Costa Rica

Executive Summary

Costa Rica is the oldest continuous democracy in Latin America with moderate but falling economic growth rates (4.2 percent in 2016 to 2.0 percent in 2019) and moderate inflation (1.5 percent through December 2019) providing a stable investment climate. The country’s relatively well-educated labor force, relatively low levels of corruption, physical location, living conditions, dynamic investment promotion board, and attractive free trade zone incentives also offer strong appeal to investors. Costa Rica’s continued popularity as an investment destination is well illustrated by strong yearly inflows of foreign direct investment (FDI) as recorded by the Costa Rican Central Bank at an estimated USD 2.5 billion in 2019 (4.1 percent of GDP).

Costa Rica has had remarkable success in the last two decades in establishing and promoting an ecosystem of export-oriented technology companies, suppliers of input goods and services, associated public institutions and universities, and a trained and experienced workforce. A similar transformation took place in the tourism sector, with a plethora of smaller enterprises handling a steadily increasing flow of tourists eager to visit despite Costa Rica’s relatively high prices. Costa Rica is doubly fortunate in that these two sectors positively reinforce each other as they both require and encourage English language fluency, openness to the global community, and Costa Rican government efficiency and effectiveness. A 2019 study of the free trade zone (FTZ) economy commissioned by Costa Rica’s investment promotion agency CINDE shows an annual 9 percent growth from 2014 to 2018, with the net benefit of that sector reaching 7.9 percent of GDP in 2018. This sector has been booming while the overall economy has been slowing for years.

The Costa Rican investment climate is threatened by a high and persistent government fiscal deficit, underperformance in some key areas of government service provision, including health care and education, high energy costs, and deterioration of basic infrastructure – ports, roads, and water systems. The ongoing COVID-19 world recession is also a major wildcard and threatens to decimate the Costa Rican tourism industry, which accounts for over 6 percent of GDP particularly in the rural areas that tourists visit and the government has always struggled to support. Furthermore, the government has very little budget flexibility to address the economic fallout and is struggling to find ways to mandate debt relief, unemployment response, and other policy solutions. On the plus side, the Costa Rican government is competently managing the crisis despite its tight budget and Costa Rican exports may prove resilient: the portion of the export sector that manufactures medical devices, for example, is facing relatively good economic prospects and companies providing services exports are specialized in virtual support for their clients in a world that is forced to move in that direction. Moreover, Costa Rica’s ongoing accession to the Organization for Co-operation and Development (OECD) has exerted a positive influence by pushing the country to address its economic weaknesses through executive decrees and legislative reforms in a process that began in 2015. Also in the plus column, the export and investment promotion agencies PROCOMER and CINDE have done an excellent job of protecting the Free Trade Zones (FTZs) from new taxes by highlighting the benefits of the regime, promoting local supply chains, and using the FTZs as examples for other sectors of the economy. Nevertheless, Costa Rica’s political and economic leadership faces a difficult balancing act over the coming years as the country must simultaneously exercise budget discipline as it faces COVID-19 driven turmoil and an ever increasing demand for improved government-provided infrastructure and services.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 44 of 180 http://www.transparency.org/research/
cpi/overview
World Bank’s Doing Business Report 2019 74 of 190 http://www.doingbusiness.org/en/
rankings
Global Innovation Index 2019 55 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $1,625 https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 $11,520 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts. CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE, PROCOMER, and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures. U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

Other Investment Policy Reviews

The OECD accession process for Costa Rica beginning in 2015 has produced a series of changes by Costa Rica and recommendations by the OECD; within that context the OECD in April 2018 published the “OECD Economic Surveys Costa Rica 2018.” http://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2018-eco-surveys-cri-2018-en.htm  .

In the same context, the OECD offers a number of recent publications relevant to investment policy, including “Digital Economy Policy in Costa Rica”, “Consumer Policy in Costa Rica”, and “Enhancing the Use of Competitive Tendering in Costa Rica’s Public Procurement System”: http://www.oecd.org/countries/costarica/ . As of April, 2020, Costa Rica has passed all relevant OECD committees and aims to receive the invitation to formally accede to the OECD in May, 2020.

The World Trade Organization WTO conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm 

The United Nations Conference on Trade and Development UNCTAD produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583 

The United Nations Food and Agricultural Organization FAO published in 2018 the report “The successes and shortcoming of Costa Rica exports diversification policies”, focusing on agricultural products: http://www.fao.org/documents/card/en/c/18308EN .

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Crearempresa is rated 17th of 32 national business registration sites evaluated by “Global Enterprise Registration” (www.GER.co ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The women’s institute INAMU, vocational training institute INA, MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA began launching a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The World Bank’s “Doing Business” evaluation for 2019, http://www.doingbusiness.org , states that business registration takes ten steps in 22.5 days. Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company. Women do not face explicitly discriminatory treatment when establishing a business.

