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US semiconductor industry foreign direct investment

Costa Rica seeks US semiconductor industry foreign direct investment

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Contact the Central American Group to explore the foreign investment option in Costa Rica and to establish nearshore manufacturing operations in the Green Park Free Zone.

The Government of Costa Rica recently reported that it seeks to position the country as an ideal destination for new US semiconductor industry foreign direct investment, which is why it is working on a strategy to provide the sector with a reliable and sustainable value chain.

As part of an official tour in Washington, the president of Costa Rica, Rodrigo Chaves, and the Minister of Foreign Trade, Manuel Tovar, met with representatives of the Semiconductor Industries Association (SIA), the Costa Rican Presidency reported.

“We are working on constructing a National Semiconductor Strategy through which our country and the industry are actively preparing to make Costa Rica a destination for US semiconductor industry foreign direct investment,” stated Tovar.

The minister added, “It is important to align our efforts to position the country as a reliable partner for its ecosystem and production, and we are committed to achieving a reliable and sustainable value chain so desired in this industry.”

Intel and others have made recent investments in Costa Rica

The SIA organizes industry actions in activities such as defining strategies to promote and maintain global leadership in technology for its members, including semiconductor manufacturers, suppliers, and research organizations. Its members include semiconductor companies like Intel, Texas Instruments, and Micron Technology.

Last August, the Intel company announced a 1.2 billion-dollar budget for the next two years of operations in Costa Rica, a country it considers key to the growing global demand for semiconductors.

As explained by the company, the investments will continue to update the infrastructure and technical and engineering skills to maintain the highest standards in developing next-generation products that will reach the market in the coming years.

Additionally, in July, the US Embassy in Costa Rica revealed that the US State Department would partner with the government to explore opportunities to diversify and grow the global semiconductor ecosystem and create a more transparent, secure, and sustainable global value chain and a positive environment for US semiconductor industry foreign direct investment.

The Chips and Science Act of 2022 has facilitated collaboration

This partnership is made possible by the International Technology Security and Innovation Fund (ITSI Fund), created by the CHIPS and Science Act of 2022.

“Today, we are here taking firm steps so that very soon, we will capture new investments and jobs for Costa Rica. “We are honored with the recognition that the United States gave to the country a few months ago when the US announced us as their first partners to benefit from the Chips and Science Law,” Minister Tovar said.

President Chaves is currently visiting Washington for the summit of leaders of the Alliance for Economic Prosperity in the Americas (APEP). As part of his agenda, he will also discuss cybersecurity, investment, trade, and migration issues. EFE

Costa Rica offers US semiconductor industry foreign direct investment many advantages

Costa Rica is a compelling destination for US semiconductor industry foreign direct investment due to a combination of strategic advantages and a business-friendly environment. The nation has emerged as a critical player in the global technology sector, and several factors make it an attractive location for semiconductor companies looking to expand their operations.

Firstly, Costa Rica boasts a stable political and economic environment. Its commitment to democracy and a history of political stability create a conducive atmosphere for long-term investments. The country has a well-established legal framework that protects intellectual property rights, providing a secure foundation for semiconductor firms to conduct research, development, and manufacturing activities without significant concerns about legal risks.

Secondly, Costa Rica has made substantial investments in education, producing a skilled and educated workforce that aligns with the semiconductor industry’s needs. The country’s emphasis on education has led to a high literacy rate and a robust pool of technical talent. Costa Rica’s workforce is proficient in English and offers a strong foundation in science, technology, engineering, and mathematics (STEM) fields, essential for the intricate demands of semiconductor manufacturing.

Moreover, the country has actively fostered a pro-business environment, implementing policies to attract foreign investment. Costa Rica’s free trade zones, in particular, offer tax incentives and streamlined bureaucratic processes, making it easier for semiconductor companies to set up and operate efficiently. The government’s commitment to reducing red tape and facilitating a smooth entry into the market enhances the overall attractiveness of Costa Rica as an investment destination.

Additionally, the nation’s strategic location is advantageous for the semiconductor industry. Positioned near the United States, Costa Rica offers convenient logistics for transporting semiconductor products. This proximity can lead to cost savings and efficient supply chain management, vital considerations for semiconductor companies seeking to optimize their global operations.

Furthermore, Costa Rica has prioritized sustainability and environmental stewardship, aligning with the growing global focus on corporate social responsibility. This commitment makes the country appealing for semiconductor companies aiming to integrate environmentally friendly practices into their operations.

Lastly, Costa Rica’s stability, skilled workforce, pro-business policies, strategic location, and commitment to sustainability collectively position it as a highly favorable destination for US semiconductor industry foreign direct investment. The country’s well-rounded advantages create an environment conducive to innovation, growth, and long-term success for semiconductor companies seeking to establish a significant presence in the region.

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Promotion of foreign direct investment outside the Greater Metropolitan in Costa Rica is a priority for Cinde

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Taking Foreign Direct Investment in Costa Rica (FDI) outside the Greater Metropolitan Area in Costa Rica (GAM) will be a high priority of the Costa Rican Coalition of Development Initiatives, known by its Spanish language acronym Cinde, for the remainder of 2023. This was recently expressed by Jorge Sequeira, director of the internationally recognized investment promotion agency in Costa Rica.

Foreign direct investment in Costa Rica is concentrated in the GAM

What is referred to as the Greater Metropolitan Area in Costa Rica (GAM) consists of the country’s main areas of urban concentration. It includes the cities of San José, Cartago, Heredia, and Alajuela. Alajuela is the location of The Central American Group’s Green Park Free Zone.

Beyond the GAM, however, Cinde’s leadership recently reported that in 2022, 900 jobs were created in towns that lie outside of these communities. Ten new investments were executed in the life sciences, services, manufacturing, and tourism infrastructure sectors. Forty-nine percent of the population is outside the country’s Greater Metropolitan Area in Costa Rica.

