Foreign direct investment in Costa Rica with Minister Manuel Tovar
Manuel Tovar
Minister of Foreign Trade of Costa Rica
San Jose, Costa Rica
www.comex.go.cr
www.procomer.com
LATAM FDI: Today’s discussion is with the Costa Rican Minister of Foreign Trade, Manuel Tovar. His country has had impressive success in attracting FDI over the last decade. Hello Minister Tovar. Can you please tell us a bit about yourself and your organization?
Manuel Tovar: Good morning, Steve. I’m delighted to share information on foreign direct investment in Costa Rica with you this morning and exchange views on what we have in our hands and our efforts to continue positioning Costa Rica in the international markets.
LATAM FDI: Please provide information about yourself, your biography, and your organization.
Manuel Tovar: I am the Costa Rican Minister of Foreign Trade. I’m also the chairman of the Board of Procomer, our official investment, IPA, Investment Promotion Agency, and Export Promotion Agency. I am a lawyer by education. I specialize in international law and international trade law.
Previously, before becoming the Costa Rican Minister of Foreign Trade, I represented my country before the OECD, first as a negotiator of the accession process for Costa Rica to become a member of the organization and then as a representative as an ambassador of Costa Rica to the organization. I also exercised previous roles in public office during our mission to the European Union in Brussels as the deputy when we negotiated our bilateral trade agreement with the EU. Indeed, before that, I was also a negotiator at the Ministry of Foreign Trade and dealt with dispute settlement issues. I represented the government in state-to-state and investor-state disputes. That’s my background when it comes to public office. However, I also practiced the legal profession in my law firm before jumping to public office.
LATAM FDI: Thank you for that information. Costa Rica has had incredible success attracting foreign direct investment over the last decade, and many people use the term punching above its weight to attract foreign direct investment. What are the current strategies and policies that the government of Costa Rica is implementing to attract FDI?
Manuel Tovar: That’s an excellent question, and I appreciate your interest in addressing the topic of foreign direct investment in Costa Rica that has undoubtedly become increasingly popular over the last years, not only here but also in international markets, where a small, small economy, a small scale economy as Costa Rica has drawn the attention of essential multinationals leading Fortune 500 companies that have chosen us as a partner for doing business. To address your question, I have to go back in time and refer to some specific policy achievements that my country has undertaken over the last 60 to 70 years when we decided to abolish the army back in the day, at the end of the ’40s, the decade of the ’40s. And that allowed us not only to eradicate the appetite for authoritarian and military regimes, as has been the case in many of the countries in Latin America. But we decided to allocate taxpayers’ money to buy pencils, not weapons. To hire teachers and not to hire colonels. So that made Costa Rica a special place where we started investing in people, health care, and education; coupled with that, we had a strong vision for environmental protection.
Manuel Tovar: We only have one planet. There’s nothing more. Planet Earth. There is only one planet to live on so far. And we have to take care of it. We understand that no matter how small it comes to the surface our country is, all the efforts we can undertake to protect biodiversity, tackle climate change, and reduce the carbon footprint have a substantial global impact on mankind. In a small territory of 51,000 square kilometers, we host around 6 % of the world’s biodiversity. That is just a dramatic number for such a country. So, we understood early on that we must play a strong game in attracting foreign direct investment in Costa Rica. We have a significant share of international responsibility for promoting and reverting deforestation, promoting biodiversity protection, and pursuing policies that will go hand in hand with sustainability and a sustainable environment. At the same time, moving ahead, in the mid-’80s, we started to shift from import substitution policies and industrial policy to an open market economy. First, by liberalizing trade unilaterally, then within the framework of the WTO as an active member. As you mentioned, we have been active and punching above our weight when it comes to attracting foreign direct investment in Costa Rica, leading essential discussions within the WTO in Geneva.
