Caribbean & Central America - October 2021

In August fDi Intelligence magazine, a service provided by the UK-based Financial Times, ranked Costa Rica top of its Greenfield Performance Index for foreign direct investment (FDI) inflows.

This means Costa Rica is the top performer in attracting greenfield FDI (when foreign direct investors set up new operations of their own abroad) when adjusted for the size of its economy, receiving a score of 11.4 on the index published on 16 August. (A score of 1.0 indicates that a country’s share of global inward greenfield FDI in 2020 matches its relative share of global GDP while a score greater than this indicates a larger share and a score of less than 1 indicates a smaller share). This means that Costa Rica is attracting 11 times the amount of greenfield FDI that might be expected given the size of its economy, said the magazine. The index “uses a methodology devised by United Nations Conference on Trade and Development (Unctad) for overall FDI, and applies it to only greenfield FDI, excluding mergers and acquisitions, intra-company loans and other forms of cross-border investment,” it continues.

One of the smallest countries in Latin America, Costa Rica attracted 96 greenfield FDI projects in 2020, according to the magazine. This figure represents a 7.7% decrease compared to 2019, but it’s still the second-best year since data started to be gathered in 2003, according to fDi Intelligence methodology. Even more remarkable is the fact that greenfield FDI projects globally fell by around 33% in 2020, said the magazine. In addition, it is worth noting that Costa Rica is the only country from Latin America and the Caribbean in the global top ten, with Panama the second-highest ranked country in the region with a score of 3.30.

While Costa Rica was mainly exporting agricultural commodities a few decades ago, in 2020 some 60% of inward FDI projects came from the software and IT, medical devices, and business service sectors, said the magazine. One major project emphasised by fDi Intelligence is a US$600m investment from chipmaker Intel to restart assembly and testing operations following a seven-year break.

Commenting on the ranking, Jorge Sequeira, managing director at Costa Rica’s investment promotion agency Agencia Costarricense de Promoción de Inversiones (Cinde), cited country’s “proven track record and excellent human talent offering,” as well as the work of his team. “Costa Rica's resilience, in the face of a global health crisis, has proven a determining factor in driving our goods and services exports: goods have a projected growth of 27%, as of July 2021, led by medical devices and significant increases in both the electronics and metalworking industries, which show a 41% and 63% increase, respectively, over 2020,” added Sequeira.

This resilience stands in sharp contrast to the global drop in FDI of 35% in 2020, according to a report published by the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac) in August. In addition, Latin America and the Caribbean received 34.7% less FDI than in 2019, the lowest amount since 2010, said Eclac. The Central American subregion saw inward investment slashed by 89%, or US$10.4bn, according to Eclac figures, which do include mergers and acquisitions. Services and manufacturing remain the two leading sectors, and the US accounts for 50% of investments in Central America. While FDI announcements for the subregion fell 23% in number and 27% in value terms, sectors related to the health industry, particularly medical devices, and renewable energy saw increases in value of 68% and 5% respectively. This may be attributable to the need for equipment to deal with the coronavirus (Covid-19) pandemic and the growing interest in green energy among countries striving to meet climate goals.

Costa Rica received a total US$2.1bn in FDI inflows in 2020, according to Eclac figures, the largest in the subregion. By Eclac’s measure, which is different to that used by fDi Intelligence, this is a 23% decrease from 2019 and the country’s worst year in the last decade. Manufacturing is Costa Rica’s largest sector with 66% of the total, and the US contributed 68% of investments. A quarter of the 101 announcements are in the pharmaceutical and medical devices sector, and the country has become a major player in the medical devices area, accounting for 100% of announcements in Central America for the period 2017-2020. Another quarter of announcements for Costa Rica were in the information and communications technology sector. “Costa Rica is pursuing an investment attraction strategy that prioritizes three areas: knowledge-intensive services, smart manufacturing in life sciences, and health and wellbeing, which are precisely the areas referenced by the project announcements,” said Eclac.

Two key mergers were announced in Costa Rica in 2020. The first is the purchase of Isthmus Software, a Costa Rican firm, by US software developer 3 Pillar Global, which stands to gain access to the Costa Rican market, a portfolio of strategic clients, and a 200-member team. The second is Swedish firm Assa Abloy, manufacturer of door-opening solutions, and its acquisition of Olimpia Hardware Inc, which has operated in the glass, aluminium, and PVC sector for more than 20 years.

The country continues to court further investment, with President Carlos Alvarado meeting with business leaders at an event organised by the Americas Society/Council of the Americas (AS/COA) on 21 September. Alvarado said his country had intensified its efforts to guarantee good investment conditions during the pandemic. “Our resilient human capital, our commitment to a green economy, the favourable investment and business climate we offer, the  Organisation for Economic Co-operation and Development (OECD) membership, the sanitary actions we are taking to increase the number of tourists coming to the country during the pandemic, and the promotion of initiatives to sustain the regional economy affected by Covid-19 are important ways in which Costa Rica is working to offer competitive conditions,” said Alvarado (see sidebar).

•  Example for Central America

Costa Rica continues to provide an example for its Central American neighbours in terms of attracting FDI. The reasons for its success are complex, but both President Alvarado and Cinde chief Sequeira made a point of citing the country’s human capital and track record in providing a stable business environment. Other countries in the subregion will have to undertake significant reforms to boost the education systems and strengthen institutions if they are to emulate the Costa Rican example, or investors will continue to fly into San José.

•  Vaccination programme

AS/COA President Susan Segal hailed Costa Rica for its strong vaccination programme, which she said is fundamental for the tourism sector. According to Our World in Data, as of 20 September 39% of Costa Rica’s population had been fully vaccinated.