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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