At the same time, we embark on a very ambitious trade agenda by negotiating agreements with Mexico and the United States under CAFTA; they are with the Caribbean countries, Chile, Peru, European Union, EFTA countries, the UK, China, Singapore, and Korea. But our government has implemented, adopted, or renewed the vows with this model that has produced and spurred investment into a country. Because excellent and investment policies go together, they work together. We cannot attract the same investment to Costa Rica over the last decades if we don’t embrace open and free trade. So, our government, after eight years of a conservative trade agenda under the leadership of President Chávez, has enacted maybe the most ambitious trade agenda that we have embarked on over the last years, with negotiations with FTA with Ecuador already in place. A couple of months ago, we concluded a free trade agreement with the United Arab Emirates, expanding our footprint in such a sophisticated and vital market with a very high, significant purchase power. We have announced the launch of negotiations with Israel as our next move to promote foreign direct investment in Costa Rica.
Unfortunately, these have been delayed due to the Hamas attack back in October and now the current conflict of COVID in the region. We have reaffirmed our commitment to advance under the Pacific Alliance and become members of the Pacific Alliance. We have also sought membership to the CPTPP, the Transpacific Partnership Agreement, which the United States went through a few years ago, but for us, that continues to be a very important block of nations. Indeed, Japan is the only G7 economy with whom Costa Rica has no free trade agreement. Of course, we have also engaged with a very interesting set of countries like Chile, South Korea, Singapore, and New Zealand under the DPA, Digital Economy Partnership Agreement, which is a very pioneering, innovative agreement that seeks to advance the digital economy across all the disciplines, the digital economy. We recently concluded the Agreement on Climate Change, Trade, and Sustainability with Switzerland, Iceland, and New Zealand, which seeks to harmonize the trade and environmental agenda with the globalization of ecological goods and services. And, of course, we haven’t been shy in raising our hand and expressing our interest to, when the time comes, become part of the USMCA family because we have evolved from the times that we negotiated CAFTA over 20 years ago since we negotiated that agreement which has been of great importance of increasing foreign direct investment in Costa Rica.
We became an OECD partner like Canada, Mexico, and the US. We have shifted our economy from a few agricultural commodities to advanced manufacturing and services, where we now have medical devices representing more than 40 % of our export goods to the world. So, we have changed as a country, as an economy, and as a society. And indeed, our trade platform is linked to those partners in North America. So, we see the Americas Act with great enthusiasm; this legislation introduced bipartisan, bicameral, which speaks about opening up USMCA to partners such as Costa Rica. We know that elections are now coming on in the US, and trade is never a sexy topic to discuss or advance in the middle of a campaign. However, we have seen interesting moves in Washington, seeking to pay more attention and seek further economic integration with the Western hemisphere. America’s Party for Economic Prosperity is another element around the table. So, throughout our visits to Washington, we have seen an increasing appetite to further engage with countries like Costa Rica. Another one, of course, from our strategy is investing in human capital. That is the main factor that has upgraded foreign direct investment in Costa Rica. That has allowed us to attract companies such as Intel. That has allowed us to become a strategic partner for the United States under the Chips and Science Act on Semiconductors. As I mentioned, that has allowed us to position Costa Rica as a regional leader in medical devices. We just recently announced the arrival of Johnson & Johnson to Costa Rica, which would create around 6,500 jobs. So, all of these investments require human capital, and we recognize that we have to meet the needs of industry. This is a global challenge. There is a worldwide need for talent. We’re confident in pursuing policies that would allow us to increase the source of human capital further. And, of course, as I mentioned, we renew our vows and refer our commitment to the type of country we are. Our country pursues sustainable and robust environmental obligations and ensures the rule of law. International companies, multinationals, and investors will only place their money where they feel safe. You wouldn’t put your savings in a bank that doesn’t grant you the certainty you need.
Of course, we must reform Costa Rica’s commitment to the free trade zone regime and the schemes and incentives we provide, including tax incentives. We must also reform the type of country we are, especially in times of unrest, not only globally but regionally, as you have seen, unfortunately, in Venezuela and other countries in the region.
LATAM FDI: You mentioned medical devices as a success story in foreign direct investment in Costa Rica over the past decade and referred to upcoming opportunities for semiconductors in the country.
