FDI in Costa Rica

For more than three decades, Costa Rica has demonstrated that a small economy can reinvent itself and become a highly competitive destination for foreign direct investment. The country evolved from an economy heavily dependent on agricultural exports into a sophisticated platform for multinational services, technology, life sciences, and advanced manufacturing.  That transformation was built on a powerful combination of advantages: political and institutional stability, legal certainty, an educated workforce, geographic proximity to the United States, fiscal incentives, and a strong international investment-promotion strategy. But the equation is changing. Costa Rica’s traditional advantages are not disappearing overnight. Their relative importance is changing. Artificial intelligence, automation, robotics, and the emergence of a global minimum tax are altering the economics behind multinational site-selection decisions.

The question Costa Rica must now confront is straightforward but consequential: What will make a multinational company choose Costa Rica in 2035 or 2045?

The model that made Costa Rica successful

Costa Rica’s FDI success did not come from a single competitive advantage. It came from combining several advantages into a compelling investment proposition for international companies.

Over the past 30 years, Costa Rican FDI has supported multinational operations ranging from shared-services and corporate support centers to technology operations and sophisticated medical-device manufacturing.

The traditional formula was relatively simple:

High-quality talent + lower operating costs + institutional stability + fiscal incentives = compelling FDI proposition.

That formula worked. It helped Costa Rica attract increasingly sophisticated investments and integrate itself into global value chains. In particular, the country’s ability to provide educated, multilingual workers enabled it to compete for knowledge-intensive activities that could be performed more economically than in the developed economies where many multinational companies were headquartered.

However, investors today are evaluating locations according to a different set of calculations. Cost remains important, but productivity, automation capabilities, digital infrastructure, technical talent, innovation capacity, and resilience are becoming increasingly important.

AI is changing the economics of offshoring

The most profound change may come from artificial intelligence.

Generative AI, intelligent agents, robotics, and process automation are already changing how companies think about their workforces. Activities that once required hundreds or thousands of employees could increasingly be performed by smaller teams supported by increasingly powerful technologies. This could have significant implications for traditional offshore business models.

Consider activities such as:

• Customer service and technical support
• Finance and accounting
• Data processing
• Back-office administration
• Human-resources services
• Software development
• Business-process outsourcing

If automation dramatically reduces the number of employees required to perform these functions, the economic incentive to relocate them from the United States or Europe to a lower-cost country could diminish. But this does not mean AI eliminates Costa Rica’s opportunity. It changes the opportunity.

Costa Rican FDI will increasingly need to compete on productivity, specialized expertise, innovation, and the ability to deploy technology, rather than primarily on the cost of human labor.

The companies of the future may not ask, “Where can I find 1,000 qualified employees at a lower cost?” They may ask, “Where can I find 100 highly skilled people who can use AI and automation to accomplish the work of 1,000?” That is a fundamentally different FDI proposition.

The global minimum tax changes the equation

A second structural change is taking place in international taxation.

The OECD/G20 global minimum tax framework is designed to establish a minimum effective tax rate for certain large multinational enterprises. As these rules become increasingly relevant, traditional tax holidays and other fiscal incentives may become less decisive in investment decisions for affected companies.

This does not mean that Costa Rica’s free-zone incentives suddenly become irrelevant. They remain an important component of the country’s investment proposition. But incentives cannot permanently compensate for weaknesses elsewhere.

Investors increasingly look at the entire operating environment:

• Availability and quality of talent
• Infrastructure and logistics
• Energy costs and reliability
• Digital connectivity
• Regulatory efficiency
• Productivity
• Supplier ecosystems
• Access to market

The message is clear: Costa Rica increasingly needs to compete on fundamentals rather than incentives alone.

Advanced manufacturing offers an important opportunity

The impact of automation will not be identical across industries.

Knowledge-intensive services may be particularly exposed because many processes can be digitized and automated. Manufacturing presents a somewhat different opportunity.

In advanced manufacturing, automation can increase productivity without eliminating the need for people. Engineers, technicians, quality specialists, maintenance professionals, production managers, and highly trained operators remain essential.

This creates opportunities for Costa Rica to deepen its position in sectors where it has already established credibility. Medical-device manufacturing is the obvious example. But the opportunity could extend into other increasingly sophisticated activities,
including:

• Precision manufacturing
• Life sciences
• Electronics
• Industrial automation
• Advanced components
• Engineering and product development
• Research and development

The objective should not simply be to attract more FDI. It should be to attract higher-value FDI.

Defining the industries of the future

This brings Costa Rica to a more fundamental question: Where does the country want to compete 20 years from now? Investment attraction cannot be separated from national

competitiveness. A long-term FDI strategy must be coordinated with:

• Education and technical training
• Infrastructure development
• Energy policy
• Digital connectivity
• Science and technology
• Trade policy
• Regulatory reform
• Workforce development

Rather than waiting for investors to identify opportunities and then attempting to accommodate their requirements, Costa Rica should proactively build the capabilities it wants future investors to find.

That means identifying strategic industries and developing the talent, infrastructure, suppliers, research capabilities, and regulatory environment necessary to compete for them. This is at the heart of the Costa Rican FDI challenge. The workforce must become continuously adaptable

Another dimension of this transformation is even more important than attracting investment. For generations, people were educated for a profession and expected to practice it throughout their working lives. That assumption is becoming increasingly difficult to sustain.

The future workforce will need to adapt repeatedly as technology changes.

That means expanding access to:

Technical and vocational education

• Digital skills
• AI literacy
• Continuous professional education
• Reskilling and upskilling
• Employer-driven training programs
• Stronger partnerships between companies and educational institutions

Workforce adaptability should not be viewed merely as a social-policy objective. It should become one of Costa Rica’s core competitive advantages.

A country capable of rapidly retraining its workforce may ultimately be more attractive to multinational companies than one that simply offers a large pool of workers.

Costa Rica has reinvented itself before

There is reason for optimism.

A century ago, coffee and bananas dominated Costa Rica’s merchandise exports. Today, their relative importance is dramatically smaller, while sophisticated manufacturing and services have become central components of the economy.

Costa Rica has already demonstrated that economic reinvention is possible.

The rise of AI and the transformation of international taxation should therefore not be interpreted as the end of Costa Rican FDI. They should be understood as signals that the next version of that model must now be built.

Building tomorrow’s advantages today

Costa Rica’s existing competitive advantages remain valuable. But relying indefinitely on the advantages that produced success during the past 30 years would be a mistake.

The central question is no longer simply:

How can Costa Rica attract more foreign investment?

It is:

Why will a multinational choose Costa Rica over competing locations 10, 20, or 30 years from now?

Answering that question requires action today.

Costa Rica must invest in talent, technology, infrastructure, productivity, energy, innovation, and specialized industrial capabilities before investors begin demanding them. The country’s history demonstrates that reinvention is possible.

The next transformation, however, should begin before technological and economic forces make it unavoidable.