The above-mentioned foreign direct investment in Costa Rica was made in the districts of Liberia and Santa Cruz, in the province of Guanacaste; Cóbano (Puntarenas), Orotina, San Carlos, and Grecia (Alajuela) and Pérez Zeledón (San José, on the Pacific Coast).

Among the free zones located outside of the Greater Metropolitan Area in Costa Rica are:

Zona Franca Global Park: Located in the province of Alajuela, this free zone offers a wide range of services, including logistics, manufacturing, and technology.

Zona Franca America: Located in the province of Heredia, this free zone is dedicated to technology and innovation, with a focus on software development.

Zona Franca Solarium: Located in the province of Guanacaste, this free zone is focused on environmentally sustainable businesses, including renewable energy and ecotourism.

Zona Franca Metro: Located in the province of Cartago, this free zone offers a range of services, including manufacturing, logistics, and call centers.

Incentives are available to investors locating facilities outside of the Greater Metropolitan Area in Costa Rica

Companies located in one of the free zones outside of the Greater Metropolitan Area in Costa Rica are subject to less bureaucratic red tape. Additionally, they can enjoy certain tax benefits, worker training programs, and a lower cost structure.

Sequeira stated that, through a recent survey by Cinde, it had been found that another 5,000 virtual jobs were generated outside the GAM prior to the Covid-19 pandemic. He added that the companies making foreign direct investment in Costa Rica decide where to invest. We do not tell them where to be. They are the ones that settle where they find the appropriate, correct, and optimal conditions for their operation.”

He recognized that in Costa Rica, for decades, there has been a desire to extend job creation to regions outside the GAM and that, over time, infrastructure has been put into place to guarantee the communities’ competitiveness. Among the issues that he cited that needed to be addressed to motivate new foreign direct investment in Costa Rica outside the Greater Metropolitan Area in Costa Rica include increased connectivity, more electricity infrastructure, increased workforce training, and the availability of business parks.

“It is a task for the country in which many institutions,  government ministries, and business chambers must participate; it is everyone’s task,” Sequeira pointed out.

The priority for 2023 for foreign direct investment in Costa Rica

For his part, Eric Scharf, president of Cinde’s board of directors, said that strategic goals have been established for the next four years.

“Priority number one, Cinde’s number one strategic goal as of 2023, is the attraction of foreign direct investment outside the Greater Metropolitan Area,” he assured.

The main other organizational priorities aimed at increasing foreign investment in Costa Rica outside the GAM are training human resources in STEAM areas (These include English for science, technology, engineering, arts, and mathematics) and multilingualism. This goal is in addition to expanding the investment portfolio in agriculture, agrotechnology, adventure parks, and human health.

Scharf presented the results of foreign investment for 2022, which reached an estimated figure of $3.5 billion. He argued that the Law for Strengthening Territorial Competitiveness, which came into force in May 2022 that created incentives to attract investment outside the GAM, encourages the promotion of the aforementioned new sectors.

Meanwhile, the Minister of Foreign Trade, Manuel Tovar, indicated that with the approval of the Film Investment Attraction Law, there is an incentive for FDI in this sector to go outside of the Greater Metropolitan Area in Costa Rica.

“We are about to regulate this Law because it is also related to areas outside the Greater Metropolitan Area. I am a resident of Curridabat. It is very a very beautiful community, but, to date, I do not see a reality show or a movie being filmed there. These projects are coming,” he said.

The aforementioned Law aimed at attracting more foreign direct investment in Costa Rica was approved in October 2021 and published in the periodical La Gaceta on December 13 of the same year.

Source: La Nacion

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Who leads in total foreign direct investment in Central America?

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Costa Rica was resilient during the pandemic, but how do its total foreign direct investment income levels in Central America compare with its neighbors in the region? These are the official figures.

Costa Rica weathered the economic storm of the coronavirus pandemic, but how do its foreign direct investment income levels compare with the other countries on the Central American isthmus? Below we examine the official figures.

In 2021, Costa Rica obtained the second-highest income from FDI in the Central America and Dominican Republic region. They were only behind Guatemala (approximately $3.1 billion for Costa Ricans, approximately $3.5 billion for Guatemalans).

However, the Guatemalan data for the period under consideration was atypical and was influenced by one isolated event. In the fourth quarter of 2021, Guatemala accounted for the effect of a $2.2 billion investment made by the telecommunications company Millicom to acquire the domestic firm Tigo. This is according to local media reports in Guatemala, which has the largest economy in Central America.

Foreign direct investment in Central America

The volume of overall foreign direct investment (FDI) in Costa Rica was $652 million in the second quarter of 2022, second only to that of the Dominican Republic in the Central American region.

A Positive Outlook

Despite the high levels of inflation at the international level and the geopolitical instability of recent months due to Russia’s invasion of Ukraine and other tensions in the rest of the world, the Central Bank (BCCR) predicts a positive performance of foreign direct investment in Costa Rica. It is expected that numbers will not decline in the coming years.

On the contrary, the BCCR assured in its latest Monetary Policy Report, published in October 2022, that the incoming resources for the 2022-2023 biennium would even allow the accumulation of some $1,14 billion in 2022 and another $1.3 billion in 2023 in reserves.

It is important to note that BCCR forecasts have improved in recent months “due to the transfer of manufacturing processes from other countries to Costa Rica, mainly from medical device and advanced manufacturing companies.”

The eventual capture of reserves by the inflow of foreign currency, according to the entity, would imply the opportunity to recover lost ground in recent years “after the transitory use of reserves made by the Central Bank in 2021 due to the delay in credit approvals external sources of budgetary support and due to the attention to the greater demand for foreign currency originated by the negative shock of the terms of trade. Also of note was the intensification of the acquisition process of assets in foreign currency by the pension funds”.

Positive dynamics of  total foreign direct investment in Central America

The dynamics are also positive in Central America as a whole.

“Net Direct Investment (DI) flows (acquisition of financial assets minus net liabilities) from the countries of Central America and the Dominican Republic totaled $12.8 billion (equivalent to 3.4% of regional GDP), an amount higher than all the total foreign direct investment in Central America captured in 2020 ($6.9 billion, which represented 2.1% of GDP)”, wrote the Secretariat for Central American Economic Integration (SIECA) in its most recent Regional Economic Report.

