Intel is at home in Costa Rica — for now

SAN JOSE, Costa Rica — Computer chipmaking giant Intel started the year off like several other big-name companies: taking stock, crunching numbers and, ultimately, scheduling painful cutbacks to cope with the global downturn. In January, amid plummeting computer demand, California-based Intel announced as many as 6,000 layoffs and five plant closures by year's end.

That made some Costa Ricans gasp — but so far, the 10-year-old Intel plant here has been spared. According to Karla Blanco, Intel Costa Rica's corporate affairs manager, "there has been no notice about reducing (staff here)."

But the spate of downsizing has raised questions about what would happen if Intel were to pull the plug in Costa Rica. When Intel arrived in 1998, the economy went from relying on cash crops such as coffee and bananas to relying on cash chips made by a leading manufacturer. Now, Intel's processors make up a whopping 20 percent of Costa Rican exports.

"Hopefully, that won't happen," said Julio Acosta, senior advisor of business consulting firm Infinitum and former managing director of the Costa Rican Investment Promotion Agency (CINDE), contemplating a possible closure of the Intel plant.

In addition to vanishing export revenue and gross domestic product contributions of between 3 percent and 5 percent, he stressed the importance of the company's specialized personnel, which according to Blanco is at least 95 percent Tico (Costa Rican). The 3,200-staff, 52-hectare assembly and test operation are located in the northwestern outskirts of the capital. The plant has endured some recent belt-tightening — including a freeze on salary increases, restrictions on trips abroad and limited electricity use in the office — but has so far escaped layoffs.

Acosta said the plant's staff make up about 0.3 percent of the nation's workforce. "It may not seem that much as a percentage, but it becomes very important when you look at the quality of employment. Most are either professionals or technicians, in a very sophisticated line of work, with credit cards, a car or home loan to pay for," he said. "Having unemployment at that level is something no country wants to afford."

Acosta's verdict: "The effect on a small economy like Costa Rica would be devastating."

Luis Mesalles, president of the economic think tank Academia de Centroamerica, agreed. "If Intel leaves, exports drop dramatically, the economy stops receiving its contribution to gross domestic product, and more than 3,000 people with higher-than-average salaries, and all the indirect employees, are left unemployed," he said.

But Mesalles is also concerned about how Intel's hypothetical flight would scar Costa Rica's image. "Thanks to the image Intel has, other companies have come to invest in this country," he said. "They have invested in quality, high technology, not just chips, but medical equipment too, and it's come partly because Intel put us on the map."

Procter & Gamble entered Costa Rica one year after Intel opened shop here. Other businesses that have outsourced or relocated operations here include Amazon, Firestone and the medical group St. Jude.

Costa Rica ranked 59th on the latest Global Competitive Index, a widely-watched list compiled by the World Economic Forum, placing the country among the top seven Latin American and Caribbean economies. The ranking places Costa Rica four slots ahead of where it was last year.

And if foreign investment figures are any indication, little Costa Rica has shown beauty queen potential. Foreign direct investment here surged to $2 billion last year from $861 million in 2005. Given the global economic crisis, some of that investment may fade: Last month the Central Bank predicted 2009 foreign inflow will be $1.33 billion, a 33 percent drop from 2008 and back below investment levels of three years ago.

Intel has been the cause of much of that increase, providing "probably the largest investment in Costa Rica so far," according to Acosta, the 2000 CINDE chief.

When the Santa Clara, Calif.-based corporation announced plans for a Costa Rica plant in November 1996, the initial investment was set at $115 million, Blanco said. "Today we're investing more than $800 million," she said.

The plant's importance to the Tico economy is undeniable, but how valuable is Costa Rica to Intel? Blanco says the company asks a similar question when evaluating any plant site. "The process of selecting a plant (site) or expanding a plant is continuous, because (the corporate heads) are continuously evaluating us," she said, listing such factors as production and electricity costs.

But free zone tax incentives matter too, she said, explaining that Costa Rica stood out in Latin America for that reason, and now the country receives 75 percent of the company's global invoices. Blanco believes it's "vital" for Costa Rica to upgrade its free zone law to keep a competitive edge.

With sales thinning — Intel Costa Rica's exports dropped from $2.46 billion in 2007 to $2.07 billion in 2008 — a tightening of the belt usually follows. But the corporate affairs manager is optimistic for a rebound by the second half of the year.

Acosta, who took over as director of the investment promotion agency just two years after the chip-maker came, seemed as though he couldn't bare to entertain the thought of Intel going. He reminisced, "It was a real surprise for everyone that a big company like Intel would set eyes on a little country like Costa Rica."

The country could be in for a real shock if the company should ever turn its gaze away.


Other GlobalPost dispatches from Costa Rica:

A Costa Rican tradition

Costa Rica's criminal underbelly