Costa Rica, a country in Central America, has in the past seen its fair share of military conflict and crises, but for more than a decade now its economy has been developing in an exemplary fashion. How was it possible? . And should we in Europe consider the ‘Rich Coast’ as a best practice? Read an English translation of an article written by H. E. Borbala Czako, President of HBLF and Global Director of Ernst & Young, published in the Hungarian economic weekly Figyelő (June 5, 2012) on how a group of business people changed Costa Rica’s economic position and how diversity can improve efficiency.
Guest post by H. E. Borbala Czako, Ambassador of Hungary to the United Kingdom, Global Director of Ernst and Young, Global Limited HBLF President,[a1]
An essay on the economic success of Costa Rica
It has never occurred to Maureen Clarke that she could be Costa Rica’s Minister of the Interior. She worked as the Head of the Secretariat for the Head of the National Liberation Party (Partido Liberación Nacional), and when the party won the elections in 1994, its boss picked her out to lead the ministry. When she asked why she had been chosen to do this hard job, she was told: ”because you are capable.”
13 members from the Hungarian Business Leaders Forum flew to Costa Rica to visit Maureen Clarke who is currently the Chairwoman of the National Institute for Women (INAMU), a role that equals to a ministerial position. In Costa Rica women are generally considered to be capable of working in important positions and quotas were set for them to help them access these positions. Pursuant to the Election Act of 1999, parties are required to nominate female candidates for 40% of the seats they won in the previous elections. Thanks to this regulation, 22 of the 57 seats in the Costa Rican Parliament are held by women. This proportion is expected to improve further as from 2010 all nominations to elections will have to comply with the mechanism of alternating by sex (woman-man or man-woman) in a way that two persons of the same sex cannot be subsequent on both the national and the local nomination lists.
Costa Rica’s focus is not only on women; the country is committed to providing opportunities for every citizen to advance and live a better life, although underlying conditions were far from ideal in Central America hit by military conflicts. Yet, in 1948 Costa Rica disbanded its army and it concluded a peace treaty with the neighboring states in 1987, when tensions in the region grew to a dangerous extent. The then President Oscar Arias Sanchez was awarded a Nobel Peace Prize for his efforts.
Breaking free from the Banana Republic
The peace was a necessary but by far not sufficient condition for the country’s economic growth that has been uninterrupted for more than a decade. Back in the eighties, Costa Rica was a banana and coffee producing country with poverty-stricken citizens and a crisis-hit economy. To break out from the pressures, a group of businessmen founded a nonprofit investment agency (Costa Rican Investment Promotion Agency, CINDE) in 1982 to attract foreign investment into the country. Two years later the government classified the agency as a public benefit organization. Its operation is highly successful; it is one of the top ten investment agencies worldwide, according to the World Bank.
CINDE founders believed that prosperity would be brought by investors who seek to improve the productivity of their operations rather than looking for new markets or cheap labor. Such investors hire high-skilled workforce and pay higher wages accordingly. To create a supply of high-skilled workers in the country, Costa Rica spends 8% of its GDP on education. Public education in the country is free, high-quality and compulsory for everyone. Furthermore, with its friendly regulatory environment and advanced infrastructure, Costa Rica meets additional requirements expected by a demanding investor. Energy prices are low as the country, capitalizing on the good geographical conditions, generates 90% of its energy needs from renewable resources.
Foreign investors have the same rights and obligations as their native peers. For example, there is no limitation on property acquisition and free capital flow is enabled. The numbers prove the rightness of this strategy as FDI inflow grew by an annual 15% on average over the past ten years.
Costa Rica is actively involved in the work of the World Trade Organization (WTO), trying to resolve occasional commercial disputes through negotiations within the framework of the organization. In compliance with the WTO standards, the country established duty free zones, which are open to companies operating in strategic industries. (Strategic industries include the manufacturing of high tech products (electronics, car industry, etc.); services (e.g. software production, creation of co-located service centers); and life sciences (medical equipment production in particular). These sectors grow fast indeed; in 2010, high tech industries accounted for 40% of Costa Rica’s industrial exports, according to World Bank data. Just to show a comparison, the same indicator for Hungary is 24%. Total exports in Costa Rica grew at an annual rate of 7.5% on average in the past decade, increasing tenfold in value to $10.4 billion between 1985 and 2011. GDP per capita tripled between 1991 and 2010 to hit $8.489 by 2011 – one of the highest values in Latin America.
A praise of equal opportunities
The literally colorful Caribbean country is an advocate of diversity in the figurative sense also. They are committed to provide equal opportunities not only for women (a spectacular result of this drive is the female head of state, Laura Chinchilla Miranda), but also for other minorities, including black people. It helps improve economic growth, because if you don’t narrow down the pool of contestants on the starting line, you will be able to select the most ideal candidate for the job from a larger pool of people. It was this approach that gave the courage to Costa Rica to uniquely entrust a private agency to attract investors into the country.
It’s quite easy to find an analogy with the business sector, for enhancing diversity results in improving economic indicators. As an Ernst & Young study titled Groundbreakers reveals, when a company is managed by people of similar backgrounds, they tend to look at problems from the same perspective; they are less willing to consider options and tend to take more risk. So world leader companies increasingly pay attention to providing equal opportunities to everyone to unlock their potentials, regardless of sex, color, religion, culture, age, sexual orientation and other ”diversities.” And as the example of Costa Rica shows, this approach brings success outside the business sector also.
Do you know any other example how a country can manage to become successful?