However, the growing trend in the region is uneven among the various countries, according to data compiled by the organization.

Numbers rebound

Foreign direct investment figures as a percentage of production have rebounded in the Central American and Dominican Republic region after the complex year 2020. This was due to the harmful effects of the pandemic.

The numbers of El Salvador, for example, had been almost stagnant for a year in negative numbers or close to zero until the first half of 2022, although an improvement was expected for the year’s second half.

The Salvadoran economy, international media, and that country have been hit by internal political challenges as well as by the internal financial situation of the country. 

On the other hand, Panama, which usually registered volumes similar to or higher than those of Costa Rica before the pandemic, is beginning to recover from the shock of the health crisis caused by Covid-19, which directly impacted their trade flows.

On the other hand, Costa Rica was a more resilient destination for overall foreign direct investment in Central  America. As determined by the specialized site fDi Intelligence, it was the country that attracted the most foreign investment internationally, relative to its production, throughout 2020: the first year of the Covid-19 pandemic.

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Foreign direct investment in El Salvador

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El Salvador is a country located in Central America with a growing dollar-based economy with a government focused on attracting foreign direct investment (FDI). To support this goal, the country has implemented various specific laws and free trade agreements to create an environment favorable for investment in El Salvador.

The Foreign Investment Law of 1998

One of the primary laws governing FDI in El Salvador is the Foreign Investment Law, which was enacted in 1998. This law offers various incentives to foreign investors, such as tax exemptions, duty-free importation of capital goods, and the ability to repatriate profits and capital without restrictions.

The Foreign Investment Law of 1998 was enacted to create a favorable climate for investment in El Salvador and stimulate economic growth. The law is considered to be one of the key factors behind the country’s success in attracting foreign investment in recent years. In addition, the benefits provided by the law have helped to create new business opportunities and support the development of various sectors of the economy, including tourism, agriculture, and manufacturing.

Special Law for the Promotion and Development of Export Activities stimulates investment in El Salvador

Another important investment law in El Salvador is the Special Law for the Promotion and Development of Export Activities. This law was created to encourage and support the export sector, which is a pivotal contributor to the country’s economy. The law provides tax incentives, financing opportunities, and technical assistance to companies engaged in export activities.

Some of the key provisions of the Special Law for the Promotion and Development of Export Activities of El Salvador include:

  • Tax incentives: Companies engaged in export activities are eligible for tax benefits, such as exemptions from import and export duties and reduced tax rates on income and profits.
  • Financing opportunities: The law provides financing opportunities to companies engaged in export activities, including access to loans and other forms of financing to support their business operations.
  • Technical assistance: Companies engaged in export activities are eligible for technical help, including training and support in product development, marketing, and logistics.
  • Export promotion: The law provides for the promotion of exports through various initiatives, including trade fairs, exhibitions, and other marketing events.

The Special Law for the Promotion and Development of Export Activities of El Salvador is essential for supporting the country’s export sector and creating economic growth. By providing tax incentives, financing opportunities, and technical assistance, the law aims to help companies engaged in export activities to succeed and contribute to the country’s economy.

Investment in El Salvador is also promoted by its law on Free Zones, which provides tax benefits and other incentives to companies operating in designated areas within the country. These benefits include exemptions from import and export duties and tax exemptions on income and profits. This law aims to encourage the development of export-oriented businesses and create jobs in the country.

Some of the key benefits and incentives of the Free Trade Zone Law in El Salvador include the following:

  • Tax exemptions: Companies operating in free trade zones are eligible for tax exemptions, including exemptions from import and export duties and income and profit tax exemptions.
  • Simplified customs procedures: The law provides simplified customs procedures, making it easier and quicker for companies to import and export goods.
  • Access to infrastructure: Companies operating in free trade zones have access to infrastructure, such as ports, airports, and road networks, which are essential for their business operations.
  • Access to financing: The law provides funding for companies operating in free trade zones, including loans and other forms of financing to support their business operations.
  • Equal treatment: The Free Trade Zone Law provides equal treatment to all companies operating in free trade zones, regardless of their size or origin.

Free trade agreements are positive for investment in El Salvador

In addition to these laws, investment in El Salvador is stimulated by its signing various international trade agreements, such as the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), which provides access to the U.S. market for Salvadoran goods and services. This agreement has benefited the country, as it has helped increase exports and attract foreign investment. Other free trade agreements that el Salvador has entered into include:

  • Mexico-Central America Free Trade Agreement (MCAFTA): This FTA was signed between El Salvador and Mexico in 2011 and is aimed at strengthening economic ties and promoting trade and investment between the two countries.
  • Association Agreement with the European Union: This agreement was signed between El Salvador and the European Union in 2016, and provides for the removal of trade barriers, the promotion of investment, and the creation of a favorable business environment for trade and investment between the two regions.
  • Trans-Pacific Partnership (TPP): El Salvador was an original signatory of the TPP, which was signed in 2016 between twelve Pacific Rim countries, including Australia, Canada, Japan, and New Zealand. The agreement aims to enhance trade and investment by removing trade barriers between the participating countries.

In conclusion, in addition to entering into free trade agreements to stimulate investment in El Salvador, the country has also implemented a series of investment laws to create a favorable environment for foreign direct investors. These laws provide tax incentives, financing opportunities, and equal treatment for foreign and domestic capital, which has helped to attract investment and support economic growth in the country.

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The Importance of Foreign Direct Investment in Costa Rica

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Foreign direct investment in Costa Rica is one of the mainstays of the Central American country’s vibrant and diversified economy. 

As one of Latin America’s most favored investment destinations, Costa Rica is widely recognized for the quality of its workforce, the sustainability of its economy, its long history of democracy,  the peace and stability that the nation has enjoyed for over sixty years, as well as the dynamism of its business sector.

