The recent announcements by global corporations to close operations in Costa Rica have generated widespread concern among the country’s business community. These multinational companies, which include Intel, Qorvo, and Pfizer, are citing structural challenges as the main reason for their decision to scale back operations, move production to Asia, and lay off hundreds of employees.
The departures have raised concerns in the private sector, with business leaders calling for a renewed focus on competitiveness and the creation of a more attractive investment climate to reverse the trend. Costa Rican business leaders are speaking out, and their views are striking a chord. Calls for more competitive wages and cost structures, reductions in social charges, labor flexibility, and cheaper energy are becoming increasingly louder.
The Impact of Major Corporate Departures
The sudden departure of Intel from Costa Rica, announced on November 1, 2023, sent shockwaves through the business community. The decision of the American multinational company to close its Costa Rican operations, which manufactures microchips for global use, has been seen by Costa Rican business leaders as a major blow to the country’s economy.
The Intel exit from Costa Rica, the latest in a string of corporate closures and relocations to Asia, with companies also including Qorvo and Pfizer, has prompted business leaders to question the competitiveness of Costa Rica’s business environment. In response to the recent announcements, Costa Rican business leaders are calling for the government to take a more proactive approach in addressing these structural issues and promoting an environment that is more conducive to foreign direct investment.
AZOFRAS Calls for Action to Avoid Further Capital Flight
The Association of Free Trade Zone Companies (AZOFRAS), which represents numerous multinational corporations that have established operations under Costa Rica’s free trade zone regime, has also called for action to address these concerns. The head of AZOFRAS, Ronald Lachner, has urged authorities to address what he called a “serious wake-up call” sent by the companies that have recently left Costa Rica.
“The departure of multinational companies not only leads to the loss of quality jobs, but it also affects Costa Rica’s image and ranking as a place for investment in Central America. Costa Rica can no longer afford to minimize, underestimate, or, even worse, ignore the obvious and wait passively until more companies follow this trend, without being proactive in analyzing its competitiveness and reformulating strategies to improve it,” declared Lachner in a recent interview.
Costa Rican business leaders have specifically cited high social security charges, lack of a 4-day 3-day workweek, and high electricity rates as major structural challenges that must be addressed if the country is to retain and attract high-value investment.
The 4×3 Workweek: A Key Labor Reform for Competitiveness
One of the most significant proposals by Costa Rican business leaders in this regard is the implementation of a 4/3 work schedule, which consists of four days of work followed by three days of rest. The 4×3 workweek model, also known as a compressed workweek, is a labor system that has been widely adopted in other competitive manufacturing destinations.
Costa Rican business leaders argue that the 4×3 model would increase productivity, provide workers with a better work-life balance, and make the country more attractive to foreign investors looking for labor flexibility. The current labor code in Costa Rica makes it difficult for industries that require 24/7 production capacity, such as advanced manufacturing and the life sciences, to operate effectively.
The rigidity of the labor code and the requirement to pay extra for shift work and night work make it more expensive for companies to operate in Costa Rica. By adopting a 4×3 model, Costa Rica would be able to position itself as a more attractive destination for companies seeking to relocate production from Asia to the Americas.
Business leaders also emphasize the importance of reforms to Costa Rica’s social charges. Social charges are the mandatory contributions employers make to Costa Rica’s social security system, which provide Costa Rican workers with access to healthcare, pensions, and other social benefits. While Costa Rican business leaders recognize the value of these social benefits, they also argue that the current system places an excessive burden on employers, particularly those in labor-intensive industries.
Calls for Reduction in Social Charges
Business leaders and executives in Costa Rica have been vocal in their calls for a reduction in social charges, citing their impact on the country’s competitiveness and the cost of doing business. In addition to labor flexibility and social charges, Costa Rican business leaders are also calling for reforms to the country’s energy sector.
Electricity rates in Costa Rica are among the highest in the region, despite the country’s leadership in generating renewable energy. Costa Rican business leaders have called for reforms that would open the energy sector to greater private sector participation and introduce more efficient pricing mechanisms that better reflect production costs and lower the cost of electricity for businesses.
In addition to these issues, Costa Rican business leaders have also identified the need for improved logistics and transportation infrastructure, better digital connectivity, and enhanced investment in human capital development. Delays in customs clearance, limited port capacity, and a lack of integrated digital systems for trade and commerce add to the cost and complexity of doing business in Costa Rica.
Costa Rican business leaders have urged the government to address these issues in order to improve the country’s competitiveness and attract more investment. With the rise of nearshoring, Costa Rica has a unique opportunity to become a regional hub for high-tech and advanced manufacturing. However, this will require targeted investments, policy reforms, and a commitment to making the country more competitive.
In a rapidly changing global economic landscape, where countries are competing fiercely for investment dollars, Costa Rica cannot afford to be complacent. The recent corporate exits have exposed vulnerabilities in the country’s competitiveness, but they also offer an opportunity to reset and reposition Costa Rica for the future.
Human Capital Development and Investment in Bilingualism, STEM Education
Costa Rican business leaders have also emphasized the importance of investing in human capital development to attract and retain investment. While Costa Rica has a relatively well-educated workforce, compared to other countries in the region, Costa Rican business leaders have noted the need to better align technical and vocational education with the skills required in emerging sectors such as semiconductors, advanced manufacturing, and the life sciences.
The government and the business community can work together to promote bilingual education, STEM learning, and advanced technical certifications in the workforce. Programs that encourage collaboration between universities and technical institutes can help to ensure that the country is producing the talent needed to support the industries of the future.
Calls for Maintaining Exchange Rate Stability
Calls for the government to ensure exchange rate stability have also become louder. While Costa Rica does not have a fixed exchange rate regime, the currency has seen some volatility in recent months. Fluctuations in the exchange rate can have a significant impact on the financial planning and profitability of multinational companies that generate significant revenues in foreign currencies or are dependent on imported inputs.
Maintaining a stable exchange rate can provide predictability for investors and make Costa Rica a more attractive destination for long-term investment. In light of recent announcements, business leaders have recognized the need for a coordinated and urgent response to address Costa Rica’s competitiveness and reverse the trend of capital flight.
The government has responded to some of the business community’s concerns, including lowering social security contributions for employers, and it remains to be seen whether further action will be taken on other pressing issues.
But the message from Costa Rican business leaders is clear. Inaction is no longer an option, and the time for debate and discussion is over. The government must take concrete steps to address the concerns of the business community, improve the country’s competitiveness, and ensure that Costa Rica remains an attractive destination for investment.
The private sector is a vital partner in this process, and government agencies must work closely with business leaders to understand their concerns and develop solutions that work for everyone. The stakes are high, and the future of Costa Rica’s economy and thousands of jobs are at risk. It is up to the government and the business community to act decisively and work together to turn the crisis into an opportunity.