Costa Rica is the oldest continuous democracy in Latin America and the newest member of the Organization for Economic Cooperation and Development (OECD), with an established government institutional framework, stable society, and a diversified upper-middle-income economy. The country’s well-educated labor force, relatively low levels of corruption, geographic location, living conditions, dynamic investment promotion board, and attractive free trade zone incentives all appeal to investors. Foreign direct investment inflow in 2020 was USD 1.76 billion, or 2.8 percent of GDP, with the United States accounting for USD 1.2 billion. Costa Rica recorded 7.6 percent GDP growth in 2021 (the highest level since 2008) as it recovered from a 4.5 percent contraction in 2020 largely due to the effects of the Covid-19 pandemic.
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 the Costa Rican Investment and Development Board (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 continued to expand during the pandemic. The value of exports increased by 24 percent in 2021, representing the highest growth in 15 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. The Covid-19 world recession damaged the Costa Rican tourism industry, although it is recovering. Furthermore, the government has very little budget flexibility to address the economic fallout and is struggling to find ways to achieve debt relief, unemployment response, and the longer-term policy solutions necessary to continue compliance under the current stabilizing agreement with the International Monetary Fund (IMF). On the plus side, the Costa Rican government has competently managed the crisis despite its tight budget and Costa Rican exports are proving 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 accession in 2021 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 CINDE and the Costa Rican Foreign Trade Promoter (PROCOMER) 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 and respond to demands for improved government-provided infrastructure and services.
|TI Corruption Perceptions Index||2021||39 of 180||https://www.transparency.org/en/cpi/2021/
|Global Innovation Index||2021||56 of 132||https://www.globalinnovationindex.org/analysis-
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||USD 2.0bill||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD 11,530||http://data.worldbank.org/indicator/NY.GNP.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
Costa Rica’s total of 28 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. The 2020 OECD report “Corporate Governance in Costa Rica” reports that Costa Rican SOE employment is 1.9% of total employment, somewhat below the OECD average of 2.5%. 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 (CGR) “Sistema de Planes y Presupuestos” . The Costa Rican government does not currently hold minority stakes in commercial enterprises.
Costa Rican state-owned enterprises have not in recent decades required continuous and substantial state subsidy to survive. Several (notably ICE, AyA and RECOPE) registered major losses in pandemic year 2020, while others (INS, BCR, BNCR) registered substantial profits, which are allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.
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.
- According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “buildoperatetransfer” (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 long protested 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 USD 226 million in 2017, to USD 72.5 million in 2018, USD 27.5 million in 2019, USD 54 million in 2020, and USD 5 million in 2021, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019, 104 in 2020, and 115 in 2021.
- The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2021 still registered 66 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( ). 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 is working to adhere to the OECD Guidelines on Corporate Governance for SOEs ( ). For more information on Costa Rica’s SOE’s, see the OECD Accession report “Corporate Governance in Costa Rica”, dated October 2020: .
8. Responsible Business Conduct
Corporations in Costa Rica, particularly those in the export and tourism sectors, generally enjoy a positive reputation within the country as engines of growth and practitioners of Responsible Business Conduct (RBC). The Costa Rica government actively highlights its role in attracting high-tech companies to Costa Rica; the strong RBC culture that many of those companies cultivate has become part of that winning package. Large multinational companies commonly pursue RBC goals in line with their corporate goals and have found it beneficial to publicize RBC orientation and activities in Costa Rica. Many smaller companies, particularly in the tourism sector, have integrated community outreach activities into their way of doing business. There is a general awareness of RBC among both producers and consumers in Costa Rica.
Multinational enterprises in Costa Rica have not been associated in recent decades in any systematic or high-profile way with alleged human or labor rights violations. The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection. Costa Rica has no legal mineral extraction industry with its accompanying issues, but illegal small scale gold mining, particularly in the north of the country, is a focal point of serious environmental damage, organized crime, and social disruption. Large scale industrial agriculture is also occasionally the focus of health or environmental complaints, including in recent years the pineapple industry for allegedly affecting water supplies and a banana producer with many workers with rashes allegedly induced by pesticide use. The government appears to respond appropriately. Indigenous communities in specific areas of the country have longstanding grievances against non-indigenous encroachment on their reserves, which has led to recent incidents of violence.
Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see or ). Costa Rica has been a participant since 2011 in the Montreux Document reaffirming the obligations of states regarding private military and security companies during armed conflict.
Costa Rica has a national climate strategy and a sophisticated system for monitoring natural capital, biodiversity, and ecosystem services. While the Central Bank compiles environmental accounts ( ), the Ministry of Environment and Energy oversees policies on environmental impact assessments and emissions. As part of Costa Rica’s nationally determined contribution to the United National Framework on Climate Change, Costa Rica targets maximum national net emissions in 2030 of 9.11 million tons of CO2. This number is consistent with the targeted trajectory of their National Decarbonization Plan which seeks to achieve net-zero emissions by 2050. Within the transportation sector Costa Rica aims to adopt standards to migrate towards a zero-emission motorcycle fleet by 2025, have 8% of their fleet of small vehicles be electric, and by 2030 have 8% of the public transportation fleet fully electric. There are currently no regulatory incentives or rebates for private sector contributions to achieve these goals. Costa Rican government efforts to reach net-zero emissions are largely limited to encouraging purchase and use of electric vehicles through tax reduction. In the absence of any significant budget for climate change response, the Costa Rican government necessarily relies on the private sector and international donors to implement its ambitions to be net zero by 2050. Costa Rica supports labels or designations meant to encourage good behavior with some considerable success: blue flag program at beaches and the Costa Rican country brand “Essential Costa Rica”. Official procurement policies do not include environmental or green growth considerations beyond those otherwise mandated by law.
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 penalize 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 decades, 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: . 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.
10. Political and Security Environment
Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.
Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims. While petty theft is the main problem, criminals show an increased tendency to use violence. Some crime in Costa Rica is associated with the illegal drug trade. Please see the State Department’s Travel Advisory page for Costa Rica for the latest information-
11. Labor Policies and Practices
Although the unemployment rate fell in 2021, unemployment remains a major issue for Costa Rica’s economy. According to the National Statistics Institute (INEC) as of January 2022, the unemployment rate was 13.1 percent, or 319,000 unemployed workers. The unemployment rate among the male population was estimated at 10.6 percent and the female population at 16.8 percent. When comparing these figures with the same quarter in 2020-21, there was a 4.6 percent decrease among males and a 7.8 percent reduction among females. 45.7 percent of work was in the informal sector (45.7 percent among males and 45.6 percent among females) with no significant variation compared to the same period in 2020-21. From the percentage of individuals with informal employment, 91.5 percent were self-employed, and 29.4 percent received a salary.
INEC reported that from November 2021 to January 2022, 532,000 persons in the labor force (employed and unemployed) were negatively affected by COVID-19. Of the country’s employed population, 213,000 had a reduction in salary or income associated with suspension or reduction in working hours or had to suspend their own activity or business during the pandemic, which represented 10.1 percent of the employed population, of which 63.5 percent were male, and 36.5 percent were female. Of the total number of unemployed persons, 318,000 were negatively affected by the pandemic. Of those, 48.7 percent were men and 51.3 percent were women. Of the total number of unemployed persons affected, 97.5 percent indicated that they could not find a job due to COVID-19; and 2.5 percent stated that they were fired, suspended, or closed their business or activity.
INEC reported that during the pandemic more formal jobs were preserved and more informal jobs were lost. It is possible that some of the informal businesses that survived the pandemic chose to seek formal work, given increased demand for health insurance. Some of the activities most affected by health restrictions and the consequences of the pandemic (such as tourism, commerce, construction, and entertainment activities) had high demand for workers, including informal workers, before the pandemic.
According to the Central Bank of Costa Rica, formal employment returned to levels registered before the beginning of the pandemic, while as of November 2021, the number of informally employed persons was 11.4 percent lower than in February 2020. The recovery of employment for workers operating in the informal sector and those with medium qualifications has been much slower than that of the most qualified and those who work in the formal sector. Workers in the informal sector were not covered by wage, hour, and occupational health and safety laws and inspections, nor were they enrolled in the public health system.
