The Costa Rican government has taken the shocking step of halting funding for CINDE –the country’s national investment promotion agency – in a move that deliberately signals the government’s growing uneasiness with relying on FDI from the United States to drive economic growth.
The breakup, officially announced on May 3 by Costa Rica’s foreign trade authorities, terminates a trilateral agreement between CINDE, the country’s Ministry of Foreign Trade (Comex) and Procomer, a government organization which promotes Costa Rica exports. CINDE has cultivated, over many years, a sterling reputation as one of world’s highest performing investment agencies.
Without the agreement in place, CINDE will lose 73% of its total budget. These funds (which amount to US$6.3 million, according to the IPA’s own numbers) were provided by both Comex and Procomer. The rest of CINDE’s funds come from contributions made by private enterprises.
While not as big or as popular as Mexico or Brazil, Costa Rica has managed to create a reputation among multinationals as a premium destination for tech, software, HR, accounting, medical and health science-oriented investment. CINDE is credited with doing the hard work that it takes to compel international organizations, including the likes of VMWare, Equifax, Pfizer and so many others, to evaluate establishing operations in the heart of Central America.
“The long-term performance of CINDE is beyond reproach. That’s why the rationale to pull the funding makes little sense for many of us in the Costa Rica’s international business community,” said one source close to the discussions.
CINDE’s responsibilities under the agreement will now fall on Procomer, as explained by Manuel Tovar, Costa Rica’s Foreign Trade Minister. The IPA will keep active as an FDI attractor, but now without direct government support.
Tovar and Pedro Beirute –Procomer’s General Manager– assured in a press conference that the government has the capabilities to carry out CINDE’s duties. The comment was echoed days later by President Rodrigo Chaves, who argued that the State is better equipped to be an investment attraction machine.
“We reviewed the numbers and said to ourselves: ‘Well, look at that.’ Although we give [CINDE] US$4 million a year, which is a lot of money, it has but a single office in New York. Procomer has 27 offices throughout the world; in Shaghai, in Singapore,” Chaves stated to the press.
Although he shared in the optimism, Procomer’s General Manager did recognize that “Procomer is not working at the moment on investment attraction as a specific or fundamental objective in its agenda.”
CINDE confirmed the breakup a day after the announcement was made by Comex, expressing its “concern” over what it will mean for Costa Rica’s FDI attraction capabilities. Its President, Eric Scharf, assured nonetheless that the IPA “will continue to contribute to the country”.
NSAM reached to CINDE for comment. No response has been granted as of the time of this publication.
After the announcement, the IPA has been putting out, in its social media channels, a constant flow of data points and infographics about its work and performance.
Decision is Based on a “New Vision”
Though the breakup was received with shock and sharp criticisms by several public and private actors in Costa Rica, Foreign Minister Tovar assured that the decision was “well thought out”, arguing that none of the industry chambers involved in it voted against the breakup.
The decision has been justified as both a budgetary issue and a change in the country’s priorities when it comes to investment promotion. He claimed that CINDE’s efforts have yielded results, but that those results benefit mostly a few, highly specialized economic sectors, as well as segments of the population that are already wealthy enough.
“This decision responds to a new vision in public policy which aims to generate greater benefits in foreign trade and investment, making sure that employment opportunities and growth are not funneled into fewer hands, fewer sectors, fewer regions, as it happens today,” stated Procomer in a press release.
President Rodrigo Chaves Robles added to that argument days later, claiming that CINDE’s efforts were too focused on attracting investment from the US.
“It [CINDE] has been drawing investment from the same sectors for years, and only from the US,” he stated. “Look here: it’s clear that the world is growing more polarized, and we need to diversify. Our relationship with the US is fabulous, they are our top trading partner; they’ve invested here, and we want them to keep coming. But, how many companies are there in France? President [Emmanuel] Macron himself told me ‘CINDE has yet to come here.’”
There have also been rumblings of the breakup being a political move, an angle that Chaves categorically shut down.
The new FDI policy will focus on servicing rural and coastal communities, giving priority to the agricultural industry and small-scale manufacturing, Minister Tovar explained.
Time to Panic?
