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A brief history of Costa Rica V: Economic considerations
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A brief history of Costa Rica V:
Economic considerations


By Clifford Fain Dukes, Jr.
Special to Retire NOW in Costa Rica

Early commerce in Costa Rica used a crude trail extending from Nicaragua down through Guanacaste then over to San José and Cartago then south into Panamá. They called the trail The Camino de Mulas that eventually became the Inter American Highway. The Spanish prohibition of commerce with anyone other than Spain and then only via the ports  of Veracruz, Mexico and Portobello, Panamá, in the Americas and the Cadiz and Seville in Spain caused contraband activity to flourish in the Caribbean. Pirate ships arrived constantly to Costa Rica’s Caribbean port of Matina where almost everything was available for a price.

The earliest economy of Costa Rica was agrarian and dominated by cocoa followed years later by tobacco and ultimately by coffee. Today’s economy is built around exportation of bananas, coffee, pineapples, and sugar. In recent years it has moved to one driven by tourism and light industry with commodity exports retaining an
important position in the economy. The country is very averse to heavy industry and especially oil exploration. They not only discourage dirty industries but clean ones as well if they represent a large labor pool with the potential to vote against the establishment.

In the 1990s when Adidas had to abandon Indonesia, their first choice was Costa Rica. Adidas wanted to bring 13,000 jobs to a free trade zone in San José to produce its athletic clothing lines. They had to cancel these plans when the country refused to make even minor upgrades in infrastructure like water, power and street access.

As more and more Costa Ricans moved to white collar jobs, there were insufficient farm workers to do the heavy lifting like harvesting sugar cane, coffee, fruits, and produce. This resulted in a huge influx of workers both agrarian and domestic, from Nicaragua that presented a situation very akin to that of the United States with its influx of undocumented Mexican domestic and farm workers. While the Nicaraguan immigrants often get a bum rap, their work ethic is excellent. The construction industry throughout the country uses Nicaraguan workers almost exclusively now.

As recently as the 1980s the cost of living in Costa Rica was around 20
ox cart
A.M. Newspapers archive photo
Costa Rica's iconic ox carts were once the main transport method.
percent of that of the United States. As tourism gained momentum in the 1990s, the tourists arrived for their vacations primed with cash and intent on spending it before leaving. Naturally, the business owners drove up prices to extract as much as possible of the easy money. It wasn’t long before the cost of living in Costa Rica was on par with major First World countries. This not only sent the tourists home minus their cash but was a major blow to the lower income classes who had been getting by on a very low minimum wage.

Suddenly there was a significant separation between the working classes that could no longer get by economically and the political classes that thrived by extracting hidden taxes via the monopolistic utility rates. It is reported that the Instituto Costarricense de Electricidad, the national electric and phone company, is used by the political class as their petty cash fund.

This political class is huge in Costa Rica. There are 151 governmental permits required simply to build a small strip mall, and a developer usually has to return to each agency a couple of times in order to receive each permit. The U. S. Embassy in San José, Costa Rica, routinely complains to the local government about this problem. Just maintaining a bank account is no easy matter. The government and banks insist on knowing, in advance, the source of every dollar being deposited. This stems from recent laws that force banks to know their customers as a way to control money laundering. A friend was investigated by INTERPOL in Miami solely for depositing something outside what he projected when establishing his bank account.

The political class lives in upscale areas and maintains the BMW and Mercedes dealers viable. In many cases the working classes have been forced to consolidate several families into individual houses, while resorting to a barter system for survival. Within the working classes, every social visit is accompanied by an interchange of goods and services most common of which are intimate apparel, jewelry, and cosmetics. Many single women are comerciantes or door-to-door sales people buying at wholesale and selling or trading at retail prices but extending credit for 90 days or more and returning numerous times to collect the outstanding debts. Virtually all of these transactions go unreported and untaxed.
 
Costa Rica is long on a bilingual pool of educated workers but extremely short on infrastructure. Apart from the deteriorating highways, streets, and bridges, the mail system doesn’t work. A large percentage of the incoming and outgoing letters never arrive. Bags of mail have been found water soaked on the bank of some river. International overnight companies like UPS, FedEx, and DHL are becoming the defacto postal system due to their ubiquitous minivans and motos, small motor scooters or motorcycles. All monthly bills for water, power, telephone, and cable arrive by moto since even the government knows the postal system doesn’t work. The Costa Rican economy, such as it is, could be brought to its knees simply by removing all the motos and the ever present time date stamps used multiple times on every business and banking transaction.

The country has two operating international airports, one in Alajuela near San José and the other in Liberia. It has begun land acquisition for a third, sized for the world’s largest jumbo jets. This one is to be located in the south western part of the country.

Without the need to support the political class, energy should be very inexpensive since it is produced via hydroelectric 73 percent, geothermal and wind 12 percent, and petroleum 15 percent.

The geothermal projects have the potential to convert Costa Rica completely to this source of energy and also allow it to sell energy to the rest of Central America. Workers drill down some 2,000 meters to locate pockets of geothermal steam and then pipe the steam to the surface to power turbines and generators. Surface area requirements are reduced via a system of diagonal drilling to penetrate the steam beds. Wind farms are in operation and growing also. With respect to the hydroelectric system, poor preventative maintenance and shortages of rain water often result in power outages and water rationing.

There has been a recent change in the ranking of exports. The approximate declining order in dollar value is: bananas, coffee, pineapple, sugar, computer chips (Intel), fresh flowers, ornamental plants, medical tubing and devices, and melons. These cantaloupes raised in Guancaste are the original sweet variety not the bland, long shelf life ones popular in supermarkets around the world today.

Finally there has been an absolute stampede of North American and European companies placing outsource facilities in Costa Rica. The country is currently home to 25,000 bilingual call center workers, and is number three on the world scene following India and The Philippines for outsource placement. Even India is installing a new facility here to put its workers on the same time zones with the United States.

The democratic style of government, lack of despots, bilingual workers and no desire to nationalize industries makes Costa Rica very competitive on the world scene.

NEXT: A brief history of Costa Rica VI: Some problem areas HERE!


Text: Copyrighted 2010  Clifford Fain Dukes, Jr. Used with permission.

A brief history of Costa Rica:

I. The land and climate  HERE!
II: Exploration  HERE!
III: Development of the Latin culture HERE!
IV: Government  HERE!
V: Economic considerations
VI: Some problem areas HERE!

Planning resources for would-be expats
HERE!



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