Outward Investment

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

7. State-Owned Enterprises

Costa Rica’s state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOEs have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH), and finance (BNCR, BCR, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos), and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.

No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many SOEs turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the “Sistema de Informacion de Planes y Presupuestos (SIPP)” within the General Controller’s Office (CGR) site.

U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.

  • Electricity generated privately must be distributed through the public entities (including rural electricity cooperatives not strictly classified as SOEs) and is limited to 30 percent of total electrical generation in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “build-operate-transfer” (BOT) operations.
  • Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of private-sector telecom companies. The information and telecommunications business chamber (CAMTIC) has been advocating for years against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from $226 million in 2017, to $72.5 million in 2018 and $27.5 million in 2019, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019.
  • The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2019 still registered 82 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: (https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica strives to adhere to the OECD Guidelines on Corporate Governance for SOEs (www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ).

Privatization Program

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprise(s). However, in response to the growing fiscal deficit, in February 2020 the Minister of Hacienda announced the government would investigate the privatization of the state liquor company (Fanal), as well as the International Bank of Costa Rica (Bicsa).

9. Corruption

Costa Rica has laws, regulations, and penalties to combat corruption. Though the resources available to enforce those laws are limited, Costa Rica’s institutional framework is strong, such that those cases that are prosecuted are generally perceived as legitimate. Anti-corruption laws extend to family members of officials, contemplate conflict-of-interest in both procurement and contract award, and penalizes bribery by local businessmen of both local and foreign government officials. Public officials convicted of receiving bribes are subject to prison sentences up to ten years, according to the Costa Rican Criminal Code (Articles 347-360). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent years, Costa Rica saw several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act.

Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the OECD and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption and implies a series of follow up actions: http://www.oas.org/juridico/english/cri.htm . Costa Rica also ratified the UN Anti-Corruption Convention in March 2007, has been a member of the Open Government Partnership (OGP) since 2012, and as of July 2017 is a party to the OECD Convention on Combatting Bribery of Foreign Public Officials.

The Costa Rican government has encouraged civil society interest in good governance, open government and fiscal transparency, with a number of NGO’s operating unimpeded in this space. While U.S. firms do not identify corruption as a major obstacle to doing business in Costa Rica, some have made allegations of corruption in the administration of public tenders and in approvals or timely processing of permits. Developers of tourism facilities periodically cite municipal-level corruption as a problem when attempting to gain a concession to build and operate in the restricted maritime zone.

Resources to Report Corruption

Contact within government Anti-Corruption Agency:

Name: Armando López Baltodano
Title: Procurador Director de la Area de la Etica Publica, PGR
Organization: Procuraduria General de la Republica (PGR)
Address: Avenida 2 y 6, Calle 13. San Jose, Costa Rica.
Telephone Number: 2243-8330, 2243-8321
Email Address: evelynhk@pgr.go.cr

Contact at “watchdog” organization:

Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Tel:. (506) 8355 3762
Email 1: evelyn.villarreal@cr.transparency.org
Email 2: crintegra.vice@gmail.com

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $61,774 2018 $60,130 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $23,551 2018 $1,625 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2019 $129 2018 $-200 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 $39,290 2018 66.6% UNCTAD data available athttps://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Costa Rican Central Bank (BCCR). US FDI stock in Costa Rica is registered as $23,550.6 million, while CR FDI stock in the US is registered as $129.2 million.
* For 2019 GDP in dollars with National Accounts exchange rate, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source”.
*  For “Total Inbound Stock of FDI as percent host GDP”, source is UNCTAD as detailed above.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data 2018
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 39,393 100% Total Outward 3,219 100%
United States 21,749 55.2% Nicaragua 972 30.2%
Spain 2,569 6.5% Guatemala 957 30%
Mexico 1,978 5% Panama 721 22.4%
The Netherlands 1,624 4.1% United States 122 3.8%
Switzerland 1,475 3.7% Colombia 76 2.4%
“0” reflects amounts rounded to +/- USD 500,000.

Costa Rica’s open and globally integrated economy receives FDI principally from the United States followed by Europe and Latin America. Costa Rica’s outward FDI is more regionally focused on its neighbors Nicaragua, Guatemala and Panama, with the United States and Colombia following. The source of this information on direct investment positions is the IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS).

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets June 2019
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 2,768 100% All Countries 1,651 100% All Countries 1,117 100%
USA 1.838 66% USA 1,039 63% USA 798 71%
Luxembourg 313 11% Luxembourg 305 18% U.K. 87 8%
Ireland 185 7% Ireland 182 11% Colombia 29 3%
Germany 118 4% Germany 117 7% Panama 27 2%
U.K. 87 3% China P.R. 3 0% Netherlands 19 2%

The source of the information above is the IMF’s Coordinated Portfolio Investment Survey http://data.imf.org/CPIS , “Reported Portfolio Investment Assets by Economy of NonResident Issuer: Total Portfolio Investment”, from June 2019.

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