Costa Rica as a haven of knowledge workers and information technology

Costa Rica as a haven of knowledge workers and information technology

Costa Rica, a country known more for its tropical rain and cloud forests, along with its virgin beaches, has a well-educated workforce and a flourishing information technology (IT) sector, which have been attracting the attention of multinational companies and foreign direct investment.

The usual suspects of direct investment or offshoring for IT companies in the United States and other developed countries are India, Ireland and Israel. Other developing nations such as Costa Rica, Turkey and Ukraine have been making serious efforts in the recent years to be included in the global IT map. Costa Rica, in particular, with its proximity, time zone and cultural affinity, offers a serious alternative for the North American technology firms that want to diversify their investment and sourcing destinations.

The efforts and developments that make Costa Rica a viable option as a regional digital hub go back a long time. After a relatively brief civil war, Costa Ricans abolished their army in 1948, and channeled their resources, which otherwise would have been spent on defense, toward educational and health matters. Having raised its human-development levels, to above the average of other Latin American nations, Costa Rica was able to switch to more lucrative activities in the 1980s, such as higher-value added agricultural production and the IT sector.

A better-educated and healthier workforce attracted foreign direct investment into the country. Relatively stable economic and political environments were other enablers. In a region where, as the saying goes, “the person who woke up earliest made a coup,” not having an army turned out to be a true blessing and meant political stability. The democratic climate helped Costa Ricans debate freely over the best future for their country. On the other hand, some argue that the autocratic style of Jose María Figueres, who led the winning side of the civil war, and the not-so-democratic rotating-rule of his National Liberation Party (Partido Liberación Nacional or PLN in Spanish) and the Social Christian Unity Party (Partido Unidad Social Cristiana or PUSC in Spanish), also contributed to the economic development. The two parties alternatingly governed Costa Rica for decades since 1951 till the new millennium.

Another positive factor was the training and the education of young talent in Costa Rica and, later through scholarships, in the United States in the 1960s and the 1970s. These well-educated technocrats, later serving as ministers of the treasury and the economy, presidents of the central bank, and in other bureaucratic positions and in universities, would be crucial for the economic stability and the educational quality of the country, thus helping create a virtuous cycle of high human development, economic prosperity and political stability.

Costa Rica’s endeavors were not confined to the above-mentioned activities. They set up agents to organize their efforts. The Ministry of Science and Technology (Ministerio de Ciencia y Tecnología or MICIT in Spanish) was created in 1986. This important ministry helped coordinate the actions of different actors such as the non-governmental organizations, universities, the state and the private sector. The Costa Rican Investment Promotion Agency (Coalición Costarricense de Iniciativas de Desarrollo or CINDE in Spanish) was created to seduce foreign firms and help them invest in the country. One of the outcomes was the attraction of foreign direct investment to produce or establish their regional hubs in Costa Rica. Motorola, Intel, and many other multinational companies have set up shop in Costa Rica in the last few decades.

Another result of these organized efforts was the establishment of Costa Rica as an outsourcing destination for software companies. Proximity to North America and a similar time zone ease communication between the service providers and their clients. Cultural affinity is another facilitator that is accompanied by a quasi obligation to be commercially open due to the small size of the internal market. The United States and the European Union are among the many partners with which the country has free trade agreements and investment promotion and protection commitments. Salaries of Costa Rican engineers are also considerably less than what their counterparts receive in Silicon Valley.

Costa Rica has its share of challenges as well. The country has been experiencing an impasse on the political side. The parliament has been divided among numerous parties that cannot come to an agreement on important issues such as the much-needed and long-due fiscal reform. The political gridlock of the last two decades, and its economic consequences, has prompted a debate over the virtues of democracy and its impact on an emerging economy’s development. Corruption and nepotism, at all levels, including politics and many state institutions, seem to have reached intolerable dimensions. The progress on education and health was made possible at the expense of physical infrastructure. The cost of living has risen along with increasing foreign direct investment. Security, crime and violence are among the top national issues to resolve. Finally, Costa Rica has high-quality talent, but lacks quantity due to its population of mere five million.   

Despite its share of problems, its relatively peaceful and suitable environment, economic and political stability, natural beauty, and well-educated workforce make Costa Rica a viable digital partner and destination for multinational firms and technology startups in Silicon Valley and elsewhere.