The Costa Rican labor force has high educational standards. The country boasts an extensive network of publicly funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.
The growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers. The pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand. However, the current finite number of job candidates with these skills limits the ability of foreign and local businesses to expand operations.
The government implemented a controlled entry of foreign migrant workers (Migration Traceability System, SITLAM) through the northern and southern borders. In a joint effort, the Costa Rican Social Security System (CCSS), Ministry of Labor and Social Security (MTSS) and the Costa Rican Coffee Institute implemented a program to enroll coffee workers in the health insurance system while taking into account turnover, migratory conditions, and harvest seasons while protecting the families of the workers.
The government does not keep track of shortages or surpluses of specialized labor skills. Foreign nationals have the same rights, duties, and benefits as local employees. The government is responsible for ensuring that foreign nationals do not displace local employees in employment. Labor law provisions apply equally across the nation, both within and outside free trade zones. The Immigration Law and the Labor Ministry’s regulations establish a mechanism to determine in which cases the national labor force would need protection. The Labor Ministry prepares a list of recommended and not-recommended jobs to be filled by foreign nationals.
There are no restrictions on employers adjusting employment to respond to fluctuating market conditions. The law does not differentiate between layoffs and dismissal without cause. There are concepts established in the law related to unemployment and dismissals such as the mandatory savings plan (Labor Capitalization Fund or Fondo de Capitalizacion Laboral, FCL), as well as the notice of termination of employment (preaviso) and severance pay (cesantia). The FCL, which is funded through employer contributions, functions as an unemployment insurance; the employee can withdraw the savings every five years if the employee has worked without interruption for the same employer. Costa Rican labor law requires that employees released without cause receive full severance pay, which can amount to close to a full year’s pay in some cases. Although there is no insurance for workers laid off for economic reasons, employers may voluntarily establish an unemployment fund.
In response to government-ordered temporary business closures due to the Covid-19 pandemic, in 2020, the Labor Ministry implemented the temporary suspension of employment contracts, a procedure established in the Labor Code, which grants employers the option of stopping the payment of wages temporarily during an emergency. Executive orders (Nos. 42522-MTSS and 42248-MTSS) established the procedures for employers to request the temporary suspension of labor contracts with their employees. Employers requested the suspension of contracts through the Labor Inspectorate of the Labor Ministry. In 2021, the Labor Ministry continued implementing the temporary suspension of employment contracts but only in sectors most adversely affected by the COVID-19 pandemic due to the restrictions and closures imposed by authorities.
The National Assembly approved a law (Law 9832) in 2020 to reduce working hours during the pandemic. Under the law, if income in a company decreases by 20 percent, compared to the income during the same month in 2019 or compared to the income of the previous three months, the employer can reduce the employees’ hours and salary up to 50 percent. If the decrease in income is greater than 60 percent, the reduction in salary can reach 75 percent. Legislators initially authorized this reduction for three months and employers could request extensions for two equal terms (9 months) and then to five terms (15 months) as the emergency continued. In May 2021, the National Assembly approved an extension (Legislative Order No. 9982) in the tourism sector which authorizes a reduction for four equal terms with previous approval from the Labor Ministry.
In 2020, the National Assembly authorized employees, whose labor contracts were terminated or suspended or whose salaries were reduced during the state of emergency declaration, to withdraw their contributions to the FCL plan (Law 9839).
Costa Rican labor law and practice allows some flexibility in alternate schedules; nevertheless, it is based on a 48-hour week made up of eight-hour days. Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Use of temporary or contract workers for jobs that are not temporary in nature to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets. No labor laws are waived to attract or retain investment‒all labor laws apply in all Costa Rican territory, including free trade zones. The government has been actively exploring ways to introduce more flexibility into the labor code to facilitate teleworking and flexible work schedules.
Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization. Unions operate independently of government control and may form federations and confederations and affiliate internationally. Most unions are in the public sector, including in state-run enterprises. Collective bargaining agreements are common in the public sector. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status. Based on 2021 statistics, 15 percent of employees were union members. The Labor Ministry reported that from 2019 to 2021, they approved 27 collective agreements and accompanied 43 negotiation processes and handled 7 conciliation processes of a social economic nature. In 2021, the Ministry reported that collective bargaining agreements covered 10.6 percent of the working population, 50.7 percent within public sector entities and 1.1 percent within the private sector. The Ministry reported that 13,897 workers were covered by “direct agreements” in different sectors (agriculture and manufacturing industry) during 2021.
In the private sector, many Costa Rican workers join “solidarity associations,” through which employers provide easy access to saving plans, low-interest loans, health clinics, recreation centers, and other benefits. A 2011 law solidified that status by giving solidarity associations constitutional recognition comparable to that afforded labor unions. Solidarity associations and labor unions coexist at some workplaces, primarily in the public sector. Business groups claim that worker participation in permanent committees and/or solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, some labor unions allege private businesses use permanent committees and solidarity associations to hinder union organization while permanent workers’ committees displace labor unions on collective bargaining issues in contravention of internationally recognized labor rights.
The Ministry of Labor has a formal dispute-resolution body and will engage in dispute-resolution when necessary; labor disputes may also be resolved through the judicial process. The Ministry of Labor’s regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution (ADR) Law (No. 7727, dated 9 December 1997). The Labor Code and ADR Law establish the following mechanisms: dialogue, negotiation, mediation, conciliation, and arbitration. The Labor Law promotes alternative dispute resolution in judicial, administrative, and private proceedings. The law establishes three specific mechanisms: arbitration to resolve individual or collective labor disputes (including a Labor Ministry’s arbitrator roster list); conciliation in socio-economic collective disputes (introducing private conciliation processes); and arbitration in socio-economic collective disputes (with a neutral arbitrator or a panel of arbitrators issuing a decision). The Labor Ministry also participates as mediator in collective conflicts, facilitating and promoting dialogue among interested parties. The law provides for protection from dismissal for union organizers and members and requires employers found guilty of anti-union discrimination to reinstate workers fired for union activities.
The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals, and ports). Strikes affecting the private sector are rare and do not pose a risk for investment.
Child and adolescent labor is uncommon in Costa Rica, and it occurs mainly in agriculture in the informal sector. In 2020, the government published the results of a child labor risk identification model and a strategy to design preventive measures at local level. In 2021, the government continued a pilot project for the prevention of child labor in two at-risk cantons in the province of Limón. The government also activated the Houses of Joy (“Casas de la Alegría”) during the coffee harvest season 2021-2022. These are daycare centers for children of workers in different coffee regions of the country, mainly in the Brunca, Los Santos, and Western Valley regions.
Chapter 16 of the U.S.-Central American Free Trade Agreement obliges Costa Rica to enforce laws that defend core international labor standards. The government, organized labor, employer organizations, and the International Labor Organization signed a memorandum of understanding to launch a Decent Work Program for the period 2019-2023, which aims to improve labor conditions and facilitate employability for vulnerable groups through government-labor-business tripartite dialogue.
The National Assembly recently approved a public employment reform bill that aims to establish the same salary for equal responsibilities in the public sector, eliminating different wage systems and salary bonus structures, which is projected to reduce the fiscal deficit.The legislation will take effect in March 2023.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$62,158||2020||$61,847||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$26,306||2020||$2,000||BEA data available at https://apps.bea.gov/international/factsheet/|
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$124||2020||$-86||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2020||1.2%||2020||2.9%||UNCTAD data available at|
* Source for Host Country Data: Costa Rican Central Bank. The “FDI Stock” positions detailed here are an accounting expression of the accumulation of FDI through 2020, while the “FDI inflow” statistic given in the first paragraph of the executive summary is the sum of foreign direct investment made in Costa Rica during calendar year 2020, as reported by the Costa Rican Central Bank.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||46,115||100%||Total Outward||3,578||100|
|The Netherlands||1,777||4%||United States||124||4%|
|“0” reflects amounts rounded to +/- USD 500,000.|