Who leads in total foreign direct investment in Central America?

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.