Costa Rica: Regional Dynamo

Costa Rica has harnessed “Pura Vida” or pure life to extra conventional industries, comparable to agriculture and tourism, and has been one among Central America’s success tales lately because of an export-driven economic system primarily based on medical know-how and companies.

However GDP progress is projected by the World Financial institution at 3.5% in 2025 and three.6% in 2026, down from 4.3% in 2024 and 5.1% in 2023, as different Central American international locations threaten to overhaul the area’s dynamo.

Add a dip in tourism that value 22,000 jobs, document ranges of violence as a result of elevated narcotrafficking, and an election looming this yr, and Costa Rica would appear to be going through important issues. It will drive the nation to rely extra on financial drivers like its zona francas (free commerce zones) and the med-tech producers that populate them.

Some observers see the previous two years as a hiccup moderately than a turning level, nevertheless.

“I’m very optimistic on a forward-looking foundation,” says Christopher Mejia, rising markets sovereign analyst at T. Rowe Worth. “Costa Rica has made plenty of optimistic adjustments during the last 5 years. They’ve cleaned up their fiscal home, they’ve undergone two Worldwide Financial Fund [IMF] packages, they usually’ve put collectively very sturdy reform packages beneath these packages. They’re now a high-value-add export economic system, they’re very strategically situated, they’ve a extremely educated workforce, they’ve acquired the best enterprise incentives, they usually’ve acquired a powerful relationship with the US.”

Costa Rica’s economic system continues to be dynamic in comparison with its regional friends’, Mejia argues, given the structural adjustments the federal government has made. It is usually a high-income economic system, barely under Panama’s however forward of its different Central American friends, which would wish to develop by a minimum of 6% each year to catch up. GDP per capita is projected at $18,700 to $19,100 for 2025, in accordance with Normal & Poor and IMF projections.

Though it stays an export-intensive economic system, over the previous a number of years Costa Rica has made efforts to maneuver away from conventional agricultural merchandise like bananas and pineapples to med-tech units and non-tourism companies. In keeping with the Costa Rican Overseas Commerce Promotion Company, exports had been set to rise 6% year-on-year in 2025, to $34 billion. Medical units prepared the ground at 44% of the market—a primary—adopted by knowledge-intensive companies at 25% and conventional agricultural exports at 10%.

A part of the shift is all the way down to enhancements in port infrastructure at Puerto Caldera and an APM terminal on the Caribbean aspect. Future funding within the medium to long run might be required to enhance delivery instances to the US and open the Asian market, nevertheless. This would scale back provide chain bottlenecks, assist the economic system department out from tourism-heavy funding on the Caribbean aspect, and entice extra firms to the zona francas.

These tax-free zones supply 100% exemption from revenue tax for eight to 12 years in addition to full VAT exemption on native purchases and imports, in change for foreign-owned companies finding themselves exterior of the higher metropolitan space across the capital of San José and assembly funding, employment, and operational necessities.

Over 600 multinational firms function in one of many zona francas, in accordance with PROCOMER, Costa Rica’s funding and export promotion company, producing catheters, diagnostic tools, cardiovascular units, prosthetics, surgical and different medical provides. These embrace Allergan, AVNA, Cardinal Well being, Hologic and Medtronic.

Different main firms with a presence within the nation embrace Amazon, Intel, Microsoft, Hewlett-Packard, Proctor & Gamble, Boston Scientific, Financial institution of America, and Equifax. US and European firms, exemplified by Financial institution of America and Equifax, are profiting from Costa Rica’s extremely expert labor drive to switch again workplace operations, accounting, and companies there.

Whereas international direct funding dropped within the first half of 2025, this adopted a document $4.3 billion in 2024. Companies situated in zona francas have excelled in attracting FDI, with greater than 70% coming from the US, primarily in well being companies and life sciences. Costa Rica racked up greater than $5 billion in FDI in 2024, making it third globally and the chief in Latin America, in accordance with the Greenfield FDI Efficiency Index.

Exterior Challenges

Costa Rica’s actual challenges are exterior, T. Rowe Worth’s Mejia argues, particularly the present geopolitical local weather, a regional improve of narco-activity, and indicators that the Dominican Republic and Mexico need a piece of the medical system commerce.

Maybe due to its noticeable high-value export portfolio, Costa Rica has been hit with 15% tariffs by the US and has needed to negotiate individually from friends comparable to Ecuador, El Salvador, and Guatemala, which have seen their tariffs lowered.

The bilateral relationship between Costa Rica and the US however stays shut, says monetary analyst Daniel Suchar Zomer, “and that creates alternatives for Costa Rican exporters to barter focused tariff and requirements entry whereas additionally pursuing diversification into Asian markets—semiconductor provide chains, medical exports to East Asia—the place demand for stylish items and companies is rising.”

This might embrace entry to the Asian and Latin American markets and negotiating country-specific offers lower than the 15% tariff that the US has on Costa Rican items. Exporters that may reroute or diversify markets may even discover demand for his or her companies comparable to medical exports to East Asia or getting into the semiconductor provide chain.