Made in Costa Rica: Export Growth Slows Down

January 25, 2008
Export growth slowed in 2007 as a result of weaker activity in industrial and agricultural exports.
Costa Rica exported $9.34 billion worth of goods last year, up 14% from 2006. Growth from 2005 to 2006 was 17%.
The slowdown in growth, coupled with a looming recession in the United States, Costa Rica’s largest trading partner, makes it increasingly unlikely that Costa Rica will meet President Oscar Arias’ ambitious goal of $16 billion in annual exports by the end of his term in 2010.
“We’re seeing a complicated outlook for some sectors,” said Foreign Trade Minister Marco Vinicio Ruiz on the release of the 2007 export numbers.
Industrial exports marked slower than average growth, at 13%. Exports like electronics, medical equipment, textiles and plastics make up 78% of the country’s total exports by value.
Electronics, medical equipment, machined goods and paper goods marked above-average gains, but those gains were  tempered by single-digit growth in plastics and chemical exports, while textile exports shrank 10%, to $501.7 million.
Likewise, agricultural exports, which make up 20% of the total, grew only 9.2%, with pineapple showing characteristically strong 12.8% growth and banana exports growing only by 8.3%. By comparison, banana exports in 2006 were up about 28% over the previous year.
Bright spots included processed food exports, which went up 33% to almost the $1 billion mark, and livestock and fish exports, which recovered from negative growth in 2006 to post an 8.1% gain in 2007, with $186.7 million in exports for the year.
Ruiz blamed some of the sluggish growth on the ongoing drama over the Central American Free-Trade Agreement with the United States (CAFTA).
Though the treaty was ratified by a national referendum on Oct. 7, the Legislative Assembly has yet to pass the laws that would allow Costa Rica to become an active party to the treaty.
Particularly hard-hit at the moment is the textile industry, which needs CAFTA’s generous rules of origin provisions to stay competitive with Asian companies.
“Our textile companies simply can’t export” competitively until CAFTA goes into effect, Ruiz said.
Last year also marked a continued diversification of Costa Rica’s export portfolio, as exports to China, Costa Rica’s second most important trading partner, continued to shoot upward.
Costa Rica exported $1.4 billion worth of goods to China last year, a 30% growth over 2006. Those numbers, however, come with a big asterisk, as about $1 billion worth came from Costa Rica’s Intel factory.
Ruiz said that for 2008, the Foreign Trade Ministry will be making a special effort to increase exports of agricultural and manufactured goods to the Asian giant and the trade promotion office established there last year will be running full tilt in 2008.
For the first quarter of the year, Ruiz said the passage of a new law to govern the country’s free zones (zonas francas) will be important. Costa Rica will have to adjust its free-zone benefits before a 2015 deadline to comply with World Trade Organization rules against subsidizing local export manufacturers.
Already, the country’s free zones are beginning to adjust by shifting focus to services, which wouldn’t be penalized by the WTO rule. The Central Bank estimates that in 2007, the country “exported” more than $3 billion worth of services.
“The country needs to reposition the attraction of investment,” Ruiz said. “We’re not in the same moment as in the 1980s.
 
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