For the Costa Rican Investment Promotion Agency (Cinde), this year began with the announcement of the departure of managing director Jorge Sequeira Picado, who had been in his position for some eight years. 

Less than four months later, the investment agency confirmed a different kind of withdrawal: the Costa Rican government’s decision to terminate its funding.

Up until that point, it had been largely business as usual: the two had been in dialogue with one another, announcing company investments together and making trips together. Yet, Cinde knew that the government had been planning to axe its funding.

A disappointment, not a shock

“It wasn’t a shock. It was a disappointment,” says Pilar Madrigal, director of investment advisory at Cinde.

In its announcement in May, the ministry of foreign trade alleged that Cinde had generated few jobs outside the Greater Metropolitan Area (GAM), which includes the capital San José, and had been too reliant on investments coming from the US. Cinde refutes the claim, stating that it has been preparing communities outside the capital for FDI inflows for several years and in 2022 alone a quarter of its inbound investments went to regions outside the GAM. 

With the announcement came the news that the government was now relying on Procomer, the trade and export agency that it set up in 1996, to attract inbound investments.

From an outsider’s perspective, this decision seemed unusual. For years, Cinde has been hailed as a benchmark for FDI attraction. Set up as a private, non-profit, it received both state and private funding to attract greenfield projects. It has won accolades for its FDI strategy, its digitisation efforts, notably in artificial intelligence (AI). For certain people in the country and in particular those in the seat of government, however, the cessation of funding was deemed necessary to promote and diversify flows of foreign investment into Costa Rica.

Albeit not a complete shock, the blow to Cinde was significant. The ministry of foreign trade’s withdrawal amounted to a total cut of roughly $6.3m – roughly 73% of the agency’s budget. 

“In senior management, we have an average of around 15 years of being in the organisation and this senior team is committed to staying in Cinde,” Ms Madrigal stresses.  

The future direction of Costa Rica

Meanwhile, the government is keen to stress that the withdrawal of funding from Cinde reflects nothing more than the government’s desired future direction for the country.

“This was absolutely not a political decision. This is a technical decision based on data, and based on the needs and will of the Costa Rican people,” says Manuel Tovar, Costa Rica’s minister of foreign trade and president of Procomer.

“This is not about institutions. It’s about where Costa Rica wants to go,” he says in an interview with fDi.

Rodrigo Chaves, who was elected as Costa Rica’s president in 2022, said during a conversation at the Centre for Strategic and International Studies earlier this year that “we want more Costa Rica in the world and more world in Costa Rica”. 

At present, Procomer has 27 offices around the world, while Cinde has only one, Mr Tovar points out.

“Costa Rica has been successful in attracting FDI in specific sectors but we’ve been heavily dependent on the US market and [our FDI] has been concentrated in certain sectors and around the greater metropolitan area,” he explains.

With roughly 80% of Costa Rica’s inbound FDI coming from US companies last year, according to official statistics, the US plays an important role in the Central American country’s economy. 

“If the US economy gets the flu, we’ll get pneumonia,” Mr Tovar quips, stressing that this means that the country needs a change in strategy. “The best vaccine is to diversify.”

Diversification strategy

In its new strategy for 2023-2026, Procomer outlined a number of sectors it wants to consolidate, such as advanced manufacturing, life sciences and corporate services, alongside what it calls “incipient sectors”, which include agriculture, mariculture, logistics and the film industry.

“It’s important to mention that our strategic sectors, like advanced manufacturing and medical devices, are going to remain the strategic sectors for Costa Rica,” says Mónica Umaña, investment manager at Procomer. “But we really need to pay attention to other sectors, like those related to agriculture and food processing, [which we can grow] outside the GAM.”

Ms Umaña, who previously spent more than 10 years at Cinde, says that she was not surprised by the criticisms levelled against the non-profit investment promotion agency. “Now, it’s important for us to dedicate more resources to different kinds of foreign investment,” she says. 

By law, Procomer has the capacity to conduct investment promotion, alongside other functions such as facilitating exports and setting up free zone licences.

Still, the challenge now is that the government’s investment attraction programme will be administered by an agency, which, despite its legal framework, has mostly operated as an export agency. “I’m not saying it’s going to be easy but it will be easier with the right team,” Ms Umaña concedes. Several people have moved over from Cinde to Procomer since the announcement in May.

Part of that diversification strategy has involved semiconductors, which in turn has also brought the country closer to the US. In July, Costa Rica announced that it will partner with the US State Department to explore opportunities to diversify and expand the global semiconductor ecosystem through the CHIPS and Science Act.

Shortly afterwards, US chip maker Intel said that it will spend $1.2bn in the country over the next two years. In 2014, the company closed its chip assembly plant in Costa Rica as it moved its assembly operations to Asia, but in 2021 it opened an assembly and testing plant.    

Juan Carlos Hidalgo, president of the Social Christian Unity Party, an opposition party, and a former policy analyst, says it is “impossible to deny that this was a political decision”. But the fact remains that the government did this “at the best possible time”, because FDI figures into Costa Rica are still robust, he adds.

“It won’t be noticeable. [The withdrawal of funding from Cinde] has sent a signal to investors that something is happening in Costa Rica but it won’t deter investors,” Mr Hidalgo says. “Costa Rica can afford this political drama with Cinde.”

Meanwhile at Cinde, Ms Madrigal says that her agency will continue to attract investment and work with its stakeholders, even with a reduced budget, confident that there is still a place for a private non-profit organisation in Costa Rica’s ecosystem.

“You can never let a crisis bring you down. This has given us the opportunity to think about new possibilities. Of course, there are risks because now we have a different funding model,” she says, stressing that it is still bringing in companies and the essence of the agency will not change.

“The most important thing is that Costa Rica continues to stay relevant for FDI,” she says.

This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence

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