Costa Rica Woos Foreign Investors

A REVOLUTION is taking place in a corner of Central America - and for once it involves not guns but butter. Costa Rica, wedged between Nicaragua on the north and Panama on the south, is striving to change its image from bananas to big business.

It is pushing to attract foreign investment - particularly in electronics, apparel, leather, plastics, pharmaceuticals, and metal mechanics. Multinational companies from the United States, Europe, and the Far East have responded and are flocking to set up manufacturing, assembly, or sales operations here.

The capital these companies bring in is vital to Costa Rica, whose foreign debt of nearly $4 billion is one of the highest per capita in the world.

``Some people think Costa Rica must be some kind of banana republic,'' says Federico Vargas, managing director of CINDE (a Spanish acronym meaning Costa Rican Coalition of Development Initiatives), which is largely behind the drive and funded by the US Agency for International Development. ``The only way to dispel that is to tell them about the telephones, the parks, the hospitals, the industry, and universities so they can realize that they're talking about quite a sophisticated little country.''

That's a far cry from former popular perceptions that Costa Rica's economy was synonymous with ``a good coffee crop,'' says Mr. Vargas, who has been ambassador to Washington, minister of finance, and minister of foreign debt. ``It illustrates how dependent our economy was on traditional crops.''

``Our economy is very open,'' says Luis Diego Escalante, Costa Rica's minister of foreign trade and exports. ``One-third of our GNP [gross national product] is represented by foreign trade, compared with only 9 percent in the US. So we are vulnerable and dependent upon events abroad. In the 1960s, our growth rate was satisfactory, 6 percent to 9 percent a year. But more recently prices for our traditional exports have been very low. Ever since the debt crisis of the 1980s, we have been able to stabilize our economy, but unable to make it grow as much as we'd like.''

Several concurrent events caused Costa Rica's economy to flounder between 1979 and 1982. The second oil-price shock and skyrocketing interest rates occurred just as the country was on its way to piling up a huge debt on social programs. Debt-service payments ballooned. As a result, there was a shortage of hard currency to pay for imports and to keep the economy growing.

Meanwhile, prices of traditional exports - coffee, bananas, and sugar - nose-dived. Nicaragua's revolution ended Central America's common market. Between 1979 and 1982, Costa Rica's real income dropped by between 35 and 42 percent.

COSTA RICA fought back silently and gradually. It diversified its economy away from traditional goods and is emphasizing new sectors of nontraditional high-tech products.

The effort seems to be bearing fruit. In particular, the vigorous growth in nontraditional exports to ``third market'' countries outside Central America - from $171 million in 1984 to about $400 million last year - has already compensated for the loss of former markets.

Today, the US is the country's biggest business partner. And Costa Rica in 1988 received $105 million in foreign aid from the US, making it the largest recipient of such aid on a per capita basis after Israel.

Costa Rica's plan is to become economic partners with the US through production sharing, says Gerardo Cruz, CINDE's northeast US manager. This way, products can be made in the US and shipped to Costa Rica for final assembly, to cut down on labor costs. Costa Rica's minimum wage is slightly less than $1 an hour.

Recent ventures include an array of manufactured items and agri-business products that run the gamut - from exotic fruits to cultivated flowers and ferns. Costa Rica is now one of the largest brassiere manufacturers in the world because of companies that have made direct investments, including Maidenform, Lovable Company, and Bali Corporation

Likewise, electronics firms now use the country to produce labor-intensive components, either through direct investment or subcontracting. And telecommunications companies here develop cellular-telephone equipment for third-world countries.

Costa Rica's most liberal trade agreements exist with the US, and include duty-free access and 100 percent exemption on all import duties, taxes, and profits for certain products under the Caribbean Basin Initiative, established in 1983.

It also boasts a tradition of low labor-union participation, employee-sponsored sharing, a 48-hour workweek, 73-year life expectancy, and a 93.1 literacy rate. A well-developed infrastructure and a temperate climate are also used to promote business.

US-based companies producing here include Firestone, American Standard, Coca-Cola, Colgate Palmolive, Motorola, Johnson & Johnson, Mennen, Gerber, GTE Sylvania, Xerox, Philip Morris, Pfizer, and Warnaco.

Far Eastern entrepreneurs are making their presence felt as well, with about one-fifth of the new ventures (the rest come from Europe and Latin America).

``Many companies are shifting from the Far East because the cost is too high, plus the US is setting some limits on the total amount that can be imported from that region,'' says Vargas. ``By sharing production between the US and Costa Rica, they stay in business.''

The Central American nation is also trying to increase tourism by providing financial incentives to developers to build hotels on Costa Rica's beaches. In this regard, CINDE has just signed an agreement with the Costa Rican Tourism Institute to promote that industry.

Invariably, companies cite the low wages, high-quality work force, and stability as reasons for locating in Costa Rica. Mennen International, a New Jersey company, has maintained a plant in Costa Rica for more than 15 years to make baby-care products, deodorant, shaving cream, shampoo, and men's fragrances.

``If you want to be in Central America, this is the place to be,'' says Colom'an de Hegedus, Mennen International's vice-president for Latin American and the Caribbean. He points to the country's stable, qualified work force and favorable labor rates - factors that increased sales at his local plant 20 percent last year.

GTE SYLVANIA SA, a subsidiary of GTE Sylvania, employs 500 in five independent production departments in Costa Rica, two of which are geared for exports. ``The political stability and a consistent good return on our investment in Costa Rica over the years is why we decided to expand operations in this country,'' notes Robert Burgess, GTE's general manager for Central America.

For all the noise Nicaragua and Panama generate, Costa Rica itself remains stable. Largely mountainous, just slightly smaller than West Virginia, it has had no standing army since 1949, and is the oldest democracy in Latin America. The country still has six living ex-Presidents, no small bit of trivia in Central America.

Oscar Arias S'anchez, Costa Rica's President, was awarded a Nobel Peace Prize in 1987 for his efforts to obtain peace in the region, and through his travels has raised his country's profile internationally.

Still, the perception of economic crisis here is widespread. La Naci'on, the country's largest daily, recently published a full page of articles about increases in the costs of basic goods. One article announced increases in the cost of milk; another, increases in the price of cigarettes and beer; a third, a jump in electric rates.

But officials note that Costa Rica remains the richest country in the region, and has by far the healthiest economy. Although inflation has swelled to an annual rate of 12 to 14 percent, national output is expected to increase nearly 4 percent this year. Unemployment, which is 4.5 percent, is the lowest in the hemisphere. Last year's coffee harvest is expected to set new records. And a good banana crop should make this country into the world's largest exporter.

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