Numbers related to foreign direct investment in Costa Rica back up this assertion.  According to the Costa Rican Investment Promotion Agency (CINDE), “Multinational companies supported by CINDE created a gross figure of 16,718 new jobs and 10,141 net jobs in 2019.” 

Additionally, as of the end of 2019, “The Costa Rican Investment Promotion Agency now supports a client base of over 300 international companies that represent an aggregate of 118,245 direct jobs and 58,980 indirect positions.”

According to Dyalá Jiménez Figueres, Costa Rica’s Minister of Foreign Trade (COMEX), “A significant part of the effort to secure foreign investment in Costa Rica consists in making trips to strategic partner countries such as Germany, which is the second largest source of FDI” for the Central American nation.

Most of the job creation that has resulted from foreign direct investment in Costa Rica is in advanced and light manufacturing, food processing, medical device manufacturing, life sciences, and the service sector.

The most dynamic industries of the Costa Rican economy in terms of FDI are the medical device and life sciences industries.  For, example between the years 2015 and 2018, these sectors experienced a growth rate of 11%.  This was followed by services which grew at a 10.1% pace.  Light manufacturing and food processing activities both grew by 7.8%, while advanced manufacturing expanded by 3.1%.

Manufacturing: the largest recipient of foreign direct investment in Costa Rica

The sector which has consistently demonstrated the greatest capacity for growth in the country is manufacturing.  This area of the Costa Rican economy is comprised of several subsectors.  As stated previously, the most prominent among them are the medical device and life sciences industries and advanced manufacturing. The former of which experienced a 13% growth rate in employment between the years 2000 and 2015, as well as an increase in productivity per employee of 30% over the same time period.  Today, Costa Rica is home to six of the 20 largest medical device manufacturing companies in the world and has emerged as a leader in hosting medical technology foreign direct investment in Latin America. 

As for advanced manufacturing, two firms that are prominent in this subsector are AdAstra Rocket and VASMIR.   Both are active in the development of technology for aerospace propulsion.

Companies that have made the decision to engage in foreign direct investment in Costa Rica demonstrate both high levels of complexity and diversity.  In addition to this economic activity, the arrival of foreign manufacturers in Costa Rica has spurred the development of a robust base of local suppliers that have enabled multinationals to reduce their costs.

In addition to more advanced industrial activities, Costa Rica also has a base of light manufacturers that produce items that are less complex.  Among these are baseballs, handmade tailored suits, and other textiles, as well as steel and plastic products.   

The positive effects of foreign direct investment in Costa Rica have also been felt in the food processing subsector.  The nation currently produces agricultural products and processed foods that are exported to a total of more than 130 destinations around the world.  The most notable companies that have installed facilities in Costa Rica in this area are, for example, Kraft, Cargill, Mondelez, Unilever, Bimbo, Chiquita, and Dole.  These firms benefit from conditions offered by the country that include access to high-quality raw materials and an agile system of logistics and transportation.  They can export their products from either a Pacific Coast or Atlantic Coast port.

The Evolution of Foreign Direct Investment in Costa Rica

Costa Rica gained prominence as a destination for FDI when Intel installed a microchip manufacturing facility in the Central American nation in 1997.  Its presence motivated many other well-known multinationals to take the country into consideration.

By the year 2012, Intel accounted for a full 6% of Costa Rica’s Gross Domestic Product (GDP) as well as 20% of its exports.  Although the closure of the plant in 2014 instigated the creation of a corporate mega laboratory and other business units, 1,200 production workers were dismissed from their manufacturing positions. 

Despite this setback, foreign direct investment in Costa Rica recovered quickly with the attraction of new manufacturing activities to the country.  Most prominent among these were export-led industries such as the production of medical devices and precision equipment, and agricultural and food products.  Companies involved in these areas have been able to create sophisticated links for the Costa Rican economy in global value chains and have instigated sales in a wide array of foreign markets that include countries such as the United States, Japan, China, the Netherlands, as well as the European Union as a whole. 

Today, Costa Rica has succeeded in becoming a regional leader in quality, efficiency,  workforce experience and education, and innovation.

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Trends in Foreign Direct Investment in Central America

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An increase in foreign direct investment in Central America is critical to improving the region’s competitiveness

We can help you to make your investment project in Central America a success.  Contact the Central American Group.


Over the course of the last twenty years, there has been a significant amount of foreign direct investment (FDI) injected into Central American economies.  Much of this increase in capital inflows can be viewed as a response to the policies of economic liberalization that were widely enacted by the countries of the isthmus that began to be implemented during the late 1980s.  These laws resulted in the establishment of regulatory frameworks that treated FDI in Central America favorably,  allowed for entry into the region’s domestic markets, and established rights to foreign ownership.

In 2017, foreign direct investment in Central America exceeded US $12 billion.  This represented an increase of 9.8% when compared to figures that were recorded during the previous year. 

In the period from 2010 to 2017, investment in Central America from outside of the region grew at a rate of 7.9%.  This means that, in recent years, the participation of Central America in the receipt of FDI as a percentage of the total that has been received by the whole of Latin America and the Caribbean has increased.  While in 2010 the percentage of FDI received by Central America was 3.9% of the total for Latin America and the Caribbean, by 2017 this figure had doubled to reach 7.8%.  The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that this trend will continue for the next several years.

According to ECLAC, free trade agreements have given the countries of Central America a clear advantage as regards the attraction of foreign direct investment to the region.  The most prominent free trade agreement that has positively affected FDI  in Central America is the US-Central America-Dominican Republic Free Trade Agreement (DR-CAFTA).

Costa Rica and Panama lead the way in the attraction of foreign direct investment in Central America.

Figures reveal that, when considering outside investment over the last decade, Costa Rica and Panama have been the clear leaders.  The two countries have accounted for more than half of the FDI revenues garnered over the ten-year period, while other economies in the region (such as El Salvador) received less than 5% of the total. 

