Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Costa Rica, the oldest continuous democracy in Latin America, will celebrate the bicentennial of its independence in 2021. In recent years, Costa Rica has achieved moderate economic growth (2.1 percent in 2019), though the impact of the global Covid 19 pandemic has affected economic expansion, with mid-2020 World Bank estimates that the economy will contract by about 3% in 2020. U.S.-Costa Rican trade flows have been relatively less impacted by the pandemic-induced economic slowdown than with other U.S. trade partners. While U.S. exports globally were down 14% in 2020 (January – November), compared with 2019 levels; sales to Costa Rica declined 8%. Costa Rica’s exports to the U.S. actually increased by 4% in 2020 (January – Nov.), while U.S. imports globally were off 7.6%.
Costa Rica’s well-educated labor force; focus on English-language instruction; relatively low levels of corruption; geographic proximity to the United States and attractive free trade zone incentives offer strong appeal to many exporters and investors. In recent decades, the Costa Rican government has focused on attracting investment from relatively high-tech manufacturers, such as electronics and medical devices, as well as continued development of the dynamic tourism sector.
The current administration of Carlos Alvarado, which began its four-year term on May 8, 2018, belongs to the same political party as the previous administration of Luis Guillermo Solis. The Solis administration’s contributions to Costa Rica’s business climate included government support for Costa Rica’s continuing export and investment promotion efforts; a successful campaign to become an OECD member (the OECD invited Costa Rica to become its 38th member in 2020); completion of Costa Rica’s major new Atlantic Coast container terminal; implementation of significant financial-sector laws and regulations against money laundering; and avoidance of major labor unrest.
Current domestic issues include Costa Rica’s persistent fiscal deficit, stifling internal bureaucracy, the high cost of energy, the state of basic infrastructure and the impact of the global COVID 19 pandemic. Over the next several years, plans are in place for major upgrades involving rail, ports, airports, highways and water systems. The World Bank’s “Ease of Doing Business 2020” ranked Costa Rica 74 out of 190 countries worldwide in terms of conditions for opening and doing business.
Costa Rica ratified the Central American Free Trade Agreement (CAFTA-DR) with the United States in 2009. This free trade agreement eliminated most of the tariffs for non-agricultural imports and has made both trade and investment in the region more attractive to U.S. companies. The remaining tariffs on virtually all U.S. agricultural products were to be eliminated by 2020. CAFTA-DR member countries have further promised increased transparency in customs dealings, anti-corruption measures in government contracting and procurement, and strong legal protections for U.S. investors.
The United States is Costa Rica’s largest trade and investment partner. Approximately half of all Foreign Direct Investment and 40% of all imports are of U.S. origin. There are no restrictions on capital flows in or out of Costa Rica nor on portfolio investment in publicly traded companies, but companies are subject to local taxes. Foreigners can own property with no title restrictions, although special care must be taken to comply with laws governing coastal areas.