Minister Tovar’s call for calm has not been as effective as he might have wished. Several industry chambers and private organizations shared their concern publicly, including AmCham’s Costa Rican chapter and the country’s ITC chamber.
CINDE won’t disappear, but the tremendous budget cut casts a dark cloud over its capability to keep up the quality and reach of operations that it has come to be known for internationally. CINDE was not only an IPA; it was one of the major promoters and managers of synergies between industry and educational institutions, particularly in the tech sector. It also came to be known as a collector and distributor of investment and employment data in the country, a resources that’s highly valued by potential investors eyeing the Nearshore.
We could be staring at a decrease in Costa Rica’s appeal for investors and foreign companies in the IT sector —Paula Brenes, former head of Costa Ricas Tech & Innovation Ministry
Paula Brenes, former head of Costa Rica’s Tech & Innovation Ministry (MICITT), warned in a comment for NSAM that “if the breakup with the government affects CINDE’s capabilities to draw foreign investment, we could be staring at a decrease in Costa Rica’s appeal for investors and foreign companies in the IT sector.”
A Costa Rican tech entrepreneur –who asked to remain anonymous– echoed Brenes’ comment, pointing out that “it [CINDE] will be impacted in the short or mid-term, while they solve their budgetary issues. I don’t think it will disappear outright, but I can see a reduction in its impact and its area of action.”
Regarding Procomer’s capabilities, the question is still in the air, and it will remain spinning there for a while. Its credentials as an export promoter are not in doubt, but market players worry about it being able to fill CINDE’s shoes.
“Procomer does extraordinary work, but its focus is different, geared towards exports promotion,” stated the tech entrepreneur. “Now it has to draw FDI too, with the resources available. In my opinion, we’ll see a gap in knowhow and capabilities, which are very limited in that area. It’s going to be complicated.”
I know that as soon as we have a project for development in Costa Rica, they [CINDE] would be my first phone call —Brett Bayduss, Senior Partner at Site Selection Group
Costa Rica’s reputation is strong enough that companies which are already aware of it won’t move away, commented Brett Bayduss, Senior Partner at Site Selection Group. Nevertheless, he pointed out, investors who were used to dealing with CINDE will have to build a relationship with Procomer, in some cases practically from scratch.
“We [at Site Selection] have those relationships with CINDE, so I know that as soon as we have a project for development in Costa Rica, they would be my first phone call, and I would feel very confident that they would be able to deliver the information that we ask for,” Bayduss commented.
“I think we know enough about Costa Rica that if we think that it’s the right fit for a certain project, we would still be able to find the data we need to support that. But I don’t know how much more challenging it would be to get that information,” he added.
Seen This One Before
The situation echoes Mexico’s shutdown of Promexico, whose responsibilities were transferred to the country’s network of embassies, making the Secretariat of Foreign Relations directly responsible for foreign investment, at least on paper. The move was highly questioned at the time by Mexican entrepreneurs, who doubted the embassies’ capabilities as FDI attraction machines.
Yet, even without Promexico, Mexico has been able to keep FDI flows strong. In 2022, it surpassed the US$35.3 billion mark, achieving a 12% growth year-over-year.
Although the country doesn’t have a dedicated IPA anymore –and even in the face of constant political noise–, investors are still interested due to its perks, including its potential for nearshoring and the boost provided by the USMCA.
Costa Rica could find itself in a similar position. The country has managed to keep its fame as a premium destination for investment in the region; fame that will remain in place at least for a while, whether the IPA role is being played by CINDE, Procomer or somebody else.
The “new vision in public policy” cited by Comex as a reason for the breakup could translate into a recalibration in its priorities for FDI. We could see a scenario in which Procomer focuses mostly in investment that benefits underdeveloped areas directly, favoring agriculture and small-scale manufacturing, leaving the segments of business and tech services relatively unattended.
CINDE could use its expertise and network of contacts to cover those underserved segments, but one has to wonder how it will fare with barely a fourth of its budget. And even if the budgetary issues are solved eventually, that won’t happen overnight. Investment opportunities could be lost, smearing the reputation built by Costa Rica over the decades.