While Costa Rica captured US $2.7 billion dollars of FDI in the region in 2017, which represented 20% of the overall total, Panama came in first with over US $5.3 billion dollars.   This amount constituted 47.5% of the total foreign direct investment in Central America in 2017.  Countries following Costa Rica and Panama were El Salvador with 3.2%, Nicaragua with 8.2%, Honduras with 10.4%, and Guatemala with 10.8%.  Although Panama led the way in foreign direct investment in Central America in 2017, Costa Rica positioned itself as the country with the largest nominal increase in FDI in that year.  This corresponded to an amount totaling US $538.4 million.  Countries such as Honduras, Nicaragua, and Guatemala, however, have not shown significant changes in FDI capture since 2010.

The main sources of foreign direct investment in Central America

As regards the origin of the influx of  FDI in Central America, the biggest concentration of investment of external investment has its source in countries that share important commercial links with the region.  The leader of investment in Central America in 2016 was the United States with capital inflows totaling approximately US $10.9 billion.  This number represented 27.3% of the funds that the region attracted that year.  After the United States, the European Union contributed 17.2% of foreign direct investment in Central America.    

In addition to the US and the EU, the last decade has seen a rise in the participation of Latin American countries in Central American FDI income.  Such is the case with Colombia.  While in 2007 the foreign direct investment income from this nation did not reach 6% of Central America’s total, by 2017 the Colombian contribution to FDI  in Central America rose to 12.2%.

Another Latin American country that has, in recent times, increased its investments in Central America is Mexico.  In 2016, Mexico added a total of US $579.1 million in FDI revenue.  This represented 5.3% of the funds received in the region as a whole and a growth rate of 9.9% over the period 2010-2016. 

Over the last several decades, the service sector has been the main recipient of the region’s FDI.  Capital inflows in this area increased as a result of the privatization of public enterprises in the 1990s.  This was mainly in the realm of financial services, telecommunications, electrical power generation and distribution, and municipal water systems.  In this way, the first wave of increased FDI in the region was focused on the acquisition of public enterprises that concentrate on the delivery of services.  In more recent years, however, FDI in Central America has expanded to other productive sectors.  This movement of capital has been greatly facilitated by the creation and expansion of free trade zones, as well as the signing of free trade agreements in support of export manufacturing activities. 

What kind of incentives are needed to increase foreign direct investment in Central America?

According to the Economic Commission for Latin America and the Caribbean (ECLAC), one of the factors that enhances the inflow of foreign direct investment in Central America relates to the region’s promotion as a prominent point of public policy.  This includes the implementation of a strategy of providing information to potential investors through specialized, government-sponsored investment promotion agencies. 

Although investment tax incentives (such as exemptions on tariffs, duty drawbacks on exports, reduced corporate income tax rates and VAT payment exemptions), are of the utmost importance to many investors that seek to inject FDI into Central America, there is also evidence that suggests that there are non-monetary issues that also play a prominent role in the decision-making process as well.  Among these are the presence of the educated human capital and quality infrastructure that is needed to provide support to operations. 

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Investment Opportunities in El Salvador

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Christian Navas
Investment Attraction Specialist
Invest in El Salvador
San Salvador, El Salvador
cnavas@investinelsalvador.gob.sv

The Central American Group: Hello, welcome to our podcast. Today, we have Christian Navas with us. Christian is with a group that has recently been formed in El Salvador called Invest El Salvador. I’ll let Christian introduce himself and tell us a little bit about his organization and investment opportunities in El Salvador.

Christian Navas: Thank you, Stephen. I appreciate your having me here on your podcast. I’m really happy to share all the good news that is happening right now in El Salvador.  I know that it will be interesting to potential investors and companies that are seeking to invest in new opportunities in the region and, in particular, investment opportunities in El Salvador.

Well, my name is Christian Navas. I am a specialist in the investment attraction, specifically in agribusiness. I came from the capital raising banks. That is my experience. But recently, I learned about this opportunity to attract potential investments to El Salvador and decided to join it. This is thanks to the government of El Salvador, of course. Invest in El Salvador is the name of the agency that is seeking to promote the investment attraction of foreign companies that might be interested in investing in El Salvador. We want to create opportunities to achieve the soft landing of companies interested in investing in El Salvador.

The Central American Group: Okay, well, maybe you can expand upon what you see as being the sectors that hold promise for investors.

Christian Navas: For example, here in El Salvador, we have a lot of opportunities for different types of companies that might be interested in coming here. We have some focuses, objectives, and sectors that we are interested in attracting these opportunities. One is tourism. We also have manufacturing. Other investment opportunities in El Salvador exist in textile manufacturing, pharmaceuticals, energy, and services. Inside services include everything related to blockchain, bitcoin, BPOs, technological services, and agribusiness, which is my sector. All these sectors are being promoted by Invest in El Salvador.

We are also looking to promote logistics in the coming months because we believe the country has a lot of benefits and advantages on that front. Basically, those are the sectors. Now, regarding agribusiness, we are looking to promote everything related to food safety, cold change, logistics, food logistics, agriculture that will be vertical farming, and all this large extension agriculture.

The Central American Group: I understand that the law governing free zones in your country has recently changed, allowing companies engaged in food processing activities to locate and derive the benefits from free zones. Is that true? And if so, can you tell us a bit about that?

Christian Navas: Well, the free zone law has changed on many fronts, including financial fronts and economic fronts, but also in law. The President has mandated a review of all the laws regarding doing business in the country. One of the recent changes was regarding International Service Law and to the free trade zones that we have in the country. The free trade zone law has changed and now includes food processing, aquaculture, and other services and products that can be manufactured inside these zones. This will enable the country to be more competitive and create more investment opportunities in El Salvador with companies that work in this industry to actually do the manufacturing here. Free zones in El Salvador are free of taxes for importing raw materials. They are free of taxes in the export of their finished products that are now manufactured. They have a lot of tax benefits regarding their profits and the investment of new machinery and all that. So yes, it’s a really great opportunity for companies in industry that are interested in the manufacturing sector.

The Central American Group: Another sector I read about is technology. Your president and your legislature, I believe, have implemented some laws that incentivize investment in technology in your country. Is that true as well?

