This is an excellent piece which looks at the advantages and disadvantages for countries that rely on FDI & multinationals.
This
Economist article returns to a topic from way back in 2000,
when the
multinational company Intel had recently embarked on a
significant investment in Costa Rica. What would happen to the relatively poor
Central American economy when the giant arrived?
Fast forward to 2014 and Intel have announced that they are leaving. Cue some
similar questions: what effects have been felt? And what impact will Intel’s
departure have?
Back in 2000,
the
Economist reported that when Intel named a new boss for its Costa Rica
operation, the president of the tiny country joked that the new manager's job
was more important than his own. Intel had begun to transform the economy in
1997.
GDP grew and
exports boomed, giving
Costa Rica a
trade surplus for the first time since 1986.
When the value of the Intel factory's production almost tripled, the rest of
the economy grew more modestly, by around 3%. Farming, traditionally the
mainstay of the economy, suffered from low prices and some Costa Ricans worried
that their country now had a “
dual economy”, and was swapping
one form of
economic dependency for another.
“Fifty years ago
we depended on coffee and bananas; today we depend on Intel,” the central bank
president complained. And it’s worth remembering that although
GDP boomed, the impact on
GNP (national income) grew
by only 2% because of the
outflow of profits.
The article argued that Costa Rica had some inbuilt advantages in handling
Intel: a democratic tradition, respect for the rule of law, and a well-educated
workforce. Such factors led Intel to choose Costa Rica for its only factory in
Latin America. The business went on to help improve Costa Rica's
infrastructure and other foreign investors followed Intel.
What is the view from 2014?
According to
the
article, by the end of the year 1,500
jobs will have been
lost as Intel pulls out of Costa Rica. Intel’s operations in the country are
worth around $2 billion a year, making up about 20% of the country’s
exports. The firm accounted for 11% of net
foreign direct
investment in 2000-12. Intel says it will hire another 200 staff to
work in its engineering and global-services units in the country, which
currently
employ around 1,200 people. Nonetheless, one economic
adviser to the incoming government, estimates that the closure of the microchip
factory will
cause a drop in Costa Rica’s GDP of 0.3-0.4% over
the next year.
Intel’s arrival helped Costa Rica to
develop a lively high-tech
cluster which includes companies such as Infosys and Hewlett Packard
(which last year announced that it was moving some of its Costa Rican jobs to
India). The worry is that just as Intel’s arrival triggered an influx of smaller
firms, its departure could cause them to leave.
Nor is technology the only
industry feeling the squeeze. Hours after Intel announced its departure, Bank of
America said it would close its Costa Rican operations as part of a global
restructuring programme, laying off 1,400 workers.
So few celebrations that the
MNC is leaving: instead it’s a
revealing insight into some of the problems created up by a dependency on
foreign firms for the development of a small, relatively poor economy.
