As Intel scales down, Costa Rica looks to boost medical equipment manufacturing

June 4, 2014
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President Laura Chinchilla and President-elect Luis Guillermo Solís wrangled this week with the political consequences of microchip giant Intel’s exit from Costa Rica, while observers search for the next big high-tech opportunity.

Intel’s arrival in Costa Rica in 1998 helped jump-start the country’s high-tech manufacturing and value-added service industries that have set the country apart from many of its Central American neighbors. But the California-based company’s decision Tuesday to close its manufacturing facility here and lay off 1,500 workers, followed by Bank of America’s announcement that it also was laying off 1,400 employees, stunned Costa Rica and left many wondering if it was the rumbling of capital flight from the coffee-producing country. And it happened just as Solís, of the center-left Citizen Action Party (PAC), prepares to take office on May 8.

“For every business, no matter how important, that leaves Costa Rica, I guarantee you several more will come,” Chinchilla told reporters in the central Pacific port town of Caldera on Thursday, rejecting the notion that the exit of Intel and Bank of America would have a snowball effect on other companies.

Several administration and company sources have said Intel’s move was based on business, not local conditions. The microchip-maker said in a statement the company would keep 1,200 jobs and hire 200 workers in engineering and design at their facility in Belén, Heredia’s free trade zone north of the capital.

Intel’s goods and services accounted for over 30 percent of Costa Rica’s exports in 1999, according to figures from the Costa Rican Investment Promotion Agency (CINDE), the private organization tasked with attracting foreign investment to Costa Rica. In 2013, that percentage dropped to 13.7 percent, signaling the Costa Rican economy has diversified beyond Intel alone.

“I guarantee that the government has done everything possible and has greatly improved the policies for attracting foreign investment,” Chinchilla said.

CINDE Board President José Rossi said that Solís is “pragmatic,” and likely will continue lobbying for more foreign investment to boost Costa Rica’s economy.

Chinchilla said her administration has created more than 30,000 jobs by drawing more than $8.27 billion in foreign direct investment between 2010 and 2013.

In the absence of Intel’s manufacturing facilities here, medical equipment is quickly becoming one of Costa Rica’s fastest growing exports, according to CINDE. Gabriela Llobet, CINDE president, said that medical equipment manufacturing has increased from 1.8 percent of exports in 1999 to 13.5 percent by 2013.

Chinchilla said Thursday she hoped a recently passed law regulating biomedical research on humans would help retain and attract more medical research and related high-tech investment in Costa Rica.

But Costa Rica struggles with a high cost of electricity and relatively high wages and social security taxes that make the country less attractive for international companies looking to cut costs.

In a meeting with the foreign press on Wednesday, Rossi told The Tico Times that the Costa Rican economy still faces challenges when it comes to keeping large multinational companies here. He said legal uncertainty, the cost of electricity and the quality of Costa Rica’s infrastructure are among the top issues that could threaten a foreign company’s long-term investment.

The day after Solís won the April 6 presidential runoff, he said reducing the cost of electricity would be one of his first priorities after taking office.

CINDE President Llobet remained bullish on Costa Rica’s ability to continue attracting foreign direct investment, which has grown at an average rate of 15 percent a year since 2002, reaching $2.68 billion in 2013.

“Costa Rica today is not the country it was when Intel arrived,” Rossi said on Wednesday. “The country is going to move forward, this is not an economy that revolves around Intel.”

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