INVESTING IN COSTA RICA

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Why Costa Rica?

• Strategic Location
• Political and Social stability
• Economic Stability
• Human Resources
• Incentives
• Infrastructure
• Legal Security
• Quality of Life
• Great Potential
• Business Sectors
• Professional Assistance from CINDE

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Strategic Location

• In the center of the Americas
• Central Standard Time Zone
• 250 hours flying time to
• Miami
• Duty free access to the U.S.
• through CBI

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Political and social stability

• Tradition of peace and stability
• Army abolished in 1948
• Government
• More than 100 years of democracy
• 3 independent powers
• 4 year term with reelection
• Presidential System

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Political and social stability

• No financial crisis for more than 20 years
• Yearly output growth of 4.2
• 4,361 per capita income in 2004
• As a result, Costa Rica benefits from good access
  to the worlds capital markets and moderate risk
  premium
• Costa Rican Long Term Bond Ratings
• Moodys Ba1 (non investment grade)
• FITCH Ratings BB (speculative)
• Standard Poors BB (speculative)

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Economic Stability
Macroeconomic Stability in spite of world
economic crisis periods
Source CINDE
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Foreign Direct Investment
Annual Growth of FDI
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Open Economy
Goods trade as porcentage of the GDP,
1980-2003 China 2002. Source WTO y IMF, 2004
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Strategic market access

• Tax free access to
• USA through the CBI
• Mexico
• Canada
• Central America
• Chile
• Dominican Republic
• Panama
• CARICOM
• Preferential access through the GPS to
• Europe and Asia
• Free Trade Agreements negotiations
• USA (signed)
• Investment Promotion and Protection agreements
  with several countries

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Human Resources

• Population to October, 2005
• 4.3 million
• 34.2 of population is 15 to 35 years old
• Labor force 2004 1.8 million
• Unemployment, July 2005 6.6
• Underemployment, July 2005 8.4
• Universal Health Care and Education System
• Pillars for the national stability
• 6.5 of the GDPs destiny is for education

Age Structure by Gender
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Literacy Rate
Source United Nations, Human Development Index,
2004
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Education

• Universal, free and compulsory education since
  1870 (the first in Latin America)
• Computer labs in 50 of the primary schools and
  100 of high schools
• English teaching in 50 of public schools and
  100 of private schools
• 92 of high school students will present graduate
  English test ()

Source Ministry of Public Education
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Education

• Training centers
• Technical High Schools (81)
• University Foundations
• INA Free on-site technical training
• CEFOF Center for training trainers
• CENFOTEC Software training
• Universities, 56 (52 private, 4 state)
• Including HBS/INCAE.

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Education
Source Estado de la Nación
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Labor Force

• Costa Ricans are healthy and motivated learners
• High observed productivity and learning speed by
  Free Zone Companies
• Favorable labor environment non-union worker
  organization (Solidarismo)
• Low Turnover

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Low Turnover
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Minimum wages
In US
Category C o s t T o t a
l per hour per year
(thousands) Non qualified
1.81 4.52 Semi
qualified 1.96 4.89
Qualified 2.11 5.26
Specialized 2.43 6.06 NOTES All costs
include all labor charges paid by the company,
Christmas bonus and reserves for vacations,
holidays and severance (47.98 in total). Minimum
salaries effective from July 1st to December 31st
of 2005. Exchange rate used 495 colons per US
(expected and the year end). Normal week of 48
hours and 8 hours per day
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Average Salaries
Occupation
Annual Cost
(Thousands of US) General Manager 122.1
210.1 Operations Manager 42.0
67.6 Customers Service Manager Production
Supervisor 10.4 15.7 Assistants
9.4 12.5 Bilingual Secretary
10.5
13. Specialized Worker
5.9 7.5 Non
Specialized Worker
4.6 5.4 NOTES The total cost
includes all the work charges paid by the
company, the Christmas bonus an reserves for
vacations, holidays and severance. Source
Consulting Companies, Survey for the second
semester of 2004.
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Investment Incentives

• FREE TRADE ZONE REGIME
• 100 exemption on
• Import rights for raw materials, equipment and
  components.
• Export taxes, local sales tax, excise taxes, etc
• Profits repatriation taxes.
• Those incentives dependents on the exporters
  performance must follow the WTO Guidelines
  starting from December 2007.

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Investment Incentives

• Minimum Investment
• US 150,000 inside free trade industrial parks
• US 2,000,000 outside free trade industrial parks
• With possibility of sale to other exporters in
  the country and up to 25 of the production in
  the local market.

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Investment Incentives

• ACTIVE FINISHING REGIME
• Suspension of 100 of the import taxes over
• Raw materials
• Components
• Packing
• Machinery and equipment
• It does not apply a minimum amount of investment
• Proportional payment of sales taxes for the
  Central American markets

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Infrastructure

• Industrial Parks
• Designated areas for Free Trade Zone companies
• Privately owned and managed
• Variety of services
• On site expedited customs
• Health
• Security
• Maintenance
• Day care
• Garbage disposal, etc
• Located 7 km away from the Juan Santamaria Intl.
  Airport

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Industrial Parks
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Infrastructure

• Water and Electricity
• Abundant water availability
• Enough and trustable electric power supply
• Hydroelectric, geothermic and other sources
• Electric service coverage 97
• Installed capacity of 1.962 MW
• Approximated cost of 0,07 - 0,12 per KW/Hour,
  industrial rate
• Clean energy 97.5 of the energy sources are
  renewable.

