The Costa Rican Model

Josh Ruxin: So the private sector investment or foreign direct investment as it is usually referred to is absolutely essential to the poorest countries on the planet because that is really what can lift an economy that can in one swoop employ tens of thousands of people, particularly if a major company comes in, but laying the foundation for major foreign direct investment can take decades and Costa Rica is a great example of this and Costa Rica back midway through the twentieth century after getting rid of their military decided we’re going to invest in education. We’re going to invest in health and hopefully someday major corporations will see us as a place that is worth investing in. And sure enough starting in the 1980s Microsoft, Intel, other companies started setting up shop in Costa Rica. So that’s the dream and that’s certainly the dream for a lot of poor countries and a country like Rwanda where I reside. 

So how do you actually get there and what is it going to take to do that? Well there are number of things that governments can do. They can provide tax incentives. They can certainly lower levels of corruption because companies, particularly multinational countries want to dodge corruption. They do not want to have to pay bribes in order to do business in a country. And that’s sort of is just the baseline. Beyond that a country needs to build up its workforce and convince these companies we have got a workforce that is well educated enough, that is often times cheap enough for you to come in and gain some sort of competitive advantage over working in another country. Ireland is another example of another country that did this. They invested immensely in education and improved their tax laws and made it a very attractive place to make investments and they got it done, but it took many decades to do this.

The problem in Africa right now is so many countries don’t just lack the workforce and don’t just have the high levels of corruption and high cost of electricity and lack basic infrastructure, but they also public health challenges. They have malaria. They have AIDS epidemics. They have lack of primary healthcare and this together makes a perfect storm for unattractive investment. I mean who wants to invest in a country where you’ve got all of those problems against you? We want to invest in a country where some of those problems are starting to be resolved and Rwanda happens to be a place that at least on the public health front has done a great job. On the corruption front they’ve done a great job. On working on taxes they still have a lot of challenges before them, but in general they’re trying to do everything that they can in order to attract foreign direct investment.

 

Recorded on: August 13, 2009

Josh Ruxin, Founder of Rwanda Works and Clinical Professor of Public Health at Columbia, outlines the success of foreign direct investment in the past, and its similar potential for helping other underdeveloped countries.

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