Christian Navas: Yeah. El Salvador is actively promoting innovation in all sectors. We want to be an innovation and technological hub for the region. We want to be considered by other countries as a destination for research institutions, technology transfer programs, research, and labs engaged in innovation and technology programming software. We are making a lot of changes not only in the law to attract these companies to come here because they actually, in that way, have a lot of tax benefits.

The country has zero taxes for the companies installing their headquarters, doing business in El Salvador, and providing services internationally. But also, the country is focusing on its educational system. In that way, we can promote skills in technology to all the young people in schools, both public and private, and universities. There are a lot of efforts occurring regarding technology and innovations that can benefit companies regarding taxes and also benefit the population.

The Central American Group: What would the investment climate be like if you were to look into the future in the coming years? And what factors make El Salvador a good choice for people who are looking at investment through a long-term telescope, let’s say?

Christian Navas: I believe in El Salvador, and that’s one of the reasons I joined this project. I believe El Salvador is changing dramatically for the better and that there are many investment opportunities in El Salvador. For example, in recent years, the criminals and all this killing that El Salvador was famous globally has been reduced to almost zero. The good thing about it is that it allows people to do more. We now have parks and venues with people walking at different times during the night in safety. We are having a lot of safety, actually. We feel it in the street, and we feel it in the quality of life that also has helped to focus all the effort to open to new opportunities regarding technology and to promote and take advantage of our strategic location in Central America.

We want to be a service provider to the world. We want to be the innovation and technological hope in all the sectors that we mentioned before. We want to be considered by other countries as an opportunity to actually do all the innovation the world needs. Suppose we actually achieve that positioning and actually complete this project. In that case, I know that we will be a country that can add high value to products and services and, in the same way, be a sustainable country.

The Central American Group: You mentioned earlier when we were talking offline about this is that one of the things that you mentioned was El Salvador in terms of travel for people in the US. Between major cities in the US. To El Salvador. What is the time it takes to get to and from El Salvador? Could you tell us about major cities and their approximate times of travel?

Christian Nava: El Salvador is looking to be a strategic logistic hub for companies in the United States and for companies in South America. For example, we are only 2 hours away from Miami by airplane. We are only four hours and a half to Los Angeles and almost 5 hours to New York. So, if you see, we are really closer to the major cities of the United States than some cities in the United States. For example, if you go from Los Angeles to Miami, it’s almost 6 hours. We are 2 hours away from Miami. So, there are opportunities for companies to actually do business here in Los Angeles, to have, for example, their e-commerce where they can do their storage. They can have all these services that they provide right now in the United States. They can take advantage of investment opportunities in El Salvador. We also have some companies from South America that are seeking to install their plants here in El Salvador to export to the United States to different cities. In that way, instead of sending one ship or airplane to Miami and distributing to the whole country, which is more expensive, they can send everything from El Salvador.

We do the manufacturing, labeling, and logistics to distribute all these cities faster, more efficiently, and economically.

The Central American Group: Well, it seems like there’s a lot going on in El Salvador that’s good. These days, after people listen to our podcasts, questions come up. If somebody who hears the information has questions that go beyond the scope of what we’ve spoken about, how can they contact you with their questions?

Christian Navas: They can contact to my personal email, my professional email, which is cnavas@investinelsalvador.gob.sv. The GOB is not like we write it in English. It’s like in Spanish gob at the end. They can also go to the website www.investinelsalvador.gob.sv, and they can go to my LinkedIn page, which is Christian Navas, as it sounds. And I appear as a specialist investment attraction for Invest in El Salvador. They can write direct questions to me from there.

The Central American Group: We’ll put links to all these things in the transcript section of the webpage on which this will be published. Thank you very much today for filling us in on what’s going on in El Salvador. We wish you and the rest of your colleagues at Invest in El Salvador lots of luck going forward.

Christian Navas: Thank you. I appreciate the time to speak about El Salvador, and I invite investors to contact me or contact one of my colleagues who are also listed on the website. I know that we can provide a lot of help, a lot of connections, a lot of networking, and a lot of opportunities for companies to make their investments. That way, they can have a soft landing here in El Salvador.

The Central American Group: Thank you, and have a great rest of the day.

Christian Navas: Excellent. Take care. Bye.

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foreign investment in Central America

Costa Rica establishes itself as a magnet for foreign investment in Central America

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Foreign direct investment (FDI) inflows to Costa Rica reached $3.7 billion in 2022. This information regarding foreign investment in Central America was presented in a report by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) on July 10, 2023. Recent data demonstrate that reinvestments of existing companies and the medical device sector have played a substantial role in this growth in FDI.

Costa Rica is a magnet for foreign investment in Central America

Costa Rica established itself as Central America’s primary recipient of foreign investment. The country has reached the highest flow in the region for three consecutive years. This is according to the annual report entitled Foreign Direct Investment in Latin America and the Caribbean 2023, which was presented on Monday, July 10, by the Economic Commission for Latin America and the Caribbean (ECLAC).

Last year, capital inflows and reinvestments in Costa Rica reached $3.7 billion; in 2021, the figure was $3.5 billion. These amounts exceeded the $2.5 billion that entered Panama, a country that ranked second in 2022, and the $3.5 billion received by Guatemala. in 2021.

The executive secretary of CEPAL, José Manuel Salazar Xirinachs, explained that Costa Rica experienced a slight growth of 2% from 2021 to 2022 but stressed that it remained in the lead for foreign investment in Central America. In addition, he added that Guatemala registered a more pronounced fall due to an exceptional result in 2021, although it eventually returned to its historical levels of investment.

Salazar Xirinachs expressed that Costa Rica’s success in bringing investment to Central America has to do with the fact that the country has solid foreign direct investment policies and systematic programs in place to promote the country.

Reinvestment of profits is a significant portion of new FDI

According to the report, regarding the components of FDI in Costa Rica, the reinvestment of profits (companies already installed in the country and that reinvest additional money) was the one with the most significant weight, with 71% of the total and a growth of 30% compared to 2021.

