump sewage, agricultural chemicals, and other pollutants into waterways. In May 2007, the Costa Rican government announced its intentions to become 100% carbon neutral by 2021. As of 2012, Costa Rica produces more than 90% of its electricity through renewable sources.

In 1996, the Forest Law was enacted to provide direct financial incentives to landowners for the provision of environmental services. This helped reorient the forestry sector away from commercial timber production and the resulting deforestation, and helped create awareness of the services it provides for the economy and society (i.e. carbon fixation, hydrological services such as producing fresh drinking water, biodiversity protection, and provision of scenic beauty).