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Infrastructure

• Transportation
• Ports on both shores
• 24 maritime cargo lines service
• Main airport located 15 km away from San Jose
• 2º better airport of Latin-American
• 3º better airport of the world (5 million
  passengers per year category)
• Competitive maritime rates to the USA, Europe and
  Asia

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Infrastructure

• Telecommunications
• Direct dialing worldwide
• Tone dialing, call waiting, call forwarding, etc.
• Redundant fiber optics network
• Point to point connections
• Direct world wide fiber optic access through Maya
  1 Arcos cables

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Submarine Cables
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Legal Security

• Foreigners have no limits of property handling
  and they can drive business activities freely.
• Foreigners have constitutional equality of rights
  and obligations.
• Free capital movement
• Intellectual property laws in accordance with WTO
  Guidelines.

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Quality of life

• Life expectancy 78.7 years
• Health-Care Public Services Coverage 98.3
• Infant Mortality very similar to those of
  developed countries 9.75 death per each 1.000
  born alive

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Quality of life

• San Jose is among the cities with the best
  quality of life in Latin America
• The Economist Intelligence Unit, Liveability
  Rankings 2005
• Costa Rica is the 35 country of the world in
  Quality of life.
• The World in 2005, The Economist
• The surveys highlight Costa Rica as the country
  with the most solid and uninterrupted democracy

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Great Potential

• Central American Country of the Future
• FDI Magazine, 2005
• 5th High-Tech exporter of the world
• United Nations Human Development Report 2005
• 35th in the Trade and Development Index
• UNCTAD, 2005
• One of the most successful FDI attraction
  advantage countries
• UNCTAD World Investment Report, 2002 and CEPAL
  FDI in Latin America 2003

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Success Story
William Abraham, General Manager, INTEL Costa
Rica
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Electronics

• US 1,514 million exported in 2004
• 12,000 direct employees
• US 172.5 million in FDI (2004)
• Product Lines
• RF Microwave
• Autotronics
• Semiconductors
• Other subsectors
• Intel, Sawtek, Remec, EMC Technology, Bourns,
  Teradyne, Suttle, Merrimac, Narda Microwave/ L3,
  Aetec, Conair/Babyliss, Panasonic, Current
  Controls, ITT Industries, Panduit, Pharos, Micro
  Technologies, Pycon, IDI International, Cuttler
  Hammer, Schneider/Square D Wai Semicon and
  others...

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Medical Devices

• US 521 million exported in 2004
• 4,800 direct employees through 2004
• US 152 million in FDI in 2004
• Product Lines
• Cardiovascular
• Orthopedic
• Image diagnostics
• It is one of the most dynamic and productive
  sectors in Costa Rica.
• Exports increased by 5 during 2003.
• Baxter Healthcare and Hospira, leaders of the
  industry, have operations in Costa Rica.
• Industry growth has created the need to attract
  new company suppliers to provide the industry
  with molding, filters, packaging, resins and
  other supplies.

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Services

• US 37.3 million in FDI in 2003
• 6873 direct jobs through 2003
• Costa Rica offers the right conditions to
  companies for added value to their production
  with cost effective infrastructure, its labor
  forces characteristics, and world wide services,
  such as
• Shared service Centers
• Back Offices
• Software Development
• Call Centers
• Engineering, Architecture Design

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Others Sectors

• Special Projects
• Existing industrial fashion designing
  capabilities.
• Back office services (offshoring /outsourcing) in
  marketing, logistics, sourcing, quality assurance
  and others.
• Assembly of medical other specialized products.
• Tourism
• The national tourism market maintains a 7.1
  annual growth.
• Rooms have been expanding at an annual 4.5.
• More than one million tourists visit Costa Rica
  every year.
• 48 of all tourists come from the USA, 16 from
  Europe and 36 from other countries.
• Great tourist real estate development presence,
  golf courses and marinas

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Support Industry

• Plastic injection, extrusion, blow molding
• (Electroplast, Plásticos Modernos, Plásticos
  Star, PPC)
• Sheet metal
• (DIMMSA, Leogar, Perfiles Ranurados)
• Precision Machining
• (RR, Prolex, Oberg Industeries, FEMA, Weststar,
  Techshop, Microtechnologies, Olympic Machining,
  MOTROSA)
• Tools and Dies, Stamping Plating
• Quality and manufacturing systems
• ISO 9000, ISO 14000, QS9000, TL9000, 5S, TQM, Six
  Sigma.

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Assistance from CINDE

• CINDE, the Costa Rican Investment Promotion
  Agency, is a private non-profit nonpolitical
  organization, founded in 1982.
• Providing assistance to investors through the New
  York and Costa Rica offices
• Active promotion of foreign investment, local
  support, and post establishment services.
• Support for new projects and reinvestment

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Solidarista Associations

• Employer-sponsored workers associations
• Each company has an organization, in which white
  and blue collar workers participate
• The organization operates as a credit union which
  provides multiple benefits to workers
• It is funded by employers, with part of the
  severance provisions, and by employees
• Solidarista organizations ARE NOT sector-wide
  bargaining instances, as American unions