It’s impossible to know for sure how the alwaysvolatile world of business will play out in any given year. But 2008 promises to be another raucous time for people trying to make a colón or two in Costa Rica.
Uncle Sam’s Wallet
Last year was an uncomfortable one for the U.S. economy, and the outlook for 2008 doesn’t look much better. Holiday shopping was down, unemployment is up and the housing market continues to plummet.
This story might become one of the bigger ones of the year for Costa Rica, whose economy is practically joined at the hip with that of the United States. Almost 40% of Costa Rica’s exports – which topped $8.6 billion in 2007 – end up in the States, and much of the rest is linked indirectly.
Likewise, 55% of the tourists who visit Costa Rica came from the United States, and the tourism industry was worth just under $2 billion last year, according to estimates from the Costa Rican Tourism Institute (ICT).
A slowdown in the U.S. economy could make spenders think twice about their vacation to Guanacaste or that $4 Starbucks latte made from Costa Rican coffee. At the same time, a weakening U.S. dollar could encourage European tourists to head to the States rather than the tropics.
Meanwhile, the drop in U.S. property prices – coupled with steep increases here – means that Costa Rican real estate is no longer the bargain it once was.
If, however, it turns out that Costa Rica is diversified enough to weather this storm, it would be an important milestone for the country’s economic stability and independence.
Rockin’ in the Free World
Look for Costa Rica to continue to pursue new free-trade agreements.Up to bat in 2008 are pacts with the European Union and China.
Central America began negotiations with the E.U. on a possible association agreement toward the end of last year, an agreement that would include a free-trade element.
Those negotiations will continue in February in Brussels, with progress assessed at a summit in May.
China and Costa Rica, meanwhile, will likely complete a feasibility study begun in 2007 and announce their decision on whether to pursue a free-trade agreement.
The Central Bank will take center stage in 2008 as it continues to manage the new colón-dollar exchange system it set up in 2006.
So far, the change to a semi-floating currency has meant an increase in the value of the colón against the dollar, and that trend will likely continue into 2008.
But it has also meant that for the first time in years, more people are keeping their assets in colones than dollars, which gives the Central Bank more leverage to deal with issues like inflation.
Though voters approved the CAFTA referendum Oct. 7, the Costa Rican business community is still holding its breath to see if the Legislative Assembly will pass the implementation laws that will allow Costa Rica to join the Central American Free-Trade Agreement with the United States.
With the passage of the laws by the March deadline, there could be a continuation of 2007’s wave of acquisitions, consolidations and expansions as Costa Rican businesses and multinationals alike scramble to reposition for the new market.
Absent passage of the laws, the continuing uncertainty will likely put a chill on the country’s business community, making 2008 a slow year for business.
Year of the Marina
As the new year dawned, 20 marina projects had already been proposed, according to ICT. Of those, 13 are working their way through the complex certification process, but three are set to open by the end of 2008.
While Costa Rica already has one luxury marina in Los Sueños Resort, just north of the central Pacific town of Jacó, there are enough proposals to turn the PacificCoast into a forest of masts.
The millions worth of construction and concessions are only half of the story. The other half is the vigorous protests these marinas are likely to face from environmental groups as they near fruition.