Typically, most investment in Costa Rica has centered around the Greater Metropolitan area, which is the San Jose environment. I know you have a program now in which you’re seeking to diversify the geographic location of companies that invest in Costa Rica to areas that you refer to as outside of the Greater Metropolitan area. Please tell us a little about that initiative to promote further foreign direct investment in Costa Rica, what progress you’re making, and how you see that as a benefit to Costa Rica and its population in general.
Manuel Tovar: Absolutely. Since the very beginning, early on in our administration, back in May 2022, the President, from the very first day, instructed policymakers and ministers to address the challenges of the most vulnerable regions in Costa Rica, where you find the most vulnerable populations, the coasts, the rural areas. So, we must bring about progress and well-being to those in need of better living conditions and those whose livelihoods are not similar to those of the greater Metropolitan area. So, we understand that we must level the playing field nationwide for foreign direct investment in Costa Rica. That’s why we pursued a very interesting reform regarding FDI, among many other public policies that seek to improve the lives and livelihoods of the people regarding access to water when it comes to infrastructure, education, and other critical domains. Also, we have pursued a very ambitious reform that grants further tax incentives to companies located beyond the Greater Metropolitan Area. This describes the limits of what the Greater Metropolitan Area is and what is not. The jurisdictions are very well-described in a robust legislation that we passed early on in our government.
From extending the periods to which we grant the free trade zone status to lowering labor costs by reducing the fees companies’ employers should pay to the healthcare system, La Caja, Costa Resistencia Seguro Social. So, we understood that we needed to, at the same time, advance in digital infrastructure to provide fiber optic and provide further access to water to improve the ports, the airports, and the roads. We also understood that we had to develop other innovative approaches to make foreign direct investment in Costa Rica in these places more attractive. So now we’ve seen the efforts under these new schemes that we have provided. We have more than doubled but tripled the arrival of investment projects beyond the greater Metropolitan area over the last year. That’s one of the reasons we had to shift from an And adopt and design a new FDI strategy that we launched about a year ago under the execution of Procomer. So, we have also identified every region’s needs, challenges, and opportunities. We cannot apply a one-size-fits-all solution for all of the regions. We have to map them.
We have to see that it’s different to invest in the opportunities that we have or the challenges that we may find in the coastal area, close to ports, and then somewhere deep inside the mountains. So, we have mapped all the different regions outside of the Greater Metropolitan Area and identified the challenges and the opportunities so that our promoters, our economic development staff, can comment when they go and companies to offer them a value proposition according to their needs and expectations. So having said this, we have seen how, for example, the development of second-tier cities is growing around Liberia in the northern Plains in San Carlos or in the Southern region of Pérezolidón, where we see exciting clusters of further foreign direct investment in Costa Rica, for example, on technology and communications services. We see Liberia in advanced manufacturing with Coca-Cola’s newest and most modern factory in Latin America. So, on semiconductors, I think we find a lot of potential in services when it comes to positioning these second-tier cities, which are located outside the Greater Metropolitan Area, as attractive hubs for investment. At the same time, other regions that have a lot of potential in agro, where they have the conditions, the weather, where they have the plantations, to bring investment in an agro-industry that can undoubtedly provide jobs, especially to women, which we have seen evidence that many of them have had the opportunity to jump into the labor market and to work in important companies located, for example, in Guanacaste, in the province of Limón, to say so.
LATAM FDI: You alluded to Procomer, the organization that represents foreign direct investment in Costa Rica. Since your time is limited today, I’d like you to explain to our listeners what support structures are in place for foreign investors once they are established in Costa Rica and what role Procomer plays in delivering that support.
Manuel Tovar: Procomer is a well-known institution globally known for its excellence and outstanding workforce. We have provided Procomer with more resources. We have provided Procomer with an interesting network of offices around the world. Procomer has offices in Dubai, Tel Aviv, Seoul, Tokyo, London, Madrid, Rotterdam, Texas, California, New York, Washington, and Mexico, to name a few. We have 27 locations, 27 countries, and different countries, and we continue to expand our footprint worldwide. But at the same time, when companies choose us as partners, as destiny, the role of Procomer is to walk them through, grab on your hand, walk them through the whole process, from the soft landing to the granting of the free trade stream regime. Procomer is the institution that grants the free trade stream regime status to companies that certainly meet the criteria under the law to operate as such. But we also have a strong team that provides after-care service that is ready to assist companies not only in their soft landing but also throughout the whole operations; whether they face a speed bump along the way, they will be ready to assist in coordinating with the relevant institutions and get things smooth and done.
