Foreign investment in Costa Rica expands at a steady pace

According to the GPI, the life sciences and medical devices, software, information technology, and business services sectors accounted for 60% of foreign direct investment (FDI) inflow projects in Costa Rica last year. 

Investment in Costa Rica is the world’s most robust in relation to the size of its economy.

This is reflected in this year’s Greenfield Performance Index, in which Costa Rica obtained a score of 11.4.  This result means that the Central American country attracted eleven times the amount of new foreign direct investment that could be expected given the size of its economy. 

The information was released by FDI Intelligence this past August 16th in a specialized publication on the subject. 

A small but impressive FDI powerhouse 

“Despite being one of the smallest countries in Latin America, investment in Costa Rica attracted ninety-six projects in 2020, according to data from FDI Markets. While this represents a 7.7% drop from 2019, it is still the country’s second-best year since records began to be kept in 2003.  Considering last year’s challenging investment environment, Costa Rica’s performance is even more impressive. Total new FDI projects fell by about a third globally in 2020.

The text adds that the country has come a long way since it was an exporter primarily of agricultural products decades ago. As of 2020, investment in Costa Rica is heavily comprised of the medical device sector companies, software and information technology firms, and providers of business services. These four activities accounted for 60% of new investment projects.

Recent investment in Costa Rica includes a new Intel facility

Among others, the country managed to secure a US $600 million investment commitment from Intel to reestablish assembly and testing operations in the country. The decision was to embark on this project after a seven-year hiatus (the US company had terminated its local manufacturing functions in 2014 ) to address the global shortage of microchips.

New opportunities

Jorge Sequeira, general director of the Costa Rican Coalition of Development Initiatives (Cinde), an entity that leads efforts to attract foreign investment to Costa Rica, said that he proudly celebrates being the number one country globally attract Greenfield FDI. This is a type of FDI through which a parent company builds a subsidiary in another country from scratch to generate employment and transmission of knowledge.

“In the first instance, it is the result of a proven track record and excellent human talent offered by Costa Rica and the daily effort promoted by the Cinde team. As a result, the organization has been recognized as the leading agency in attracting investments at a global level.  This observation is according to the International Center of Commerce (a joint agency of the World Trade Organization and the United Nations), ”said Sequeira.

He added investment in Costa Rica, hosted under the Free Trade Zone Regime, boosts the country’s productivity levels. This translates into a cumulative addition of more than 200,000 direct and indirect jobs.  As of the end of 2020, this number is due to more than 350 multinational companies supported by Cinde.

For his part, the Minister of Foreign Trade, Andrés Valenciano, highlights that in a year so atypical due to the effects of the coronavirus pandemic, in which foreign investment of this type around the world fell by a third, Costa Rica almost broke its historical record for new investment projects. 

“Many of these companies see the country’s development vision. This is characterized by Costa Rica’s commitment over many years to a development model that has political stability and environmental responsibility as its pillars. These priorities regarding investment in Costa Rica make us very aligned with issues that companies are concerned about,” said Valenciano.

For his part, Ricardo Monge, president of the Academy of Central America and an expert on the subject, added that this result demonstrates the realization of the country’s potential and opens up opportunities to attract more FDI to Costa Rica.

He cited the development of a Life Sciences Hub as an example covering three clusters: one mature and two that are in development (CR-Biomed, Medical Accessories, and Pharmaceutical). These activities represent another area in which investment in Costa Rica is set to thrive.  

“This requires institutionalizing the recently announced National Cluster Program and working to ensure that the effort will continue in future administrations,” asserts Monge.

Furthermore, he went on to add that it is also essential to support the development of investment in Costa Rica in global services, such as the example of cybersecurity. Efforts in this area are promoted with the support of the country’s Chamber of Industries and its Chamber of Information and Communication Technologies.

Other countries

Costa Rica’s position on the foreign direct investment criteria is significantly ahead of runners-up Lithuania, with 8.3, and the United Arab Emirates, with 7.1.

Emerging European economies also performed well in this year’s index, securing six top ten positions.

Lithuania, another country that showed some decline in FDI due to the Covid-19 pandemic, jumped from sixth to second place in the 2021 index.  The Baltic nation improved its score by 1.8 points.

Estonia climbed the rankings from 34th place in 2020 to fifth this year. This resulted from increasing its project levels by 37% year-on-year in 2020 and improving its score by 2.99 points.

The UAE also climbed up, from 12th to third place this year, despite a 14.7% drop in project levels since 2019. Software and IT services were the country’s top FDI sector in 2020.  This area of the economy experienced a 35% increase in the period. 

On the other extreme, China and Japan stand out as the lowest-performing countries. They scored 0.18 and 0.28, respectively.

“While its GDP weathered the pandemic relatively well, China witnessed a 55% drop in FDI project levels during 2020. This performance was responsible for plunging the country to the bottom of the index ranking.

Source: FDI Intelligence