On the other hand, capital contributions concentrated 18% of the total, and loans between companies represented 12% of the annual record. However, both dropped 28% and 39%, respectively, compared to the data for 2021.

Salazar Xirinachs highlighted the importance of having a “critical mass” in the country, referring to the medical device sector. Medical devices make up Costa Rica’s main class of export. The country is home to more than 50 multinational companies in its national territory. Costa Rica has attracted many medical device manufacturers due to its skilled workforce, favorable business environment, and proximity to major markets. The country has established itself as a prominent player in the medical device industry in Latin America.

In fact, Costa Rica stood out as the leading destination for foreign investment in Central America and Latin America in the medical device sector. It successfully attracted 52% of the total amount, according to the annual ECLAC report.

In addition, the executive secretary of ECLAC emphasized the growth of the services sector, which represents 25% of Costa Rican total exports. He explained that once a critical mass of multinationals is established, the reinvestment of profits by these companies becomes one of the main drivers of economic growth and foreign investment in Central America.

As a result of this dynamism, most of the investments were directed toward the manufacturing sector (68% of the total). This result was due mainly to the behavior of the medical devices sector, while investments in services represented the remaining 32%.

According to the report, the United States is the origin of most of the investments received by Costa Rica, with 73% of the total. The country’s advantageous geographical location mainly explains this. There was also an increase in investments from Switzerland (9%), as well as from other countries such as Colombia (3%) and Mexico (2%).

Growth in Latin America and the Caribbean

At the regional level, in 2022, $225 billion of foreign direct investment (FDI) entered Latin America and the Caribbean. This figure is 55.2% higher than that registered in 2021, and the highest value since records have been kept, according to the ECLAC report.

This dynamic is consistent with the recovery after the pandemic and responds mainly to the increase in FDI in countries like Brazil. It is also due to the growth of all the components of FDI, especially the reinvestment of profits and the rise in FDI in the service sector.

Since 2013, FDI inflows in Latin American and Caribbean countries have been at most $200 billion. The weight of these flows in regional GDP also increased in 2022, reaching 4.0%. Brazil was the leading country, with 41% of the total, according to the ECLAC document.

The executive secretary of ECLAC emphasized that there are incentives that promote FDI in the countries of the region, including effective development policies in the area of science, human resources, and cluster initiatives, as well as the need to strengthen FDI agencies and the creation of incentives such as special economic zones, among others.

This year’s ECLAC report comes at a particularly turbulent time for Costa Rica regarding investment attraction policies.

President Rodrigo Chaves’s government decided on May 3, 2023, to unilaterally break the agreement to attract foreign investment through the Costa Rican Coalition for Development Initiatives (CINDE). CINDE is a private, apolitical, and non-profit organization that advises and guides international companies to establish or expand their operations in Costa Rica.

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trends in nearshoring

The Central Bank of Costa Rica projects record foreign investment in 2023

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Most of the resources are directed to reinvestments of companies currently operating in Costa Rica under the Free Zone Regime.

The Central Bank of Costa Rica predicts healthy FDI inflows

The Central Bank of Costa Rica (BCCR) foresees that in 2023 and 2024, the country will have a record of foreign direct investment (FDI) that will be directed, especially to the free zone regime. This FDI is driven to a large extent by projects undertaken by companies that are already installed in Costa Rica.

For this year, the Central Bank of Costa Rica projects that the inflow of resources will be $3.6 billion and $3.8 billion in 2024. The resources will be employed chiefly as reinvestment from companies already established in the country.

These amounts are the highest since 2000 when the BCCR began tracking foreign direct investment in the Costa Rican economy.

2021 was the year in which the country recorded the highest amount of money for business investments at $3.2 billion.

Róger Madrigal, president of the Central Bank of Costa Rica, explained that the greater investment in machinery and equipment, transportation and telecommunications equipment in free zones is the main factor in the recovery of gross fixed capital formation, that is, the purchase of fixed assets to improve business productivity.

The BCCR projects that gross capital formation will grow by 5.2% this year, up from 0.8% in 2022. By 2024, the variation in the investment rate will be 4.4%, according to the Monetary Policy Report (IPM) published this past April 30.

Why the higher investment?

The president of the Central Bank pointed out that the significant increase in foreign investment is because Costa Rica is in the process of relocating companies from Asia to the American continent.

This phenomenon is known as nearshoring, which promotes the location of offshore operations closer to their customer markets. These are located mainly in the United States.

This trend began after the Covid-19 pandemic affected supply chains and the production of goods by multinational companies.

“Costa Rica has been one of the countries that has benefited from this phenomenon, but not the only one. We hope it will be a continuous process and is expected to affect both regimes available to investors in Costa Rica. Perhaps the trend will be felt more in the special one (free zones) than the definitive one (companies that income tax),” said Madrigal.

The increase in capital per capita is important to Costa Rica

The Central Bank official also explained that a necessary condition for the development of a country is the increase in capital per capita, which currently occurs in Costa Rica. “It lays the foundation not only for further present but also future growth. This is very positive from the perspective point of view of the economy, and that is why it was desired. The result of nearshoring was that, in 2021 and 2022, foreign investment directed at free zones comprised 74% of the investment inflow. While in the three previous years, the average was 64%, according to Costa Rican Central Bank data.

The resources allocated to the definitive regime, the companies that pay tax on profits, were reduced. As a result, this sector received 3.8% of the $3.045 billion of foreign investment last year, that is, $118 million.

However, in 2018, it was 21.3% of the $2.5 billion brought in during that year, that is, $529 million, according to the bank’s data.

The companies in the real estate, tourism, and financial sectors were the ones that gained traction in receiving resources from abroad, according to data provided by the Costa Rican Central Bank.

Rigoberto Torres, director of Macroeconomic Statistics of the BCCR, explained that the strength of the resources directed to the special regime (free zone) is that it involves reinvestment of the companies’ profits.