Also, we run the VUI, the single investment window to facilitate foreign direct investment in Costa Rica, where we streamline and digitalize most of the procedures. We’re bringing more and more institutions and procedures under this single window. Indeed, this is something that has had a significant impact on investment. It reduces costs and time. And, of course, we have a team that supports companies throughout the registration of permits, health permits, and environmental permits. Procomers support, assist, and walk hand in hand throughout the entire process, from self-landing throughout the operations to our after-career service.
LATAM FDI: To keep you on your busy schedule today, we find that listeners often have questions after absorbing our speakers’ information. I know that you have a profile on LinkedIn. Please include your profile in the transcript section of the page that hosts this podcast so that anybody with a question can go directly to you.
Manuel Tovar: Absolutely. Absolutely. Feel free to do that. We’re always open to business and to respond to people’s inquiries. So part of our success is precisely that, being open markets, being small. And small is beautiful, Steven. Small is attractive because those who know Costa Rica know each other in Costa Rica, for good and bad. And it has its process and cons. But I will stay positive in the sense that here, with just having a phone call away, playing with the rules, with the legal framework under the rules of the game, with a simple phone call, We get things done. Procomer has a very successful rate of after-care and a very successful rate during the soft landing. Significantly, there was a very successful rate when granting the free trade stream regime. However, it could be a very complex situation that requires the attention of a minister. Thankfully, their success rate is very high, but if that is the case, I don’t hesitate to support Procomer by grabbing a call from my peers at the Ministry of Health or Environment and getting things done.
If I can’t manage right and succeed in sorting out a specific speed bump, then the President of the Republic will jump ahead, make that call, and sort things out. We always follow the game’s rules because our country’s legal framework is critical. It’s part of our DNA. But we walk the talk when we say international investors will use it without a red carpet-based red tape. Our government has a strong sense of allergy to red tape. We have deregulated many absurd regulations that have existed in the air for years and decades. We have embarked on a very frank dialog with the industry, the multinationals, investors, the chambers, the AmCham, and the It’s shown with the software as the different chambers operating in Costa Rica. And we sat down with them at the very beginning and said, Listen, why does it hurt you? What can we do better for you to ease business? We’ve seen how Costa Rica has made substantive progress in the doing business ranking. We’re not satisfied. We always continue to see what we can do better.
This is an open discussion, open dialog, and permanent dialog that we have with the industry and the stakeholders to continue deregulating absurd degrees or regulations that, in a way, in the past, have represented some obstacles for business. So that’s our pragmatic way of doing business. We’re open to trade. We’re open. We’re convinced that for a country like Costa Rica, since our very foundations as a Republic, we started exporting coffee for such a small market, and with a very diverse value proposition, Open Trade has been a cornerstone of our development and a pillar for FDI. So that’s what we’re trying to continue pursuing, Steven, the type of Costa Rica that we were, but trying to become a better version of ourselves.
LATAM FDI: Well, that’s great to hear. It’s great to see your success. Thank you for being with me. I know you’re very busy, and I appreciate your dedicated time to our conversation today.
Manuel Tovar: Thank you very much, Steve. We are delighted to continue talking to you and discussing foreign direct investment in Cosa Rica further. We’re conducting exciting things on semiconductors. As you know, Secretary Ramando is busy in Costa Rica and has endorsed our accession roadmap to our semiconductor roadmap. And, of course, the declaration by the President of this industry as of national interest has us as a fundamental and critical stakeholder in the hemisphere. And where we will come is the Silicon rainforest of America. I am willing and delighted to continue engaging with you, Steve.
LATAM FDI: Well, thank you, and have a wonderful day.
Manuel Tovar: Likewise. Have a great day.