“On average, between 55% and 60% of the flows (of investment money) are profit reinvestment. Under this scenario, companies established in the country decide to direct resources to grow their businesses further. This gives FDI flows sustainability,” Torres said.

The economist added that the positive phenomenon in the free zone regime is not limited to companies located there since there is a “spillover” effect towards local companies that provide goods and services to multinationals.

Research by the Central Bank of Costa Rica shows that the greater productivity of external companies located in the special regime positively affects Costa Rican companies.

Local companies that are suppliers to multinationals of the special regime experience, on average, an increase in their productivity of 23% in the fourth year of starting a relationship as a supplier to multinational companies.

While the companies that supply goods and services to multinationals outside the country’s free zones experienced a growth in their production of 4%. This data is according to the study Intangible Benefits of Direct Investment in Free Zones in Costa Rica, published by the Central Bank of Costa Rica. (BCCR).

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venture capital investment funds in Costa Rica

Two new venture capital investment funds in Costa Rica will inject up to $400 million into small and medium-sized enterprises

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The country’s small and medium-sized enterprises (SMEs) will have a new option for accessing venture capital investment funds in Costa Rica. These resources will help them grow their businesses, expand their operations, hire personnel and contribute to the country’s economic growth.

These are the first two venture capital investment Funds in Costa Rica

A Venture Capital Investment Fund (FICR by its Spanish acronym) is a new financial tool in the Costa Rican capital market. It can be understood as an investment portfolio in which a group of investors pools resources to promote a common objective, which, in case, is to stimulate the growth of small and medium-sized companies

Grupo Mutual manages these first two FICRs under the name of Mutual SFI (Investment Fund Management Company) and FCS Capital as the professional manager. These venture capital investment funds in Costa Rica are called the FICR Tourism Sector (aimed at tourism companies) and FICR Business Advance (aimed at companies from any sector of the economy).

The Minister of the Economy, Francisco Gamboa, pointed out that “from the pillar of business support, we see the new financing tools such as venture capital investment funds in Costa Rica as fundamental to promote the business growth we have been addressing. We wish to see small companies become medium-sized and the medium-sized ones large”.

“This novel financial instrument in the current local capital market seeks to encourage SMEs to boost their growth. This furthers our efforts in promoting the private sector to generate more and better quality jobs,” said Gamboa.

For his part, César Restrepo, general director of the Costa Rican Stock Exchange (BNV), indicated that “we are facing a milestone for the Costa Rican capital market, after work that began in 2019 and that involved a long path of legal and regulatory approvals. Finally, venture capital investment funds in Costa Rica will see the light.”

“In the case of these first two funds, they focus on raising resources that will go directly to SMEs, which represent 98% of the country’s business community,” he added.

What is a FICR?

A FICR is a financial instrument duly regulated by the General Superintendency of Financial Entities (SUGEVAL), which allows the transfer of resources from investors to companies. It is also a source of financing for companies and an alternative for the diversification of the portfolio of professional investors.

Yancy Cerdas, general manager of Mutual Valores Puesto de Bolsa, commented that these funds would allow local and international professional investors to have an innovative instrument to diversify their investment portfolios through venture capital investment funds in Costa Rica.

“Grupo Mutual, as a financial conglomerate with its triple bottom line philosophy. It seeks to help boost the country’s growth by channeling resources from institutions with investment capacity in sophisticated products to companies that require funds to grow their operations. This allows the creation of job opportunities and tourist attractions and even supports foreign investment. It is expected that, at the end of the fund’s investment process, the promoted companies will have acquired the capacity to become future market issuers and thus contribute to strengthening the Costa Rican capital market,” concluded Cerdas.

General characteristics of the FIRC:

  • FICRs are instruments regulated by SUGEVAL and managed by an Investment Fund Management Company (SAFI).
  • Each FICR has an investment policy that is defined in its prospectus.
  • SAFI hires professional managers.
  • SAFI appoints an Investment Committee to ensure compliance with the investment policies and rules.

How do these first two FICRs work?

Allan Rodríguez, president of FCS Capital, emphasized that the main objective of these first two venture capital investment funds in Costa Rica is to identify companies that, before the coronavirus pandemic, had a solid track record. Due to the situation of the last two years, however, these companies had results that adversely affected their financial condition. This is why they require other innovative sources to obtain financing.

“For entrepreneurs, it is challenging to be able to compete internationally with companies that have much healthier capital structures and are more complex. Therefore, the risks are more aligned concerning the way they are funded. In Costa Rica, there are only two possibilities: to go to a bank or to the owner, from his resources to capitalize his company. Therefore, the idea is to develop venture capital investment funds in Costa Rica,” Rodríguez pointed out.

Who can participate in the scheme of these venture capital investment funds in Costa Rica?

Company requirements to access FICR resources

  • Must be considered SMEs according to the Ministry of Economy, Industry, and Commerce (MEIC) definition.
  • It must belong to the tourism sector or any other economic sector.
  • Must demonstrate at least five consecutive years of operation.
  • Must be committed to adopting good Environmental, Social, and Governance (ESG) practices.

The resources obtained can be used for:

  • Working capital.
  • Capital investment
  • Cancellation of liabilities.

Recipients of the funds cannot use them for cash out (exit of one or several current partners of the company).

How does the Development Banking System (SBD) participate?

The Development Banking System will become one of the investors in these FICRs with an amount of USD $2 million as part of raising resources to inject capital into SMEs from various sectors of the economy. In addition, one million dollars will be invested in the Tourism Sector Fund, and the other USD $1 million will go to the Business Advance Fund.

Benefits for companies

  • The FICRs will provide new resources for the promoted company.
  • They will provide support on issues of best corporate governance practices.
  • They will offer support in the development of a strategic plan.
  • They will generate more value for the current partner and the Investment Fund.

Company commitments

In the case of capital:

  • Right to appoint one or more members of the Board of Directors.
  • Right of veto on sensitive issues for the company.
  • Strengthen the quality of financial information.

In case of debt:

  • Commitment to covenants or guarantees.

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